Chateau Ksara

Chateau Ksara, Lebanon’s biggest and oldest winery (it has been making wine in the Bekaa since 1857) boasts a 35% market share, producing nearly two million bottles each year with revenues of around $6.5 million.

Managing director, Charles Ghostine has just returned from Pro Wein, the premiere German wine fair held every year in Düsseldorf. Ksara is an energetic exhibitor on the international stage, regularly attending the major wine fairs in London, Bordeaux, and Verona as well as Düsseldorf. “We need to be there. If we don’t show up it might send the wrong message to the market,” said Ghostine. “We don’t go expecting to take big orders. We go show our face,” he explained.

Much has been said lately about the potential of Lebanese wine: that it can compete with the very best of the New World producers and that it should position itself as a boutique product. While other producers may be tempted to hit the volume market, Ksara will not skimp on the final product. The winery harvests nearly 2000 tons of grapes from its 300 hectares, an average of nearly seven tons of grapes per hectare (Chateau Ksara, the winery’s flagship wine, is made from the oldest vines, which yield just five tons per hectare). “Some wine regions will obtain yields of as much as 14 tons per hectare,” said Ghostine. “We will not do this.” Although Lebanon’s wine sector has enjoyed significant growth in recent years, until the mid-90s it was a market dominated by a triumvirate of Chateaux Musar, Ksara and Kefraya. Since then, old names – Nakad and Tourelles – are mounting a comeback, while a handful of newcomers, notably Massaya, Wardy, and Clos St Thomas, have made their presence felt with exciting and affordable new wines in eye catching bottles. This increased supply and variety coincided nicely with a change in tastes. The Lebanese have been drinking more wine and local consumption is increasing by around 10% each year. For the record, the Lebanese consumed three million bottles in 2003. Of that number, roughly 1.2 million were imported – 89% from France. This mini-revolution forced Ksara to defend its position in the local market. “The challenge for us was to maintain our market share,” said Ghostine. “In the early 90s, we were producing 1.2 million bottles now we are hitting 1.8 million.”

Brand loyalty among local drinkers has Ksara in good stead and, despite increased competition, it has been able to meet the increased demand and can claim a 35% market share. With Kefraya not far behind in second place, many new labels have been forced to penetrate overseas markets. Much of this success lies in the performance of one wine: the Reserve de Couvent, Ksara’s mid-priced red, which is still a massive performer among local drinkers. “In the restaurants, the Reserve is king,” said Ghostine. “It offers the best quality to price ratio. It is the backbone of the company and we are pushing it very hard both here and abroad, where we send 60% of the 530,000 bottles of Reserve we make each year.”

Ksara exports 49% of its wine, mainly to France, which takes around 250,000 bottles. (Lebanon exported 1.8 million bottles in 2003, roughly 30% of total production). In 2003, Ksara appointed Hallgarten, the specialist fine wine company, to be its UK agent and Verbruggen to distribute in Belgium.

Finally, the company has invested $200,000 to enhance its hospitality profile at its Bekaa winery. Ghostine explained that, despite being one of the early advocates of a structured wine tourism program, the Ksara board made a decision not to go for a full-out F&B operation like those at Massaya and Kefraya. “We receive around 40,000 guests a year, who visit our famous caves and tour the winery,” he explained. “Now we will be offering cheeses and other snacks with our wines, but we are first and foremost wine makers.”
 

K-Sun

Fruit juice and fresh-cut produce manufacturer K-Sun is an example of a firm that has restructured production and creation of new market segments. But even with adherence to innovative practices in agro-industry, the company is expecting real profitability out of its $2 million factory only from exports. “The Lebanese market is not big enough for such investments,” said general manager Mazen Kassem. “We couldn’t recoup our investments from the Lebanese market, and never thought we would.” The export revenue should begin to flow this year, as K-Sun recently reached an agreement to deliver packaged fruit juice to France beginning this month. K-Sun first brought their fresh juice to market in late 1996, seeking to dominate the domestic market’s premium segment with 65 juices and a mix of varieties. Turnover of the product line in its first month was precisely $83. A first challenge was changing consumer habits, as people in Lebanon thought fresh juice was something they squeezed at home. “It took time to educate consumers,” said Kassem. The project took off as a sideline of a larger business growing fruits and vegetables, which the Kassem family had been running for some 50 years. When they decided to launch K-Sun, the initial business plan entailed a nationwide retail network of 18 shops in a vertically integrated operation from grower to home consumer. A central aim was to eliminate middlemen from their trade in fruits and vegetables. The value-added products, juice and fresh-cuts, emerged as an afterthought. In terms of product lines, market realities led K-Sun onto a different path of making most their revenue from juices –mostly orange juice and lemonade – and supplying first and foremost hospitality enterprises. At more than $1 million annually, fresh juice accounts for 50% to 55% of K-Sun turnover, according to Kassem, and the firm is the leading supplier to restaurants, hotels and delivery food specialists. A company-owned store in Hamra is the base for K-Sun’s distribution network, which relies on a modest fleet of one truck and several delivery vehicles.

The evolution of K-Sun was not simple, mostly because of shrinking purchase power and growing competition. Some competitors introduced pasteurized juices roughly at the same time as K-Sun, which also had to contend with the increasing domestic manufacture of reconstituted juices as well as juice drinks and watery nectars. One (now defunct) competing product used K-Sun look-alike bottles and although they were trademark protected, seeking legal recourse would have been lengthy and costly. Additional hurdles included inflexible customs practices and nitpicking officials, not to mention the absence of government support. Despite the obstacles, K-Sun in 2001 obtained a new factory and a high-tech machine that allows non-thermal processing of fruit juices at a capacity of 15,000 liters per day. This equipment treats foodstuffs with ultra-high pressure, which is proven to eliminate pathogens and foliage organisms without the side effects of pasteurization. As a result, K-Sun juices increased their guaranteed shelf life from five to 21 days. The company also expanded into the manufacture of fresh-cut foods, marketing popular salads and vegetables in ready-to-eat portions.

Although K-Sun built their factory to European standards and with exports in mind, Kassem said entering Europe “hasn’t been easy.” The firm encountered difficulties ranging from acquiring a distributor to finding transportation. No air carrier offers refrigerated flights from Beirut to Paris, for instance, so K-Sun took to routing their first deliveries to France through Luxembourg. With a foot in the French market, K-Sun hopes for profitable times. At 80,000 liters per month, the target for the first year agreement means a tripling of current production, Kassem said. The company aims to reach further European countries, such as the United Kingdom and Germany. K-Sun is also in the process of implementing distribution of its juices to the Gulf, and the company eyes growth of its fresh-cut lines in the domestic market (including manufacture for private labels) and in exports to regional markets, such as Cyprus and Jordan.

Dairiday

Mohamad Gandour, president of Gandour’s The Dairy, established his company in the mid-nineties when he decided to revive an ancestral farm and make it the cornerstone of a dairy enterprise. He began in 1996 by transforming the farm into a dairy operation and acquiring over 200 high-yield Holstein milk cows. In 1997, Gandour established a modern, two-block long, dairy factory in the industrial area of Kfarchima. Networks for milk collection from the corporate farm and independent subcontractors, and distribution of fresh milk and cheese products were set up. By May 1998, Gandour dairy products – fresh milk, cheeses, and fermented products – poured into the market under the brand name Dairiday.

The company allocated $600,000 over the first two years to develop the Dairiday brand identity. All in all, investments amounted to over $7 million, which the company could finance to less than one third with a government-subsidized loan. The remainder was sourced from private equity and high-interest commercial loans, Gandour told EXECUTIVE.

Since its debut, the Dairiday brand has been fighting battles brought on by recession and insufficient regulations. In the milk market, consumer habits, lack of knowledge and above all, price barriers have kept the share of fresh milk down. “I thought that every family of four would consume at least one liter of milk per day,” Gandour said, “and perhaps they do, but it is powdered milk.” The powdered competition retails at a third to a quarter of the price of fresh milk. With all their production capacities, The Dairy’s fresh milk has thus been forced to compete for a sliver of the market “that is 5% to 8% of total consumption in liquid milk in Lebanon.” In cheeses and fermented products, the company has to hold their ground against unlicensed operators who, said Gandour, have “no overheads, no distribution costs, and no marketing costs.” From 1998, he was involved in persistent appeals to the ministry of economy and trade and its consumer protection unit, to oblige Lebanese producers of LABAN, LABNEH, cheeses and related goods to comply with standards on packaging and food safety. “Nothing has been done,” said the entrepreneur. The problem of unsanitary conditions in predominantly unlicensed bulk production of fermented dairy goods was brought to public attention last year by agricultural minister Ali Hassan Khalil. Instead of helping, the official outrage only pushed Dairiday sales down by 13% to 14% over two months, which forced The Dairy to run TV advertisements, reassuring their customers that their product is trustworthy. In spite of the verbal commotion, the unlicensed operators are populating the market as they did before, maintained Gandour, and enforcement of regulations never happened. The problems, which Gandour shares with his licensed competitors, have one common denominator: consumer education. Campaigns promoting the health benefits of fresh milk and the importance of food quality and food safety are amiss in Lebanon. If licensed milk producers would collaborate in their efforts, they could stage such campaigns to increase awareness. Another option would be public sector participation in such campaigns. However, Gandour is more optimistic about the possibility of achieving the former. Without strong prospects for short-term improvements, The Dairy has turned to a marketing partnership with the region’s largest dairy manufacturer, Saudi-based Almarai. Under their agreement, the Lebanese company has added Almarai UHT milk to its portfolio and will also begin distributing Almarai cheeses. In the longer term, The Dairy aims to also partner in production terms with the Saudi company, for local distribution under their brand.

With an upswing in sales, the struggling dairy company could be amortized within two to three years. But for now, Gandour is looking for viable markets outside Lebanon, with Syria being the only lucrative option. “We hope that one day, Syrian consumers will have access to Lebanese milk.”

Shuman

Horrific stories that often come out about Lebanon’s slaughterhouses do not usually give the meat and poultry industry in Lebanon a good name. Producers often have to work doubly hard convincing consumers their animals are fed healthy food and not just dried up carcasses. So far, three poultry companies have managed to carve their brands in the consumer consciousness: Hawa chicken, Tanmia and Shuman. Forty-nine-year-old Shuman chicken is no newcomer to the poultry market, which has flourished the past decade after the government slapped a near-ban on fresh poultry imports in the mid-1990s to protect the industry. “Poultry prices have been dropping ever since the government imposed the ban,” said Nabil Shuman, who has taken over the business of selling chicken from his deceased father. “This is a perfect study of how a government can protect an industry, that later develops, experiences a price decline and attracts investments.”

Today, Lebanon slaughters about 60 million chickens per year, the bulk of these are raised on farms owned by the three biggest chicken companies. “In the 1950’s, we were producing 20 chickens a day, now we are producing 5,000,” said Shuman. “Back then, there was only one supermarket and only one restaurant was buying packaged fresh chicken.”

Shuman also credits his company with pioneering the packaging of chickens. “We were the first company to process ready-to-cook chicken breasts. In 1995, we were the first to manufacture chicken nuggets and breaded products in Lebanon.”

In order to remain an effective player in the market, Shuman explained their use of a vertical integration strategy. “We control everything from A to Z: we own our farms and slaughterhouses, breed our own chickens, have our own distribution networks and own processing plants for chicken nuggets. This allows us to control quality of the end-product.”

For this reason, Shuman chickens are pricier than their rivals and quite less spread. But the company has been able to compete in the market following the entry of other big companies by maintaining its own niche. “We only have 5% of the $130 million poultry market in Lebanon,” said Shuman. “But we have 75% of the branded chicken in self-service sections in supermarkets.”

Unlike Tanmia and Hawa chicken, Shuman’s operations are not widespread. Tanmia’s processed products and Hawa chicken’s outlets dot nearly every main area in Beirut. “We have managed to remain profitable because we chose to take a niche and develop it,” said Shuman. “In normal periods, people may tend to buy any fresh chicken, but when there is a crisis in the poultry industry they head for brands like ours.”

Despite declining chicken prices, Shuman expects his company to sell 1.6 million chickens in 2004, raking in some $5.5 million in revenue, with sales increasing by 20% a year. The company is maintaining a bullish approach to the poultry industry, mostly because of Lebanon’s flourishing supermarket outlets and the sophistication of the Lebanese consumer’s brand consciousness. “The purchasing power is not going to stay like this and it will improve in three to five years. With the development of the supermarkets, consumer habits will change.”

For now, Shuman chicken will try to reach its sales goals by importing technology, which is needed to cut production costs and help raise capacity. “Production costs in Lebanon are high and the only way to cut them down is to continually upgrade our technology,” said Shuman. “The $150 million in investments that were spent over the past decade in this sector have mainly gone into lowering costs.”
 

Why did the original LibanPost fold at the end of 2001?

The investors were upset at the slowness with which the agreement signed with the ministry of telecommunications was being implemented.

What was the state of the company when you took over?

There wasn’t a clear sense of direction. There wasn’t a clear vision.

What have you done since then?

We have improved quality, separated customer service and sales from distribution, renovated post offices and introduced a wide array of retail products – prepaid phone and internet cards, fuel coupons, newspapers magazines and maps, screensavers, stamps. We have also introduced a number of services, to make people’s lives easier. These include fax and photocopy facilities, as well as passport and residency renewal, military service postponement, and university degree certification services. We are trying to make LibanPost a serious intermediary between citizens and the various government departments, while making money along the way – because we are not a charity. We are a ‘front office’ for the government. Finally, we have invested in our 600 employees and in technology. We have invested about $1 million in computerizing the post offices. And recently, I received a telephone call from Fadi Abboud, head of the Lebanese Industrialists’ Association, asking me what we can do for Lebanon’s industrialists.

How serious are you about quality?

We are very serious about it. We have quality controllers who do nothing else all day long but ensure that the mail is delivered on time and that we don’t have issues with customers. We have a 24-hour National Control Center and a daily 9:30am meeting, during which we deal with any ‘incidents’ over the previous 24 hours. Any necessary amendments are made. We don’t hesitate to take drastic measures against our employees, if necessary.

What are your future plans?

In the near future we will be offering over-the-counter insurance products at our post offices – for cars, personal accident, things that are not complicated to sell and do not require medical exams. We just signed an agreement with the ministry of interior relating to the annual roadworthiness check, the renewal of drivers’ licenses, car registration etc. In addition, we plan to introduce two or three other services which should be announced soon. A few days ago, we established a new department within the company. It is responsible for printing, folding, and inserting into envelopes any publications. These are then immediately distributed. It is part of our plan to offer ‘complete solutions.’ We have reached an agreement with the ministry of telecommunications and the telephone company Ogero, under which we will print and distribute telephone bills. We hope this will prompt other utility companies and financial institutions, including insurance companies, to follow suit.

How much has LibanPost invested in these initiatives?

The printing and distribution initiative alone is worth $1 million. Along with the $1 million for the computerization initiative, that already makes $2 million in a year. That is significant. And it doesn’t include other things like digital map systems, which we are going to invest in. That is another couple of hundred thousand dollars.

What problems do you face?

Firstly, is very difficult to operate in a country that doesn’t have a proper addressing system. Secondly, many buildings do not have separate mailboxes for separate tenants. For LibanPost, this is catastrophic. The time wasted because of this is phenomenal. Mailmen have to knock on doors to deliver letters. Sometimes, it takes them 45 minutes to complete delivery to one building alone. Thirdly, not everyone knows of our services, and even if they do, they have to be induced to try them. We have an issue with the way we are communicating with the public and are in the process of addressing it.We can do better. We are finalizing a marketing and media program worth 2.5% of our projected turnover this year. I would like our media costs to one day reach 3%.

What is your projected turnover?

That’s not public information – several million dollars.

What were revenues for 2003?

They were 15% higher than for 2002, and revenues for 2002 were 12% higher than for 2001. And 2004 is planned to be 16% higher than 2003.

How about profits?

Our plan was to break even in 2004. We almost did that in 2003, so we’re slightly ahead of schedule. We now envisage a profit for 2004 – about 2.5% of revenues.

What influence does the government have?

All pricing is controlled by the government. We have some concerns about this. I understand that given the current economic environment the government wants to keep mail prices as low as possible. But from a private business perspective we don’t share those concerns. Also, LibanPost was supposed to be working in a monopolistic environment. Unfortunately, there are local Lebanese courier companies operating without licenses. They are competing with LibanPost in the profitable areas. It’s unfair.

Is there any theft of the contents of parcels opened by the authorities?

None at all.

Will those in the new Executive MBA program at AUB benefit from their investment? Who are we talking about?

We are talking about executives who hold managerial positions, have people who report to them and have budgets to run, often from tens of millions of dollar to over $100 million. Most executives in the Arab world do not necessarily have business degrees. They are technically qualified in their industries, but does the best engineer have skills in managing human resources? We are the first to know in this country that we have a huge deficiency in Lebanon in the area of human resources management. Most of the HR departments are run by people who are trained to deal with payroll issues, sick leaves, this kind of thing –rather than to manage the human capital resources in the company.

The corporate Middle East is a very peculiar business environment. How will you capture the region’s special characteristics and challenges in the program?

Most Arab companies whether in Lebanon or other countries, are family-based. This is factored into our courses through the cases that we are going to discuss. On one hand we are going to describe current practices, seeking to understand them. Then we aim to show the pros and cons of current business practices and current forms of organizations in the Arab world and try to identify the weaknesses and improve on them.

How fast do you foresee the results of the EMBA program percolating into the regional business culture?

I think of universities as kitchens for new ideas that will not necessarily be applied at the moment but hopefully in the future. Even in the West, where decisions on how to optimize your investment decisions were born, these were not practiced. It took 20 to 25 years of generating graduates at business schools and sending them to the job market so that they would convince their ‘boss with a hat’ of the methods they learned. We think that we will be able to convince the executives in our program to go to their boards of directors and present a case for the value of growth by extending beyond the traditional ways of Arab practices in business management. This is not going to be a push-button thing. Spreading this culture through our executive MBAs and our regular MBAs as well, we hope that in the next 10 or 20 years the culture of business in the area will evolve. Otherwise we will keep stagnant and not go anywhere.

How can you help the person applying for an EMBA convince their boss or board of directors to let him or her join the program and perhaps pay for it?

I stand yet to be corrected here but I doubt that any of the batch of executives already admitted to the program, got any sponsorship from any of their employers. This is really unfortunate. Trying to invest heavily into their people is still strange to the culture of many companies here. I would be happy to see companies pay their employees’ tuition on a loan basis, repayable after graduation, or share in the cost, or paying with the condition that they stay with the employer for a certain number of years after graduation. I haven’t seen that yet and I would like to help developing this.

You are substantially more expensive than other EMBA programs in Lebanon? Does your program quality justify this?

We did not at all look at current prices in other institutions when we priced our program. We didn’t look at this in the way of pricing. We looked at our MBA, how much it costs, and how much additional costs this program involves. We are talking a whole set of arrangements and different expenses, from data base costs to receiving scholars from outside. In fact, we think that this program may not break even in the beginning, and we don’t guarantee that the price will not be higher in the future.

And you want to transfer the good name recognition of AUB and the high image of your traditional MBA to your standing in executive education.

We are adding a new brand to this institution, but we are not branding ourselves against the local education market; we are branding ourselves on the international scene. If you look at EMBAs at the London School of Economics or Columbia Business School, all of the high-quality programs are above $100,000. So if you compare numbers on quality EMBAs, I think ours is at the moment among the cheapest. We priced our program as a good product at an affordable price, and we are trying to penetrate the market of quality EMBAs.

Does that mean that in the long run executives from major industrialized countries will see your EMBA as a viable option?

Given the image of Lebanon as the link between East and West, this program might fly internationally and we hope it does. Many executives in Europe, Japan and North America have business interests in the Arab world and perhaps want to know more about businesses in the Arab world. Perhaps it would appeal to them to acquire an EMBA here, mingle with people, establish contacts, business prospects for the future.

Would this also reflect positively on Lebanon’s role in the region?

Many people say today that Arab countries developed enough and know what to do, so they don’t need Lebanese anymore to link them to the West. On the surface, this is true. But when you go to the heart of things, you will find that in any business in the Gulf, there will be the Lebanese in the hierarchy, just below the Gulf person who is heading the division. There is value for this Lebanese brand.

Do you regard the wave of new universities in Lebanon as a problem?

People talk of turning Lebanon into the educational center of the Arab world. Turning Lebanon into the educational center of the region is one way to come up with a new market for Lebanon and this needs to be worked out. In this context, we don’t see the new universities as a challenge for AUB. We see them as an attraction to bring students to Lebanon. I will be more than happy to see 50 universities in this country, bringing tens of thousands of new students into the country. The School of Business at AUB is strong and wants to do its job well. We want the rest of the country to also do their jobs well and institutions to be qualified to build a reputation for Lebanon as a center for excellence in education.

MORE ABOUT THE NEW MBA PROGRAM

EXECUTIVE talked to Nadia Shuayto, the program’s coordinator, about its goals in building upon business culture in the Middle East

How did you structure the program?

The program uses a theme-based approach. For instance Fundamentals and Analytics is the theme for the first semester. Participants will earn credits but we decided to deliver the content in a modular format. Rather than giving separate courses on financial management or financial accounting, we decided to have two modules within the theme, and called them ‘soft skills’ and ‘hard skills.’

How long is the program?

The participant is expected to finish the entire Executive MBA program within 18 months. Courses will be given every three weeks for three days, and on very rare occasions, four days. Our target is not just the Lebanese executive; it is the executive from any country in the region. Thus we decided to organize our courses for Thursday, Friday and Saturday, because Thursday and Friday mark the weekend in many countries in the region.

What corporate experience is required for the Executive MBA?

A quality program begins with the participants. We are being very selective and strict on admission. You must have a minimum of seven to eight years of management experience to enter the program. Were equally scrupulous in your selection of faculty?

We are also very selective in our faculty about who will be teaching in the program and we will have many guest speakers from the industry who will talk about their experiences. Some of our keynote speakers are world-renowned authors, coming from Ivy League schools.

What do you expect graduates to take home from this program?

We want to train people to focus on the human aspect of management rather than just focusing on the financial bottom line. With our program we are going to create a well-rounded leader that will become a change agent. As change agents, the graduates of our program will go back to their companies and develop their employees as well. A lot of Middle Eastern executives fear delegating, they fear empowerment. We want to take that fear away from them. We don’t just want leadership at the top – we want an environment of leadership throughout the organization. Our focus is really on human development. Once the human develops, the corporation develops.

The Executive MBA program at AUB is available to participants who qualify by their academic and managerial background. Class size is restricted to 24 persons and the courses for the first class started on February 26, 2004. Cost of the 44-credit program is $600 per credit, or approximately $30,000 for tuition, books and materials. English proficiency is a must.

Kassatly

The international ready-to-drink (RTD) alcoholic beverages Bacardi Breezer and Smirnoff Ice, have become a global phenomenon with annual sales of over $1.5 billion. In Lebanon, the multi-flavored alco-pops have carved out a $3 million niche market that is growing by 15%. They are the drink of choice of the lucrative 20-30 year old demographic, who, in the last four years, have embraced them on the wave of beach and club culture, egged on by Lebanon’s modest tourism boom, and aggressive marketing campaigns.

Three years ago Kassatly Chtaura recognized that they may not have the international pizzazz, nor the brand equity of either Smirnoff or Bacardi, but what they did have was the ability to produce their own RTD, Buzz, and compete on price. Three years on, Buzz can lay claim to a 30% share of the local market. It has been a war fought on two fronts – with Bacardi and Smirnoff winning the battle for the pubs and clubs, while Buzz has found willing consumers in supermarkets, where it has been able to undercut its sexier rivals by as much as 40%. “They have so much financial clout in terms of their ability to promote their labels. We cannot realistically compete, but in the shops we can hold our own,” says Akram Kassatly, chairman of Kassatly Chtaura, sitting in his office surrounded by the dozens of bottles that make up the Kassatly Chtaura drinks catalogue – liqueurs, juice, arak and RTDs. Buzz sells 50,000 cases a year, more than enough for Kassatly to justify the $2 million he invested in the bottling machinery needed to manufacture Buzz. “It wasn’t a huge gamble. The plant we bought can also be used to make beer, juice sparkling wine and RTDs,” he says.

However, the multinationals are responding to the impact of locally made products, by cutting their prices by as much 20%. “They can afford to sell at a loss just to get us out of the market,” says Kassatly, who believes that the government is quite happy to see Lebanese industry reduced to its knees, if it means an open market. “The end result will be a bigger burden on the state if these companies go out of business,” he says. “With the costs we have to endure, we are practically competing with multinationals. These guys can spend a million on an advertising campaign without blinking, If we do this, we go out of business.”

Still, attack is the best form of defense. In anticipation of what he hopes will be a bumper summer, Kassatly has now revamped the original Buzz design and is preparing to launch a non-alcoholic RTD. This latest foray into the beverage market is aimed at teetotal customers (including no doubt the many GCC tourists), and even young teenagers, who still want to feel part of Lebanon’s endless party.

Kassatly says his decision to launch the range was a gut instinct on what he perceives the Arab tourist will want, and is based solely on the power of image. What he is essentially selling is a carbonated fruit juice disguised as an alco-pop. “If they can be seen holding a fashionable drink that won’t compromise their beliefs, or get them into trouble, it might just take off,” he says.

His initial run of non-alcoholic RTDs will be 20,000 cases, and despite his confidence in the habits of his target consumers, Kassatly admits he is stepping into the unknown. “We might have sales of $200,000, we might have more. Tourism is a significant contributor to the economy, and the feeling is that we are making a product that that will reflect this growth and encourage consumption within this sector,” he says.

Kassatly has never taken his eye off the export market, where his goods maintain strong brand loyalty among expatriate Lebanese: “We export 15% or our RTDs and 40% of our overall products, especially to countries with a strong Diaspora, such as Africa, Jordan, Sweden and France.” No doubt in response to a wintry local market, Kassatly hopes to increase exports by 50% in the next two years. For the time being he is prepared to soldier on. “All we can do is what we have always done, and that is to innovate within our know-how,” he says.

UNICERAMIC

The latest strategic move in the planning of Chtaura tile manufacturer Uniceramic, is worth more than a precursory glance for industrial Lebanon. The company has placed a bid for leasing manufacturing facilities in Iraq, and according to Uniceramic’s general manager Nabil Ghorra, the company is one of three finalists out of 129 bidders. Uniceramic’s Iraqi gambit would bring three new manufacturing units into the company’s fold, two tile and one sanitary ware factory. If their bid were accepted by the US Coalition Provisional Authority in Baghdad, the Lebanese company, together with joint venture partners, would aim “to invest in very fast expansion in Iraq,” says Ghorra. The three factories are equipped with the latest technology and would be perfectly complimentary to Uniceramic’s existing capacities, he says.

This corporate decision is highly noteworthy, not least because the move entails an investment value of some $10 million over three years. As a shift in strategic planning, it involves icing a $17 million project for building a sanitary ware factory in Syria, in exchange for a much larger entry into the challenging, but highly promising field of manufacturing in Iraq. In the long run, it would also increase pressure within the company to completely refocus production at the Chtaura plant on higher quality tiles.

The move comes on the back of a pivotal year in Uniceramic’s 30-year existence. For 2003, the company could report record sales both domestically and internationally. In terms of volume, the firm recorded a 55% increase in domestic sales last year, compared to 2002. In terms of dollar value, the increase was 37%.

Several factors contributed to making 2003 a record year and quite the opposite of what the firm’s management had thought would be a very difficult year. Anticipating a protracted military conflict in Iraq, Uniceramic had expected this war to cut into Iraqi sales of competing regional tile manufacturers, and saw danger in that these competitors might try to flood the Lebanese market with their surplus stock. In a preemptive move to ward off such competition and counter weakened demand, which they expected because of the economic fallout from the regional situation, Uniceramic’s board of directors at the beginning of 2003 decided to lower prices by 10% and slow production to 40% of capacity, during 10 weeks in the summer. As the year progressed however, the manufacturer found itself in a domestic market where demand for ceramic tiles had increased by a surprising 20% overall. And in the absence of strong price pressure from regional competitors, their tiles were suddenly the market’s best buy. Yet the record year did not pass without a sting. When some cost factors moved against their predictions, the locked-in reduced prices on products meant that the firm wrote a loss for the year. The reduction of output in the summer meant that for the first time in its corporate history, the tile maker could not satisfy demand for some product types. However, what matters above all else for the Uniceramic management, is that the company increased its share in its key domestic market, beyond its wildest dreams. “For us, it was really hard to think that one could gain that much market share,” Ghorra says. They may have been surprised by the size of their success, but Uniceramic has been investing consistently in modernizing and automating their factory over the past six or seven years, improving product quality and design and developing their showrooms. Rather than utilizing aggressive pricing alone, Ghorra could thus plausibly attribute the manufacturer’s domestic sales successes to structural improvements in product policies, brand building and marketing. And even as they are correcting prices upwards for this year, the company has high confidence in being able to consolidate their new strong position in a reinvigorated Lebanese construction market.

For Uniceramic’s international activities, Ghorra is optimistic about expansion in the world’s two largest import markets for ceramic tiles, the US and Germany. Following rewarding forays into smaller European markets such as Norway, the company now sees its opening for supplying premium quality tiles to those demanding Western markets. It is also aiming for a stronger role in the high-end sales of tiles in Arab markets, where a new showroom in Amman has produced encouraging results. As for future steps in the company’s strategy, much depends on Iraq. If the aim to operate the three Iraqi factories comes into fruition, the company would seek to produce all its lower priced tiles there. “It is a tremendous window of opportunity,” says Ghorra. “Iraq is the China of the Middle East.”

For the Chtaura factory, where Uniceramic has a well-established record of asserting job security, even when implementing automation in recent years, this would mean an increased need to emphasize production of high-value added premium tiles, increasing their share of production way beyond the 30% achieved today. “In two to three years, we would like to have only premium production in Lebanon,” Ghorra says. In any case, shareholders in Uniceramic have already agreed upon a $5 million capital increase for corporate expansion. The company also has a positive track record with financiers of previous investments in the Chtaura factory, including the International Finance Corporation. On the basis of a successful deal and the assumption of operations in Iraq, even the sleepy Uniceramic stock on the Beirut Stock Exchange could find new appreciation.

Nobody should think that you can’t teach an old tile maker new tricks.

DEBBAS

Cesar Debbas & Sons have been manufacturing lighting fittings, metallic suspended ceilings and panel boards in Lebanon since 1967. Debbas says it is Lebanon’s biggest such manufacturing company, and is equipped with the most advanced technology. It sells around 150,000 lighting units, and 40,000 square meters of false ceiling a year. It also owns manufacturing companies in Saudi Arabia, Abu Dhabi, and France. In Lebanon, it employs around 85 staff. Debbas exports between 20% and 50% of its products, depending on contracts. The company says its market share lies somewhere between 40% and 60% – most probably above 50% with revenues of some $5 million a year.

In 2000, Debbas experienced its worst-ever year since the bleakest periods of the country’s civil war, and since then things have got only marginally better. Revenues grew by less than 10% in 2003 over 2002 and were still 30% lower than in 1997 – Debbas’ best-ever year. Production costs continue to constitute close to 100% of revenues.

“We are running at 50% to 60% of capacity,” laments Debbas’ general manager, Samir Tabbal. “We would have to go above 70% to 75% of capacity to start making real profit.”

Debbas’ woes have been aggravated by the diminutive size of Lebanon’s industrial market, as well as inordinately high manufacturing costs, says Tabbal. “Our costs are increasing day by day. There are a lot of hidden costs and inefficiencies in the Lebanese system. For instance, sending a container from here to the port and putting it on a ship costs twice as much as shipping it from Beirut to anywhere in Europe,” he says. The high cost of electricity for manufacturers in Lebanon only adds to the problem.

Also of concern to industrialists is the general inefficiency of the Lebanese worker. This phenomenon stems from a lack of an industrial tradition and a sense of responsibility or seriousness, but is ultimately a consequence of the low salaries they receive. “At our plant in France, the worker generates twice the turnover he generates here, with the same technology,” says Tabbal.

If Lebanon’s industrial sector is to be kick started, markets must be identified through a joint effort on the part of industrialists. It is not enough though, to simply pen inter-governmental agreements – the accords must actually be implemented. One such agreement between Lebanon and Egypt has been respected only on the Lebanese side, says Tabbal. In Egypt, shipments are held up in ports and payment is delayed. In addition, Lebanese industrial companies must no longer be excluded from profitable projects in Lebanon, simply because they are not foreign, even when they are better suited to the task than the foreign companies that are selected. “To not accept us just because we are Lebanese is unacceptable,” Tabbal says. Further costs must also be reduced, Tabbal says. This, he suggests, is the responsibility of the government and the chamber of commerce. “But it’s extremely complicated. The system is so unresponsive and inflexible. The public sector is working at between 20% and 50% [of] efficiency,” he adds.

He believes worker efficiency will only be increased if Lebanese labor laws are overhauled. “If we change the labor rules, we will be able to force the worker to do what is required – while respecting his rights,” says Tabbal. “Most workers in Lebanon are underpaid. Here, you cannot force a worker to work overtime.” Tabbal nonetheless says that he doesn’t think labor law reform will happen any time soon: “I don’t think the industrialists are aware of its importance, and I don’t think members of parliament consider this issue a top priority.”

In the absence of any impetus for official change, Debbas is holding seminars for its workers during which the importance of worker responsibility and productivity is explained. Debbas’ overall current strategy – given Lebanon’s gloomy economic climate and the industrial sector’s panoply of woes – is to focus on ‘high added value’ products. Only with such products does the company feel it can compete with its European competitors.

At the lower end, “no one can beat the Chinese,” says Tabbal. “That’s why we try to avoid all competition with Chinese products and focus on the medium to high-end products where the competitors are European.”

It is by concentrating on the high-end, in particular on technical research, that Lebanese industry can carve a niche for itself in the global industrial order. “Maybe we cannot beat the Europeans or the Americans or the Japanese technologically on a systematic basis, but we can achieve breakthroughs where we have a product that is equal to, or even a little bit better than its European or American equivalent. We have to exploit this niche. This is where we can be competitive – not in large-scale production, not in standardized items, not in items manufactured by the Chinese or the Koreans,” says Tabbal.

SIOM

Formed in 1967, SIOM produces high-quality silverware for small, niche outlets. Started as a family business, it has since grown to rank, according to managing partner, Antoine Baroud: “among the top five high-end silverware producers in the world.”

The company employs about 70 staff, and has five outlets in Lebanon with annual revenues of $10 million. It produces about 3,000 different silverware items. “We have one of the widest ranges of silverware in the industry,” Baroud says. SIOM exports over 80% of its products, of which roughly 30% go to North America, about 30% to Europe, 10% to Africa, and the remaining 30% to the rest of the Arab world. “The local market, of which we have a 65% to 70% share, is small and shrinking,” admits Baroud. This doesn’t help Lebanon’s struggling industrial sector. According to Baroud, if the sector is to remain efficient, competitive and able to survive – Lebanese industries need to team up with European companies, so they are not left behind in the global age. In this way, SIOM is attempting to stay ahead of the game in such difficult times, by forming strategic alliances with European companies. In doing so, SIOM feels it will more effectively secure the foreign markets it needs to survive. “You cannot survive as an industrial base if your market is Lebanon,” Baroud says.

Growth over the next five, six or seven years can only be accomplished if the government imposes restrictions on “dumping,” reduces costs related to communication, electricity, raw materials and import duties, and establishes more incentives for producers. “Here in Lebanon we don’t have a long-term survival vision for the industrial sector,” he says, adding that for Lebanon’s industrialists, raw material costs run 20% higher than in Europe. “The cost of communication is also prohibitive. It is among the highest in the world, as is the cost of electricity.”

The SIOM manager argued that the government should develop tax incentives to help producers. “This is done all over the industrialized world. Anytime you export, they reduce your taxes and give you a 10% tax incentive. You can deduct these 10% from the cost of shipping,” he says. Overall, he explains that a tax break for exports could translate into a 15% reduction of costs. The funds freed up could then be used to improve productivity. “Production goes up. Sales go up. You expand your production facilities. You employ more people. This is much healthier,” he said. The government could also help increase Lebanon’s notoriously low worker productivity by not taxing salary bonuses for strong worker performance, Baroud says: “In Sweden, you can pay workers an additional 50% of their salaries as an incentive. So if a worker makes $1,000, you can pay him a $500 incentive without being taxed. In Lebanon, incentives are taxed. This is terrible. It means workers don’t care, because they don’t get any benefits if they are more productive.” Low-interest loans would also be beneficial, says Baroud. All these measures would allow Lebanese industry to be more competitive within the foreign market, while bolstering the growth of the sector domestically, he believes.

As of yet, these incentives have not yet been introduced, “because we don’t have an efficient government. If we had an efficient government with a long-term vision, things would be much easier,” says Baroud. The country is in need of across-the-board reform, to help revive the economic sector as a whole – which would in turn bolster the industrial sector. “We need labor reform, social security reform, health reform and tax reform,” he says.

Up-and-coming film director and the winner of seven Phénix awards for work in advertising, talks to EXECUTIVE about creative freedom and her take on the industry

Has the phone stopped ringing since the awards?

No it hasn’t, but not in the way you think. It’s not as if they are all suddenly scrambling to hire me. All the agencies know me. I’ve been doing this for years. I’m not a new talent who has burst upon the scene, although I have had offers from abroad, France, Dubai, Italy and Egypt.

Surely your fees will go up?

Maybe they should but I am not a very good businesswoman. At the moment I’m having fun. Making ads is not my life and so maybe that is why I am not so focused on the monetary side of things.

But how much do you charge?

My fee is $3,000 per day. An advertisement can take two weeks with one or two days of shooting.

What was your first break?

It was an ad for Banque Audi in 2001, for H&C Leo Burnett. The one with the teacher in the classroom. I liked it very much, it was realistic (and) popular.

Are you targeting retail customers and what are your expectations for 2004?

We are aiming first at small and medium enterprises. We need to develop our network to at least 20 branches. I expect this year to be very hard. What you have seen here has been achieved in only six months. I spent 16 hours each day in the office. Sometimes I sleep there, to see my aims accomplished.

Do you look for realism?

We live in a society where there are so many taboos, so many things we can’t talk about. As a director, the things we cannot do – certain expressions and behavior that we can’t show on TV, limit me. In advertising you need to show a perfect world that does not exist and this is where I think advertising is fake. People are not stupid, they know when they can’t identify with an ad because it’s too good to be true, and they just don’t believe it.

What do you think of the quality of creative talent in the country?

I think being in an Arab country we’re not bold enough with our ideas, because we think that we’re going to be judged. There are too many boundaries and too many limits. The problem is not with the level of creativity that we have. I think we have a lot of talent and people who are really very creative. What we lack, I think, is courage. We think that if an idea is too bold it’s going to be rejected or it’s not going to sell. We’re afraid of how people will perceive things and consequently we’re still hiding behind easy things.

Do you find that you have to stifle your creative urges to please the client?

I’m very fortunate that this has never happened to me. I often change a lot of things on the shoot and storyboard, but I do this with the client and their message in mind. At the end of the day, you are doing a commercial, you are only the director, and this is someone else’s vision. I still introduce new things; I don’t just want to execute someone else’s idea. But I try to introduce my way of thinking in a way that the client will accept.

Do we spend enough on ads? I try to adapt whatever idea I have to the limitations without really knowing what the actual budget is. Of course, if we had more money we would be able to get equipment all the time, and could do bigger things. But, I’m more interested in concepts rather than huge productions. You are self-employed. How often then do you work?

I think two or three projects a month are enough for me because I can’t do more than that, even if the money isn’t great. Otherwise, you will not be able to give each project the time it needs and it will affect the quality of your work.

You also direct music videos. How did you get involved in this?

It was a coincidence. A friend of mine was a producer and she introduced me to singer Pascale Mashaalani. At first I didn’t think I’d be interested in shooting music videos, especially since I didn’t really like the formulaic stuff at the time. You know, the singer singing and dancing with a bunch of girls dancing behind him. But then I thought, why not? Maybe I can change things.

We also hear that you are working on a film. When will it be released?

By next year I think. I really can’t talk about it yet, but this is the next step in my career. I feel the urge to move on, to tell a story, to talk about my country, my people and I think a film is the only way I’m going to be able to say these things.

Albert Nasr heads the center for economic research at the Federation of the Chambers of Commerce in Lebanon, a key institution charged with collecting data and conducting studies of benefit to Lebanese industry. He discussed the role of the center with Executive, and issues of importance in the development of industrial exports.

On the Center of Economic Research

The Center of Economic Research at the Federation of the Chambers of Commerce is designed to supply the federation with support for its duties with regard to business and economic policies and regulations that the government is or isn’t taking. Our main aim is to be advisors to the government insofar as business legislation in general is concerned, in order to be able to protect the interests of the private sector. The bulk of our work is the preparation of position papers.

On the numbers of Lebanese industry

When we speak about Lebanese industry, we are not talking about 22,000 industrial units. The Association of Lebanese Industrialists has a constituency of about 2,000 registered industrial companies. The Federation of the Chambers of Commerce has a constituency of about 7,000 industrial companies. As for the 15,000 remaining firms that make up the number of over 22,000 industrial units reported in the surveys of the ministry of industry, the question here is over the definition of manufacturing. By one definition, a bakery is an industrial unit because they use machinery and transform raw materials into a product. But we in Lebanon are not used to considering bakeries as manufacturing entities. It is a matter of definition. Once we adopt a new definition, we will stick by it.

On industrial production and its share of GDP

Industrial production has grown in Lebanon over the past few years but in relative terms, other sectors have grown by larger proportions. Therefore I would not consider it a problem that the industrial share in GDP has gone down slightly, to about 17%. For one thing, you have to set a question mark behind the reliability of the GDP estimates. If you do not know the size of your pie, you cannot exactly know the size of your slice, that purports to be 20%. Another problem in industry is parallel production. This does not get tallied in any survey. There is a large amount of parallel production from enterprises, producing not only for the local market, but also for exports. These are enterprises that are not officially recognized because they have not registered, mostly due to some outdated administrative requirement that prevents them from registering. It is as if they are non-existent.

On export development and statistics

The export data does show an overall increase, but we deplore the fact that data gathered at customs sometimes includes re-exports. There is a special category for re-exports in the data sheets. But a product that enters Lebanon with its customs duties paid, that is then re-exported would enter the statistics under exports. It is not sufficient to have a single criterion of whether customs duties have been paid, to distinguish between exports and re-exports. A product may have paid customs duties but still be re-exported. An example is, if I were to import a Mercedes from Germany and pay customs duties on it, this car would enter the statistics under Lebanese exports – if I sell it to someone in the region without seeking reimbursement for my earlier import duties. This is an aberration, because exports ought to reflect our capacity to produce and export – rather than our capacity to import and re-export. Importing and re-exporting is a major activity, and we excel in it. This does indicate that we still have a role to play in triangular trade and that our regional status allows us to do this. But it doesn’t say anything about our manufacturing capacity. We need exports to reflect our manufacturing capacity. The only way to solve this issue is in my opinion to have a certificate of origin accompany all exports, regardless of whether the country of destination requires the certificate or not. The way things are now, exports do not get accompanied by a certificate of origin where a destination country does not require that form.

On the Euro-Mediterranean Agreement

With regard to Europe, exporters have to complete the EUR-1 form, which can basically be described as a certificate of origin. Our export data to the EU is reliable. The EU agreement opens up new markets to industrial products, without customs duties. As you know, an earlier agreement from 1979 had nearly the same clauses. I fail to see how we would benefit just on that point. However, the Euro-Med agreement has been launched within a larger framework, and we are going to benefit from that larger framework. Previously we were on our own. Now, support programs from the EU are designed to make us benefit more from this openness of the EU markets.
 

How do the Lebanese print media survive?

The word survive is very accurate. Before the war, the Lebanese media was flourished in terms of sales and advertising revenues. Unfortunately, during the war we had to spend all our reserves and now we are surviving. The print media market is depressed not just in Lebanon but worldwide has fallen by something like 25% to 30%, the broadsheet media and the dailies, that is. But because of the political and economic situation in Lebanon and the region, the advertising market has dropped – by something like 35% to 40% for television and 25% for the print media. We face a major problem with all our budgets, short-term, mid-term, and long-term. At the end of 2003, we had lost something like $1.5 million in advertising revenues. That’s a big amount in the print media.

How do you cover your losses?

Our first step, years ago, was to increase the price of the newspaper, from LL1,000 to LL2,000. Then, we increased the capital of the company that publishes An Nahar. We knocked on the door of people who were interested. We integrated them into our family. And of course, in buying the shares, they paid a different price than the normal price. We’ve been able to bring in something like $10 million, just to cover all the losses of the war, to ‘clean’ everything, and to prepare the budget for the next six years.

Has your dependence on investors interfered with the paper’s independence?

In our case, no, because in the charter of the company it is written very clearly that the policy of the paper is decided by the journalists and the Tueni family – because it’s a family business – based on the mission set out in 1948 by my grandfather, Gebran Tueni, concerning the role of An Nahar, the defense of press freedom, and the defense of the integrity of Lebanon. Anyone who buys shares in An Nahar must agree to this.

Is there an advertising monopoly?

I don’t oblige advertisers to advertise in An Nahar. And our prices are high. There is no monopoly of advertising. People can compare and choose.

Why has Prime Minister Rafik Hariri relinquished his 34.5% stake in An Nahar?

I don’t know but I’m happy. He has his own reasons. I had mine for buying back the shares. A lot of people told me I was stupid, but I said: No, no, no, when you want to pay for your freedom, it costs you a lot. I don’t think he was very happy to give them up. I was very happy, but you should know that the price was very high. I can’t tell you how high. But it was a very high price, a really high price. He did good business. But I think politically it was good for An Nahar. A long time ago, I asked him to sell me back the shares, but he didn’t want to at the time. Now I think he feels that the policy of An Nahar for the time being is very independent and maybe he thought that he cannot exert pressure to change that policy. Maybe he thought that it was too much for him to support.

Is there any truth to the suggestion that he relinquished the shares under pressure, indirect or otherwise, from Syria because An Nahar espouses an anti-Syria editorial line?

That is pure fantasy. That would mean that today, I can thank the people I attack in my newspaper for exerting pressure on someone to sell me shares, so that am now more independent. It was a very positive point for the readers also who wrote to congratulate me. Now I’m going to sell shares with the new philosophy that no one person can own more than 30% of An Nahar.

Why was it so important to you to get Hariri’s shares back?

It is very important for a journalist to feel that they are completely independent, that they are not dependent on the money of someone, that no one can say to them: I am a partner, especially when your partner is not always on the same political line.

Did Hariri ever try to exert pressure?

Frankly, yes and no. The relationship was comfortable, though. He endured much more from me than I endured from him, because he knew that he couldn’t exert pressure.

Does Antoine Choueiri have an unfair grip on media advertising?

How? Ok, he represents An Nahar, L’Orient Le Jour, As Safir, but I chose him, he didn’t choose me. Nobody obliged me to go to Choeuiri. I went to Choueiri because I think he is doing very good business. It’s a business contract between him and me. I chose him to manage my ads because I don’t want to create an advertising department in my newspaper. If someone has a newspaper or television station and cannot attract advertising, that’s not my fault. Let him improve his product, convince people that he is number one. Either we are in a free economic system, a free market, or not. This is not dumping. Before [we dealt with] Choueiri, we used to have our own in-house ad department, and it didn’t work. We had the problem then of going out into the market to collect payment. We need a cash flow.

Are the orders of the press and of journalists doing their job as they should?

They are doing the minimum and the minimum is never enough. In this business it’s never enough. With respect to major problems regarding press freedom, they are doing their job. We were able, through the Orders, to get the press law amended. Now, Lebanon’s press law – and I am against any press law – is a good press law. The government can no longer send someone to prison as they do with the audiovisual law, which is a very bad law. But none of the TV owners has presented an amendment of this stupid law, which allows the government to close down TV stations.

How did you feel about the arrest of New TV owner Tahseen Khayyat?

I’m against the arrest of any journalist, of any owner of a TV station or newspaper. I think the TV law in Lebanon is a very bad law. I can tomorrow morning say you are an Israeli agent and put you in jail for 24 hours.

So Tahseen Khayyat’s arrest constituted harassment?

I think it was a form of harassment.

Is this good for Lebanon’s image?

It is very bad for Lebanon’s image, for people to see, as well, that MTV is still closed because our government, our president, was upset with MTV’s policy. The government is trying to bring us back to the Middle Ages. It affects the credibility of the government, of the president, of the prime minister, of the general assembly.

Why is this happening?

Because we don’t have politicians in Lebanon. This is not an independent state. These people have been designated to do a certain job, by the Syrians.

What is your reaction to Walid bin Talal’s purchase of a 49% stake in LBC International?

It’s good. It’s good to see that Lebanese television can attract the interest of foreign investors. If it was a bad TV station, bin Talal would not have invested in it. It’s good for the sector, of course, good for the brand name of Lebanon, good for the whole industry.

What is your evaluation of Walid bin Talal’s newly-formed 24-hour Rotana music channel?

It’s good because I think that Walid bin Talal will be able to help a lot of Arab artists, who do not have the money to produce clips. I hope that we will have real artists and not popcorn artists and video-clip artists.

Is it fair to say that the port has been performing reasonably well in 2003?

Yes. Beirut Port has been performing well with regards to imports and total revenues, which increased from $71 million in 2002 to $75 million last year.

A much talked-about issue is the project of putting the port’s container terminal into business. Is the tender for finding an operator progressing?

It is ready. We have completed the tender documents, and they are now with the minister for final approval.

How long until an operator would be able to come in?

In the tender documents, we specified one-and-a-half months to receive responses from interested operators, but we think that we should extend that to perhaps two months. For the phase from awarding the contract, we have scheduled three to four months for the operator to mobilize and start operations. In total, we are talking about half a year.

For what duration will the contract be awarded?

It would be for 10 years, with a possible five-year extension.

A second big issue regarding the container terminal is necessary equipment, which you ordered from China. Are these gantry cranes ready for delivery?

Delivery of all the equipment we bought has already begun. I think the gantry cranes are on a boat and just left China. They require two-and-a-half months at sea because they have to go all the way around Africa. Then they require another two-and-a-half to three months of erection and testing, which, like the operator tender, brings us to the middle of the year.

Did you request a delay of delivery?

There was a delay by two months. Delivery was originally scheduled for end of March. However, we did not actually delay delivery. We pinpointed some issues in a punch list for modifications and we requested the manufacturer to change most of them in China.

Does this delivery provide all the equipment needed for the terminal?

Ideally, we should have four gantry cranes and not three, which means that ideally we should have eight Rubber-Tyred Gantry cranes [RTG] and not six. We opted to buy the strict minimum as an initial step and allow ourselves to buy more when need arises. In our contract, we have an option to buy one more fixed gantry crane and two more RTGs.

Steel prices have gone up. Could that alter prices under the contract option?

The option does not allow for a price hike due to steel price fluctuation. The only price hike is on the euro side. When we signed the option, 25% are to be rescheduled taking into regard euro appreciation.

Considering the total cost of $27 million for the equipment under delivery, you got a good deal?

We got an excellent deal.

As far as construction of the container terminal, is it correct that the total capital investment amounted to $200 million?

It was less than that and it was more than just the container terminal. The investment was closer to $180 million and it included rehabilitation of some of the old parts of the port.

Are the $27 million for the new cranes included in the $180 million or on top of that?

I believe, on top.

Did it incur specific costs for the terminal not to be operational for a period of several years?

Major cost would have been interest expenses, but the port self-financed this project and basically there were no interest-bearing loans involved. We have some maintenance costs, but those are peanuts.

But how would you assess the cost of lost opportunity from the delay?

I believe the cost of opportunity loss is in the extra services that we could have offered, mostly in transshipment, and in the quality of the service that we could have achieved. What the dollar figure for that is, who knows?

Do you consider attracting large carriers for transshipment to Beirut as a realistic vision?

I have been talking a lot with carriers, and the vision varies. There are those who think that it is absolutely impossible to have transshipment here, and then it ranges all the way to those who think that carriers will be lining up to transship out of Beirut. I think if we can sell that product at a good price we will have some transshipment but I don’t believe that we should aim at becoming a transshipment hub the way Dubai or some other ports are. Further expansion of Beirut Port would be very expensive and I do not believe that transshipment revenue would be able to cover such expenses.

Did the delay harm the concept of becoming a transshipment hub?

Today, we have very little, not to say no, transshipment cargo. The studies we have undertaken show that transshipment starts very slowly and tends to increase with time. So, a three year delay is costing some money, but not a lot.

Can you confirm that freight forwarders will be able to establish operations in the Port’s free zone?

Yes, we have been working very closely with customs on that issue and we just modified the rules for the free zone in order to allow logistics companies to operate inside the free zone. This is especially for re-packing, handling cargo for third parties, and to undertake stock control for major companies, in order to make Beirut a center of distribution for the entire Middle East area. This is much more interesting than transshipment alone.

Last month, the port saw disputes and compensation demands over termination of stevedore contracts with the equipment contractors that have been handling cargo at the port. Would you be able to comment on the validity of their demands?

While I understand their demands and might be sympathetic to some of them, legally speaking, I cannot resolve them from where I stand.

Could you give an estimate on the value of their equipment and what amounts these companies might have invested in the past five years?

Since we are not legally bound or allowed to provide any compensation, we didn’t look into this matter. Just as everyone, I have heard of astronomical amounts of money that are supposedly being demanded. I can only say that I think the numbers I heard are far exaggerated.

The latest mall to emerge on the Beirut scene is V5, to be constructed in Verdun and completed in early 2007. The joint venture between United Real Estate Company of Kuwait and Horizon Development Company of Lebanon will cost about $180 million and consist of a total built-up area (BUA) of approximately 148,000 m2 on an 18,000m2 plot of land. As well as an international department store, retail outlets, and a supermarket, other features will include various eateries, a cinema complex, a parking lot for 2,000 cars and furnished apartments with an estimated BUA of 7,600 m2. Future hopes for the center are already optimistic: total retail sales are expected to reach around $200 million by 2010. EXECUTIVE spoke to Afeef Makkawi, Horizon