Executive Magazine

Bireme ad(ventures)

by Thomas Schellen February 19, 2016

written by Thomas Schellen

Startup ecosystems in the United States continue to be major magnets for young Lebanese companies that want to benefit from valuations that the local market seems unlikely to generate. Executive learned of a new fund called Bireme Ventures from Elie Habib, the fund’s managing partner. In an interview during the central bank’s international startup conference BDL Accelerate 2015, Habib tells us that the fund has a target of $20 million and wants to achieve a first close of $5 to 10 million by the second quarter of 2016 to be deployed in facilitating the sojourns of Lebanese and Gulf-based startups across the Atlantic Ocean.

“We are seeing more and more companies maturing and facing the need to expand into the United States to accelerate their growth and acquire new customers. These companies need capital to reach the place from where they can reach the next level in their performance,” Habib tells Executive.

Habib, a Lebanese-American who spent most of his career in Silicon Valley and has been involved with funding efforts in the Lebanese startup scene since 2009, says that the move into the US is as challenging as it is necessary for those local startups that have potential to penetrate global markets. He argues that such companies will do best if they take advantage of the US market for raising funds and later on for realizing the fairytale returns that people associate with the American entrepreneurship ecosystem.

According to Habib, entrepreneurial communities of many countries are represented in the US market by funds that enable startups from nations such as India and China to enter the American scene but the Middle East is lacking such representation and this is the gap that Bireme wants to close.“The only region that does not have representation in the US [through] capital from or direct influence on startups coming from that region is the Middle East,” he claims.

He warns that it is very difficult for young companies to transplant themselves into the US because of the American market’s legal and organizational requirements and that being accepted by American venture capital (VC) and private equity (PE) firms is especially challenging for startups from the MENA region. “Many US VCs are very hesitant to deal with Middle Eastern startups and invest in Middle Eastern companies. The barriers are cultural, legal and perception based, and [about] intellectual property rights. [US VCs] are not going to invest into an intellectual property that is not correctly protected – that is where their assets are,” Habib explains.

Bireme aims to build relationships between Arab startups and US VCs in order to present the American funders with Middle Eastern companies that meet their investment criteria. According to Habib, this approach positions the fund outside of the realm covered by BDL Circular 331 by addressing the needs of Lebanese companies that seek international acceleration. Startup profiles that will be a good fit for Bireme will nonetheless include companies that received funding from a Lebanese VC under the 331 framework, or companies that have been nurtured by VCs in the United Arab Emirates.

In this context, Habib points to his ties with Middle East Venture Partners (MEVP), with whom he has been a venture partner for several years already. Within the now burgeoning environment, the possibilities for sailing startups to the US under Bireme’s participation are much improved, Habib enthuses. He says that the fund has a pipeline of “around nine companies that are at various stages of development but are generally post-A” in their funding stages and Bireme is ready to source companies from any VC in the region. While MEVP is a strategic partner, “this is not about [working with] any specific [VC] firm but about investing into breakthrough best-in-class Lebanese or Middle Eastern entrepreneurs that have the capacity, potential and product to go global,” Habib emphasizes.

Bireme Ventures will have a structure of limited partners (LP) and general partners (GP). The management team comprises three Lebanese-Americans under Habib’s leadership. In legal terms, it will be a US-based partnership with a management company in Delaware and a GP-LP fund in the Cayman Islands in order to facilitate participation by international investors. The fund will require no licensing from the Lebanese central bank, Habib says. He expects LP participations to comprise approximately 60 percent in investments from members of the global Lebanese diaspora and about 40 percent from individual and institutional investors in Lebanon.

Planning for a total life span of eight to 10 years, the fund’s strategy hinges on bringing in US-based VCs and motivating them to co-invest in the companies in Bireme’s portfolio. Beyond the envisioned US money, the fund at a later stage will also grant its LPs the right to co-invest directly into the companies. As Habib notes, the whole enterprise is based on a calculated expectation of high mortality among the invested startups with an aim of developing a group of winners that will provide high returns. He says, “What we are focused on is an [internal rate of return] of 25 percent and a return of 3 to 3.5 times money for the fund. We are going to play the role of the physical platform that is going to impact the three stakeholders (the fund’s participants, the startups and the US VCs), but we are ultimately going to look for creating exits — this is not a developmental fund; this is for profit.”

February 19, 2016 0 comments

Architecture

In with the old, out with the new

by Lynn Soubra February 18, 2016

written by Lynn Soubra

With the exception of politics, Lebanon is the embodiment of the ‘out with the old, in with the new’ mentality. Whether it’s fashion, food or art, Lebanese people seem to jump at the opportunity to give their country a westernized nip and tuck. It’s the year 2016 and Lebanon’s ever-changing skyline is getting more and more plastic surgery, wiping away the wrinkles of its senior buildings. Sure, we might get excited about shiny, new skyscrapers and pretty lights, but we fail to realize that our country’s identity is slowly fading away.

Cargo

Yet, some people are still holding on to Lebanon’s original architectural beauty. Architect Antoine Maalouf, a lively man with a vibrant mind and a colorful vocabulary, sits with me in one of his latest creations, Salon Beyrouth, a vintage-inspired restaurant-bar tucked in one of the quiet streets of Clemenceau. He expresses his frustration with some people’s denial of Lebanon’s rich heritage and voices his devotion to preserving our country’s landmarks in the new age: “We’re stepping on our culture, we just don’t care. It annoys me, because people invade countries that have what we have and we’re just throwing it away,” he says with dismay. Maalouf, who designed and executed Motto, Cargo, Internazionale and The Grand Factory amongst other work, speaks of the importance of preserving the materials used in old architectural styles and respecting the history of the space instead of shaping it into something completely different: “When you live in a space you leave your print there; the older it is, the more it has spirit and stories,” he explains. “It’s important to learn and see what you have and build on that.”

Salon Beyrouth

Inspired by Frank Lloyd Wright’s and Walter Gropius’s work, known for its harmony with its environment, Maalouf focuses on creating a dialogue between the interior and the exterior by blending them into one entity that fits the natural location of the space: “Get to know the history in the streets, the people and how they refer to the place,” he explains. “You have to take note of whatever people say and research the whole history of the space,” he adds. “You learn a lot from the heritage.” And while some architects have an itch for big and bold buildings that have their names plastered all over them, Maalouf’s work, is a marriage between traditional materials and modern design, and remains subtle and unpretentious as he lets the space speak for itself: “I hate over-designing. I’d rather highlight the existing interiors and accentuate the old traits,” he says, adding: “I like to remain in the shadows and let people discover the space. I would rather people ask themselves: who did it?

The Grand Factory

Ever since he was young Maalouf had a penchant for design and architecture. He could draw perspective when he was seven years old and build shelves when he was 12. He owes his passion to his days with his grandfather, who became the head of the syndicate of architects in Jounieh during former president Fouad Chehab’s presidency: “I would go on site with my grandpa and he would go like ‘take all the nails and straighten them’. Do you know how many times I busted my fingers trying to do that with a hammer?” he says with a smile on his face. “My grandpa taught me everything.”

Maalouf compares his first days on his projects to a blind date: “I just go in, look around and trust my instinct” he says. The more he spends time working on a project, the more he builds a long-term relationship with it, something that’s hard to let go of when the job is done: “It’s like a relationship that someone came and took away from you and you’re like ‘no that’s my woman!’” he says.

Motto

A self-proclaimed vagabond and an avid traveler, Maalouf learns from different cultures and stories of people he encounters, progressively adding depth to his style along the way: “I grow older, I travel a lot, see lots of things and learn new cultures. With that, I add a little touch to my work. Your style grows with you,” he says. However, he refuses to recreate anything he has seen abroad, and he makes sure that a place in Lebanon is solely for Lebanon: “Even if it’s an Argentinian [restaurant], it has to have something that reminds you that you’re in Beirut,” he explains.

Although Maalouf doesn’t see his country getting back on its feet any time soon, he hasn’t stopped loving it: “I’m doing what I can to try to salvage it,” he says. “I will not stop doing any work here.” All he wants is for people to love Lebanon and show “a bit of appreciation for the people who are trying to revive what we have.”

Internazionale

A word of advice to aspiring architects? Maalouf stresses on the importance of traveling and exposing oneself to different worlds: “Learn different cultures and you will end up growing. Sit with people and listen. Be open to learning new things and you’ll become a better person,” he says. “You’ll be able to see the world differently and do your job better.”

High ceilings adorned with large windows, Mediterranean tiles accentuated by bricks, wood and concrete are just some of the trademark elements that make up the brainchild of Maalouf’s love affair with Lebanon’s golden era, or as he puts it “before everything got destroyed”. With today’s cookie-cutter real estate development, some people remain attached to the time when Beirut was known as the Paris of the Middle East, and Maalouf’s creations are some of the few time capsules where people can experience Lebanon’s authentic character: “It’s refreshing to see younger generations looking for places like [Salon Beyrouth],” he says. “It means there’s still hope.”

February 18, 2016 0 comments

Entrepreneurship

Talent takes the stage

by Executive Editors February 18, 2016

written by Executive Editors

The entrepreneurship ecosystem is evolving and becoming more ‘startup friendly’, hosting networking events every other week and improving the access youthful entrepreneurs have to information. Little by little, startups are crawling into the spotlight and are being given opportunities, access to capital and resources that weren’t readily available five years ago. The second Banque du Liban (BDL) international conference was held in December 2015. For some Lebanese startups, however, the exposure and prizes of up to $10,000 won through competitions was second to none.

BDL Accelerate is a good example of how the entrepreneurial landscape is changing – the event simply didn’t exist three years ago. There are further examples of showcasing talent to local and international investors, and events which provide young entrepreneurs with real-world experiences of startup success and failure. Fuckup Nights, the Mexican-born event where high-profile entrepreneurs share with the community stories about their past failures, had its third round in AltCity on January 14; their mission is to create solidarity by sharing experiences of failure and lessons learned. Bootcamp by AltCity and Speed@BDD, two of the accelerators Executive profiled in our special report in November 2015, have both finished their rounds of startup acceleration, and hosted their Demo Days – events which showcase accelerated startups in an attempt to generate funding from investors who are invited to attend.

Demo day: first cycle

Both Demo Days were positive, according to Theo Khoury and Sami Abou Saab, managers of Bootcamp and Speed respectively. “People weren’t expecting a lot [from Bootcamp’s first Demo Day] but were very impressed by what was available,” explains Khoury, who notes that present venture capital representatives gave very positive responses to the relatively inexperienced teams that were presenting to a packed room. Khoury admits that AltCity was reluctant to reach out to foreign investors to attend their Demo Day, as the organization lacks enough long-standing and regional credibility to warrant a one-day visit. Aside from contact from the managers of the 500 Falcons, a $30 million regional micro-fund that is an offshoot of seed-funding powerhouse 500 Startups, foreign interest has been quiet. Their plan is for future Demo Days to attract foreign investors based on the credibility that Bootcamp builds at home and abroad. However, the ecosystem’s current pipeline of funding does not help startups at a very early stage, as the money is more readily available at later stages of development. Both Middle East Venture Partners and LEAP, two venture capital powerhouses, only offer ticket sizes to large entities, and often to the tune of hundreds of thousands of dollars, if not millions. Whilst successive Demo Days and rounds of acceleration will tell whether AltCity can build enough reputation and credibility to gain international traction, the startups themselves will only flourish if more money is made available at every stage of the developmental journey.

One Cinderella story from the current Bootcamp, however, is ReAble, a startup featured in Executive’s “Top 20 for 2015” that has created an online mobile wallet app for people with autism to help with cashflow and money management. The company has received external investment of $25,000 from a private Canadian backer, on top of the $10,000 first prize in the Early Stage Startup Competition at BDL Accelerate 2015, and exhibited at the Arab Health Exhibition in Dubai, the second largest health expo in the world. Emile Sawaya, ReAble’s CEO and co-founder, credits AltCity with key development processes at the early stage and helping them transform from idea only to startup. He does, however, credit some of his company’s success to networking through the wider community rather than exposure at Demo Day – the private investment was made through personal contacts.

Accelerators have also begun to evolve, much like the entire entrepreneurial ecosystem. Originally, AltCity’s Bootcamp gave a $25,000 investment to startup teams after a three month acceleration course which took ideas to fully-fledged startups. AltCity shifted their entire acceleration business model from the beginning of the current and fourth Bootcamp cycle; they are no longer giving $25,000 in exchange for a 6 percent equity slice, but are splitting the accelerator into two phases. Phase one will be online, and allow Bootcamp to analyze the teams remotely, thus maximizing the number of participants due to less strain on physical resources. Roughly five teams that complete phase one will be selected to proceed to phase two, thereby halving the number of teams which was in the previous Bootcamp at the physical stage and therefore concentrating its resources on fewer teams. Khoury explains that these changes were made due to time commitments and restraint on resources, which resulted in Bootcamp’s inability to dedicate as much time as was needed for individual startups. “Before Demo Day we decided we had too many teams, and we couldn’t spend enough time with teams individually,” explains Khoury, who notes that the new model will allow for more efficient time expenditure. The original $25,000 per team investment was made through a partnership with AL-MAWARID Bank, which sits on the board of Bootcamp, as AltCity and Bootcamp were only mandated by BDL to take an equity slice (without investment) in order to sustain Bootcamp. They will therefore revert to this mandate, and take 2 percent in equity from teams in phase two only, though the bank would still be able to offer an investment independently of Bootcamp.

Speed’s Abou Saab was also keen to point out how his accelerator has evolved. Part of the culture of Speed is to incorporate feedback mechanisms which allow the accelerator to improve and best serve its startups. One key example of this was the overhaul of how startups receive advice and mentorship during the program. Initially, talks were given by experts to all startups simultaneously, and although they covered generic problems, were largely untailored to specific needs of individual startups which varied drastically from team to team. After consultations with the startups, the three-hour slot that experts were booked for to address the entirety of Speed’s startup class was divided into six half-hour slots, as “a one-to-one mentorship could actually solve specific points a startup has which generic talks cannot address,” explains Abou Saab.

Silicon valley

Charlie Khoury, CEO and co-founder of drone-building company Next Automated Robotics (NAR), was also keen to explain how Speed’s entire accelerator process had helped his company to evolve. “The number one thing that changed was scalability,” says Khoury. “When we first came to Speed our product was just a quadcopter – a simple drone with limited flight. During the acceleration we [changed] to a design that could have outreach and applicability.” NAR incorporated vertical takeoff and landing technology into their drone, which now has better wind resistance, higher speeds, a greater flight range and overall a greater applicability to different industries.

Speed’s great contribution, however, comes in the form of creating a direct vehicle for Lebanese startups to head straight to Silicon Valley. This process enables startups from Lebanon to apply to the ‘LebNet Ignite powered by Blackbox connect program’, an immersion which focuses on global startups and provides access to mentors and resources in Silicon Valley, and, for example, includes coaching on pitching and business strategy. The program was made through a partnership with LebNet, a network of Lebanese-American hi-tech professionals in the Bay Area, and in turn was organized for Speed by Lebanon for Entrepreneurs, some of whose members sit on the board of the accelerator. George Akiki, president of LebNet, explains the driving factors behind the immersion; “Lebanon has been witnessing an accelerated pace of deal flow, innovation, startups and startup capital. Our intent at LebNet is to build a closer relationship with the ecosystem in Lebanon and impact the formation of world-class companies and entrepreneurs.” NAR and Rational Pixels, the latter of which creates product-placement technology, will enroll in the two-week program, and startups in subsequent Speed cycles will be encouraged to apply to the program on a regular basis. For Charlie Khoury, the opportunity is second to none, as direct exposure to Californian firefighters allows them to fine-tune the usability of their drone, which was originally built with the intention of combating wildfires: “We want to see daily examples of how [firefighters] deal with the fires, and can see, for design purposes, how people use and would use [our technology].” As for NAR, the US is a key market for the drones they are developing; therefore being in-country and having the opportunity to have direct meetings with different stakeholders will “have a huge impact on our future” explains Khoury.

By giving entrepreneurs clear access to opportunities abroad and exposure to strategy and business giants within Lebanon, Abou Saab hopes future talent will be more likely to remain in the country rather than seek employment abroad. “We were able to get Rida [Sadek, of Rational Pixels] back from Barcelona after he had lived there for eight years to come for the acceleration [program],” explains Abou Saab, himself a returnee from the US after a career at Microsoft and Skype. “Even for the next batch we have started receiving applications from [Lebanese] living outside of Lebanon, with the idea of coming back. Having something which is retaining them here is a big value added [to the ecosystem] right now,” notes Abou Saab.

Pipeline problems

Participants in both Speed and Bootcamp are encouraged to be open to constructive criticism, alterations and continuous external validation to their product and ideas. For Khoury, one key piece of advice to startups was “never [to] move forward before you have external validation. Stop wasting your time on assumptions.” Speed’s similar ethos is useful for those attending the post acceleration immersion in Silicon Valley, where the final chapter in the disastrous saga of golden startup Clinkle has rocked investors and entrepreneurs alike. After a hugely successful round of initial $25 million seed-funding in June 2013 – despite Clinkle not having a publicly available demo of their highly-anticipated mobile payments app – the company imploded in the summer of last year with a mass exodus of employees, upon realization that the promised app didn’t exist, and a press hounding of the company’s hollow investor promises made by the CEO, Lucas Duplan. According to American business magazine Forbes, in January 2016 investors made the rare move of asking for what was left of their money back from Clinkle’s accounts. Whilst NAR and Rational Pixels are a long way off from seeking funding of $25 million, hopefully the lessons of humility that Duplan has had to learn with a spectacular failure will already be installed, in some fashion, in the Lebanese entrepreneurs thanks to the coaching they initially received.

The work of both Speed and AltCity is crucial to developing the entrepreneurial ecosystem, but only if it is met by similar efforts along the pipeline. At the moment, there seems to be a gap in the development chain as the ticket sizes offered by venture capital powerhouses MEVP and LEAP are far greater than what most startups require. Tickets of up to $1 million are good for series A and B level funding, but are far beyond the requirements for idea and seed-stages which AltCity and Speed offer – traditionally $25,000 and $30,000 respectively. There are tentative steps to amend gaps within the pipeline. Fadi Bizri, managing director at Bader Young Entrepreneurs Program, has joined forces with Abdallah and Ghaith Yafi, managing partners at Y Venture Partners, and Rami Jisr, former general manager of Audi Investment Bank and current managing partner at Broadgate Advisers. The group has created Broadgate and Yafi Venture Partners (BYVP), a $50 million hybrid fund which aims to invest tickets in early stage startups. Ticket sizes are estimated to be between $100,000 and $1 million, and the venture is in final stages of negotiation for the license with the central bank, and is due to go live around March 2016.

However, arguably there need to be further programs like Speed which invest in very early stages, or even up to $100,000 in total, otherwise many startups will fail to get off the ground. Without this investment, as Theo Khoury analogizes, it’s akin to participants in a marathon receiving a gallon of water at the 5km mark, and 50 gallons at the 20km mark, but nothing between 0 and 5km. “They’ll just die of thirst before they even reach 5km,” says Khoury. Only when every inch of the pipeline is fixed, and startups are given investment at earlier stages, can the central bank rest safe in the knowledge that the money from Circular 331 is being spent in a way that most effectively develops and showcases the talent that Lebanon has to offer.

February 18, 2016 0 comments

Drugs Economics & Policy Uncategorized

Crime and punishment

by Jeremy Arbid February 16, 2016

written by Jeremy Arbid

Not much is known about Captagon prevalence in Lebanon. Anecdotal testimony regarding court cases and rehabilitation treatments suggest that use is low but rising. The prevailing explanation for this is that there is a leakage of pills into the drug-using community as more Captagon is produced in the country and trafficked through it, but there are no statistics to verify the extent. What is known is that individuals caught using the drug are arrested and that there is deficient data on the number of Captagon-specific criminal proceedings. When arrested, users are thrown into a state of limbo that drug users generally face when they are arrested in Lebanon.

“Drugs have spread so much in the last few years,” says Faisal Abdallah, a Lebanese lawyer specialized in criminal law. Executive was not able to obtain statistics on drug-related criminal proceedings, neither in general nor specific to Captagon – the Ministry of Justice did not respond to Executive’s request and Mohammed Saab, a judge who has presided over user-related hearings, declined an interview to discuss the findings of a book he published on drug-related crimes in 2015. Whether user-related arrest figures have risen as a function of drug prevalence or due to vigilant law enforcement cannot be answered.

According to statistics from the Internal Security Forces’ (ISF) drug unit obtained by The Legal Agenda – a non-governmental organization monitoring Lebanon’s judicial system – 5,381 individuals were prosecuted for Captagon use in 2013 and 2014, about 2,000 more than in 2009 and 2010. But the failure to report details of the number of users arrested and prosecuted for popping pills, alongside a complete dearth of data on Captagon rehabilitation, results in an inability to define the problem. Rather, what the figures show is that Lebanon’s police are increasingly arresting, prosecuting and jailing drug users when the law says rehabilitation should be an alternative.

Even first-time offenders face serious and punitive consequences rather than the rehabilitation they should be offered. Depending on the drug, a first-time offender can face fines of 2 million to 5 million Lebanese Lira ($1,327 – $3,318) and prison time ranging between three months to three years. Arrested drug users are, according to the law, entitled to be heard by a committee set up in 2013 to follow up on rehabilitation treatment. The Legal Agenda found that the committee is hardly used, hearing only 120 cases in 2013 and 2014.

A clogged up system

The Legal Agenda, Abdallah and addictions psychiatrist Joseph Khoury all agree that underutilization of the committee has two causes. Its ad hoc nature – the committee’s board members are volunteers and it has no clear mandate – undermines its purpose because the government, the police and the legal profession do not take it seriously. But the greater challenge is due to a backed-up judicial system, Abdallah says. Offenders can only be referred to the committee once a judge has heard their case, but because the court system is so clogged, offenders rarely receive their right to present their case to the committee for treatment referral. Instead, drug offenders face prison time, incurring a criminal record, and are thrown into the general prison population. This, the Legal Agenda says, means that users are subject to upfront punishment that deters them from seeking drug rehabilitation treatment on their own.

Lebanon’s narcotics law 673/1998 classifies drug use as a health issue but in practice the judicial system still views it as a crime, and offenders have many obstacles in their way to receive rehabilitation treatment. A drug user has to be very motivated, Khoury says, because they may have to pay out of pocket – government insurance programs cover psychiatric care and drug addiction treatment for security forces and public sector workers, and private insurers cover some segments of the population, but this leaves many insufficiently covered. Lebanon’s Ministry of Public Health does not have enough money to cover those that fall between the cracks.

A 2010 report from the World Health Organization (WHO) pointed out that some of Lebanon’s public health budget was allocated for mental health services, but that it included neither short-term inpatient care nor outpatient care and only covered certain psychotropic medicines. WHO called for the establishment of in- and out-patient treatment centers for substance abuse, but acknowledged a lack of funding to do so as well as a lack of specialists – psychiatrists and psychiatric nurses – to staff those facilities. Khoury told Executive much the same in a January interview – that Lebanon does not have enough psychiatrists nor the health infrastructure to rehabilitate users.

The recommendation of The Legal Agenda is to empower the committee to enable the treatment alternative to imprisonment. But this, the NGO says, would at least require the expansion of the committee’s mandate, and adding a committee in each of Lebanon’s six governorates to hear rehabilitation cases of offenders in different parts of the country. This, however, would require amendment to the law to both articulate and expand the committee’s mandate, as well as to fund it and a healthcare rehabilitation system to treat users. “I would be for not incarcerating any users – I think people need to be treated,” prescribes Khoury.

February 16, 2016 0 comments

Leaders Opinion

Rehabilitation first

by Executive Editors February 16, 2016

written by Executive Editors

The opening crawl of the movie “Reefer Madness” served as a morality tale to parents of the Silent Generation: “…the new drug menace is destroying the youth of America in alarmingly increasing numbers. Marihuana [sic] is that drug – a violent narcotic – an unspeakable scourge – The Real Public Enemy Number One!” The narrative represents a viewpoint on how to limit drug prevalence in the United States – complete abstinence – otherwise drug users will commit horrific crimes. The 80-year-old film is useful in that it shows just how much the world has changed its perception of illicit drug use.

Nowadays, substance abuse – including alcohol, tobacco and illicit drugs – is considered by the World Health Organization as a mental health disorder. Lebanon’s Ministry of Public Health agrees. In 2015, the ministry introduced a five year roadmap to improve mental health treatment, including substance abuse.

International bodies overseeing narcotics – including the United Nations Office of Drugs and Crime and the International Narcotics Control Board – lay out the best practices of drug enforcement that many of the world’s police agencies follow. The approach is to be a balanced one – stem the source of drug production to reduce its supply and raise its street cost while also going after consumers.

Targeting illegal drug manufacturing facilities and individuals – traffickers and dealers – is challenging but necessary to stop drugs at the source. In this regard Lebanon has destroyed drug crops, raided known drug factories and made arrests. But there are still large swaths of the country with a relatively low level of state control, while instability along the Lebanese-Syrian border is an enabling factor.

That Lebanon is not able to stamp out drug production and trafficking is frustrating, even more so when looking at statistics on user-related drug arrests. Rather than receiving their right to rehabilitation treatment, offenders are locked up. Lebanon’s drug law 673/1998 incorporates rehabilitation as an alternative to prison time but there are problems in the law’s application. The problem is, on the one hand, that cases of drug use are not being heard by a rehabilitation committee [see story Crime and punishment].

On the other hand Lebanon does not have the health infrastructure to cope with rehabilitation demand generated by drug-use arrests. Executive agrees with the view that there needs to be a better and faster process to determining rehabilitation referrals – The Legal Agenda, a local non-governmental organization monitoring Lebanon’s judicial system, recommends the committee be expanded to serve different geographically-located user populations and it must be funded. The health ministry’s five year plan should address the lack of rehabilitation provision.

Since the early 2000s a more progressive approach to drug use has been championed in some countries – Portugal being an example. Drug use and possession in that country is still illegal but is instead punished with administrative penalties (fines or community service) rather than criminal ones (prison time). The idea goes back to drug use as a mental health issue, one that must be treated through rehabilitation. Short of legalizing cannabis and all its products, Lebanon should decriminalize personal use and possession. There are international benchmarks on the classification of drugs and the amounts that define user possession and intent to sell. Lebanon should use these benchmarks as a guide to define decriminalization.

At the very least, Lebanon must amend its drug law to distinguish between possession of any drug for personal use and possession with intent to sell. Portugal considers a 10-day supply as personal use warranting only administrative penalties, any amount more than that warrants criminal penalties. Amending the law to remove facilitating drug use as criminally punishable is also necessary – sharing a joint with a friend or giving them drugs for free can land someone in jail for a minimum of five years.

Best practice in rehabilitating drug users accepts them at their level of readiness to bring them closer to a healthier lifestyle even if that means accepting that some of them will continue to use temporarily. But there is a legitimate need for society to be protected from people that do become violent while under the influence of dissociative drugs (e.g. hallucinogens). With harm reduction programs the aim is not to eliminate drug use but to reduce the negative consequences (to personal health, to interpersonal relations, to livelihood, and with the law) of drug abuse, and there is evidence that harm reduction programs do have positive impacts. The programs can serve to reintegrate users into society whereas criminalization may disenfranchise or disbar them from social welfare programs (e.g. education and housing). NGOs in Lebanon can and are already providing this public good. The risk is always that these programs are too little but are better than nothing.

If Lebanon is to curb illicit drug manufacturing and trafficking then it must go after the big fish – the tycoons living large. Recreational users and those that have become addicted need medical help more than an extended stay in the clanker, and prison time spent for drug use can ruin a person’s life. Decriminalizing personal use and possession of cannabis and its products ensures recreational users don’t end up in prison in the first place.

February 16, 2016 0 comments

Hospitality & Tourism

Advertising alcohol: the business of selling responsibly

by Nabila Rahhal February 15, 2016

written by Nabila Rahhal

Just like all commodities, alcohol revenues are significantly impacted by successful branding and marketing campaigns. When well-crafted advertisements are relatable to consumers, these promotions ultimately influence their perceptions and increase the product’s popular appeal.

Marketing budgets

Alcohol distributors Executive spoke to say that Lebanon, in comparison to other countries in the region, is an advertising haven because there are no restrictions on alcohol advertisements in media channels.

As such, they consider extensive expenditure on promoting their portfolio of spirits brands (although spirits distributors declined Executive’s request to provide the total amount spent on advertising per year) to pay off well in sales. “In Lebanon, there is always a strong impact of advertising in terms of driving sales. Advertisements also have a strong impact on top-of-mind awareness, but also on commercial awareness. Our ultimate objective is to build our brand and have a strong and healthy brand performance,” says Ziad Chami, marketing manager at Diageo, the multinational alcoholic beverages company with a portfolio of brands such as Johnnie Walker, Bacardi and Smirnoff.

According to suppliers interviewed for this article, the biggest percentage of their marketing budget is usually spent in December which is, distributors say, typically the busiest month of the year for spirit sales. Carlo Vincenti, owner of G. Vincenti & Sons, characterizes his company’s experience: “The months of November and December usually account for 40 percent of annual sales, so obviously we spend a large chunk of our marketing budget in that period whether in traditional media or consumer promotions and visibility. Since December is marked by festivities with lots of family and social gatherings involving both gifting and consumption of spirits, all brands tend to launch special packs with gifts and special offers then.”

To each brand its own

Lebanese spirits distributors often work with advertising or PR companies to create the ideal promotional campaign and say each brand requires a tailor-made marketing strategy depending on its positioning and the age group of its target clientele. “Every spirit category and even every brand has its own strategy and marketing objectives that could include the traditional media tools or more targeted and flexible ones,” says Vincenti.

Anthony Massoud, managing director of Etablissements Antoine Massoud (EAM), a distributing company with a wide line of spirits including Russian Standard Vodka and Nikka whiskey, says: “Every brand has its own strategy, target audience and complexity. We have more than eighty alcohol brands in our portfolio but we have nine core brands which we focus on in our advertising campaigns.”

The classics: television, print and outdoor marketing

Traditionally, mass-media tools such as television, radio spots, print advertisements and outdoor promotions were the most effective means to reach a wide base of consumers. Today, Lebanese spirits distributors still consider these pillar methods for some brands but say they believe there are better, more targeted ways to reach the consumer.

Nahla Haddad, communication manager at Fawaz Holding, a distribution company managing a wide portfolio of brands including spirits such as Chivas Regal, Jameson whiskey and Absolut Vodka, says they don’t heavily advertise their spirits portfolio on television for several reasons.

To begin with, according to Haddad, most of the global brands they represent lack advertisements which are localized for the Lebanese market. Moreover, television requires a huge advertising budget which they can more effectively spend on other more engaging media. “Finally, for brands such as Jameson whiskey or Absolut Vodka, the target audience doesn’t watch local television and so we prefer to appear where the target is,” explains Haddad.

Massoud says he prefers hosting PR events and tastings – where they invite the media and select consumers – to advertisements on television or billboards. “Our marketing is very much PR driven as its effect is sometimes stronger than advertising because here you are talking to the consumer directly and increasing the word of mouth effect which is very important in Lebanon. In mass media, you might reach people who are not interested in your brand, but with PR and events you are getting your message across directly to a few people that represent a lot to your brand rather than the masses who might not be interested,” explains Massoud.

The rise of digital media

Discussions with distributors did not indicate the collapse of traditional advertising methods, only their supplement with more engaging forms of advertisement. “In general, traditional advertising is still a key part of our advertising mix. But, over the last few years, we have become more active on social and digital media, which is a trend that is happening all over the world and is becoming a more important part of the mix,” says Chami.

Davina Atallah, creative director at Leo Burnett which works with Diageo on advertising in Lebanon, says they found a creative way to engage consumers through a mix of social media and outdoor advertising in Johnnie Walker’s Keep the Flame Alive campaign.

In that campaign, recalls Atallah, they asked members of the public across Lebanon why they believe it is worth staying in the country; Leo Burnett then had a fire calligrapher flame-write these statements on the spot, took pictures of the final results and uploaded them on social media. They also released these flame-written statements on LED billboards across the country. “It was an evolution in terms of the brand, from the Keep Walking campaign which focused on stories of well-known Lebanese to a story about the resilience of the Lebanese people [through the Keep the Flame Alive campaign], creating an interaction with them which we had never done before,” says Chami.

Haddad says social media has allowed them to develop a two-way channel of communication with their consumers, while also reaching out to the younger generation for brands such as Ballantine whiskey which were commonly associated with an older generation in Lebanon. For the launch of Ballantine limited edition “Beirut” bottle, Fawaz Holding asked people to share pictures reflecting the true spirit of Beirut on the company’s social media pages. The pictures were then reproduced with an image of Ballantine’s Beirut bottle embedded in them and the name of the photographer who took them mentioned on Fawaz’s social media pages. Those with the best pictures, as voted by Fawaz’s communications team, won the limited edition bottle. “Within three weeks, we were able to increase our fan base, recruit a younger audience and enforce brand awareness,” says Haddad.

The mass and the direct

For categories with a wide appeal to consumers, such as vodka, a mass-marketing approach emphasizing their association with a party spirit works best, explains Massoud. Therefore, Massoud says they invest in sponsorships of design events across Beirut and parties such as Decks on the Beach in the summer or of bars such as the new Pacifico (where they have a banner above the bar).

Vincenti also invests in hosting parties with international DJs through Poliakov, a vodka brand in their portfolio, but they are best known for their Jim Beam Rocks musical festival, a now annual event produced by Jim Beam at the beginning of the summer season showcasing local bands as well as one major international act.

On the other hand, according to Massoud, some categories of spirits, such as malt whiskies and wines, are a more refined niche and benefit from targeted marketing involving direct interaction with the consumer. “In single malts, the one-to-one approach is very important. You need to take your time with the consumers, educate and initiate them: it’s a long but solid process. This is why we launched The Malt Gallery (EAM’s specialized whiskey retail store) as it is an ideal platform to talk directly to the consumer,” explains Massoud, adding that this can also be done through tasting plans in other specialized outlets.

Bartenders are key

Massoud says EAM devises their alcohol marketing campaigns based on whether the particular spirit’s category is consumer or trade driven. With trade-driven brands (mainly used in bars and clubs) Massoud says it is better to invest in the outlets themselves, while with consumer-driven brands interacting directly with the consumers becomes very important.

As such, bartenders and bar owners become the biggest allies of spirit distributors and priority is given to marketing and promotions targeted at influencing spirit choice when preparing cocktails or establishing their bars.

Many spirits distributors invest in bringing brand ambassadors or expert international bartenders to Lebanon to give workshops and training to local bartenders. Some spirits distributors organize worldwide annual mixology (bartending) competitions where the winner of a country-wide contest goes on to represent Lebanon, and their bar, in the international competition. Speaking of the Diageo World Class competitions, Chami says: “The objective is to raise the bar when it comes to mixology and bartending. Sales-wise, World Class creates a strong engagement between the bartenders, and the trade itself, with our brands; it will translate into a stronger performance of our reserve portfolio when it comes to the on-trade.”

February 15, 2016 0 comments

Hospitality & Tourism

Toasting a good year

by Nabila Rahhal February 15, 2016

written by Nabila Rahhal

Despite some difficulties attributed to the region’s unstable geopolitical situation in 2015, the major Lebanese global spirits distributors nonetheless had cause to celebrate a generally successful year. Last year saw increased consumption of some key alcohol categories among Lebanese as well as some changing trends in drinking habits which worked in the interests of these distributors.

A year of growth

The spirits distributors Executive spoke to all boasted an annual growth in sales in 2015.

Carlo Vincenti, who currently runs G. Vincenti & Sons, says the company’s overall growth reached 10 percent, with the spirits division alone witnessing an increase of 35 percent. While Vincenti attributes part of this growth to the continuing positive performance of their main brands, he says the strongest driver was the significant growth of the Jim Beam spirits group, including Jim Beam bourbon, for which they fully took over distribution in Lebanon in April 2014.

Etablissements Antoine Massoud (EAM) also reported toast-worthy numbers, according to Anthony Massoud, the company’s owner and general manager. “It was a good year in general. On a company level, we had growth of 6 percent but if you take alcohol alone, then we have around 19 percent growth; if you add The Malt Gallery [EAM’s specialized whiskey retail store] to the equation it is even more, with 27 percent growth,” says Massoud, attributing this growth to the strong performance of their classic brands such as Russian Standard Vodka and Jose Cuervo tequila – and also because, as a company, they shifted their strategy to a value-driven versus a volume-driven portfolio, thereby representing fewer but stronger spirits brands.

The alcohol seasons

The last three months of the year are usually a high-activity period in terms of alcohol sales, suppliers tell Executive. This time of year is traditionally marked by family gatherings, festivities and celebrations, often involving alcohol. The month of December alone, according to suppliers, accounts for 25 to 40 percent of the year’s turnover.

However, Roy Diab, marketing manager at Fawaz Holding, which imports Ballantine and Chivas whiskies among other brands, says that consumers were thriftier with their alcohol spending during 2015’s holiday period. Diab explains that while this typically busy period usually begins in the two months leading to December, in 2015 it shrank to include only the final fortnight of the year.

After the party-fuelled month of December, the summer season follows as a strong season for alcohol, according to EAM’s Massoud. “In 2015, Ramadan moved back into June which allowed us to have a solid July and August, the period when expats usually return to Lebanon for the holidays. We were doing well [during that season] until the garbage crisis occurred, affecting the on-trade sector (hotels, restaurants and bars) and killing the end of August and all of September for us. But by mid-October, people went back to the normal trend,” recalls Massoud.

The garbage crisis watered down the summer season | Greg Demarque

On-trade versus off-trade

Lebanese spirits distributors generally reported using a mix of on-trade and off-trade (retail stores) distribution channels depending on the category of alcohol. “On- versus off-trade distribution of spirits clearly depends on the category of spirits – vodka, tequila or champagne are more reliant on on-trade than, for instance, whiskey,” explains Vincenti.

However, 2015 saw a drop in the distribution in the on-trade sector because of the effects of the regional and local turmoil on the Lebanese hospitality sector which caused spirits suppliers to slightly modify their distribution strategies and channels.

Massoud says EAM have become more selective about which bars and restaurants they will work with because of this tumultuous period in the hospitality sector, which has led to an increase in default rates. “We have a high default rate in the on-trade and we have to be very cautious; this is what happens when you have a constant crisis state in the country,” he warns.

With the on-trade struggling slightly, Vincenti explains that most brands had to emphasize their off-trade activities to make up for sales losses in the on-trade.

Ziad Chami, marketing manager of Diageo Lebanon, which includes Johnnie Walker, Smirnoff and Baileys in their portfolio of spirit brands, says the company relies predominantly on the off-trade sector which accounts for three quarters of its total sales in Lebanon. Chami says they saw a growth in their performance this year through this channel from the modern trade, or hypermarkets and supermarkets, calling them a “critical channel to building our brand and bringing it to life for the consumers.”

Changes in consumption habits

Despite the difficulties, spirits suppliers consider the on-trade sector a critical channel of distribution and monitor its developments carefully, especially the rise of new nightlife areas and trends.

Chami speaks of an expanision into new areas of Lebanon that he says played a role in attracting different consumers and facilitating access to nightlife. “There are always new pop up areas coming up with investors leading these moves – in 2015 we saw a boom in areas like Dbayeh with The Village and Blueberry Square, as well as further expansions in areas such as Badaro or Mar Mikhael,” he elaborates. But it wasn’t all parties and celebrations in Lebanese nightlife, says Chami, giving the example of Uruguay Street and the closures there which started towards the end of August 2015.

Massoud also speaks of the developments in Lebanese nightlife in 2015, saying that such cyclical expansions, with consumers moving from one party street or area to another according to trends, is the norm in Lebanon. It is up to the distributors such as himself, he says, to study these developments carefully and make the right choices of investment in bars and restaurants.

Both Chami and Massoud also speak about a shift in consumption habits from nightclubs and big parties in favor of cocktail bar culture, mentioning that this has impacted their trade positively. “Definitely big celebrations are still part of the Lebanese socializing fabric but, in terms of a shift, we are seeing a bigger shift into cocktail bars and small bars where people can meet and drink casually. As a result, it’s driving a very strong mixology and culinary boom, which is really good for us because this is one of the main growth drivers of our reserve or high-end portfolio,” explains Chami.

The rise of mixology and cocktail bars

The increase in cocktail bars in Lebanon has led to higher demand for more creative and tasty drinks, as well as professional bartenders to concoct and deliver them. This allows alcohol distributors to market more of their portfolio to eager and ambitious bar-owners, leading to a rise in consumption of spirits most often used for cocktails, such as gin or Aperol.

“Gin, in the premium and above-premium segments, is growing following a global trend which Lebanese bartenders are heavily exposed to through a diversity of products and global bartending networks. The level of sophistication in cocktails has grown from a bartending and a consumption perspective, with consumers becoming more demanding and in search of ‘new’ experiences. Cocktails, where gin has always been a key ingredient, are picking up again,” explains Diab.

A worldwide mixology trend comes to Lebanon | Greg Demarque

The malt expansion

Another spirits category that continues to impress locals is single malt and Japanese whiskey. “Single malt whiskey is a smaller percentage when compared to blended whiskey, which is the dominant category, but in terms of growth rate, single malt is definitely the fastest growing subcategory of whiskey,” says Chami.

Vincenti attributes this growth to a more mature consumer base wanting the more pronounced and complex taste found in single malts. Vincenti also adds that the main driving force behind this trend is the consumer’s increasing awareness of single malts through both social networks and distributors who have greatly contributed to introducing these single malts to consumers. “We have a single malt brand ambassador who has been working nonstop to educate consumers through special masterclasses and tasting sessions and also educating the bartenders,” adds Vincenti.

EAM launched their specialized whiskey retail venue, The Malt Gallery, in late 2013 and Massoud says their single malt and Japanese whiskey category has almost doubled in growth since. Massoud explains that through their specialized venue, they have created a platform which invites direct channels of communication with consumers who are interested in discovering high-end whiskey, which in turn led the growth of this category in their portfolio.

Overall, the year 2015 closed on a happy note for spirits distributors in Lebanon, and all say they are looking ahead to a successful 2016 in which they will continue to grow the brands they represent in Lebanon, despite the various obstacles that stand in their way.

February 15, 2016 1 comment

Business Retail

Growth amid the thorns

by Thomas Schellen & Nabila Rahhal February 12, 2016

written by Thomas Schellen & Nabila Rahhal

Retailers in Lebanon have been faced with challenging circumstances for the past four years. Regional turmoil that began with the war in Syria has been pushing tourist numbers down, and the remaining clientele – those residing in Lebanon – have decreased purchasing power compared to the visitors who were so common a few years ago.

The Fransabank-Beirut Traders Association retail index shows that although the Consumer Price Index is on a continuous decrease (for the fourth quarter in row), some sectors of the retail market did not pick up as one would expect in a deflationary environment. In fact, the Lebanese retail market generally remained stagnant in 2015.

Given such a scenario, it is no wonder that many retailers were reluctant to share their woes with the media. Not so LG, the Korean consumer goods and electronics manufacturer. Executive sat down with Tae Hun Ryu, the general manager of LG Electronics in the Levant, to discuss the company’s performance in Lebanon and the challenges it faces in this market.

E Are you specifically segmenting your target markets in the Middle East for the household and electronics products that LG manufactures?

Yes. There are so many suppliers and brands and each supplier and brand has their own target audience. The market now is seeing many Chinese low-cost products. The names of their manufacturers are not known, and they are targeting the low- to middle-income demand segments. We have passed through such stages a long time ago as we are in this market for more than 30 years, first under the Goldstar brand and then as LG. We have continuously upgraded our position, and today we no longer position our brands as affordable for earners of middle- or low-incomes. People who want low-cost products have to look for other brands. We are targeting the upper 35 percent of customers to be our loyal customers.

E In your home market of Korea, LG is number 2 in brand value after Samsung. Have you measured your brand awareness in Lebanon and how much it has grown in the past four years?

I can say that the LG presence in the Middle East is much higher than it is on average in global markets. Lebanon and Jordan are among the few markets where LG enjoys extremely high brand awareness as top consumer choice. Above 82 percent of consumers in Jordan and Lebanon name LG as number one or number two when asked for their favorite brands in televisions and washing machines.

E What markets do you cover from your Amman regional head office?

My coverage area is Iraq, Syria, Lebanon, Jordan of course, and Palestine. It is the most conflict-prone area.

E Is it correct that you maintain no LG-owned sales organization in Lebanon?

We have a legally established branch office in Beirut but did not acquire a license to sell directly in Lebanon. We have three distributors in the country.

E When you buy international brand products in Lebanon, you often find stores that sell them, perhaps at discounted prices, but then do not continue to offer these products or any after-market service. On the other hand the local market for major household consumer goods appears to be dominated by a handful of large importers and competition in this segment seems very limited. How are you handling these challenges?

This is a very complicated issue. The consumer has the right to get the lowest possible price for the same products and the market is protecting consumers from monopolies. [But] if you have multiple distributors, they sometimes enter wild competition and blindly cut their price so that at the end of the day everyone in the market is losing.

We have to be very well balanced on how to protect the consumers’ interests but also the distributors’ interests at the same time. We have to satisfy both, and it is one of our hallmarks that we try to support our distributors with better advertisement or better showrooms like the one we are meeting in.

E Do you finance their showrooms?

No, we don’t finance them but we support the distributors with decorations or trainings for their staff on the selling of premium goods. One of our refrigerators here retails for $3,500. This is no small money for anybody and so we have to give the distributors training to sell not by price but by product.

Service requires a lot of systems because you need more than half a million different [spare] parts, and it requires a very well organized system to manage these components. We have a big service depot in Jebel Ali, Dubai, and from there we supply each distributor.

E Lebanese traders are perhaps craftier than others in sourcing products informally from abroad. When it comes to pricing strategies for mobile phones for example, do you face problems from grey imports because your official brand dealers are not as competitive? Do you price mobile products to be competitive against the street market or based on your customer assessment?

What you are describing is a big current headache and very important issue that we face in the mobile [handset] market. This is what happens in Lebanon and in the whole Levant, even worse in Syria and Iraq, and also in Jordan. It is difficult to solve. Even if LG provides the products at the same price to the over 200 markets that exist around the world, these products do not necessarily sell for the same price because of differing margins that are added. We are businessmen and have to make our business flow despite such situations where two factors are conflicting. We cannot dictate to anyone what price they put but we can say that anyone who adds the official premium will have support from us and can provide a differentiated service offer to their customers.

E Where do mobile handsets rank within your different products, in terms of unit sales and in terms of value added to the LG company in the Levant?

LG is number two for television both in value and quantity [of sales]. For refrigerators and air conditioning units we are number one. In mobile we are number three in some markets and number four in others. We want to be number one or two someday but to be frank with you, this will not be easy to achieve in the coming two to three years.

E Did you then allocate a particularly healthy marketing budget to expand you position in Lebanon and what are your market share targets for 2016?

I discussed this the other day with our Lebanon manager, Mr. Lee. [In 2015], we expect to have about 10 percent market share in Lebanon and we are hoping to increase our market share to 15 percent [in 2016]. To achieve 15 percent means [that we need to have] 50 percent growth; this is a very aggressive target. Hence, to grow from 10 to 15 [percent market share] you have to calculate what this means in terms of input needs in terms of your investments, your channels, your in-store [promotions and activities] or your communications. All these must be changed accordingly, including your logistics.

E Was there any specific difficulty or special opportunity that you encountered in Lebanon in 2015?

As you already mentioned, the difficulties for the mobile business in Lebanon are very specific and the parallel market was the biggest difficulty for us. If there had not been the parallel importers, we could have gained even more market share.

E Did the economic difficulties that we saw in 2015 have a negative impact on your sales?

Absolutely. Our region is very heavily impacted by two factors. One are the regional conflicts; these wars affect not only the whole region but also Lebanon. The other factor is the fall by half in the petroleum price which reduced the budget of every government and every individual in all surrounding markets and this indirectly affected Lebanon; according to the statistics, this market suffered more than 10 or even 15 percent of minus growth in demand cumulative for 2015 until end of September. We made a very slight positive growth in this period and I am very pleased with this, because it is no small achievement under the circumstances.

E Is it then correct to say that an amount of positive growth that was in the single digits in absolute terms, allowed you to increase your market share to 10 percent, because competitors did not grow?

That is what happened.

E What is your strategy for this year from this angle?

Overall I do not expect any meaningful growth in prosperity in both the Levant area and Lebanon for [2016]. How I predict it, [2016] will be another year like 2015. However, that does not necessarily mean that your business will shrink. We have a strategy how to deal with this kind of situation and we are ready to take on those challenges. The market, if it is good, may suffer a decrease of about five percent or in the worst case even see minus growth of about 10 percent, but for the LG operations in Lebanon we are expecting growth of something like five percent also in 2016.

E Are you advising your distributors to increase their workforce or strengthen their networks this year?

Our distributors’ channel power is one of the most important factors for us to spend on, and we have already started doing so. We will expand our channels, and I already talked to most of our distributors and they are ready to do so. Each crisis, recession or difficult time brings an opportunity for us to expand our influence. That is how we view it.

E How much does Syria usually contribute to demand for LG products in the Levant region?

Syria traditionally gave us 30 percent of our business; this has now decreased to less than 15 percent. That is still a good pie for us, given the situation in the country.

E Is Jordan number one for you in terms of the contribution to LG’s regional sales?

Iraq is number one. It accounts for over 50 percent of my business; Jordan and Lebanon combined contribute about 30 percent to our business, at almost equal proportions. We sell less quantity here than in Jordan but we sometimes have more value generated than in Jordan. This means Lebanon is a premium market and it is very much worth it for us to maintain a good market share here.

E But you do not intend to move into direct sales in Lebanon?

We do not have such a plan because in order to establish a direct sales presence, the business volume must be quite huge, something like $200 million in annual sales. This is not predictable for Lebanon.

E Out of LG’s total product portfolio, how much is available in the Lebanese market?

As I said, this is a test bed for us, and we carry in Lebanon almost every product which we offer in other markets. I would like to add that I have come to realize that Lebanon is very important for us in terms of our premium marketing. Lebanese customers have given us a very good opportunity [to test] how we can interact with all consumers in the Middle East. I very much appreciate the continuous support and affection that Lebanese customers have given us.

February 12, 2016 0 comments

Economics & Policy Refugees

Globalization of resettlement

by Jeremy Arbid February 12, 2016

written by Jeremy Arbid

One might look at the change in number of registered Syrian refugees in Lebanon during 2015 and incorrectly assume Syria’s civil war is on the wane. Since the Office of the UN High Commissioner for Refugees (UNHCR) first began recognizing Syrian asylum seekers in Lebanon in 2012, their numbers have grown year-on-year until 2014. In 2015, however, the number of registered Syrian refugees in Lebanon began going down. The slight decrease (approximately 77,000 refugees or 6.7 percent as of November 30, 2015 — according to the most recent data available) is no indication that stability is returning to Syria. Rather, it is the direct result of a Lebanese policy decision to push the number down.

The decline is in part attributed to stringent visa restrictions put in place in January 2015 for Syrians attempting entrance into Lebanon. The country still grants Syrians humanitarian visas, but UNHCR says “very few” cases have since qualified. In tandem with these new visa rules, the government passed a decree in 2015 to deregister refugees, also lowering the number of refugees supported by UNHCR. In an email exchange with Executive, UNHCR explains that, “On April 24 [2015], the Ministry of Social Affairs notified UNHCR that refugees having entered after January 5 and having subsequently registered should be deregistered. UNHCR was duty bound to comply and inactivated individuals who had entered Lebanon after that date.” Based on data from UNHCR’s website, Executive calculates that at least 37,304 Syrians lost their refugee status as a result of this decision. Under normal circumstances, UNHCR only deregisters refugees if they have died, left the country or stopped showing up for meetings or other interactions with UNHCR. In the first nine months of 2015 — the most recent data available — UNHCR’s representative in Lebanon, Mireille Girard, told Executive in a November interview that 149,000 refugees had been deregistered, up from the 125,000 deregistered in 2014.

Joseph Kaï

Life after Lebanon

For UNHCR, determining where people have gone after deregistration is no easy task. Some, Girard says, have returned to Syria, though she notes that it is not a choice refugees make “unless they have a compelling reason. It is not a decision full of hope that things have gotten better [in Syria].” Some, she adds, have either left Lebanon to live with family elsewhere in the region while others have turned to smugglers, hoping to make their way to Europe. There is a solid number of deregistered refugees who have illegally left the country by paying traffickers to smuggle them into Turkey or Europe. “We get information from different sources to try and triangulate the information. We do try to find out if there are indications that people have tried to go to Europe. We conducted a random survey recently and found around 40 percent of people said they either knew someone or heard of someone who has left,” Girard says. Lebanon’s Internal Security Forces have prevented illegal departures. According to United Nations’ estimates, about half of the International Organization for Migration’s figure of 332,000 asylum seekers through August 2015 that tried to reach Europe from the Mediterranean Sea were Syrian.

Executive was only able to obtain conclusive data on the number of formal resettlements to third countries. Since 2013, countries have agreed to resettlement pledges for some 162,000 Syrian refugees from countries across the Middle East. For 2015, the number of pledges allocated for refugees in Lebanon is 16,600. Through October 2015, some 4,228 Syrian refugees had left Lebanon to third countries through resettlement programs. The aim, UNHCR’s Girard told Executive, is to sooner-rather-than-later resettle 10 percent of Lebanon’s Syrian refugee population. “With 1 million refugees in Lebanon, our target is 100,000. That would be noticed by everybody and would have an impact,” she said.

In the near term, that target for Lebanon will be slow to reach. The process of resettlement takes time, with refugees sometimes departing more than a year after their application is submitted. Since 2011, only 10,155 Syrian refugees in Lebanon have been resettled — primarily to countries in the Americas, Europe and Oceania. UNHCR says they cannot give a specific country-by-country breakdown of where refugees were resettled.

For 2016, UNHCR is still waiting to hear what resettlement quotas will be allocated for Lebanon. With seemingly no end to the war alongside deteriorating living conditions, Syrian refugees in Lebanon no doubt question their future. Only a few, however, will receive a permanent answer.

Joseph Kaï

February 12, 2016 0 comments

Business Business

Luck of the winners

by Thomas Schellen February 12, 2016

written by Thomas Schellen

When La Libanaise des Jeux, the country’s sole concessionaire of lotteries and scratch-card games, introduced a new game last month, it was sheer coincidence that the launch event was held within five hours of a record-shattering lottery draw half a world away. Nobody could have predicted that Yawmiyeh, the new Lebanese daily draw game, would see the light just after the Powerball lottery in the United States declared that three winning tickets would each be eligible for 30 annual payments totaling around $533 million.

In many ways, the two games couldn’t be more different from one another. Powerball jackpot amounts are determined on basis of sales revenue from tickets and payouts are shared among winning tickets. Through two revisions over the past few years, Powerball structures have been rigged in favor of producing huge jackpots with ever-lower chances of reaping them. Yawmiyeh is structured to offer fixed odds – every winner will get a preset multiple of the wagered amount, irrespective of eventual other winners.

The top prize at Yawmiyeh thus cannot be larger than LL 120 million ($80,000), based on the maximum possible wager of $2 and a multiplier of 40,000. On the other hand, there could be any number of winners and each of them would get the top payout. This exposes La Libanaise des Jeux to a small risk of ending up with a loss for a daily draw but the company has calculated that payout ratios for winners on yearly terms should be 45 percent. This, says president and largest shareholder of La Libanaise des Jeux, Rainier Jreissati, is the same risk as is taken with the other draw games operated by his firm.

Describing Yawmiyeh as a set of three games – with bets on three, four or five numbers, in sequence or disordered – Jreissati tells Executive that the game is “cheap and easy” to play. It is marketed as a single game to the public and Jreissati expects that the daily game’s high frequency, simplicity and low barrier of entry through a minimum wager of LL 500 ($0.36) will generate new business in the Lebanese lottery market and enhance participation in the existing lottery scheme, Loto Libanais. “It is always good to have a new game and it is good for the synergy of the lottery. I am expecting something from the new game, because when you introduce a new game, the old one will work as well,” he says.

State-sanctioned lotto was introduced to the Lebanese market in the second half of the last century and has been operated by La Libanaise des Jeux since 2002. According to Jreissati, the total winnings dispersed by the lottery between 2002 and the end of 2015 amounted to $480 million and the company recognized 28 million winning tickets. Top prizes, accumulated in accordance with the jackpot principle, reach up to two to three million dollars apiece and there are 11 to 14 major wins each year.

Jreissati sees potential to boost the size of the Lebanese lottery market, which according to him is currently worth around $100 million per year, by 30 to 40 percent through adding Yawmiyeh and at least one other game that the company has in its pipeline. “I am optimistic by nature and I think that the market can perhaps reach $150 million,” he says, but concedes that it is difficult to say what game innovations would take the market to this size because of the need to take cultural factors into account and get the aiming of games at potential target groups right.

A global game

In general terms, the story about lotteries’ immense lure of immeasurable fortune is universal across history and geographies. Lottery receipts in earlier eras were used by sovereigns to finance wars and colonial expansion. Presented today generally within the context of raising funds for cultural, social and educational causes, the lotto equation works well across developed markets. According to the European and North American lottery associations, revenues from lotto and sports betting in 44 European countries amounted to 82 billion euros (2012 data) and $70 billion (2014) in the United States and Canada. No 2015 data were available from the North American Association of State and Provincial Lotteries at time of writing. A 2013 consulting study for the European Lotteries Association said, based on 2010 data, that citizens of the European Union allocated 1.2 percent of their consumer spending to gaming products offered by lottery operators in 26 EU countries.

In emerging markets, China is the big lotto story of the past decade. According to data cited by a major supplier to the country’s two official state lotteries, spending on lottery products by Chinese consumers exploded from less than 200 million Yuan Renminbi (RMB) in 2000 to over RMB 382 billion ($56 billion) in 2014 and grew to represent almost 20 percent of the global lottery market, which in 2014 was worth $284.3 billion in sales according to the World Lottery Almanac, an industry publication.

In relation to such global performances, the Lebanese lottery market is both insular and minute. La Libanaise des Jeux has some dealings with lottery operations in Africa but is reducing these activities. There are no market links between La Libanaise des Jeux and other lotteries in the Middle East and North Africa. Most Arab countries have no official lottery schemes and apart from Lebanon’s lottery program, only Morocco and Egypt have been receptive to the idea.

Probability engineering

For most of its modern history, the myth of wealth by lotto has been sustained by operators who offered players the chance to become millionaires. But recently the appeal and performance of lotteries in developed markets have been boosted by a few tricks. Operators of games in the US and the EU have employed two toolsets to fight against any waning of interest among their audiences. The first was the congregation of markets via interstate lotteries such as Powerball, Euromillions and the Eurojackpot. By combining national lotteries in Europe and state lotteries in the US into border-crossing games, operators pooled players into much larger groups and thus expanded finance flows into jackpots.

Changing the odds was the second tool. This was achieved in the case of Powerball last October by increasing the general count of numbers in the game from 59 to 69 and simultaneously lowering the number of options for the additional red “powerball” from 35 to 26. The measures increased the probability of small wins and at the same time massively lowered the probability of winning the jackpot. By reducing the chance of top-tier wins per draw, operators supported the aggregation of mega jackpots. In practical terms of jackpot amounts, lotto companies used the two tools to the effect of pushing prize ceilings from less than $100 million in the late 20th century to hundreds of millions of dollars in the past 15 years; the deliberate inflation of prizes and jackpots has now peaked in the smashing of the billion-dollar-barrier.

Low-income individuals spend the highest proportion of their incomes on lottery tickets | Greg Demarque

The frenzy factor

It can be counted on that the accumulation of mega jackpots will not cease. Nothing in state-sanctioned gaming works better than a big jackpot for simultaneously attracting players and empowering their irrational behaviors. The record Powerball jackpot in the United States last month provided proof if such was ever needed. With over $1.5 billion in the pot, some otherwise sane people drove hundreds of miles to buy their tickets in convenience stores that had sold a winning ticket in the past. Regular consumers increased their spending from their usual $2 to $10 per draw to hundreds of dollars for dozens of tickets. Lottery agents had to work overtime to serve queues of customers who wanted to part from their money for a one-in-300 million chance to be the next lotto billionaires.

The results of the people’s many irrational attempts to get extra lucky by overspending for some magic were very exciting – for the vendors and for the ultimate beneficiaries, the participating US states, that is. Reporting from sales outlets around the US, UK-based newspaper The Guardian found anecdotal evidence of gross sales increases between three and 25 fold for the January 8 to 12 sales periods when compared with an average week. For the final day before the January 13 draw at 11 p.m. Eastern Standard Time, lottery revenues were estimated at a record $600 million, up from $326 million on the day before. During just one hour on the evening of January 13, $8.6 million worth of Powerball tickets were sold in Texas alone. The New York State Gaming Commission said lottery sales in the ‘empire state’ were up by $310 million in the fiscal year ending March 2016. It reported record sales by its licensed retailers to the tune of $9.7 million in commission earnings during the full cycle of Powerball jackpot buildup between November 7 and January 12.

United in play

International researchers into gambling addictions and socially motivated critics denounce huge jackpots as exploiting people who don’t understand the odds and decry big lotteries as regressive taxes on the poor, arguing that the highest proportions of incomes spent on lotteries come from low-income people. When asked why Loto Libanais jackpots have remained humble when compared with the mega-jackpots in developed economies Jreissati points to the very limited size of the Lebanese market versus the interstate lotteries that have access to huge player pools.

Regarding social stratification of players, he says that Lebanese from all walks of life participate in the game and that his company has found no indications that players come predominantly from low-income groups. For evidence, Jreissati points to the profiles of winners. “How can I know that people from all social groups are playing? Because when the winners come [to claim their prizes]; there are all kinds of people who are winning,” he says.

Against allegations that playing the lottery could cause the sort of problems of addiction and financial ruin that are associated with other forms of gambling, Jreissati argues that it is very difficult to lose a fortune playing the type of games offered by La Libanaise des Jeux. “You cannot lose all your money playing the lottery; even if you go crazy for a mega jackpot, it is still only one draw. Don’t cry over people who lose on one day, cry over the people that come back to gamble on each of the next seven days, trying to win back their money,” he argues. He also refutes the assumption that his company is doing better in difficult economic times because people would gamble more during periods of distress. “That is not true,” he says and explains that he believes people are reluctant to spend even one or two dollars on lottery tickets when they are short on cash.

According to Jreissati, a high degree of equal participation in the lottery applies not only on socioeconomic but also on communal terms. He claims that there are no religious objections against the games and affirms that point-of-sale outlets with the requisite gaming terminals – currently numbering 1,200 units – are distributed evenly in terms of geography. “We are present all over the country, in every single place,” he says, insisting that no region accounts for a dominant share of sales. He acknowledges, however, that the lure of a big win entices players in Lebanon just as it does anywhere. “We are well balanced in terms of regional distribution of players and players come from all income groups, but we have definitely more players when there is a big jackpot.”

[/media-credit] In tandem, jackpots and revenues are reaching record levels worldwide | Greg Demarque

Winner takes a lot

The image of playing lotto in Lebanon has had positive connotations of giving to charity since the 1980s when the lottery was designated to support orphanages. Up until the early 2000s, for every draw at the Tele Liban state television network, an array of converted bicycle wheels – faintly reminiscent of the Marcel Duchamp dadaist installation, Bicycle Wheel – was operated by residents of an orphanage or charitable institution that was a beneficiary of lottery revenues. Spinning those wheels in front of boxy cameras in an austere room at the Tele Liban production center in Verdun, six youngsters every week were visually conveying the message that the lottery had been established to help the disadvantaged.

According to Jreissati, who has been involved with the lottery business in Lebanon since 1984, a guaranteed share of lottery revenues is transferred to the National Directorate for Lottery at the Ministry of Finance. With the MoF website offering no insights into the allocation of lottery revenues and Jreissati saying that the income stream is treated by the government as increasingly important, it is a compelling assumption that the chronically disadvantaged Lebanese state finances have been benefiting from the game more than any other lottery stakeholder in the past 13 years.

There is no doubt that at least as a gateway, governments are the strongest gainers from gaming activities in practically every jurisdiction with officially licensed lotteries. In the Lebanese case, the state is a triple winner. The MoF takes not only a guaranteed amount off the top of every sold ticket, it also comes to knock on the doors of every winner for taxes and it thirdly collects corporate taxes from the operator.

In hard bucks, the state share of gross revenue comes out at 42 percent, or north of $40 million annually, given sales of around $100 million as stated by Jreissati. From the winners of payouts, La Libanaise des Jeux is mandated to deduct 10 percent in tax on behalf of the state and transfer these amounts to the authorities. At the 45 percent payout ratio to winners, the annual tax yield related to $100 million turnover would come to over $4 million. Adding in the corporate taxes that La Libanaise des Jeux pays on its income, it does not seem too daring to say that an annual lotto jackpot approaching $50 million goes to the treasury.

Humble rewards

Operating a state-sanctioned lottery appears to be a low-risk and fairly steady enterprise. However, when accounting for the guaranteed payouts and for the state share of revenues, plus distribution costs of 5 percent that go to the independent ticket resellers in La Libanaise des Jeux’s point-of-sale network, it presents itself as anything but a license to print your own money. After overheads and marketing costs, the profit margin for the company is less than 2 percent of annual revenues, Jreissati says. “The setup is heavy; we have more than 100 employees, and when we don’t sell, we lose,” he adds.

The company’s concession for operating the lottery extends for another eight years, based on a renewed contract with the government. In winning the new contract, which includes an obligation to guarantee the state revenues of LL 50 billion ($36.34 million) per annum during the current concession period, La Libanaise des Jeux last year faced a single competitor since a foreign company decided not to enter a bid after reviewing the terms of reference. “The market is not that attractive,” Jreissati admits. The narrow margins under the concession are making it challenging to survive and newcomers would have to invest great amounts if they wanted to build it up with a different arrangement, he adds.

In operating the concession since 2002, La Libanaise des Jeux achieved strong growth of their franchise until 2005; it experienced a slump in 2006, followed by “normal growth rates” until the present, Jreissati says. For expanding into the daily game, the company has committed to renewing and enlarging its network of lotto terminals from currently 1,200 to 1,500 units. Based on a cost of $3,000 per terminal this will require investment of $6 million, or the equivalent of four years’ profit.

Projections by market research companies see future growth drivers for the global lottery market in mobile gaming and in upswings of national economies that would entice people to increase their leisure spending, of which playing the lottery is a big component. For Lebanon, Jreissati estimates that a return to economic growth could boost his business by double-digit percentages. As to the potential for shifting the game to mobile, he says that deployment of an app had been intended to coincide with the launch of Yawmiyeh in January.

The app was not completed in time for the launch but Jreissati appears unfazed by the delay as he is far from following the hype for everything mobile. “I don’t believe that online and mobile gaming will take a big part of the market,” he explains, pointing to persistent distrust by many people in usage of credit cards and to the importance of social aspects of buying a ticket in a neighborhood store. Where online and mobile lottery options could be a boon in Jreissati’s view is the mobilization of expatriate Lebanese who trust the lottery in their home country. By playing from wherever they are in the world, they would bring new money into the country. “This is good for us and for the government,” he says with the optimism of someone who unfailingly trusts in his luck.

February 12, 2016 0 comments