The International Monetary Fund (IMF) has opened its regional office in Beirut tasked with helping Middle East countries, including Afghanistan, upgrade their economic, monetary and fiscal policies. The Middle East Technical Assistance Centre (METAC) will initially provide Afghanistan, Egypt, Iraq, Jordan, Lebanon, Libya, the Palestinian territories, Sudan, Syria and Yemen with technical assistance in the domains of central banking (banking supervision, structuring, payment systems, resources management and monetary operations) as well as public expenditure, revenue and tax management.
METAC, which will employ between 10 and 12 staff, is the fifth regional IMF office of its kind. Others already exist for East and West Africa, the Caribbean, and the Pacific. Initially, the emphasis of this office was to be focused on post-conflict countries such as Iraq, Afghanistan, the Palestinian territories, and Sudan. But its scope has since been broadened.
Significantly, the inauguration coincided with a warning in Beirut by visiting IMF managing director Rodrigo de Rato that Lebanon is still economically vulnerable (primarily because of its massive public debt) and he urged the government to enact long overdue reforms. METAC will be offering assistance. But observers caution that in the absence of political will on the part of the Government this assistance will be worthless.
“We can design a program,” said METAC Coordinator Sami Geadah, “but if there’s no political will it will lead to nothing. Why establish the office?”
“I am afraid that in the absence of a local Government policy, this office will play a substitute role,” said economist Kamal Hamdan. “The pre-requisite for its success is a Government predisposition to the implementation of big reforms.”
Asked if that predisposition existed in Lebanon, he responded: “I don’t think so.”
The choice, he added, is stark: “Either they go for reform, or we will continue approaching a catastrophe.”
Vinifest
Last month saw Vinifest, Lebanon’s first wine festival, held at the marina in the St Georges bay. The four day event, which included live music, brought together almost all of Lebanon’s wine producers (the only absentees being Massaya and Heritage), many of whom were initially skeptical of the concept. “We didn’t think that many people would be prepared to pay the $10 entry,” said Natalie Touma of Clos St Thomas. “Happily, I was proved wrong. We were packed every night. Fadi Gerges of Clos de Cana, who brought along a cart full of grapes and three young ladies to tread them, was also encouraged by the reaction of the public. “We did very well. It was very exciting. People tasted my wines and then called over to their friends to come and try it. I even took orders.”
The festival is a much-needed boost for Lebanon’s $27 million wine sector. Filled with promise only a few years ago, it has seen its wine tourism initiative sink without a trace and the prestigious OIV congress, initially earmarked for Beirut in 2005, cancelled. Contributing to the sector’s stuttering progress is apparent never ending delay in the establishment of a national wine institute, which is essential for the regulation of sector that can be prone to abuse.
Overall, however, the performance graph is nudging upwards. Lebanese wines are winning more and more plaudits abroad and Ramzi Ghosn of Massaya, which was not present at Vinifest, believes the industry should have more vision to capitalize on these successes. “As a wine party, I hear it [Vinifest] was a success, but we should be looking to hold bigger, more adventurous festivals to attract the international buyers and high-profile wine writers. Then we can say we have a wine festival.”
Daily Star heading for Dubai
The Daily Star, Lebanon’s only English language paper, is planning a move to Dubai Media City as early as January 2005. According to the newspaper’s publisher, Jamil Mroueh, the move is designed to improve both regional coverage and sales. The decision to move was also influenced by the mouth-watering tax advantages and the superior communication infrastructure the Emirate can offer.
“It’s not so much a move to Dubai,” Mroueh said, “as an expansion into the Gulf. The Lebanon [news] desk and its sales department will remain in Beirut. In fact, the reader should not even notice that we have moved, apart from the fact that the regional coverage will much better.”
In recent months, Mroueh has inked deals to print and distribute The Daily Star with The International Herald Tribune in six Gulf States, including Dubai, Kuwait and Qatar and the paper is already distributed in Syria, Jordan and Egypt, indicating that the Daily Star’s dream of becoming the region’s leading English language paper is finally becoming reality.
“In terms of sales,” Mroueh explained, “each of the six Gulf markets alone is bigger than Lebanon, as each has a much bigger expatriate and business community. From there, we will improve our coverage of Saudi Arabia. So, both in terms of coverage and sales it just doesn’t make sense to remain in Beirut.”
Following the merger with the International Herald Tribune, The Daily Star experienced considerable expansion and hoped to cover the Middle East from Beirut. Over the last few months however, up to 30 journalists and other staff have been laid off. This, according to Mroueh, was solely related to “the change of strategy,” and they will be eventually be replaced by locally hired staff in Dubai and the rest of the Gulf.
Spirits
It takes optimism to open an ad agency in today’s depressed advertising market. Hani Haddad, manager of the newly set up Spirits agency, has plenty. “I have 17 years experience in advertising in Lebanon. I know exactly what the market needs,” he declared. “We have a totally new perception, and big aims. We’re going to tackle matters completely differently,” he declared.
According to Haddad, there is a niche in Lebanon’s advertising market for a firm that offers only high-quality, top-level services to demanding clients; something akin to a private bank in the finance world.
“For the moment, ad agencies don’t provide this in Lebanon,” he observed. “Clients are hassled with very bad quality services. They have to deal with a number of different people at agencies, and get confused. You can’t find, anywhere, good handling of accounts. Our agency, on the other hand, will have no junior account managers. Clients will be handled by one person and everyone will have an international background.”
Haddad has spared no cost packaging his agency in an air of exclusivity – he is renting expensive high-tech offices in downtown Beirut and has spent big bucks acquiring the right staff. “It was a big investment,” said Haddad, who spent $200,000 setting up the agency. “But since we’re honest and ambitious, we can go a long way.”
So far, the company counts 10 employees and 12 existing clients spanning the fast-moving consumer goods, banking, insurance and services.
Corruption
Lebanon has dropped 19 places on a list of 146 countries ranked according to perceptions of corruption by Transparency International, an international non-governmental organization devoted to combating corruption. Lebanon’s separately-listed corruption index score also dropped, from 3.0 to 2.7 on a scale of 0 to 10, with 10 indicating no corruption. Lebanon’s rank of 97 ties it with Algeria, Macedonia, Nicaragua, Serbia and Montenegro. Lebanon was first listed in 2003; this year, a further 13 countries were added to the list.
“These results are quite dramatic,” warned Transparency International Regional Executive Director Charles Adwan. “In the past year, we have moved from one corruption scandal to another, with no serious way of legally dealing with them. There is no faith in a judiciary that should be the main safety net against corruption, but is in fact politicized.”
“Everyone knows that certain ministers and parliamentarians are corrupt, but nothing is done,” he added. The problem is aggravated, observers note, by the fact that Lebanon’s government and politicians talk publicly about cracking down on corruption, raising expectations which are then dashed. “When you disappoint expectations, the perception of corruption is heightened,” explained Adwan.
Economists warn that the perception of corruption in Lebanon is creating a barrier to investment. “Investment is far below its potential. Most investors are Lebanese expatriates and other Arabs. They are investing for emotional, not economic, reasons,” stated Adwan. “Many Western investors initially interested in Lebanon change their minds after being extorted by local politicians.”
Observers say they expect Lebanon’s corruption rating to drop further unless a number of practical steps are taken immediately. All agree that laws covering access to information and conflicts of interest should be passed as soon as possible. Politicians must be freely elected so that they can be held accountable by the electorate, while the independence and integrity of the judiciary must be strengthened. Lastly, the public sector must be seen to shed inefficient and “dead wood” employees.
Electricity
Electricity consumers are still seething over recent power outages – the latest manifestation of Lebanon’s ongoing electricity crisis at Electrite Du Liban (EDL), which is being held responsible for up to 30% of Lebanon’s public debt. According to Mahmoud Baroud of the ministry of energy & water, it costs the government $1 billion a year to provide Lebanon with an average of 18 hours of electricity a day.
Because the state-owned electricity company is unable, at daily peak hours as well as throughout the height of summer and depths of winter, to produce enough electricity to support both private and industrial consumption, it has introduced exorbitantly high peak hour industrial rates to force companies to use generators.
Therefore, between the hours of 6:00am and 9:00am, 6:00pm and 9:00pm, and for 24 hours a day throughout the months of July and August, and February and March, industry pays LL320 ($0.21)/kw-hour. The off-peak industrial rate is LL80 ($0.05)/Kw-hour.
Federation of Lebanese Industrialists general manager Saad Oueini said that since the most recent power cuts, industrial electricity costs rose by another 20% to 30%.
“We think the government can afford to offer a standard industrial rate of LL100 ($0.07). For the moment, all the industries that use a lot of electricity can no longer compete with those in other countries. If nothing is done, these industries will have to shut down,” he fumed.
Meanwhile, the public is being forced to cope with paying up to 30% more to use a generator, even if it means flouting a 1992 law prohibiting their use within administrative Beirut. “Even I buy candles,” said Baroud.
Not just cosmetics
In a major expansion of their capacities, Lebanese industrial conglomerate, Malia Holding, last month inaugurated a new manufacturing plant for its Cosmaline subsidiary. The new factory represents a $13 million investment and marks the fourth enlargement of production capacities in the company’s 50-year history.
Cosmaline evolved from a maker of beauty products under license from foreign manufacturers into a major Middle Eastern producer of hair and skin care products, insecticides and detergents. The firm maintains a research and development department and successfully brought several in-house developed brands to market.
With the increase of their facilities from 9,000 to 16,000 square meters, the 2004 Cosmaline expansion is geared especially towards exports to Europe, Malia chairman Jacques Sarraf told Executive. Deliveries already go to Cyprus, Greece and Russia and the manufacturer is in discussions over entering the French, Benelux, German and Turkish markets, he said.
Coincidental to the Cosmaline plant inauguration, October also saw the first market action by Malia subsidiary, Euroline, a fashion retail company. Under the rationale of diversifying the Malia Holding activities beyond health and beauty products, Euroline partnered with the Eid family in setting up a boutique for upscale Italian clothing brand Paul & Shark in downtown Beirut.
Paul & Shark products had been previously sold in Lebanon through Eid stores but the joint venture aims for a higher penetration of the market for glamorous high-tech sportswear with a maritime flavor. In addition to the downtown boutique, further Paul & Shark stores are in the pipeline for Lebanon. However, Euroline also has ambitions of bringing the business with Paul & Shark to Syria and even take it to Iraq, said Sarraf.
New broadband, joy
The largest Lebanese data network operator, GlobalCom Data Services (GDS), in early October announced the creation of a wireless broadband service, which will finally provide fast internet access to residential internet subscribers. Operated in partnership with the ministry of telecommunications and three Internet Service Providers, the service would offer home users a choice of 128, 256, or 512 kbps in access speed for fees ranging between $45 and approximately $150 per month, said GDS director Mahassen Ajam.
Wireless broadband would be at least three times faster than dial-up phone access.
GDS set a realistic target of 20,000 subscribers at the end of the first year of operations, with coverage to all cities in Lebanon. According to Ajam, GDS invested $12 million into the establishment of the wireless network, without receiving any public sector sponsorship. Observers commented that the service is a good step forward but noted that a fee of $45 for broadband access is by international standards not exactly cheap while the investment volume appeared high for the network’s capacity.
During a press conference announcing the new service, telecommunications minister Jean-Louis Qordahi confirmed to Executive that the MOT participates in the revenue of the wireless broadband service and reaffirmed the ministry’s commitment to fighting all forms of illegal internet access provision. When the independent regulatory authority on telecommunications has been installed, a licensing scheme would replace the current arrangement of profit sharing. “Our policy is to liberalize the market and have the awarding of licenses based on qualifications,” the minister said.
As the new wireless broadband is available at a lesser cost but without the service levels that GDS guarantees to corporate customers, the company declared the new offer to be designed exclusively for residential users. But it is unlikely that GDS or its partner ISPs IDM, Terranet and Cyberia, would refuse subscriptions from small businesses and home offices.
Freeing trade in services
Lebanon wants to spearhead a regional agreement for liberalization of trade in services. This is the aim which the director general at the ministry of economy and trade, Fady Makki, outlined to the audience in a conference on liberalization of trade in services in the Arab world in the middle of last month.
According to Makki, official delegations from five Arab countries had just a week earlier completed their first meetings of a first round of talks on regional liberalization of trade in services. Called the Beirut round, the target of the negotiations was to implement an agreement on free trade in services by beginning of 2006. The pact could enter into effect after ratification by only three Arab countries and Lebanon and Jordan would be among the first three countries that are “prime candidates to ratify intra-Arab free trade in services,” he said.
However, awareness of the issue in Lebanon was not yet strong, Makki warned, and urged the country’s professionals to communicate their demands and expectations from such an agreement to the ministry, for inclusion in the Lebanese delegation’s agenda.
The conference was organized by recent business services enterprise, World Trade Center Beirut, which plans to stage annual conferences on trade liberalization. A related theme, specifically the role of cross border investments in the Arab world, was the topic also of another conference, convened over the same two days by the Union of Arab Banks at the Phoenicia Intercontinental. The events coincided due to their timing immediately prior to the beginning of Ramadan.
While they saw value in the opportunities to meet with colleagues on the sidelines of the event, several Lebanese bankers opined that in terms of lectures and presentations such conferences generally would not offer many additional perspectives to similar events held in the past.
