The Lebanese flag carrier MEA became embroiled in an embarrassing row over monies owed by the state to German construction firm, Walter Bau AG. A scheduled MEA flight from Istanbul to Beirut could not depart because representatives of the German firm had gained a court order impounding the plane to enforce payment of $7 million owed Walter Bau for highway construction contracts from the late 1990s.
The measure drew sharp criticism from MEA chairman Mohammed Hout who was quoted in newspapers as saying that MEA was a private sector company and not party to the dispute. MEA, one airplane short, had to ferry its stranded passengers via Athens back to Beirut.
The conflict between the German company and the Lebanese state appears to date back to 1997, when Walter Bau had been awarded a contract related to the creation of a proposed toll-based superhighway network under a Build-Operate-Transfer scheme. However, the entire project was shelved by the council of ministers, contracts were cancelled and Walter Bau soon after closed its Lebanon representative office.
The company sought recompense not unlike other international companies that claimed to have been wronged in financial dealings with Lebanon, including another German construction concern, Hochtief AG, which demanded compensation for higher costs it incurred in the rehabilitation and expansion of Beirut airport because of delays and design changes.
Walter Bau’s claim to $7 million was affirmed in arbitration and not contested by the Lebanese government, which just somehow did not get around to settling the amounts. It was only after the seizure of the MEA plane that Lebanese officials insisted that payment of the owed amount had already been authorized.
MEA on its part would seek from Walter Bau yet to be specified compensation for damages caused by the impounding, Hout was quoted in the Beirut press. Interestingly though, the highly discourteous initiative to impound the Lebanese plane in Istanbul had not originated from Walter Bau itself.
Having fallen onto hard times, the once third-largest construction company in Germany had declared insolvency in early 2005. Much of the firm’s assets had been taken over by Austrian construction company, Strabag, while Walter Bau AG was left with debts of 3.3 billion euro owed to about 20,000 lenders and suppliers. The man who had used the bone breaker method to get Lebanon to meet its obligation was the insolvency administrator charged with satisfying the rights of Walter Bau employees and creditors.
Banks go shopping
Lebanese banks indeed have their eyes peeled for regional buys. Market leader BLOM Bank last month advanced by a great step towards establishing its foothold in Egypt when it found consent for acquiring Misr Romanian Bank, a joint venture bank owned by Egyptian and Romanian financial institutions.
The kick-off in realizing the acquisition was the decision by Egypt’s state-owned Bank Misr to sell its 33.26% stake in Misr Romanian to BLOM Bank early in October. With a declared goal of buying Misr Romanian Bank in its entirety, BLOM reportedly has the right to withdraw from the purchase agreement if it fails to obtain at least 67% of the Egyptian bank’s shares. However, as the Romanian shareholders with their 49% stake in Misr Romanian have signaled their readiness to sell, according to BLOM general manager Saad Azhari, BLOM should be able to see the transaction, estimated at $100 million, through.
Misr Romanian Bank had assets of $641 million at the end of the first quarter of 2005. While BLOM Bank was carrying out its due diligence for evaluating the bank in September, expansion-minded First Gulf Bank from Abu Dhabi also showed interest in Misr Romanian but later withdrew from the race.
In the meanwhile, Fransabank also seems to have thrown its heart over the fence in cross border growth. The bank announced in late October that it would be a partner in Capital Bank Sudan, a new Islamic banking venture that would start operations in early 2006, with a focus on investment banking. Fransabank, which also is working on expansion into Syria and Algeria, would own 20% of Capital Bank Sudan.
Third bank on a roll during October was Byblos, which opened a month-long subscription period for a massive rights issue that would double the bank’s share capital from $164.8 million to $329.6 million. The issue, which is open only to existing shareholders, aims to enhance Byblos’ position in achieving readiness for Basel II regulations and provide the group with funds for capital injections into various international subsidiaries, including the Algerian bank Al-Rayan, where Byblos was awaiting approval by Algerian authorities for acquiring a stake of 51%.
Beetroot gets stay of execution
Lebanon’s selective agricultural subsidies have little to do with economic policy and more to do with an antiquated view of crucial food sources, and crude political lobbying. Take beetroot for example. In 1959, a Government decree provided for the subsidization of wheat (for bread) and beetroot (for sugar) because the two were perceived as staples.
“Back then, the notion of food security was not the same as it is today,” said the ministry official, who asked not to be named because he requires permission from the Minister of Economy & Trade to talk to journalists. “The decree was designed to ensure that there was always enough bread and sugar.”
In 2001, the Government abruptly stopped the subsidies, which had reached the staggering sum of $40 million a year for 7,000 hectares of beetroot production, in an effort to cut state spending.
In 2004, following political and social pressure, the Government agreed to subsidize beetroot production, at $3,000 per hectare for one year only. But then this year, the official said, the Government wanted to again discontinue the subsidies but was forced to eventually bow out again to political and social pressure and agreed to subsidize beetroot production from 2005-2007, reducing the total by roughly 30% each year, in a gradual phase-out. Thus, in 2006, instead of paying $3,000 per hectare, the Government will pay only $2,000, the following year $1,000, and the following year nothing at all.
The official noted that some grape growers had been asking for subsidies, but so far to no avail. “It’s not really fair,” said Salim Wardy, owner of wine producers Domaine Wardy. “But since the Government’s policy is to stop subsidization completely in two to three years, what’s the point of trying to get them to subsidize grapes? Vines take several years to come to full fruition and only reach full production capacity in around six. If there is no long-term Government commitment to subsidies, they are of no interest to anyone.”
“I support subsidies,” noted economist Kamal Hamdan, “but a clear definition of the beneficiaries and eligibility criteria is needed so that the subsidies really do benefit the have-nots. On the ground I doubt this is happening.”
No Tamiflu for bird flu
AUB Professor of Agriculture and bird flu specialist Dr. Elie Barbour has told EXECUTIVE that Lebanon is ill–prepared for a probable outbreak of bird flu, while the director-general of Lebanon’s Ministry of Public Health, Dr. Walid Ammar, has said preparations for a human pandemic are far from perfect. It could cost the government around $10 million dollars in medicals bills. The cost to the economy and human lives would be higher.
“The Lebanese way of handling things is spontaneous,” Barbour said. “They don’t plan ahead of time. The Ministry of Agriculture doesn’t have a system of cooperation with the Ministry of Health or with the Ministry of Interior – so that the Army can play a certain role. The public sector is talking, not working.”
Barbour said a strain of H9 N2 bird flu – not the kind currently making headlines – was discovered in Lebanon last year after coming from China. “We got it here. This means that the wild bird route that passes over Lebanon has all the potential to pass on the very virulent H5 N1 bird flu strain,” he warned. “I think there is a very big chance it will happen.”
If it does, the financial damage to the poultry sector will be enormous. Poultry sales in Lebanon are already down 50% – despite the fact that there have been no confirmed bird flu cases here. In the event of an outbreak, the cost of culling Lebanon’s roughly 60 million broiler chickens would be about $150 million, he said.
An employee in Lebanon of Roche, distributors of Tamiflu, an anti-viral drug that can treat the flu, said in mid-October that there was no Tamiflu in Lebanon but that an order had been put in and that the drug was expected by the end of October.
Meanwhile, Public Health Ministry Director-General Dr. Walid Ammar, said that although Lebanon was prepared for possible bird-to-human transmission of the virus, the country was not fully prepared for a mutation allowing human-to-human spread.
He said the Government had put in a request for enough medication to cover 10% of the population. “In rich countries they have enough for 20%-25% of the population,” he noted.
Diamonds in the rough
Lebanon’s profitable diamond industry was lent greater credibility recently when the Ministry of Economy and Trade announced its accession to the Kimberley Process Certification Scheme (KPCS), an agreement which controls world trade in rough diamonds.
The KPCS was drawn up in 2002 to prevent conflict diamonds, illegally sold by rebel groups to finance military operations, from entering the legitimate trade. It already imposes strict certification of origin rules on its 45 member countries, which account for 99.8% of global rough diamond production.
Similar import, export and transit regulations now apply to Lebanon’s rough diamond market, and, more importantly, allow it to legally trade rough diamonds with other KPCS countries – something it was previously banned from doing.
“This will raise Lebanon’s international status in the diamond trade,” said Antoine Mghanni, President of the Lebanese Jewellery Syndicate. “It allows us to compete more evenly with Dubai, the only other Arab country to be a KPCS member.”
Although the jewellery industry is Lebanon’s number one export sector, worth some $500m annually, the cutting of rough diamonds is only small-scale. There are currently only a handful of diamond polishers in Lebanon, but the KPCS will allow Lebanese traders, especially those in Antwerp, to start operations in Lebanon.
Yet despite the good news, black clouds hung over Lebanon’s membership. In early August this year, an NGO called Global Witness complained that Lebanon was importing diamonds from the Republic of Congo (ROC), a country expelled from Kimberley last July for allegedly channeling conflict stones. According to the NGO, Lebanese customs data for February and March showed that $156m of rough diamonds were imported from the ROC. Although no customs official was currently available for comment, the ministry of economy says that the customs data on the Congo imports were overvalued due to a “technical error”, which has now been rectified.
But the affair cast doubt on Lebanon’s credibility. “By trading with a country removed for being in blatant violation of the scheme, Lebanon makes a mockery of the Kimberley Process,” said Corinna Gilfillan of Global Witness.
The hope is that by allowing legal trade with other KPCS countries, such trafficking can be curbed. It now looks as if the local jewellery industry – at least the legitimate one – is set to sparkle some more.
Pirates a go go!
Even by the Middle East’s generally poor standards, Lebanon is notorious for its piracy levels. According to the International Intellectual Property Association (IIPA), the country scores badly on all fronts with an average piracy rate of well over 70%. In Sabra street you pick up a copied film or CD for LL1,000, while in Hamra you enter a shop to choose a pirated computer program game from the catalogue for a mere LL 10,000. According to the IAA, cable piracy is particularly high at a level of over 80%.
However, if it is up to Fadi Makki, Director General at the Ministry of Economy (MoE), the “Beirut Spring” does not just refer to Lebanon’s political arena, but also to an economic clean sweep of the country. During the summer months, the ministry stepped up its efforts to crack down on piracy and counterfeited goods. “In some 50 to 70 raids all over the country,” said Makki, “up to 8,000 products were seized and destroyed.”
CDs, DVDs, computer programs and especially a lot of counterfeited fashion brands, such as Versace shirts and D&G bags were confiscated and destroyed. According to Makki, some 80% of pirated goods are imported, while only 20% is produced locally. “So our main battle lies at the border,” he said.
Sponsored by the international Brands Producers Group (BDG), last May a special telephone hotline, “1739” was introduced, so people can report any suspected forms of piracy. “We have hardly any manpower to perform inspections and raids,” said Makki, “so we rely heavily on incoming calls.”
According to him, the idea that piracy hurts a country is slowly but surely gaining ground in Lebanon. “Most people argue that Lebanon’s terrible piracy record stands in the way of entering the WTO, which is true,” said Makki. “But there are a number of important reasons why we should fight piracy. It reduces tax revenues, discourages foreign investment, and perhaps most importantly, it is bad for the local industry. As soon as people realize that locally produced goods just cannot compete with cheap pirated brands – and so cracking down on piracy is good for Lebanon – I’m sure more and more calls will come in.”
EDF helps people help themselves
Its board of trustees may read as a “who is who” of the Lebanese business community, the Entrepeneurial Development Foundation (EDF) is a non-profit organization that promotes entrepeneurship among Lebanon’s poor and underprivileged, especially in the country’s rural areas. Established in 1999, the EDF offers training to improve knowledge and skills on how to start up and manage a business, as well as soft loans to graduates able to come up with a sound business plan.
“Traditionally, micro-credit programs do not offer leans worth more than $2,000, while we go up to $10,000,” said EDF’s chairman Nabil Sawabini, who is also CEO of the MENA Capital, an investment group specialized in private equities and real estate development. “What’s more, we offer not 1 year, but 3 to 4 years to pay back the loan and an effective interest rate of not 24% to 36%, but 15% per annum. So, we are not a micro-credit program in the strict sense of the word.”
Call it as you like, the EDF’s business approach of aid and the notion of helping people help themselves has so far proven extremely successful. Since April 2000, the EDF has trained 865 people and helped to establish 62 businesses, 60 of which are still operating. Some $300,000 has been disbursed, while over $100,000 is pending regarding files in process. “Less than 0,5% of the loans did not return,” said Sawabini.
Still, the EDF’s biggest challenge is funding. “We offer 8 training programs a year, of which we recently managed to reduce the cost to some $8,000,” said Sawabini. ”Our administrative costs are some 20-22% of the annual budget, which is not much, as many NGO’s go up to 35%, but that money has to come from somewhere.’
So far, the funding mainly came from international agencies such as Mercycorps, regional businesses and the trustees’ own pockets. Since the start of this year however, the EDF came up with a very original solution. “All Lebanese banks have to keep a minimal reserve at the Central Bank, an amount over which no interest is paid,” Sawabini explained. “We’ve agreed with one bank and the Central Bank that a portion of this can be used for our program.”
The experiment started successfully with one bank early this year and will be continued with a second bank in the near future, which enabled the EDF to more than double its annual budget. “And if all things work out,” Sawabini concluded, “it will allow us to double the budget every year over the next few years, as existing bank will increase their contribution and others will be added.”
Argent comes to town
Despite continuing, often violent, political turmoil in Lebanon, and the absence, for the moment, of any clear move in the direction of telecom sector privatization, the New Zealand-based telecoms company Argent Networks, providers of billing and customer service solutions for fixed line, wireless, broadband and next generation telecommunications companies, are, in $250,000 move, setting up a regional Middle East and Africa office in Beirut, as they seek to create a foothold in the region.
“We’re looking to get a piece of the action here,” explained Argent Regional Manager Ziad Basha. “Lebanon has a good pool of technical resources which need support.”
The company has also opened a small representative office in Dubai.
Argent has just signed a deal with an Iraqi telecoms company and with Lebanese companies running operators in Africa, is in final negotiations over two other contracts, and expects to sign a few more in the coming months.
Basha said Argent hoped to acquire a 20%-25% share of the regional billing market – its core business – over the next few years.
He said competition would come mainly from similar companies in Dubai.
Telecoms observers and analysts are cautiously supportive of the move. “The telecoms sector in Lebanon and the region has huge growth potential,” said telecoms consultant Kamal Shehadi. “We’re closer to the start of the process of privatization because the Government has made it clear that’s what it wants to do, and I don’t see any opposition. But let’s be clear. This is not something that will happen at the push of a button.”
“I think it’s the right move,” said Notre Dame University Economics and Finance Professor and telecoms specialist Louis Hobeika. “It’s a good thing to be here when the situation improves. I believe it’s the right timing. You need to be here in advance. The telecoms situation here is going to pick up when tariffs are lowered and the regulatory authority is set up. But all of this has been delayed.
“I think it’s more the right time for the region than for Lebanon,” he went on. “The sector will grow fast in the region, especially in developing sectors.”
Of Argent’s Iraq venture, he said: “Iraq has lots of problems. Not now, but when things do quiet down, it will be a good investment.”
Lebanon, too, is not free of problems acknowledged Basha. “There are problems with the political situation, with plans to liberalize and privatize the sector,” he said. But he added: “I still think it’s the right time to set up the office. And remember, we’re concentrating on the region as a whole.”
Basha said the Beirut office should be functional in early November.
Forget Fast Food, Go Slow!
As McDonalds is to many people the ultimate symbol of globalization, it
comes perhaps as no surprise that it is the food sector that launched a
counter offensive under the name of Slow Food. Founded in 1986 in Italy,
Slow Food is an international non-profit organization in defense of
bio-diversity and “eco-gastronomy.” Among other activities, it records plant
species and animal breeds at the edge of extinction, as well as protects
outstanding food products and traditional production methods.
Recently, the first Lebanese item, the Darfiyeh cheese, was added onto the
Slow Food list of authentic food of outstanding quality. Ripened for six
months in salted goatskin, the cheese stems from the northern areas of
Mount Lebanon. The problem for the Darfiyeh, as for any other local
specialties in Lebanon or the rest of the world, is that it is extremely
difficult to compete with mass produced cheeses.
“Of course the recognition is important,” Kamal Mouzawak, Slow Food’s
representative in Lebanon and one of the founding father’s of the weekly
ecologically sound “Souk al Tayeb” in Saifi. “It is the recognition of
tradition and quality. But that’s only the beginning. With the help of Slow
Food we will bring in sponsors to preserve the cheese and bring it onto the
market. For example, by bringing in some experts in the field of marketing.
Most people do not know this cheese.”
The Rene Mouawad Foundation has started a program to help the farmers to
increase production of the cheese, as well as aid some 200 goat herders who
supply the milk.
If it’s up to Mouzawak, the Darfiyeh Cheese will not be Lebanon’s last Slow
Food listing. He has already proposed a special Chouf labneh and Baalbek
cheese which is ripened in terracotta jars. Bon appetitit!
