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Climate changeEconomics & Policy

C’est la vie

by Jeremy Arbid July 17, 2017
written by Jeremy Arbid

The decision in early June by the United States to withdraw from the Paris Accord, the latest global effort to combat climate change and adapt to its effects, sent shockwaves of uncertainty around the world. The agreement, which entered into force in November 2016, has the goal of limiting the global temperature rise to two degrees Celsius this century. But there is no reason to panic, says Vahakn Kabakian — Lebanon’s climate change portfolio manager at the United Nations Development Programme (UNDP). Instead, he points out that the American withdrawal may have served to strengthen the resolve of other countries and the international community to reach the commitments they promised toward mitigating climate change.

One of the key takeaways from Paris has been the role the private sector will play in financing the renewable energy projects that governments want to build to reduce greenhouse gas emissions from electricity generation. Lebanon is now awaiting a joint Ministry of Finance (MoF) and Ministry of Energy and Water (MoEW) recommendation to the Council of Ministers for the latter to license the construction of some 200 new megawatts (MW) of wind-generated electricity. In mid-August the MoEW will also begin evaluating offers from companies to construct up to 180 MW of solar-generated electricity. The cost estimates for the construction of these renewables projects have not yet been publicly disclosed, but financing may not be so difficult to find (see story). The new projects would bring Lebanon close to achieving its commitment of having 12 percent renewable energy in the national energy mix by 2020.

E   From what you’ve heard within Lebanon, and from its counterparts regionally and internationally, what has been the reaction to the United States withdrawing from the Paris Accord?

It varies. For the people who are really not into it, they all saw it with an ‘Oh, you guys are screwed’ sort of a reaction, which might be true if you really look at it from a planetary perspective. At Paris we agreed on a target below two degrees Celsius, and that’s in jeopardy if the US is out. Effectively, they won’t be out before November 2020, because there’s a clause in the agreement that you can’t withdraw until three years after it enters into force — [which was] November 2016. So 2019 [would be the earliest the withdrawal could start], and then the process takes around a year, so that’s November 2020, which would probably be after or around election day in the US. And then the incoming president, once they take office, could reverse this in 30 days or so. Now that’s procedure.

E   Has this had a big psychological effect?

No [not just a psychological effect], because if the US re-enters the Paris Agreement in 2020 or 2021, they would have essentially lost four years of efforts toward meeting their 2030 target — 25 to 28 percent below their 2005 emissions. So that lag time, plus if the US actually locks in investments in new fossil-intensive technologies for the coming 20 or 30 years — [that’s] money not spent in the right direction, if in four years time you’re going to reverse [Trump’s decision] and re-enter [the accord].

E   Has the American president’s decision to withdraw from Paris eroded political will to meet climate change commitments?

Now what’s good, and what no one really expected, is that globally there was this amazing solidarity on the Paris Agreement from think-tanks, NGOs, governments, and coalitions of governments, thinking of doing more than what they’ve already committed. France is trying to do that, the EU went to China — there was a summit.

The EU is much more strongly committed now than it was probably before. That’s why there was an EU-China summit — I think it was the next day or so — followed by a French-Indian sort-of summit.  [Everyone], especially China and India, were very much trying to send a message that that’s not true (that America’s withdrawal has scuppered the accord): ‘We’re fully committed.’ That’s on the international level. At the US level, California is leading and Hawaii just passed a climate change law — they’re saying to the federal government, ‘We’re in.’

E   One of the key takeaways from Paris is that this is going to be a big private sector opportunity. So when you see all the huge corporations in the US — the EXXONs and these sorts — stepping up and pledging to reach Paris commitments, does that reassure?

Definitely, the key players in the Paris Agreement are the non-state actors, which, in the US case, are doing what they want to do irrespective of the federal government funding-wise and action-wise. Huge corporations are deciding to go 100 percent renewable, and imagine airlines going for 100 percent biofuel — that’s where we’re heading.

E   Lebanon is now ready to license contracts to build some 200 MW of wind generation and will be licensing up to 180 MW of solar generation. Is Lebanon on track to reach its 2020 goal of having 12 percent of its electricity generated by renewables? 

Existing hydro power is roughly 200 MW. It varies per year depending on how much water we have, but last year we started seeing 0.1 percent for 2015 as a renewable part of the mix other than hydro. That’s in 2015. It was mentioned in the UNDP’s Small Decentralized Renewable Energy Power Generation report for photovoltaic (PV). What we had in 2015 almost doubled by end of 2016, the PV. So that’s good. We installed 10 MW of solar in 2015 and in 2016 installed over 10. And I guess 2017 would be a bit more than that, so, on a yearly basis, we saw those decentralized PVs being installed more and more. If by 2020 we install the wind and we install the 180MW and we end up having around 100 MW of decentralized PV, in terms of MW we [would be] around roughly 200-300-480 MW renewable. Installed capacity-wise that’s good, but generation-wise it’s not 12 percent because we’re still [trying to reach] the 12 percent. Ten percent out of 480 — I hope I did the right calculations — that’s 4800 MW total generation. You know it’s roughly 10 percent if we install the thermal power plant by then. But obviously generation-wise it won’t be 12 percent.

E   So we’re a bit behind schedule is what you’re saying?

Yes and no, because in the 12 percent the Ministry of Energy and Water will be taking into account the solar water heaters because that’s also renewable — you’re generating heat in this case. I don’t have the latest numbers, but the national target is that 1 million square meters of solar water-heating panels, which is roughly 250,000 units I think, will be installed by then, and I don’t know how much that would make in equivalence out of the total 12 percent. So maybe not by 2020, but with the hydro — not upcoming, existing — with solar and solar water heaters it’s a good bet. I would say yes.

E   Lebanon still has not ratified the Paris Agreement. Is that because our politicians have been so focused on finding a new election law and sorting out their own political futures?

Primarily that, yes. The draft law was sent in August-September 2016 to the Parliament. Somewhere at the beginning of the year, the foreign committee at the Parliament very quickly approved the draft law. I don’t think there’s any issue with this draft law, but there’s no clear cut process or procedure for legislation in general. We don’t even know which parliamentary committees will need to approve this. We assume it’s foreign affairs, the finance committee, and environment at least.

E   What is on your wish list for legislation to help Lebanon reach its climate change commitments?

Definitely the ratification of the Paris Agreement into law, because it contains a lot of articles that we would be basing our work on locally. At the end of the day, when the law passes, the articles are binding, and we need those articles to issue decrees and operationalize the entire law gradually. So that’s one thing that I want to see. Another would be having stability in the country, [which] would allow us to take on the environment — but also climate change, at a more serious level.

July 17, 2017 0 comments
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Hospitality & TourismSpecial Report

Sustaining Lebanon’s rural tourism

by Sunniva Rose July 13, 2017
written by Sunniva Rose

There is a growing local clientele in Lebanon hungry for a more “authentic” experience of the country. Through word of mouth and social media, rural activities, such as fruit picking and hiking, are slowly moving from small groups of connoisseurs to being embraced by a broader public. Guesthouses across the country, once informal, are becoming a stay-cation preference for Lebanese. In the words of Kamal Mouzawak, founder of Souk El Tayeb — which operates several guesthouses, restaurants, food festivals, and markets throughout the country — more and more Lebanese are seeking “the same experience as going to their grandmother’s house.”

Leaving the capital to visit one’s family home in the mountains may be an age-old tradition in Lebanon, but the institutionalization of rural tourism, with guesthouses, tour guides, and proper signage, is a relatively recent phenomenon.

Fostering rural tourism

In the past, guesthouse owners had been accommodating tourists on an ad hoc basis. Around 2010 they came to the realization that they could turn this activity into a profitable business, according to Martine Btaich, president of the Lebanese Mountain Trail Association (LMTA).

Help and training came from USAID, through Diyafa, a network of rural guesthouses that last year launched an upgraded online booking site, and through the Lebanon – Industry Value Chain Development (LIVCD) project, which began in 2012. Initially billed as five year, $41.7 million project  — “aimed at improving Lebanon’s economic stability and providing income-generating opportunities for small businesses while creating jobs for the rural population, in particular women and youth” LIVCD was recently given a two-year extension till 2019. The hope being that by then, the activities that received funding and support will have become self-sustaining.

From humble beginnings, the number of guesthouses in Lebanon has risen to around 80, per LIVCD figures, though as of yet, no centralized data on guesthouses exists. Petra Obeid, who is in charge of rural tourism at the Ministry of Tourism (MoT), told Executive that figures are currently being collated.

Obeid says that the MoT supports rural tourism through a national strategy developed in tandem with LIVCD and launched in 2015. Among its aims were to promote awareness of rural tourism destinations, institutionalize rural tourism at the community level of local communities, improve and enforce environmental, cultural, historical, and agricultural protections, diversify and modernize rural destinations, improve data collection, develop a culture of rural tourism among the younger generation and improve networking with the diaspora.

According to Btaich, so far the strategy has validated the efforts of tourism stakeholders. “Many new initiatives at the level of municipalities have been done, creating a snowball effect,” she says. “The challenge now is for the strategy not to sit in a drawer.”

Guesthouses: a reasonably profitable venture

The cost of rooms is varied. If booked through L’Hôte Libanais, a website with a network of 16 guesthouses, prices can range from $80 to $250, with the average room going for $100 – $120. Guesthouses that are part of the Diyafa network, tend to be cheaper. According to LIVCD figures, they cost $60 per person on average, and start as low as $40. Orphée Haddad, L’Hôte Libanais’ founder works at the higher end of market, only listing guesthouses that interact with the local community, serve local food, are environmentally friendly, and that, in his eyes, have “character.”

The popularity of guesthouses shows no sign of waning, both for those looking for a place to relax outside the city and for entrepreneurial types eyeing the opportunity to reinvent family property. Philippe Germanos, who co-runs Guita Bed and Bloom, left corporate life a few years ago to return to his family home and develop the declining farming business that he inherited from his great grandfather.

The five rooms of the guesthouse, which cost from $50 to $75 a night per person, were opened to the public in late 2015. Like many other guesthouses, Germanos claims that he is fully booked on weekends during the tourist season (April-November). To help generate income, and tap into a growing market for rural activities, he decided to include agrotourism and recreation into his business, such as yoga retreats.

Reinventing the family home as a rural getaway does not come cheap. To finance these various projects, Germanos took out two loans, totalling $100,000. “I benefitted from special environmental banking loans (subsidized by Lebanon’s central bank) that allowed me to add solar panels, install low consumption taps, and build a warehouse,” he says. 

Other guesthouses resort to private funding, such as Al Haush, which opened its doors a few months ago in the Bekaa. An old family farm, Al Haush mixes luxury guestrooms ($200 a night) with activities such as rosewater making and cherry picking. The owners, the Saab family, invested $60,000 to build their guestrooms. However, the rest of the infrastructure, such as the swimming pool, gardens, and tennis court, were already in place. Like Guita, Al Haush is banking on the public’s interest in agrotouristic activities.

Municipalities aren’t missing out

Private individuals are not the only beneficiaries of the surge in rural tourism. Municipalities are also involved, mostly due to LIVCD funding, which so far has  amounted to $2.25 million and has benefited nine different sites, reserves, and associations in Lebanon.

All the municipalities that Executive spoke to which recieived support from by LIVCD, such as Ehmej and Hadath el Jebbeh, have noticed increasing numbers of visitors over the last few years. Jbeil’s Bentael Nature Reserve is hoping to receive 5,000 visitors this year, a 60 percent increase relative to last year.

Though not funded by LIVCD, the manager of the Chouf reserve, Nizar Hani, has noticed the same trend. “Around 90,000 visitors were recorded last year, which is an increase of 14,000 people in comparison to 2015,” he says. Reserves are the only stakeholders in the rural tourism industry that actually manage to keep track of visitor numbers, through the entrance fees that they charge (under LL10,000 on average).

Lack of a legal framework

Guesthouses are regulated by the only decree that exists regarding rural tourism. Published on September 9, 2011, decree number 6298 describes the conditions that a guesthouse must meet, such as being built in a traditional style, having between one and 10 bedrooms, and respecting health and safety conditions. However, the conditions are not specified further, leaving much room for interpretation. While the MoT sends out a team to inspect guesthouses during registration, and conducts follow-up visits, Obeid notes that the variables  — such as owners having other employment, or guesthouses being seasonal  — make this more difficult.

Regulations are slowly being put into place, but one major obstacle still stands in the way of the sector’s development: the lack of a legal framework. “One cannot promote Lebanon as an alternative tourism destination, or adventure tourism destination, if there’s no work on the law,” argues Gilbert Moukhaiber, director of the tour operator 33 North. “Alternative tour operators that work in any sector outside classical tourism — that is, ecotourism, agrotourism, or adventure tourism — are registered with the MoT as commercial companies, not tour operators,” because no specific licence exists for them. 

As a result, responsibility for training local guides rests on grassroots initiatives, such as 33 North or the LMTA. External donors support some of these training events, but they are commercial activities that need to turn a profit. For example, a three-day course with 33 North on mountain safety costs a little under $250. When asked whether this price excludes guides who cannot afford that kind of expenditure, Moukhaiber maintains it is “equivalent to two-and-a-half-days of work as a guide,” which he believes is reasonable.

Despite its growing popularity, recognition from the government and the increasing know-how of professionals, rural tourism in Lebanon still lacks the proper framework to compete with other international destinations. Should the lack of data and a legal framework remain unchanged, its development will inevitably be undermined. Till now, its growth has been dependent on foreign support, an important part of which has recently been diverted to responding to the Syrian crisis. As the LIVCD project winds down, the next few years will be crucial to determining whether the sector can be self-sustaining.

July 13, 2017 3 comments
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Hospitality & TourismSpecial Report

Lebanon: A new destination for religious tourism?

by Sunniva Rose July 10, 2017
written by Sunniva Rose

Mosques, maqams, cathedrals, monasteries, zawiyas, madrassas, a synagogue … the list of 83 historical religious sites selected for an imposing new coffee table book, published as part of the government’s “cultural religious tourism” project, is as varied as Lebanon’s religious landscape. “The book’s title, ‘Lebanon: Celebrating Our Diversity,’ is a message in itself,” says Roula Ajouz, project coordinator of the Cultural Religious Tourism (CRT) unit created by the Prime Minister, which includes representatives from the Ministry of Tourism (MoT) and other ministries. “Enough with the expression ‘inter-religious dialogue.’ It sounds like we’re living together because we have to,” adds Ajouz, who is also the general manager of Cedar Wings, Middle East Airlines’ inflight magazine.

The book was published in English and Arabic, and distributed during the official launch of the religious tourism program at the Grand Serail on May 16. Six regional maps of Lebanon, which pinpoint 250 religious sites of interest, were printed for distribution across the country. A website was launched (www.sacredlebanon.com), and a six-minute documentary produced. All of this work was funded by the Italian Agency for Development Cooperation using $328,000 of a $462,000 grant. “It’s an initiative that can also generate important revenue for local communities and for the state. By developing this particular sector, Lebanon will improve its infrastructure network and create new job opportunities for hostels, museums, craftsmanship, artisans, small shops, and other tourist related activities,” Massimo Marotti, the Italian ambassador, wrote in an email to Executive.

Needs and impact still unclear

There has been no study yet on how many jobs the CRT project will create, but its second phase is already scheduled. “In phase two, which will be completed by the end of October, the experts will focus on two pilot sites: Qana, in south Lebanon, and a mosque in Tripoli. For this phase, Italy will contribute $69,186,” Ambassador Marotti said. According to him, “It’s understood that an approximate budget of $1.3 million will be needed over a period of two years to promote [an] additional 500 religious sites. Additional investments should come from private and public institutions.”

The total amount of such investments remains unclear. Executive was able to consult partial estimates provided by Qabas, a Shiite association that promotes religious tourism. Qabas compiled a list of 24 sites that needed rehabilitation or additional infrastructure, with the total bill amounting to $7.2 million. The only other study that Executive was able to locate was a rural tourism strategy prepared by the United States Agency for International Development (USAID) for the village of Maghdouché near Saida, which houses the popular Christian sanctuary Our Lady of Mantara (Our Lady of Awaiting). The study was compiled after the World Tourism Organization officially declared the site an international religious tourism destination in May 2016. Currently, “Maghdouché lacks the basic tourism services and facilities, especially in terms of accommodation, lodging, and F&B services,” USAID wrote in its report. Among other expenditures, USAID estimates that the renovation and embellishment of the town would cost between $250,000 and $750,000, the creation of a museum would amount to $100,000, and the opening of new restaurants would range between $50,000 and $250,000. One can only speculate how much money would be  needed to rehabilitate the thousands of religious sites scattered throughout Lebanon.

Though it is too early to evaluate the total economic needs and impact of the program, Walid Hussein, a consultant on the CRT project, has compiled the average number of visits to the 39 most visited religious sites in Lebanon. They amount to 5 million, with the top destination being the Shrine of Our Lady of Lebanon in Keserwan’s Harissa, at 2 million visits per year, followed by the sanctuary of Jbeil’s Saint Charbel, which attracts 400,000 visitors per year. The number of  unique visitors was estimated at 4.5 million per year for these same 39 sites.

Out of the 39 sites, 25 are Christian — mainly Maronite sites including St. Rafqa and St. Hardini — and 14 are Islamic (Sunni, Shiite and Druze). According to Pierre Achkar, head of the Syndicate of Hotel Owners in Lebanon, approximately 20,000 foreign tourists visit Lebanon every year for religious purposes. When compared with Hussein’s figures, one can only conclude that the overwhelming majority of visitors to religious sites are Lebanese residents.

The CRT unit believes that increasing the visibility of religious sites will encourage locals to go visit places that are not affiliated with their own religion. “It helps Muslims and Christians understand each other better,” says Ghassan Lakkiss, a mufti from Jbeil who helped the CRT research the history of the city’s mosques. Should this strategy succeed, its economic implications would also be important, argues Hussein. “More than 153,000 Lebanese traveled abroad to visit religious sites last year, according to statistics that I gathered from the Higher Islamic Shiite Council, the Hajj affairs committee, and the (Christian) tour operators Lebanon Roots and Emmanuel Travel. They spent over $300 million in 2016,” says Hussein. According to him, these figures include all Muslim travelers who visited Saudi Arabia, Iran, Iraq, and Europe, but not all Christians travelers, which is why he believes that the Lebanese people probably spent even more than this sum.

Centralizing data

The reason why a lot of data on religious tourism is still missing is that its collation has never been attempted before. Promoting religious tourism, both domestically and abroad and, is normally in the hands of religious associations or tour operators. As a result, sites that are a little off the grid can be difficult to find for inexperienced visitors, as signage is sparse and often in Arabic, and informational brochures are rarely available. Even relatively important sites, such as the imposing Shiite maqam of Sayyida Khawla in Baalbek, which attracts 180,000 visits per year according to statistics gathered by Hussein, does not have brochures onsite in languages other than Arabic. The daunting fortifications and armed guards that surround it also do not help create a tourist-friendly atmosphere.    

“It’s a real problem,” said Father Marwan Saidy, from the monastery of Paulist fathers in Jounieh. He accompanies tourists several times a year to religious sites, both in Lebanon and abroad. “In Lebanon, you need a local to be with you. Foreigners find it difficult to drive if they rent a car. Agencies only organize seasonal tours, not year-round visits,” adding that it is harder to find tours in the winter.

Lebanon as part of the

Holy Land

In addition to attracting tourists and developing local infrastructure, the CRT project is a political statement, argues Ajouz. “For example, we all know that the site of Qana is controversial,” she points out. The village claims to be one where Jesus performed his first miracle of turning water into wine, though it is widely accepted by scholars that the location referred to in Bible is a little further south, in Occupied Palestine. The answer to this question matters little to Ajouz. “Jesus and his apostles walked this land. So how come we are not ready to fight for this on the marketing side?” she asks, pointing to a 1942 map of the Holy Land that she has hung in her office. It includes certain areas of Lebanon, Palestine/Israel, Jordan, and Syria. Local experts like to stress that there are over 96 references to Lebanon in the Bible. “Despite these biblical references, and the many stories of pilgrims and orientalists, the designation of ‘Holy Land’ has been almost exclusively reserved for Palestine/Israel,” wrote one of the CRT unit’s consultants, Nour Farra, in a 2015 article titled, “Case Study 8: Pilgrimages toward South Lebanon: Holy places relocating Lebanon as part of the Holy Land,” published in the book Religious Tourism and Pilgrimage Management, An International Perspective.

Presenting Lebanon, in particular the south, as part of the Holy Land is important for local communities that want to benefit from religious tourism. Qabas printed 25,000 brochures in English, Farsi, and Arabic on the maqam — a site closely associated with the life of a saint in Islam — of Chamoun al-Safa, or Saint Peter for Christians. “Chamoun al-Safa is important for the Shiites because Prophet Muhammad said to Ali, ‘You represent to me what Saint Peter represented to Jesus,’” explains Ali Zreik, program manager at Qabas. “The wife of the 11th Imam Hasan al-Askari was also directly related to Saint Peter.” Other shrines, such as the sanctuary of Our Lady of Mantara in Maghdouché and the maqam of Nabi Omran, said to be the father of the Virgin Mary, have the potential to attract higher numbers of both Muslim and Christian tourists.

The Virgin Mary is a favorite for inter-religious tourism, as she plays an important role in the Quran in addition to being a central figure in Christianity. “She is quoted 36 times in the Quran. No other woman is mentioned by her name,” says Muhammad Nokari, consultant for the CRT unit and ex-director of Dar al Fatwa. In Lebanon, Muslims and Christians celebrate the announcement by the angel Gabriel to the Virgin Mary that she would become the mother of Jesus on March 25. As a result, maqams such as Chamoun al-Safa and Nabi Omran “are the subject of a campaign by the local Shiite communities who preach for their integration into the biblical trails, and hope for their official development. So far, the unstable security situation in the region has impeded the resurgence of tourism, and as a result these maqams are barely promoted at all,” Farra wrote in 2015.

The situation has changed little since the publication of Farra’s article. The main obstacle to developing religious tourism remains the ongoing war in neighboring Syria and the closure of its border with Jordan. The number of tourists has plummeted as a result, and Lebanon has disappeared from regional package tours. “Figures from the Ministry of Tourism show that in 2010, there were 2.2 million tourists, and in 2015, only 1.5 million,” remarks Hussein. The numbers of tourists who come specifically to visit religious sites cannot be analyzed, as official figures don’t exist, but it seems logical that they would have also decreased. “Qana, for example, received 50,000 visitors per year before 2010. Now, they probably have less than 1,000,” Hussein says. According to tour guide François Hobeika, “Some pilgrims still come to Lebanon, but not many. So far this year, I’ve only worked with two groups.” .

Italian Ambassador Marotti, argues that in the meantime, “Lebanon can develop its own itineraries … In the future, Lebanese itineraries could be integrated in regional tours.” The Secretary General of the Federation of Touristic Unions, Jean Beyrouthi, adds that he has been working with the Jordanian Ministry of Tourism to bring down the price of flights between Lebanon and Jordan. The aim is to encourage tourists visiting Jordan to also come to Lebanon. “Currently flights costs between $250 and $400, depending on the season. We would like them to be under $200,” he says. Should the plan succeed, it could be implemented by October.

All the professionals Executive spoke with agree that Lebanon has the potential to develop its religious tourism, and that doing so is important. However, a lack of investment and security problems have historically confined religious tourism to a small number of visitors, mostly pilgrims. With this new project, the government hopes to expand its appeal to tourists interested in Lebanon’s cultural history in a broader sense, and to encourage Lebanese to discover sites of religions other than their own. The government has already reached out to local stakeholders to start centralizing data in order to efficiently promote Lebanon’s varied religious history. However, further developing religious tourism will depend, in great part, on foreign donors’ and private investors’ willingness to contribute to a volatile region.

July 10, 2017 0 comments
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EditorialOpinion

Thanks, but no thanks

by Yasser Akkaoui July 4, 2017
written by Yasser Akkaoui

The long-awaited electoral law is out. And it’s rigged. The law that was supposed to be our hope for a better future was designed to keep our political class in power. Our democracy is in jeopardy, and we must fight back.

Our political class is comprised largely of killers and thieves. They destroyed this country once. Not with their bullets and bombs — although those claimed far too many victims and left deep scars. They destroyed it by letting our currency collapse, watching our national wealth sink down to hell with it. Despite these unforgivable sins, we let them stay in power. In return, they’ve offered insult and humiliation.

Greed is the only explanation for the sorry state of our country. It kept the internet slow. It keeps the lights out most of the day in the majority of the country. It keeps water scarce and garbage on the streets. This country has limitless potential that is simply squandered. Our best and brightest take the first ticket out because Lebanon is increasingly unlivable. If tourists return, who among them will not be disgusted enough never to return by the trash piles marring nearly every spit of undeveloped nature in this country.

Our killers and thieves should have written a new electoral law by their original deadline, 2013. Instead, they extended their term in office and instructed their goons to assault anyone who dared protest. After four long years of doing almost nothing, we’re insulted with a law designed to keep anyone with a real vision for this country out of office. The battle lines are drawn, and our killers and thieves have made sure their positions are very well fortified. This will be a very, very dirty fight.

But it’s a fight we can’t avoid, no matter how distant victory seems. We must not forget who we’re fighting. We must unite, be smart and elevate the discussion. We cannot approach the coming election with romantic and naive notions that winning will be easy. Since the war ended, our political class has been poisoning the national discussion with ugly sectarian rhetoric that — whether we admit it or not — has influenced each and every one of us. The first step in preparing for the coming fight is thoughtful self-inspection. We must rid ourselves of any closed-minded visions of this country’s future in order to engage all of our fellow citizens.

The strongest weapons our political class will use are fear and lies. Ours is the miserable slog of our daily lives. They’ve ruined this country, and we must not let a moment pass without pushing that message to the fore. Now is the time for strength and determination. We might not win, but we damn well have to fight.

July 4, 2017 0 comments
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Hospitality & TourismSpecial Report

Lebanon is getting its tourism groove back

by Nabila Rahhal July 4, 2017
written by Nabila Rahhal

The holy month of Ramadan is traditionally a slow one for tourism in the Arab region, and the hot streets of Beirut have been somewhat subdued this June. But among those in the hospitality sector, the sense of expectation and excitement for a busy July and August is so palpable one can almost taste it.

For the past six years, tourism in Lebanon has suffered from local insecurity and regional instability, which have caused the number of tourist arrivals drop from 2.17 million in 2010 — considered one of the golden years for tourism in Lebanon — to 1.5 million in 2015, though a tourist bump at the tail end of 2016 brought numbers back up to 1.7 million.

But with internal security now more or less under control, there are solid indications that summer 2017 will see a significant improvement in terms of tourism — albeit not at the levels of summer 2009 or 2010. 

Back in business

With a new president and government in late 2016, the Lebanese hospitality sector finally saw progress on the internal instability it has blamed for sluggish tourism these past six years.

Indeed, tourism numbers from December 2016 to date reflect a sector starting to get its wings back. According to EY’s Middle East Hotel Benchmark Survey report, room occupancy rates at Lebanon’s five star hotels during December 2016 were at 64 percent, the highest they have been for that month since 2010.

Hotels Executive spoke to noted this uptick as of December last year. “Things started improving in the last quarter of 2016, and that improvement continued over to the first quarter of 2017. So from January 2017 until end of May 2017, we have been way above last year and way above our expectations for this year as well,” says Ramzi Sayess, regional vice president and general manager of the Four Seasons Hotel Beirut.

A bright beginning

This positive momentum has spilled over, with many hotels saying occupancy has been markedly better so far this year.

The Phoenicia Hotel has already added several million dollars in revenue year-on-year from 2016, despite 2016 being “a not bad year all in all,” according to Peter Edholm, cluster director of sales and marketing at Le Vendome and Phoenicia Intercontinental Hotels & Resorts.

Le Gray also started 2017 on a positive note. “The first quarter of 2017 was definitely better than same time last year. We’ve witnessed an increase in occupancy of 18 to 22 percent from first quarter 2016. The first quarter 2017 was positively influenced by the election of the president and the improving security conditions in the country,” explains George Ojeil, general manager of Le Gray Lebanon.

O Monot, a luxury boutique hotel in Ashrafieh, saw a 158 percent increase in room revenue year-on-year from June 2016, according to Michel Boulad, the hotel’s director of sales and marketing. While the Four Seasons’ Sayess says comparing 2017 to 2016 is like comparing day and night, and that the results for the first quarter 2017 are almost double what they were last year.

The newfound sense of security and safety in the country seems to have played the biggest role in these results. “The improvement is because the whole country is now deemed to be safe, as we saw at the Arabian Travel Market (ATM), the perception of Lebanon in terms of the security situation among visitors is changing,” says Boulad.

Sayess notes that it was Egyptian tourists who increased room occupancy at the Four Seasons, both as corporate travelers and as leisure groups. “We had a lot of social groups and weddings from Jordan, Syria, and Egypt … we also had big corporate accounts from Egypt that came to Lebanon for the first time. I assume they used to go to other places such as the GCC or Turkey, and now they’ve shifted to us,” he says.

Phoenicia’s Edholm also notes the positive trend of increased Egyptian leisure and corporate guests in 2016, but cautions that Lebanon might see less of them this summer due to the challenges facing the Egyptian pound.

Take back the gulf

The successful first half of 2017 has brought optimism and positive energy to preparations for the summer season, which effectively started after Eid el Fitr.

Prior to 2012, summers in Lebanon were full of GCC nationals escaping the desert heat in favor of a milder climate, but security incidents over the past six years have caused their visits to dwindle to next to nothing as a result of travel warnings and restrictions.

Hoteliers Executive spoke to are hoping to regain those tourists. “I think with the Gulf markets we’ll for sure recover [from a potential decrease in Egyptian tourists], and add even more. The ban is more or less lifted, although some Gulf countries have more restrictions than others,” says Edholm.

The Gulf countries are Lebanon’s most logical tourists, Pierre Achkar, head of the Syndicate of Hotel Owners, explains. “Across the globe, the best tourists for your country are your neighbors because of the proximity between you means [a] short travel time. Therefore, the Gulf — which is between two to three hours away by plane — has historically constituted the biggest percentage of visitors to Lebanon, and they would come more than once a year and even had investments in the country,” he says.

Ojeil explains that Lebanon holds a unique appeal for GCC nationals, which makes re-attracting them easier. “We don’t need a great effort, if they give us security and safety, it’s enough. In Lebanon, you can live the European experience while speaking Arabic, and this is what the GCC nationals like. They’re always welcomed in Lebanon. We know their habits and can cater to them, and we know the royal families and how to deal with them,” he explains.   

Hotel sales teams have been touring the region ahead of the summer season, promoting Lebanon properties  to tour operators and agents in the GCC. “We worked very actively with our worldwide sales and the regional office, and our sales team was traveling the globe up until two weeks ago. They either targeted new contacts, or touched base with existing ones. But really, the number one goal is to let people know Lebanon is safe, it’s a great place and it has a lot to offer,” explains Sayess.

For O Monot, now in its second year of operation, the GCC is an untapped market which they are exploring for the first time this year through their participation in ATM and other events. “We didn’t go last year because it didn’t make sense to approach the Gulf market when there was a travel ban. Now, they are trusting Lebanon as a destination again, which is what I heard from several airlines that are increasing their flights to Lebanon. So there is much more demand in the country and at the end [of the day] these tourists need hotels. So our expectations are that much [higher] for the summer,” says Boulad, citing Kuwait Airlines, which has scheduled 14 flights per week to Lebanon this summer.

Don’t forget the expats

While the hospitality sector’s efforts may be focused on GCC nationals, they are still keeping their eye on Lebanese expats who may be eager to visit their homeland, now that calm prevails and the garbage is off the streets.

The Phoenicia is predicting that expats who had delayed their visits to Lebanon may choose to come this summer. “Who comes first when a destination comes back? It’s those who are familiar with it, for example, the Lebanese diaspora, and we are seeing a trend there. Maybe they previously postponed their trip due to the garbage crisis or conflicts, but they can’t postpone forever, and now is the time to come back,” says Edholm, predicting that there is going to be an increase in visits to Lebanon from Lebanese expats in South America and Africa.

For O Monot, focusing on attracting GCC nationals and expats makes more sense during this period than working on new markets. “For the moment, our main focus is on reviving the local market of business travelers and that of leisure travelers from the Gulf. Now is not the best time to look at new markets because we can already get a lot from what is available, but which was not accessible to us for a very long time,” explains Boulad.

All are welcome

Gulf tourists and expats are not the only ones visiting Lebanon this summer. The hoteliers interviewed say interest from Europe and America has increased so far this year — and hope that it will continue in the summer.

Speaking for Le Gray, Ojeil says that although they have been making an additional effort to promote the hotel in the GCC region, it is against the hotel’s policy to focus on one market feeder. He explains that they have had more international journalists as guests than they did previously. “Our strategy doesn’t focus on one main market. We’re actually receiving a lot of journalists from many parts of the world, such as the US, Latin America, and Europe, who are reaching out to us to write about the hospitality market in Lebanon,” he says.

The mix of European and Gulf tourists is interesting for a hotel, explains the Four Seasons’ Sayess. “We have bookings from the GCC, from Europe, and from expat Lebanese who come for the holidays. People coming from the Gulf are looking for different accommodation than people coming from Europe — it’s nice to have this balance. You have more suite business for the Gulf tourists and more room business from Europe, but sometimes that can change as well,” he adds.

Exercise cautious optimism

Optimism for a successful summer 2017 is indeed high. Many hotels were already fully booked for the week of Eid el Fitr and are experiencing high demand for July and August, although bookings in the region are usually made last minute. “In this part of the world, we don’t book many months ahead as they do in Europe. In some part, it’s because of the security situation and what is happening in the region, so people fear planning their trip ahead, and then we, in this part of the world, are not planners. It’s always last minute in this region,” explains Le Grey’s Ojeil.

However, no one in the hospitality sector is blind to the fact that the situation both locally and regionally is very different than it was in 2010. Their optimism is mixed with a healthy dose of caution.

To begin with, the Gulf region itself has changed in terms of purchasing power, and its nationals can no longer spend as they used to. “You have to balance the positive trend in the market with the decreasing oil prices and the overall situation in the Gulf, which wasn’t the case when they used to visit Lebanon before,” says Edholm, explaining that although GCC nationals will still visit Lebanon this summer, they will probably book less lavish rooms. “I think we’ll see much more volume than 2016, but I think we’ll sell less champagne bottles than we want,” he adds laughingly.

Ojeil also cautions on the GCC’s purchasing power. “Let’s be conservative in our expectations. I think we will have a good summer but we won’t notice a boom for many reasons. First, back in 2010, as I recall, the oil barrel was at $150, and there was no war in Yemen, Syria, or Iraq. I think the purchasing power of the GCC feeding market is exhausted and that they are not going to spend like they did back in the day,” he says.

There are also repercussions from past years of instability remaining in people’s minds and affecting their perceptions of Lebanon, Ojeil says. “We need to promote more positive news in the country. Lebanon is fantastic and could be a destination for all kinds of tourism from medical to culinary, and it is safe now, so we should be promoting it,” he adds.

Boulad also speaks of the perception of Lebanon among an international audience as the main difficulty he faces in promoting O Monot and Lebanon. “Perception of the security situation is improving, but will always remain a challenge because people don’t see Lebanon as just Lebanon, they see it as part of the region,” he says, adding that negative media focus is a hindrance.

It is with all this in mind that those in the Lebanese hospitality sector are expecting a much improved season — but not a miracle. “For me, if hotels are running at an average of 80 percent occupancy for the whole summer, then I would consider that very good,” concludes Edholm.

July 4, 2017 0 comments
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LeadersOpinion

A cautious revival

by Executive Editors July 3, 2017
written by Executive Editors

For the first time since the onset of the war in Syria, there is finally positive news coming from Lebanon’s hospitality sector.

The election of a president and the formation of a government in late 2016, and the lack of major security incidents in Greater Beirut since the second half of 2015, have given Lebanon the stability it needs to be seen as a safe destination once again.

This has had an almost immediate impact on the hospitality sector. Instead of lamenting dwindling tourist numbers and empty hotel rooms, the five star hoteliers interviewed by Executive were only too happy to talk about increased revenues and high occupancy rates (see article page 30). This trend is expected to continue through summer 2017, despite the recent crisis in relations between Qatar and the other GCC countries.

The tourism sector sorely needs a good season. If expectations hold up and summer 2017 is a success, the industry will breathe a collective sigh of relief.

However, the experience of the last five years should not be forgotten in the excitement over one good season. We have seen already what an over-reliance on one segment of the tourism market can do.

Lebanon previously built its tourism strategy on the conventional luxury model, catering mainly to Gulf nationals with a preference for high-end dining and clubbing, executive suites and shopping sprees. When that market began to dry up in 2012, it dragged the Lebanese tourism industry with it.

It took almost three years for the Lebanese hospitality sector to get over the shock of losing this luxury tourism market. Slowly but surely, the industry pulled itself to its feet, dusted itself off, and started assessing ways to revive the sector.

As a tourist destination, Lebanon has much to offer beyond wining and dining in the capital. With the absence of Gulf nationals, the main consumers of this luxury tourism, alternative options were scrutinized and developed at a national level.

Aided by social media accounts such as Live Love Lebanon, and propelled largely by the local market, rural tourism flourished, and staycations in guesthouses became more popular (see article page 50). In 2015, the Ministry of Tourism adopted a national rural tourism strategy in partnership with USAID.

Religious and cultural tourism have also been further developed, beginning  with the placement of our Lady of Mantra on the International Religious Tourism Map. In May 2017, a $328,000 grant from the Italian Cooperation Office helped to further promote religious tourism through the creation of a coffee table book that maps out of all the religious tourism sites in Lebanon (see article page 40).

These are solid initiatives with the potential to diversify Lebanese tourism and attract new markets. It would be a shame to let them languish in the summer heat simply because we have not learnt our lesson from the past five years.

We should keep these initiatives in mind and continue to work on strategies to develop them, while welcoming what the upcoming season will bring in terms of conventional tourism. Only by working continuously to diversify Lebanon’s tourism portfolio can we hope to achieve a sustainable and economically profitable hospitality sector — one which can withstand whatever is thrown its way. 

July 3, 2017 0 comments
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Cover storyElectoral reform

Visualizing the voting process

by Matt Nash & Ahmad Barclay June 29, 2017
written by Matt Nash & Ahmad Barclay

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June 29, 2017 2 comments
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Cover storyElectoral reform

At long last…

by Matt Nash June 29, 2017
written by Matt Nash

While some of the terminology is the same, in 2018 Lebanon will have an electoral system unlike anything it has ever seen. The new electoral law, approved by Parliament in June, features changes to electoral districts and introduces two new components: proportional representation (PR) and preferential voting. It is certainly more complicated than the electoral systems used in the past, but Executive has prepared a guide to help readers understand both how to cast ballots and how their votes will be counted.

New districts

For administrative purposes, Lebanon is divided into governorates (mohafazat) and districts (kadat). Traditionally, each administrative district has also been an electoral district. In 2009, there were only a few exceptions (Baalbek and Hermel were merged into one electoral district, as were Miniyeh-Danniyeh, West Bekaa-Rashaya, and Marjayoun-Hasbaya).

In 2018, the electoral map will not be drastically different. While the previous 26 electoral districts have been reduced to just 15, the number and sectarian division of seats remains largely unchanged. This means that those electoral districts that have been combined retain the number of seats and the divisions they had in 2009. For example, Bcharre, Batroun, Koura, and Zgharta combined become one electoral district with 10 seats, seven Maronite; three Greek Orthodox. Six of the 2009 electoral districts reappear unchanged.

Beirut underwent the biggest makeover. The city was divided into three electoral districts in 2009. In 2018, it will be two electoral districts. The district known in 2009 as Beirut 2 is gone, with the Medawr neighborhood (see map) now merged with 2009’s Beirut 1 (Ashrafieh, Saifi, Rmeil). The Port (Marfaa) and Bachoura neighborhoods are now part of the remainder of the city in 2018’s new Beirut 2. The city’s upcoming electoral division quite nearly mirrors the so-called “green line” of the civil war. The former Beirut 2’s two Armenian Orthodox seats went to Beirut 1, as did the evangelical seat representing Beirut 3 in 2009. Beirut 2’s one Sunni and one Shiite seats each remain in 2018’s Beirut 2.

The lists

In past Lebanese elections, political parties would strike alliances to form lists of candidates in an electoral district. However, there were no pre-printed ballots at voting stations. What this means is voters either entered the polling stations with party-printed lists to place in their voting envelopes, lists they wrote at home (i.e., creating their own lists by choosing their favorite candidates among the competing lists) or nothing, using the blank pieces of paper and pens in the voting booth to handwrite a list of their chosen candidates. The electoral list was a marketing concept, not a legal requirement. Candidates were free to register and run in a constituency even if they were not part of a list, and voters could mix and match among the lists. However, election results proved that most voters opted to choose entire lists. Many argue that this often led to unfair results as a result of close elections (i.e., a list that garnered 51 percent of the votes saw all of its candidates elected, while candidates who attracted 49 percent of voters got nothing).   

Under the new law, lists will be legally set in stone (meaning no more mixing and matching and no more individual candidates), and voters will be handed pre-printed ballots by electoral officials when they enter a polling station. There is no limit for the number of lists that can run in an electoral district, however, there are some rules. Lists can be either complete or incomplete, meaning if an electoral district has 10 seats, the list can either have 10 candidates (a complete list) or fewer (an incomplete list). An incomplete list, however, cannot be a one-person show. Any incomplete list must have at least three candidates or more, up to a minimum of 40 percent of the seats in an electoral district, and — in electoral units comprised of more than one administrative district — one candidate from each kada.

[pullquote] There is no limit for the number of lists that can run in an electoral district, however, there are rules [/pullquote]

Proportional representation

The new electoral law also introduces proportional representation, an attempt to better represent voters. Tallying the votes and determining how many seats each list will receive is a three-part process. First, all votes cast in an electoral district are counted and then divided by the number of seats to reach an “electoral quotient” (i.e., 100,000 votes cast in a 10-seat electoral district means 10,000 votes is the electoral quotient). Second, the number of votes for each list will be measured against the quotient, and lists below the quotient will be disqualified (in our example, even a list with 9,999 votes wouldn’t make the cut). Third, once lists below the quotient are disqualified, the votes from those lists are subtracted from the overall total of ballots cast and the quotient re-tabulated with seats then distributed to the lists based on the new quotient (see sample ballot).

When allocating seats based on the quotient, the math typically won’t produce “round” numbers (i.e., a list will be allocated 3.567 seats, for example). To handle remainders, lists are first allocated their whole number of seats and the list or lists with the largest remainders get any remaining seats (in a 10-seat district, imagine List 1 gets 4.921 seats; List 2 gets 3.896 seats and List 3 gets 1.895 seats, the final allocation will be: List 1: five seats; List 2: four seats and List 3: one seat).

[pullquote] Voting systems vary across the world, and there’s no absolute best practice [/pullquote]

Voting systems vary across the world, and there’s no absolute best practice for determining an electoral quotient (or threshold) in a PR voting system. In some countries that use party list systems, a percentage of total votes cast is used (i.e., any list with more than X percent of the vote gets at least one seat, with more popular lists getting more seats). This percentage can be high — 10 or 20 percent — which disfavors parties/candidates with limited popularity. It can also be low — 5 percent — to favor the inclusion of less popular parties/candidates. Lebanon’s chosen method of calculation results in varied threshold percentages across the country (i.e., seat distribution is not well-aligned with population distribution, at least according to the imperfect lists of registered voters, meaning that some electoral districts have “more” seats than others based on the comparative populations — see chart).

Preferential votes

The new law also introduces preferential voting, meaning voters can choose their favorite candidate on the list they vote for (provided the candidate is running in the cada where the voter is registered). It’s as if voters get to as vote twice, first for a full list of candidates representing the entire district and second for a specific candidate representing the cada in which the voter is registered. For example, the new electoral district of Batroun-Bcharre-Koura-Zgharta has 10 seats, so the district will see lists with between 4 and 10 candidates. Once a voter has chosen a list representing the entire district, he or she then chooses a favorite candidate from his or her cada (i.e., voters registered in Koura can only cast a preferential vote for candidates running in Koura).

Once all lists passing the threshold have been identified and allocated their number of seats, the job of actually filling the seats comes down to the preferential votes. This, again, involves some math. To seat candidates, they are ranked in order of their popularity (calculated by dividing the number of preferential votes received by the total votes cast in each administrative district (kada), not the wider electoral district). Candidates are then ranked based on these percentages and allocated seats. Because seats are still allocated to religious communities, this does not necessarily mean that the most popular candidates on a list will actually get elected (see sample ballot). If there were no seat allocations for religious communities, the strongest candidates on each list allocated seats would win. Community allocations complicate that, however. Imagine a constituency with two Sunni seats and three lists. List 1 received the most total votes and has the most popular Sunni overall (i.e., the Sunni with the most preferential votes from his or her kada). List 2 received the second-most total votes, and one of its Sunni candidates received the second-most preferential votes. List 3, meanwhile, received the least number of votes, yet the list’s most popular candidate is a Sunni (i.e., one of the list’s Sunni candidates received more preferential votes than any other candidate on list 3). List 3’s star Sunni is guaranteed to lose because the two more popular Sunnis will get the seats first, and all other Sunni candidates will be disqualified once the two Sunni seats are filled.     

An uphill climb

Civil society organizations have long called for proportional representation as a means to wrest some power from the country’s established political parties. This law certainly gives newcomers a better chance at getting elected than all previous electoral laws. However, it arguably is written in a way to decrease that chance as much as possible (see leader). While this law is unlikely to result in drastic changes to the parties and interests filling the seats of Parliament, it offers those hoping to challenge, the establishment a fighting chance.

This article was amended on July 3rd.

June 29, 2017 0 comments
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Cover storyElectoral reformLeadersOpinion

A law is born

by Executive Editors June 29, 2017
written by Executive Editors

Since appointing the National Commission on Parliamentary Electoral Law (the Fouad Boutros Commission) in 2005, Lebanese politicians have been “working” on an electoral law that employs proportional representation (PR), a system that allocates seats in Parliament based on the percentage of votes a candidate list receives. PR is more representative than a majoritarian or first-past-the-post voting system. In all past Lebanese elections, the list with the most votes won all the seats on offer, with their opponents getting nothing (even if a competing list received 49 percent of the vote). PR gives voice to that 49 percent and increases the chance for independent candidates to actually get elected. However, it undeniably threatens the established power structure. No surprise then, that after 13 years of studying how to best adopt a PR system for Lebanon, the law unveiled in mid-June introduces PR, but at the same time does its utmost to preserve the interests of the entrenched politico-communal establishment.

First and foremost, for PR to be truly effective, electoral districts must be large. The Lebanese Association for the Democratization of Elections (LADE) set a criteria of 20 seats per electoral district as an ideal standard in any new law. While Executive does not necessarily endorse 20 as a magic number, the laws of math do agree that larger districts lead to more plurality in a PR system than smaller districts. The law agreed last month comes nowhere close to the LADE proposal. While the 26 electoral districts used in the 2009 election have been reduced to 15, the largest of the new electoral districts has 13 seats and the smallest a mere five. Only six of the districts have 10 or more seats and six of the districts have seven or fewer seats.

Additionally, the threshold for a list to receive seats is not only different across the country, in most instances it is far too high for non-establishment candidates to actually stand a chance. A list needs 20 percent of the vote to qualify for a seat in the Saida-Jezzine electoral district. In all but four of 15 electoral districts, the threshold for a seat is 10 percent of the vote or higher. It is for the pundits to debate which political parties benefit most as a result of this uneven playing field, but fairness and equality are clear losers.

The work starts now

For all its flaws, however, this is the law we have to work with. Politicians gave themselves 11 months to crunch numbers and find the best strategies to cling to power. They’ve even legally allowed lists and individual candidates to spend millions of dollars per district on electioneering such as flying voters in from abroad (arguably unnecessary when expatriates are also given the right to vote in their country of residence).

The  coming campaign will be long (it’s clearly already started). It will no doubt be very dirty. There will be no shortage of sectarian rhetoric and fear mongering. While Lebanon might not have to fear online meddling and fake news peddling by Russian hackers aimed at influencing the election, there will be deliberate distortions of fact, attempts at voter manipulation, and outright lies — all homegrown and apart from the interference of well-known foreign meddlers which have tried to manipulate every election of the past 25 years.

[pullquote] For all its flaws, however, this is the law we have to work with [/pullquote]

For two decades Executive has been reporting on and analyzing the economic pulse in this country. There’s no denying that Lebanon is much improved compared to 20 years ago. However, the pace of that improvement has been woefully slow, and far too many promises remain unkept (affordable housing, 24-hour electricity and fast internet, to name a few). The upcoming parliamentary elections offer an opportunity to reverse this momentum, and individual voters have an important role to play in achieving that goal.

While this magazine’s archives are filled with evidence that the country has been very badly mismanaged, it is not our place to suggest for whom readers vote. What we demand, however, is that they think critically. Democratic politics the world over have arguably become (or at least heavily gravitated toward) beauty contests filled with meaningless sound bites. Promises without detailed action plans.

In the articles that follow, we offer a detailed explanation of the new electoral law to help readers understand a somewhat confusing system. Our goal is to inform, and we promise to do our best to hold candidates’ feet to the fire in the coming 10 months. We’ll ask tough questions and won’t be afraid to identify bullshit as such when we smell it. We challenge our readers to do the same whenever and wherever they encounter candidates trying to woo them. Even if this law does not result in a massive shakeup of the parties represented in Parliament, the more we can all steer the discussion over the next few months toward practical ways to improve this country and away from emptiness and vitriol, the better the chance we can build a stronger Lebanon post-election regardless of who wins.

June 29, 2017 0 comments
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BankingSpecial Report

Undogmatic thinking

by Thomas Schellen June 23, 2017
written by Thomas Schellen

It is not every day that a world-renowned economist touches down on Lebanese soil, but it should not surprise that such a formidable economist could deliver a presentation less than 24 hours after arriving in Beirut for the first time in his life. It might be expected that he would start with an exercise in affinity, by saying nice things about this country’s welcoming people and surprising allure. But, it was refreshing to meet an acclaimed economist who not only confesses to being no specialist on the local economy (only a fool would claim to understand the jungle that passes as Lebanon’s economy), but who has real expertise on the issues that matter in developing countries. Executive sat down with Peruvian economist Hernando de Soto Polar on the sidelines of an event organized by Banque BEMO at the Ecole Supérieure des Affaires.

E   What brings you to Beirut?

What brought me to Beirut was the invitation by Mr. [Riad] Obegi, and the fact that he told me, ‘Based on your kind of thinking, I’ve got a product that you’ve probably never heard of before, and that is my invention [see box page 56]. Why don’t you come and learn more about it, and at the same time, expose yourself [to the situation in Lebanon]?’ I said fine, and that’s what brought me here.

E  Lebanon is a very small country and there’s often a dichotomy between the local reality and the data and perspectives put forward by popular international economists, who only come for one or two short visits. I understand that you have done more than precursory research on Middle Eastern economies. Have you done any work on Lebanon?

Nothing.

E   So it’s virgin territory for you?

That’s one way of putting it. Total ignorance territory.

E   Knowing what one doesn’t know is a fortunate state of being. You have conducted extensive research  on the informal economy in developing countries, such as your native Peru. The informal economy in Lebanon is a very important part of the national equilibrium. How would it help to integrate into the formal economy a sector that’s barely recorded or taxed?

The advantage could be that you could do many things with your resources. You could work within a large-scale economy. Large-scale is [what was] behind the industrial revolution, and the advantage of this comes if you want to specialize and make combinations [such as products with multiple inputs or components]. Everything around us is the result of a combination, and if you’re in an economy where it’s clear what transactions can be made — because they are governed by laws — you can make much more complex products and fetch more surplus value. [People in the informal economy] aren’t taxed [on their incomes], but in my experience — in a measure that is confirmed in each country — they pay much more than the people who pay taxes.

E   How?

Many taxes are consumption taxes and not on income. Then, you have to pay direct bribes, and this is an irregular [cost] as opposed to a tax, which is set by law. The second thing is, of course, the humbling effect of a father telling his son, ‘We’ll go out and pay some little bribes. That’s the way life is, son.’ This is a very corrupting atmosphere. The other part is bribes that don’t look like bribes, like the amount of untruthful friendships that you keep up just to make sure that you are in touch with everybody. There are many ways of measuring this. For example, in a country like Peru, you have provincial industries, but 90 percent of the managers live in Lima, and not next to their factories, where they could help by supervising. This is true in practically every country that we have been to because it’s much more important to be close to [the] people in power, and make sure the law provides an advantage for you, than to actually supervise your factory. The idea about the formal economy is that it brings you all the advantages that you receive from the ability to have proof of your assets — to guarantee your credit or to pledge them against investments.

E    Financial inclusion and inequality are buzzwords of our time. What could banks contribute to achieving inclusion and overcoming inequality in a country with a very potent banking industry, like Lebanon?

They could do all sorts of things. The question is how many of them have the initiative of someone like Mr. Obegi and try to do something. In places like the United States, the banks haven’t done innovation. It’s been other forms of financing. I’m not sure that banks are in a position [to be innovative] because they tend to be conservative. If they do [participate in the financing of projects], they are in business, and if they don’t, they can be replaced, which is happening in many parts of the world.

E   In Lebanon, there is currently a debate over the validity of juxtaposing capital markets versus debt markets, because most of financing of the public sector and private sector economy is still done via banks and debt markets. Could an increase in capital market activity in a country be beneficial to the economy or would it make no difference?

What you mean by debt and capital markets is investments or loans that don’t come through banking. First of all, I believe in competition. I believe that taking initiatives [in new forms of finance] like Mr. Obegi’s is good, but if they don’t come from banking, they have to come from someplace else. If [this competition to banks] is not there, you have a huge black market with interest rates that go through the ceiling under the fictitious motive of getting to micro credit, which is extremely exploitative. I don’t believe in monopolies of any sort.

E   In one of your works, The Mystery Of Capital, you wrote that ‘The bell jar makes capitalism a private club open only to a privileged few and enrages the billions standing on the outside and looking in.’ Has your assessment changed in any way since you made this statement at the end of the last century?

Unfortunately, I don’t think so. The countries I’ve worked in may be a little more democratic, but [the development] has been too slow to stop terrorism and to stop feelings of inequality, frustration, learned helplessness, whatever you want to call it. My calculation is that people who are outside the bell jar make up 5 billion of the world’s 7.5 billion. When I talk of the 5 billion, I’m not talking about people like me, who can take whatever they want and combine it. The people who can combine things [into economic products] are only 2.5 billion. The other 5 billion are looking in from the outside and are angry like hell. To me, that was part of the [catalyst for] Arab Spring and all terrorist wars.

E   Proponents of contemporary capitalism say that to have 2.5 out of 7.5 billion included in the capitalist model is better than 1,500 or even 150 years ago, when only one out of every 100 people was included. As British economist Joan Robinson famously said in the 1960s, ‘The only thing worse than being exploited by capitalism is not being exploited by capitalism.’

I agree. I absolutely agree. Everything seems to indicate that between the time of Jesus Christ and just after the end of WWII we grew less than between the 1950s and today. The question is what’s politically viable, and we suddenly find that people voted in the United States either for Donald Trump or Bernie Sanders, who both said they want to stop globalization. I’m not criticizing the 2.5 billion. What I’m saying is that maybe we’ve arrived at a moment where the system might not hold unless you give some kind of outlook to the 5 billion who aren’t seeing the light. They’re starting to act up all over the place and go to the right or left [extreme] to topple the system. If that can be done is another story; the fact is that people are genuinely unhappy. The fact is that there is a rising mood on the left and the right against globalization. Let’s call it de-globalization. [In facing this trend], I think it’s a good idea to make the system much more inclusive.

E   We’ve just seen the renewed assertion of an alliance during President Trump’s visit to Saudi Arabia, which resulted in very large bilateral agreements. Do such collaborations between a key country in the Islamic realm and the United States, under a president considered by many to be anti-Islamic, mean that globalization is back on track, and we don’t need to worry anymore about anti-globalization politics in the US? 

I don’t have a view on what the significance of Mr. Trump’s visit is, among other things because we still have yet to find out if it will be a consistent [policy] over time. He seems to be a man who’s finding out that the world isn’t exactly the way he thought, as a result of which he’s improvising solutions at the moment. Some people would say what a practical politician he is, but I don’t think that we can actually see what’s really going to be the outcome of the new proposal because there is nothing in the background of Mr. Trump that you could’ve said would lead to this trip to Saudi Arabia. Obviously his government, or he himself, is still in the learning process, and we don’t have enough evidence to say whether this will look consistent and good. What is obvious is that he’s changing the game, and if his [previous] idea was to isolate the United States, he’s now getting the United States involved in a new war.

E   Are we heading into dangerous times in the global economic and political situation, or are we still proceeding in moderately risky scenarios as we have over the past few years?

In terms of dangers, I think the dangers started way before. I think that we’ve been in dangerous times since the West decided to intervene in Afghanistan [in 2001] in the way it did, since we went into Iraq [in 2003], and since [the financial crisis in] 2008.

E   This recalls sentiments voiced by other economists, who have been warning for some years now that we aren’t in a stable situation.

Yes, we’re off the charts now. That’s quite clear.

E    Do you see yourself in any specific school as an economist, such as behavioral economics, development economics, post-Keynesianism, or what have been called the saltwater (coastal) and freshwater (Chicago) schools in the United States? Do you identify with any of those?

No. At a certain moment of course in Peru, when I saw that people were working in the market, and the law was against the market, my position became very pro-market [with regards to] the countries I worked in. But, if I were a European or an American citizen, I wouldn’t necessarily take that view. [On the other hand], I can’t subscribe to the views of those who classify themselves as liberal in the European sense, or libertarian in the American sense. They assume in everything they talk about — on how to do markets, how you deal with bilateral trade, etc. — that the institutional revolution which occurred in Europe and in North America has also taken place in my part of the world. That’s a wrong perception. If they were [proposing] a system that is built on law and good contracts, copyrights and respect etc., why do they not think of those measures when it comes to a developing country? I don’t agree. I understand the compassion that the left has very strongly, but I don’t like their idea that the solution isn’t the market but the government. I think this is completely off-track. I find it difficult to fall into any specific classification.

E   Would you agree then to be called an undogmatic economist? You’re being hailed as a global influencer in economic thinking, so would that be an undogmatic version of economics? 

I like the word and am flattered. I’m flattered because I just haven’t found one place where to find the whole thing. If you look at The Mystery of Capital, my last chapter is called ‘The Ghost of Marx’ because I don’t think he’s exhausted.

E   In the philosophical or the economic sense?

In the philosophical sense, first of all because he has something over libertarians. By tendency, libertarians ignore the class phenomenon, and I don’t think you can see the big picture without classes. And the classes vary. The philosophical thinking of a great philosopher is helpful, but you have to avoid being captured by the last book you read. And you have to do what happens in revolutionary moments, which was said by the man who invented modern medicine in Britain, Thomas Sydenham, that ‘there is a moment when you have to close your books and open your eyes.’

June 23, 2017 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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