Economics & Policy

Industry hunger

by Jeremy Arbid
written by Jeremy Arbid

If last holiday season Lebanon asked Santa Claus for better conditions in the manufacturing and agriculture sectors, then recipients were surely disappointed by what was placed in their stockings – a mix of promises and future hopes.

The year started off under duress for the food industry and agriculture producers with a food safety campaign by the Ministry of Public Health targeting establishments across the value chain. Producers of dairy were singled out, as were meat processors and butchers – at the level of consumption, restaurants and supermarkets were also subject to violations and, in certain cases, abrupt closures. By all accounts it was a necessary campaign to raise awareness of what the Lebanese are eating and had certain, if only anecdotal, impacts on public health. Consumer confidence plunged, according to both industry leaders and government officials, with the perception of Lebanese consumables in foreign markets also taking a hit (see Q&A Mounir Bissat SLFI). On a positive note, in a rare legislative session in November 2015, Parliament passed a food safety law that will, amongst other items, create an agency responsible for coordinating policy and overseeing inspection of establishments across the food value chain. But, because in Lebanon there is always a but, this agency could take years to reach operational status – implementation decrees will need to be passed and a source of funding for the agency located (see Q&A Maurice Saade FAO).

What has become commonplace in the industrial sector since the start of the war in Syria is a disruption of land export routes to the Gulf markets. The disruption has affected all types of sub-sector manufacturers, though gains in efficiency along the various sea routes have reduced transit times while mitigating losses to profit margins and maintaining market access. For the agriculture producers, closure of land borders earlier in the year wrought confusion as to where farmers would sell raw produce. In stepped the government with a $14 million temporary solution – place trucks that previously rode through Syria to Saudi Arabia on ships and continue by road to Gulf Cooperation Council markets – a necessary, if inefficient method to help producers continue selling to clients in those markets.

New markets

The potential opening of new markets is also on the government’s to-do list. Hussein Hajj Hassan, Minister of Industry, tells Executive that Lebanon will continue to negotiate new trade pacts with Latin American markets – Mercosur – pointing to talks with Brazil’s ambassador to Lebanon as a positive step forward. The Russian market remains on hold due to American and European-led sanctions following Russian aggression in Ukraine and the subsequent annexation of Crimea. The European market, particularly for Lebanon’s niche agricultural products, holds untapped potential. According to the Food and Agriculture Organization’s Saade, over the medium to long term, producers across Lebanon’s food value chain should transition to serving this market since the Gulf market is increasingly congested and the lifting of sanctions on Iran foreshadow further competition for fruits and vegetables.

Investments

One positive indicator for the agro-industry sub-sector is an uptick of $70 million in investments in 2015, according to the Investment Development Authority of Lebanon. Head of Lebanon’s food industrialist syndicate Mounir Bissat tells Executive that the sub-sector is attracting new capital while much of the economy is in decline due in part to the low cost of productivity – sourcing raw produce locally and the availability of cheap labor. Looking forward, Bissat says to expect exports of the sub-sector to grow, particularly if a trade pact is inked with Mercosur, and points to talks with representatives of Alimentaria – a large food trade show in Mexico with a subsidiary show in Barcelona – as a potentially large opportunity to source new clients.

container traffic port of beirut

Industry-wide the challenges remain the same. For energy-intensive paper manufacturers the lack of cost-effective access to electricity adds some 30 percent to operating costs, according to Fadi Gemayel, head of the Association of Lebanese Industrialists. Along these lines, costs are mitigated for certain industrialists qualifying for a central bank subsidy to install solar panels on factory rooftops. But Lebanon’s deteriorated infrastructure and the cost of transferring containers destined for export from factories to the Port of Beirut remain long term obstacles with no immediate solution.

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CommentOpinion

Surviving the slump

by Karim Makarem
written by Karim Makarem

The real estate market is the subject of much speculation, usually the negative kind. There are very few optimists who still see it as a lucrative sector. Yet the reality is not so bleak. Demand exists but only for the right product at the fair market price. Prices have started to adjust but effective drops are minor. Developers continue to look for new land to develop. Buyers, both local and expatriate, constitute a steady, end-user demand. The market rests on solid foundations. The only unknown that could either unhinge or improve this delicate balance is the political and security environment – something economic players have no control over.

Slight price drops

Real estate prices are the latest obsession of Beirutis. There is a consensus that apartment prices in Beirut have dropped. Opinions diverge about the exact magnitude of the drop. “Experts” flaunt percentages – anywhere between 10 and 30 percent. These opinions are never based on any accurate and reliable market information.

Actual market data confirms a drop in prices. The research department at Ramco sarl has been compiling price information on buildings under construction in Municipal Beirut since 2005. What our data shows is that the average price of new apartments has dropped by less than 5 percent in 2015, depending on the area. The study covered a panel of around 250 buildings that were in construction in both 2014 and 2015 in 67 neighborhoods across Beirut.

[pullquote] Buyers, both local and expatriate, constitute a steady end-user demand [/pullquote]

These are asking sale prices that do not take into account the discounts offered by developers during negotiations to finalize a sales deal, which has been current market practice for the past several years.

Wide price discrepancies in Beirut

Apartment prices vary widely from one neighborhood to another across Municipal Beirut. Logically, the most expensive apartments are located on the seafront stretch between Beirut Central District (BCD) and Ramlet El Baida, where prices vary between $7,000 and $10,000 sqm on the first floor.

Some projects with direct access to the seashore, such as Summerland Residence and Beirut Waterfront, post even higher prices. These remain a minority and cater to a very narrow niche clientele.

Overall, however, nothing in the capital can still be purchased at less than the symbolic bar of $2,000 sqm on the first floor. The most affordable neighborhoods are clustered at the center of Beirut, just south of BCD, from Bachoura to Tarik El Jdideh further south. Prices lie between $2,088 and $2,400 sqm on the first floor.  The north and easternmost neighborhoods of Ashrafieh are the next most affordable in the capital. Areas like Beddawi have an average sales price of $2,600 sqm on the first floor.  A Ramco study concluded in Spring 2015 for 345 buildings under construction in different areas of Beirut revealed the following averages: the average asking sales price of apartments stood at $885,360 on the first floor; the average apartment size was of 238 sqm; the average unit price stood at $3,720 sqm on the first floor, before negotiation.

Large new stock

Around 10,100 new apartments are currently under construction across Municipal Beirut. This is a drop of about 3.8 percent over 2014, but remains an important stock.

The majority of the projects under construction are located in Ras Beirut, which accounts for half of the stock under construction, with around 5,050 apartments. Ashrafieh comes next with about 3,900 apartments.

BCD, however, holds the lead as the individual neighborhood with the largest upcoming residential stock. The neighborhood’s 1.91 square kilometers count about 1,100 apartments under construction spread across 19 residential projects. Two mega-projects with more than 140 apartments each boost BCD’s figures.

Smaller apartments

The main change on the market is in the size of apartments. Developers have responded to the slowdown in sales by putting smaller apartments on the market – targeting more accessible budgets.

During the past 12 months, apartments across Municipal Beirut have lost about 14 sqm, dropping from 252 sqm to 238 sqm. Obviously, apartment sizes differ from one neighborhood to another.

BCD, for instance, the prime residential address of the country, still offers the largest apartments. They average 333 sqm. Traditionally, BCD has been the leader of the luxury residential market, topping the charts in terms of size of apartments, prices, quality of construction and design. The average apartment size in BCD is about 40 percent larger than the average size of apartments across Municipal Beirut, which stands at 238 sqm.

[pullquote] Current market conditions are not conducive to profitable speculative investments [/pullquote]

The average size of apartments in Ashrafieh and Ras Beirut are almost similar at 227 sqm and 226 sqm, respectively. They are slightly below the Beirut overall average, which is inflated by apartment sizes in BCD.

Even the high-end residential market has seen the apartment sizes shrinking. A few years ago, 450 to 600 sqm were common in the most prime neighborhoods of the capital. Today, no developer would venture down that lane. Even the most luxurious towers currently being built offer apartments between 325 and 400 sqm at most.

Limited speculation

Beirut remains an end-user market. Speculative investments remain very limited, shielding the market from the sudden and often random fluctuations of other money and investment markets. The slowdown that has characterized the market for the past two or three years also deters speculators, as prices have remained almost stable and are now starting to drop slightly. Speculators feed on an ebullient market, in which they can turn their property over quickly at a sizable profit.

Current market conditions are not conducive to profitable speculative investments. This seeming paradox helps protect the market from overheating and keeps prices closer to their fair market values by removing the “fake” demand that speculators represent.

There are some investors still interested in purchasing small apartments in certain neighborhoods of Beirut which are easy to then place on the rental market. This is still a lucrative investment, provided it is the right product. Apartments can be easily rented when they are small and located in a clean building. The building could be new or old, provided it is well kept and offers good basic amenities, such as parking facilities, elevator, generator, janitor, etc.

Mostly local demand

The vast majority of transactions are concluded by local residents buying a primary or secondary residence, for themselves or for their children. Local demand represents the majority of the local market. Its appetite fluctuates at the rhythm of the security and political crises, but returns at the first signs of a security lull.

Lebanese expats constitute the second largest source of demand for end-user homes. Their higher average levels of income than the local population makes them a choice target clientele.

Expats living in the Gulf countries and Africa tend to buy large apartments to use as primary residences. Expats living in Europe and, to a lesser extent, North America constitute the main demand for small apartments to be used as a pied-à-terre during their stays in Lebanon.

High-performing commercial markets

The commercial landscape has developed tremendously during the past several years. With a sluggish residential market, developers have turned to a much undersupplied commercial market – with some very successful results.

At the beginning of 2015, the capital counted 37 office projects within its municipal limits. These will offer around 195,000 sqm of office space.

Projects tend to be located in the peripheral zones of Beirut, avoiding the heaviest of the traffic congestions. Areas such as Corniche El Nahr, Rmeil, Badaro, the National Museum and Adlieh have seen a surge in office developments over the past few years.

The new stock is clean, modern and modular, offering flexible internal partitioning and plenty of parking spaces. Sales prices start at a minimum of $3,500 sqm, regardless of the exact location.

[pullquote] Projects tend to be located in the peripheral zones of Beirut, avoiding the heaviest of the traffic congestions [/pullquote]

BCD and the eastern and central segments of Charles Malek Avenue of course remain the main hub for prime office developments. They offer the best supply in terms of architecture, construction quality and common amenities and services.

The capital has historically been in dire undersupply of good quality office stock. The newest office buildings dated back to the early 1990s and, with a few exceptions, the majority was of middle-market quality and had been aging poorly. The new arrival of modern office buildings was thus much-awaited and most projects sold well.

Lands stand firm

The land market has been standing its ground. Land prices have remained predominantly unchanged across Municipal Beirut. Virgin land is rare in and immediately around the capital. Demand pressure is high, so landowners feel confident enough to stand firm on their asking prices.

Land prices, however, are often incongruent with the state of the market. With dropping sales prices of completed apartments, developers’ replacement cost for land is becoming too high. There is sustained interest by developers and an appetite for new plots of land, but only at a price that can ensure the project’s financial success.

A few landowners have understood that market realities have changed and are willing – more or less reticently – to drop their asking prices. For now, they remain a very thin minority, however. Most landowners refuse to reduce their prices sufficiently to entice developers into making a serious purchasing offer.

No crisis

The boom years are certainly well behind us. The market is in a phase of slowdown, but it is not in crisis. Developers are eager to agree to a 10-15 percent discount and the prices of built developments have dropped very slightly. Under the very difficult security, political and economic environments, stagnation is a sign of solidity.

The underlying fundamentals of the real estate market are solid: developers are highly solvent, demand is vigilant but sustained, speculation is close to nil and lending to individual homebuyers is very carefully regulated by the central bank.

Provided there are no major changes in the broad political and security scenes, the market should continue to stagnate, slowly absorbing existing stock and adjusting to new market realities: smaller budgets and more careful buyers.

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CommentOpinion

Plan of (in)action

by Matt Nash
written by Matt Nash

If a five-year plan to modernize Lebanon’s telecommunications infrastructure announced in July is being implemented, the Ministry of Telecommunications (MoT) isn’t talking about it. There’s no progress report on the website. The MoT hasn’t publicly announced tenders for the various projects needed for an upgrade. And the ministry’s reply to repeated interview requests on the subject? Silence.

After launching the plan, the MoT did try to tender new management contracts for the two state-owned mobile phone networks. The first try flopped. Bids for the three-year contract were due at the end of July 2015 with the announcement expected in October. Egypt’s Orascom Telecom Media and Technology Holding – which currently manages the network branded as Alfa – allegedly submitted its bid one hour late. Telecom Minister Boutros Harb disqualified the company. With that action, there were only two remaining bidders, and the tender was postponed. New bids were due in September, but the MoT has made no announcement about participation. A declaration of winners of the new management contracts is slated for December 2015.

The five-year plan, of course, included much more than new management contracts for the mobile phone networks. Indeed, the presentation delivered in an ornate hall in the Grand Serail was full of promises that – by 2020 – Lebanon’s notoriously slow internet speeds would be a thing of the past. The centerpiece of the plan focuses on replacing Lebanon’s current internet infrastructure – which today consists mostly of copper wires – with fiber optic cables. Fiber can handle more data traffic than copper and can deliver faster up- and download speeds, especially over long distances. At a short distance, copper wires can be used for fast downloading. In an interview several years ago, Toufic Chebaro – the chief ICT officer with Ogero, the state-owned telecom company that has a monopoly on internet access – told Executive that in Solidere, where buildings are connected to the national backbone by fiber and internet speeds are the fastest in the nation, internal building wiring is still done with copper. While Executive does not have exact figures, chief executive officers of local internet service providers have explained that in many locations, users are connected to the national backbone by several kilometers of copper wire, meaning download speeds are reminiscent of the 1990s, not the digital age.

The best-laid plans…

During the five-year plan presentation, the ministry confirmed that Lebanon has a fiber optic backbone that is not being fully utilized (some heavy users are connected but it was still not carrying traffic between the hundreds of “centrale” offices around the country that link users to the backbone, which is the cable’s primary purpose). Minister Harb promised the backbone would soom be fully put to use and that by 2020 fiber would replace copper in connecting users to the backbone. Such an undertaking – known as fiber to the home – is both expensive and labor intensive. The plan is to unfold in stages by using what are known as active cabinets during an interim stage. For users several kilometers from a centrale, cabinets would be connected to the centrale by fiber and placed closer to end users who would connect to the cabinet by copper but enjoy faster speeds because of the reduction in distance. To date, no new infrastructure works have been announced.

Early in his term as minister – which began in February 2014 – Harb said in an interview with Executive that he also planned to fully implement a 2002 telecom law that called for privatizing the mobile phone networks and Ogero. The company controls access to the international internet gateways (in the form of subsea cables) that connect Lebanon to the rest of the world. Private internet service providers lease bandwidth from Ogero and then resell that bandwidth to consumers. They’ve long complained that Ogero does not provide enough bandwidth. The 2002 telecom law calls for ending Ogero’s monopoly on access and privatizing the enterprise. Again, however, Harb made no public announcements in the first 11 months of 2015 to reach this goal.

Upgrading Lebanon’s internet infrastructure is key for the country to become the technology hub several policy makers insist they want it to be. The first thing tech-savvy entrepreneurs complain about is the poor state of internet infrastructure. And they are not the only ones who stand to benefit. In 2009, the World Bank found that for every 10 percent increase in high-speed internet penetration, a country’s economy gets a recurring 1.3 percent growth boost. Harb’s plan looked great, but Lebanon has a tradition of writing up excellent roadmaps and then never leaving the couch.

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Economics & Policy

Seeking integration at home and abroad

by Jeremy Arbid
written by Jeremy Arbid

 

In 2015 Lebanon’s agriculture sector witnessed several setbacks. Prior to the Syrian crisis, the sector had been picking up steam – exports of raw produce and agro-industrial products were increasing quite rapidly. The disruption of transit routes raised the cost of land transport – a change of route and the paying off of militias – until March 2015 when all borders connecting Lebanon to the Gulf market were closed. The food safety campaign also affected consumer confidence – particularly in dairies. But potential new markets present an opportunity to diversify exports away from an increasingly competitive Gulf market. Executive sat down with Maurice Saade, Lebanon’s country representative to the Food and Agriculture Organization (FAO) of the United Nations, to find out more.

E   What is the thinking behind subsidizing agriculture exports by sea – putting trucks on ships rather than packing produce in containers?

Well, the thinking is that the way the chain is organized now is by trucks so it is simply using the same chain. In the future this should be improved; it’s a temporary solution. We don’t know if it’s one or two years – [it] depends on the funding available – but essentially the government will subsidize the exporters [by covering] the cost of shipment. We’re not sure what has been the impact – the data is very difficult to get or is not available. The cabinet approved [the subsidization program] back in May or June 2015 but it took longer to put things into place; the season for exports – especially for fruits – peaks in July, August and September. At least they will have less [profit] losses and will not lose their clients in the Gulf; if you don’t deliver the client will move on to somebody else. That was the main concern, to at least ensure that the Gulf and Iraqi markets were not lost.

E   Has the influx of Syrian labor had an impact on host communities?

Not at all, quite the contrary. There is a large number of Syrian workers who traditionally accounted for 90-95 percent of agricultural workers in any case so prices have remained low and the abundance of labor also reduced production costs [for] farmers. Of course there are a few unskilled Lebanese workers displaced, but the net effect is primarily [positive because of] the availability of the Syrian workers who are more skilled, and also the vegetable and fruit shacks that emerged everywhere are run by Syrians, making consumers very happy because they are open 24 hours a day.

E   For FAO, is marketing raw produce a focus and is it more for local access to the market or for exports?

Local access is there. Lebanon is a free market; there are issues of ensuring wholesale markets but the potential for exports to the European Union is there. That’s where the Lebanese should focus because the Gulf market is there but it is very open for competition – [especially] if Iran opens up. In the EU market, the standards are much higher; quality, shape and also the sanitary and phytosanitary requirements are very strict. I’ll give you the example of potatoes. The EU provided Lebanon with an export quota of 50,000 tons and so far Lebanon has not used that quota for several reasons. The production in Akkar is very good because of the early season and producers [would be] able to export to the EU without much competition – [except] maybe from the Egyptians – but the Europeans want their potatoes nice and round and here they produce potatoes that are huge with lots of mud stuck in between. Europeans don’t like that so the Lebanese have to respond to the market’s needs and have not yet done so because they have been relying comfortably on the Gulf market. If they seriously want to plan ahead, especially if the export subsidy to the Gulf is not permanent, they need to think about improving the production chain, using less pesticides and fertilizers [and revising] post-harvesting methods [such as] crating and packing; that will give them access to the European market. [A quota of] 50,000 tons in the European market gives very good price margins.

E   Is there an effort to help smaller farmers scale up to join the value chain and meet these standards?

The most common, in other countries, is contract farming – essentially someone who has access to the European market making the deals. That company would usually have their own production, but if the demand increases, they start contracting with the farmers around them, imposing very strict requirements guaranteeing a price on condition that standards are satisfied. This has happened in Egypt and it’s working very well. This could happen in Lebanon, [but] not yet; we have in Akkar big companies [growing] potatoes but they are not yet at the contracting level with the other farmers. We think that should be a model that would work quite well. FAO, with the Ministry of Agriculture, could help the small farmers to upgrade, but if you don’t have a market, small farmers will not be able to make deals with the supermarket chains in Europe. They have to have some sort of integration with the agro-industry upward in the supply chain.

E   On food safety, FAO visited the slaughterhouses when the Ministry of Public Health shut them down for health violations. What’s the mindset and coordination when it comes to food safety in the agriculture sector?

FAO was the first one requested to help in the formulation of the food safety law back in 1998. We provided draft laws, legal and technical [advice] and we gave several scenarios. At that time our recommendation was that because Lebanon’s legal system is based on the French legal system, essentially each ministry has its own food safety and then you coordinate between ministries. The Anglo-Saxon system has a food safety administration: the [Food and Drug Administration in the United States]. So FAO was recommending that we follow with the existing French system for the [ministries] of agriculture, economy, health, tourism and whoever else is involved in food safety simply to coordinate and to make sure there is no overlap and no gray area.

E   That’s the problem and this is what the food safety law might address because it is so decentralized that nobody wanted to take responsibility until the minister of health stepped in.

Yes and no. In 2003 the United Nations Industrial Development Organization came up with a new proposal, the Basil Fuleihan plan, shifting the idea to having one agency responsible for food safety and nobody else, creating a new agency with inspectors responsible for everything. [This is important] especially when you are talking from farm to fork and you have lots of the food safety issues at the farm level, [such as] the use of pesticides. At the time then Minister of Agriculture Hussein Hajj Hassan said if you take away all this you have to close down the Ministry of Agriculture because [its mandate] is to work with the farmers. The new law is a typical Lebanese agreement – creating this new agency but keeping the others.

The good thing is we have a law because before we didn’t have a legal framework. The new agency has a dual purpose: the first is to coordinate and set the standards, and the other is to be an operational agency with inspectors. If it turns into an operational agency, it will be a layer in addition to the other ministries. The next step is to [issue] the implementation decrees and allocate the budget. This will take quite a while; to allocate the budget and recruit the staff might take years.

E   The food industrialists say even though the food safety campaign had very positive benefits for public health, it had repercussions on Lebanese products in foreign markets. What was the impact for the producers in the agriculture sector?

There was an effect primarily on the dairy sector; several factories in the Bekaa were closed. That had a major impact because consumers got scared and reduced [consumption] and this affected the price of milk sharply. The food safety campaign was very good because it raised awareness, but once you have a food safety strategy you adopt international standards. There are ways of closing shops; you audit and you don’t close a factory or restaurant based on one report. If there was a system adopted, it would be much smoother and more sustainable, not just based on political will.

E   What are the biggest risks in the food value chain and beside the food safety law and inspections what can be done to mitigate risks?

Awareness is very important and we already have good awareness. You need to work with other parts of the chain: transport, storage and cold storage. A lot needs to be done and that’s where you need the coordination among ministries. Who is responsible for controlling transport? Nobody. It falls between the cracks; that’s where the new agency should identify those gaps and suggest ways to control that.

Also a key part is what is happening at the farm level; the pesticide residue is a critical issue. [Concerning] food safety, if you have salmonella poisoning, you might end up in the emergency room, [but with] pesticide residues you don’t see them [or feel their effect] and 20 years later you have cancer. It is really the hidden danger of the food safety chain and this takes a long time to address because it is very complex.

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Hospitality & Tourism

Regional expansion

by Sophie Rimingtonpounder
written by Sophie Rimingtonpounder

The Hilton Group has been busy, particularly in the Middle East, which according to Rudi Jagersbacher, area president for Hilton Worldwide, Middle East and Africa, is the “fastest growing region” for the corporation. He explains how, thanks to this formidable growth, there will be a new Hilton property opening in the region every month for the next five years.

Indeed, Jagersbacher recounts how in 2011, Hilton Worldwide operated 40 hotels in the Middle East and in just four years, by the end of 2015, they now operate 90 hotels with approximately 100 deals signed for the next few years.

Executive sat with Jagersbacher to learn more about what drives the Hilton Group and how Lebanon is positioned in the company’s strategy for the region, especially with the long-awaited opening of their downtown property, set for 2016.

E   Will you be bringing more of your mid-market-focused service hotel brands or your luxury brands to the region?

From a global perspective, there’s a similar type of scenario. It is to do with the economy of the various places, and if you look at the Middle East, for instance, a lot of hotels had their full service luxury brands already rolled out and this inevitably leads to mid-market-focused service hotels being available.

You can only have so many luxury hotels within an area, so we are bringing Waldorf Astorias and Conrads wherever there is a market with sustainable income and a return on investment which are the thresholds.

Clearly, there are opportunities for business people or people who travel for leisure. When you have two or three rooms, [people] want to be in the secure environment of a big brand but with the safety, security and brand standards all reflected in the lowest denominator.

We have 2,000 Hamptons [our three- to four-star brand] globally, and it is highly successful because there are a lot of people who stay overnight for business and all they need is a clean bed and a great shower…they don’t need three restaurants; they just need to go in and do their business and have good value for money.

So bringing that kind of thing to the Middle East was actually a strategy in terms of asking, “What is the next wave? Which countries are able to take these brands into their portfolio? And who are the investors we can attract to these brands?”

E   What are the main markets you are considering for your growth in the region?

We have two or three markets where we know we have a sustainable economic formula where we can roll out 20 or 30 brands across the country or region.

Saudi Arabia and the United Arab Emirates (UAE) traditionally only went for luxury and the big brands. We opened two hotels, Hilton Gardens, the first in the UAE of this type, and we have many more lined up. The same goes for Qatar. 

We also look to Egypt and the Levant which brings us to your area. Egypt has a similar kind of strait although they are still focusing on the full service, which means the Hilton brand, and the same goes for Lebanon.

We also believe that, particularly in the Levant, there is a lot of opportunity in the mid-market-focused service.

E   How about Lebanon?

For Lebanon, obviously the market is a lot smaller. We have been working on a project in Downtown for many years and for lots of different reasons it never went through, but the good news is that we are definitely going to open by 2016.

A lot of work has been done over the last seven years but there have been issues that are out of our hands, mainly owners’ issues.

E   So you still see downtown Beirut as a viable location for a Hilton property, despite the instabilities that are manifest in the area?

Our location is superb; everybody is building around it. I don’t think there is any better location; even if the port develops or the buildings come up, this will be in 10 to 15 years. And even then, the heart of the city is not changing; that will always stay the same. So inevitably, those types of boutique hotels or special destination projects with great restaurants and bars will always remain in that center. 

E   What made Hilton Group decide to take over the management of the two Habtoor properties?

When we looked at this property, Habtoor, we already had Downtown available and we needed to decide what we were going to do. Since the downtown hotel is rather small, particularly from a banqueting point of view, and because we loved the location here, we went with it.

HILTON-9 Photo

E   So it was part of your strategic vision for the Group in Lebanon?

Yes we wanted to be here (Habtoor) because it has the biggest conference and meeting rooms. It’s also in a great location and I don’t have to fight with everybody in Downtown over rates and occupancy. Here, the people who stay have different types of needs, such as big conferences and meetings, so we have a lot of business travellers.  Also, the location which we have here (Habtoor) is going to grow from a corporate point of view with a lot of new businesses moving to the area.

People who want leisure go to Downtown, which is fine, but there are so many hotels there and I think that, in terms of fair share, we at Habtoor are not in the same ballpark. We have our own business model.

The second thing is that it’s a strong residential area with a lot of mid- and upper-class residential units being developed, and then of course you are in the middle between here and the mountains so it also brings a lot of things down here. So strategically, this location is superb.

I think from that point of view, we are settled.

E   Is that it for your growth in Lebanon?

You can never say that. There may be mid-market or focus-service opportunities. We always look at possible opportunities going forward and the criteria for this are really simple: We’re a management company which means we bring in investors to invest. We need to ensure that the financial thresholds have a return on investment and also [establish] the stability of the business environment to ensure we have sustainable profitability and interest payments.

This is really important because once we start employing people, we need to make sure we can grow, develop and train them further so we are not going up and down in the cycles of business which many in the country are experiencing right now.

E   How would you place Lebanon in the overall strategic vision for Hilton Group in the region?

Like we’ve said, we have 600 rooms in three properties in the country which is already a lot. At this stage, we want to make sure that we open our new property in Downtown; that’s our focus for today and for the next couple of years before we look at anything else.

That’s because of the business trends in Lebanon. Five years ago it was booming and look where we are today. But that means the potential is really great and the future is very bright. I think if everybody can get their ducks in a row and the right priorities are taken from all levels of the industries then the investments and developments in Lebanon will be really strong. It’s got a great following and it’s a big brand, not just regionally but globally as well.

E   What is driving your growth in the Middle East?

Investors and demand. Let’s talk about Dubai, the biggest model because, in 15 years, the whole environment there has changed totally.

One of the most important things they did is they were able to create an airline which was bringing customers. Today, they have 55 to 57 million people coming through Dubai, which is huge. Although most of them are in transit, obviously many are staying over in Dubai; this is a huge growth with new builds and destinations.

Creating a safe and secure environment was their key. We always say democracy is a very important feature in our lives but it doesn’t work everywhere as well and hence, in terms of the decision-making process, they have an invigorated leadership with a great strategy which they have followed regardless of comments around the world and I think they are very dedicated. When you look at the growth with Emirates Airlines and at the financial institutions moving in, it’s a great recipe for moving forward.

Now Dubai is only one spearhead, with other areas like Ras Al Khaymah [and] Fujairah.  Abu Dhabi has also developed its own airline, and the same with Qatar.

E   How does outbound tourism from the Middle East and North Africa (MENA) region to other areas affect your business?

The strategic outlook in terms of the outbound strategy from the MENA region is also very important. A lot of people who live in MENA are outbound during holidays and it’s a big piece of business. This is why you have to have good representation in each country in MENA. It all goes back to flight connections; today it is easy to take flights anywhere from the Gulf. Therefore we as a hotel group need to think from a strategic development point of view to help us ensure we can move our customers in a global landscape. We have 42 million Hilton Honors customers across the globe who visit us internationally and therefore new destinations and offers are very important for us to roll out.

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Hospitality & Tourism

Waiting for (President) Godot

by Nabila Rahhal
written by Nabila Rahhal

Executive met with Pierre Ashkar, head of the Hotel Owners Association in Lebanon, to discuss the hotels’ performance this year as well as the main issues and concerns affecting hotel owners.

E   According to tourist numbers and hotel occupancy rates, it appears that the year 2015 started off well for hotels in Lebanon, correct?

Usually, 60 to 70 percent of tourists in Lebanon are either individuals or corporate travelers. The individual traveler can get corporate rates if they are loyal customers who come frequently. Individuals get rack rates while corporate rates goes down by 15 to 20 percent. Tours and bulks get a completely different deal with lower prices.

The problem started in Lebanon in 2011 when the hotels began to lose guests, and so automatically hotels started lowering their room rates: the rack rate which was $200 went down to $150, a 25 percent decrease. So when my rack rate goes down 25 percent, I have to decrease the price as well for my corporate customers, so that’s another 15 to 20 percent decrease.

So when you hear that the increase in the number of tourists is 16 percent from last year, you have to ask yourself first how many days they stayed in Lebanon because nobody knows. Also, a bigger [number] than before are coming within tour groups, especially Iraqis, and they are getting group rates. So whereas before you would have said no to that, today you take them at group rates because you are hungry. Hotel owners are giving rooms at $60 and $80 just to have liquid money in their hands and make their payments.

I will show you some numbers related to Christmas and New Year’s in 2010. A 100-room hotel had rates of $200, which makes $20,000 per day, and most guests used to stay for 10 days, so the hotel could make $200,000. That same hotel, today, has lowered prices down 40 percent which makes a room $120, totalling $12,000 per day. Since the average stay is down to three days, the total today is only $36,000. Look at the difference, less than a quarter of revenues. Now you see the reality.

E   Were all the areas equally affected by this situation?

No, because some areas rely on local Lebanese as their base clients, and mainly those who are used to spending their summer in the mountains. So these hotels are already seasonal and only work for two months.

E   What about the guesthouses and boutique hotels that were popular this summer and appear to be on the rise?

It’s a different segment and market. They work on weekends and in the summer. These represent a maximum of 10 percent of hotels in Lebanon. Some hotels have the financial means to survive this period because they only have 30 rooms and the whole family runs the hotel but the hotel institutions which employ many people, such as the hotels in Beirut, have to comply with international standards and expectations which are different than those required for guesthouses or hotels in rural areas.

E   You paint a rather bleak picture. From the Association’s perspective, is there a solution to this crisis?

Let us speak honestly. No one can solve the problem entirely. But what could happen that would help many stay on their feet while waiting for better days is financial engineering.

Financial engineering has allowed the Lebanese government, with all its debts, to remain on its feet. Who is behind this financial engineering? The minister of finance, the central bank governor and experts in this field. Just like they found a way to keep the government on its feet, even though it is still accumulating debt, they need to find a solution for hospitality institutions, because each hotel that closes down is letting its employees go, therefore increasing unemployment and making these youths desperate to make some money and [support] their families.

This is my opinion. The day they elect a president, there is an agreement to stabilize Lebanon on a local, regional and international level. Automatically you will see the country prosper. This is what happened after the 2006 war and the same scenario after the Doha Agreement in 2008.

E   So there is still some hope for prosperity in this sector?

The country has not lost its components or the capabilities of its citizens. It did lose the quality of youth who have left the country already but I assure you those will return as soon as they feel the country is stable.

Look at the concepts developed by Lebanese in Africa or the Gulf; why are they so successful? Because those countries offered them stability. This is all we need, stability, and I tell you Lebanon will be full and at a room rate of $200. I repeat, give us stability and take all you want.

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BusinessEconomics & Policy

Export dynamics

by Jeremy Arbid
written by Jeremy Arbid

2015 has been a tumultuous year for Lebanon’s food industrialists. The Ministry of Public Health’s food safety campaign greatly impacted Lebanese consumables in foreign markets, while the closure of traditional land routes raised the cost of exports. Despite these changes, however, the sub-sector has seen an uptick in investment and potential new markets and trade shows promise an important opportunity to locate new buyers for Lebanon’s food products. Executive sat down with Mounir Bissat – president of the Syndicate of Food Industrialists – to find out more.

E   Obviously the economy in 2015 has not been very good to industry as a whole because of external factors like the Syrian war and the closure of land transit routes, but how has the food manufacturing sector faired?

This year has been [difficult] on the industry as a whole and in particular on the food industry. While it was a good cause, the food safety campaign started the year with big repercussions. It had an impact on our reputation, especially with regard to some of our traditional export markets. The second blow was the troubles we were facing at the port as a result of new procedures and formalities imposed by the Ministry of Finance regarding customs. Many factories did not have enough raw materials while others lost their inventory of packaging material because of the delays. This all led to losses in productivity as well as financial losses. The third blow was the closure of borders – Syrian and Jordanian – which affected a major [portion] of exports to Arab countries. Fortunately, the resilience and flexibility of the industrialists allowed them to bounce back from these three major strikes and we are, I think, back on track. In October we were at the Anuga trade show and I saw my colleagues trying to revive lost relations with some of their clients because of these [problems].

E   In October 2015, Banque du Liban (BDL), Lebanon’s central bank, issued a circular with the aim of easing the financial difficulties and cash flow issues that companies and factories are currently facing – can food industrialists use the circular to their advantage?

The central bank has been in the process of issuing a new bundle of economic stimulus measures offering new lines of credit for banks, in order to encourage consumption and investment by small and medium enterprises (SMEs). I don’t know if this is what you [are referring] to, but it will definitely help. The central bank launched a similar measure at the beginning of 2014 by injecting around 3 percent of GDP – the package was I think $1.5 billion – to stimulate the economy. With this injection the growth was in the range of 1.5 to 2 percent. Imagine what would have happened if the central bank did not [issue the stimulus].

E   Did the stimulus have specific impacts for the food industrialists?

I do not have exact figures on how many industrialists benefited from the [stimulus], but it’s a package for new loans and new lines of credit so if we didn’t benefit directly we definitely benefited indirectly. When you stimulate the economy and encourage the economic cycle, even if I don’t have the money directly in my pocket, others are part of this circulation so it will impact positively on our interests too.

E   In early November 2015 Investment Development Authority of Lebanon (IDAL) said that the agro-industry this year had received applications for new factories and projects – around $70 million in investment.

Yes, this sector is one of the most prominent industrial sub-sectors in Lebanon. It is attracting many investments because of various internal and external factors. Believe it or not, the slogan “Made in Lebanon” for Lebanese food is an added value to the export market for the food sector. The food industrial sector is one of the few that [sources its] raw materials within Lebanon – most of the industries import most of their raw materials from abroad. The availability of skilled labor [is also a positive] factor that will encourage investors to diversify and invest in the agro-industrial sector.

E   The syndicate is a lobby group and one of the successes has been the exemption of tax for exports…

No, this achievement is because of the Association of Lebanese Industrialists – it [benefits] all industry. If we talk about success stories for the food industry, one is our participation in the most important trade fairs in the world – Anuga, SIAL and Gulfood. The enactment of the new food safety law ratified in the most recent Parliament session [on November 12] was the culmination of more than 10 years’ effort. If this law had existed years before it would have saved us the bad repercussions that the food safety campaign witnessed in 2015.

E   On the idea of lobbying and looking forward to next year, are there any issues of concern to the syndicate?

[On November 17], we made a presentation to US Agency for International Development – one of our strategic partners – and we declared that although it is not yet officially drafted, the work of the syndicate in 2016 will [focus] on three pillars. The first [pillar] is the enhancement of the culture of food safety and of ISO certification, the second is the improvement of market penetration by participating in more trade forums and better exposure and image, and the third is to [focus] our efforts on product development. Any sector, or any factory, [that] does not continuously improve and innovate on its product lines, will slowly die. For a sector that is as dynamic as the food [industrial] sector is throughout the world, and considering that we are an export-oriented sector, and are facing competition (not only locally but regionally) from similar industries that, unlike ours, benefit from government support, [this is especially true]. You can tell that many of our traditional industrial [products] are already available in Jordan, Egypt, Saudi Arabia, Turkey and Greece – and formerly in Syria. You can imagine the kind of competition.

E   The Ministry of Industry says that there has been some impediment to the opening up of the Russian market because of sanctions, and also said that Mercosur – the Latin American sub-regional block – could be a potential new market. Were these trade agreements to materialize, do you see those markets providing big growth opportunities for food industrialists?

Definitely. At the beginning of this month we were with the minister for an official visit regarding the Iraq market. [That] market is a huge consumer market for Lebanese imports. During this visit we explored and discussed a lot of pending issues that are hindering growth – we have good exports to Iraq but we remain ambitious to increase the number. As for the Russian market, the Ministry of Economy and the Ministry of Industry visited Moscow last year. It is potentially a very big market but is not easy to penetrate, and we are still working on some pending issues like the payment facilities and shipment to the market. I think the only breakthrough that happened was in the fresh produce sector. But for the industry, it is delayed. Regarding Mercosur, it is definitely a great market, but we have not yet tackled this. We had a meeting at Anuga in 2015 with the trade show representative for Alimentaria – it is a big [food] trade show in Mexico, but also has a subsidiary show in Barcelona and is attracting many Spanish-speaking countries. We are working, but so far have not received good feedback from our industrialists – we will try to have a good Lebanese pavilion there.

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Business

Stepping into the light

by Thomas Schellen
written by Thomas Schellen

Historically, insurance companies and organizations for mutual protection have originated from taking on roles in the acceptance and coverage of risks that led them in a next step to develop strategies for risk mitigation and, with further passing of time, assume responsibilities to prepare for future risks. With the present era’s accumulations of uncertainties and concentration of both known and yet unknown risks of unprecedented dimension, from climate change to new technologies, the role of insurance companies in preparing for global and local risks is of massively increasing importance in every single economy.

In this global context, Lebanese insurance companies in 2015 served the local economy with a portfolio of services focused on traditional needs for coverage. Of the $1.15 billion in premiums written until the end of September, $352.4 million were in medical insurance, $252.4 million in motor, and $88.8 million in fire.

In the life insurance segment, premiums were reported as $335.9 million at the end of September; life policies were distributed in 60:40 ratio between savings contracts and protection-only covers in terms of value. By volume, life policies numbered roughly four to one in favor of protection-only contracts over contracts with a savings component.

In terms of distribution of gross written premiums between the main segments, the shares of around 30 percent each for life and medical, 22 to 25 percent for motor, and 7 to 9 percent for fire are consistent with market structures of the past five years.   

Emboldened aspirations

The Lebanese insurance sector has, after experiencing the 1975-1990 civil war and subsequently redeveloping its capacities in the 1990s, moved along a steady growth trajectory in the last 15 years. In performance terms, the sector has demonstrated its durability by generating growth in premiums and assets for a third consecutive year in 2015 during a period when the economy at large was faced with external pressures and internal constraints.

As the second-most important constituency of the financial economy after the banking sector, insurance companies have intensified their efforts in 2015 to heighten the standing of insurers vis-a-vis other sectors in the Lebanese economy. An increase in insurance awareness among national policymakers and corporate decision makers has been the pursuit of the Lebanese insurance association for quite a while. The task has proven difficult for all national insurance sectors in the Middle East as a region where insurance density and penetration are among the lowest in the world, even as Lebanon is a regional leader in terms of insurance penetration, or the share of premiums in gross domestic product, with a penetration rate of around 3 percent.

However the domestic slump in several sectors and industries, such as hospitality, trade, and real estate, and the further deterioration of the stock market, where the Beirut Stock Exchange suffered an almost 16 percent drop in its index and was among the three worst performers among the region’s national stock markets, made it easier in 2015 for the insurance sector to present their values and stress their importance to major stakeholders in politics and the business community.      

A highlight in this regard was a regional conference on the Lebanese oil and gas sector, co-hosted by the industry association and by the General Arab Insurance Federation (GAIF) in June 2015. Besides discussions on the regulations for oil and gas insurance that would ascertain a participation of Lebanese providers in covering energy exploration and exploitation ventures, the event’s biggest topic was an endeavor to develop a pool for oil and gas insurance under management of ACAL.

Other initiatives presented by the association for enhancing coverage capabilities for important risks were projects for an aviation pool and for an earthquake pool. As the projects are new, the willingness of providers to collaborate on creating these asset reservoirs for sharing of large risks has yet to be confirmed. Insurance experts expect that these pools, once implemented, will deliver a strong growth impulse to the sector. However, behavioral change of sector members will be needed in order to develop viable business opportunities in the country’s emerging oil and gas business, well-known regional insurance broking specialist George Kabban cautioned during the June 2015 conference. If local companies continue to behave as they did in the past, they will have zero returns from the notedly high risk prone energy business, he said.

Dangers of inertia and regressions

Challenges remain for 2016, and most likely beyond, in the operational and competitive environment, sector and corporate structures, and the governance of insurance companies. The insurance landscape includes providers that operate as mutual organizations for agricultural producers, or members of the public sector that are monitored by ministries but are not under the supervision of insurance regulators. The leeway that these organizations have over fully regulated private sector players is a major distortive factor to the competitive environment. 

In terms of the sector’s structure, consolidation is an unsolved challenge that is intertwined with problems of transparency and lack of corporate governance at insurance companies. Among Lebanon’s more than 50 operational insurance companies, some are subsidiaries of international or regional financial conglomerates, some are owned by Lebanese banks, and some are joint stock companies in private shareholdership. No Lebanese insurance company is traded on the stock market, however, and only very few insurers produce and publish annual reports according to best practices for financial companies that want to be transparent to shareholders and attract investors.

According to numerous comments from analysts and executives at companies within the sector that have expressed interest in making acquisitions, the lack of proper corporate governance and the slowness of reaching needed consolidation are interrelated. Corroborating this further, a successful exit by private equity fund Euromena and new regional equity participation in Lebanese reinsurance player Chedid Re was helped greatly by implementation of corporate governance at Chedid Re. 

Although insurance performance in 2015 was seen as solid by sector leaders, the sector was exposed to the effects of the state’s inertia and administrative limits for making needed decisions that have resulted from the political systems failure in electing a president and legitimizing policy measures. As a change in the leadership of the Insurance Control Commission (ICC), the supervisor of the sector’s compliance with regulatory, market conduct and reserving rules, was instigated in the first quarter of the year, appointment of a new ICC head was on the agenda at the Ministry of Economy and Trade. A successor for the departing commissioner was selected with a lag time of several months but only weeks after sending notes of his appointment, an announcement in the government organ, The Official Gazette, informed the market that the appointment had to be withdrawn because of legality issues.

With no certainty about the further length of the political crisis, no commissioner in place and reversal to an interim holder of the position, the potential for a gap in supervisory effectiveness could not be excluded as the insurance sector moved toward the end of 2015. Moreover, as a long overdue new insurance law is unable to progress into parliamentary approval and ministerial implementation, a number of concerns over implementability of needed systemic improvements exist in the outlook for Lebanon’s insurance sector. In the short term, however, the expectations for 2016 are reasonably positive in terms of performance and insurance leaders are optimistic about hosting the region’s top sector event, the GAIF general conference, in May of 2016.

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Hospitality & Tourism

Blowing in the wind

by Nabila Rahhal
written by Nabila Rahhal

The prosperity of Beirut’s hotel industry continues to ebb and flow. Room occupancies increase at the earliest signs of stabilization in Beirut’s security situation, only to drop as soon as a bombing or other attacks disturb the peace.

Yet hoteliers in Lebanon refuse to give up, and are targeting different segments of the tourist market while developing creative incentives to make up for the revenue lost in their traditional market segments.

Where are the tourists?

Pierre Ashkar, head of the Hotel Owners Association, pinpoints 2011 as the year in which Lebanon began to lose a large number of its traditional tourists from the Gulf region, as well as those tourists travelling overland.

tourist arrivals to lebanon by month“We used to have 350,000 travelers [per year] who would come by land, of which 70,000 to 80,000 were Jordanians who found this form of travel affordable. We also lost the big families from the Gulf who would come by mini-vans and spend the whole summer in Lebanon. Add to that the political sensitivities which caused tourists from the Gulf to avoid Lebanon due to the travel bans, and certain speeches made by political leaders.” These are the reasons outlined by Ashkar as to why hoteliers continue to call for political stability in Lebanon.

Nazira El Atrache, general manager of Le Bristol hotel, which opened its doors this year following a year and a half of refurbishment, also speaks of the negative effect the travel ban issued by some Arab countries on Lebanon has had on their business. “The market is very hard. You cannot really attract people to a country that is so unstable security-wise … and with so many factors at stake in the international political arena. This is also in addition to the bombing [in Dahieh in November 2015] and the bad publicity the country is receiving.”

Alternatives to tourists from the Gulf

Hoteliers in the country seem to have come to terms with the idea that tourists from the Gulf are no longer their strongest market and are identifying alternatives to this revenue stream. “We cannot sit back and wait for the Saudis to come back; we need to discover new markets, like Iran, for example. There is a massive shift in terms of demographics in Lebanese hotels and the question is – what will the market be like in another five years?” asks Peter Edholm, cluster director of sales and marketing at Le Vendome and Phoenicia Intercontinental Hotels & Resorts. He says that the majority of their hotel guests today are a mix of Europeans, Middle Easterners, residents of the Gulf Cooperation Council (GCC) and some Asians and South Americans.

Atrache says Le Bristol is now targeting tourists from Jordan, Egypt and Iraq through visits from the hotel’s sales teams, adding that it is the Iraqis coming to Lebanon for medical tourism who are the main driving force behind this segment.

Manal Dana, group marketing & communications manager at Achour Holding, has also noticed a decrease in the GCC market but cites “a phenomenal increase of Europeans, Americans and Far East guests coming [to Lebanon] for business, hence booking at Lancaster Tamar.”

Lancaster Tamar in Hadath is described as catering to the business community on its website.

Guesthouses

Lebanon’s small guesthouses, boutique hotels and bed and breakfasts have been a fast growing industry for the past decade. However, according to Orphee Haddad, founder of L’Hote Libanais, a network through which tourists can make reservations for alternative, often rural hotels, their visibility has only really started flourishing over the last few years. In fact, they have become so popular that they have been fully booked throughout the past three summers. This is even more impressive in light of the fact that larger, more traditional hotels have instead been struggling to fill their rooms.

While they still constitute only a small segment of the overall hotel industry – Pierre Ashkar, head of Lebanon’s Hotel Owners Association, places them at around 10 percent of Lebanon’s hospitality offerings, Haddad believes the significance of guesthouses lies in more than just numbers. “Although figures don’t show it, since the market is new and the number of rooms very limited, what’s happening is not just a trend or a marginal phenomenon: it’s the way Lebanon is responding to the contemporary traveler behavior and creating a socially and environmentally responsible market. The issue needs to be examined in terms of influence, vision, and promise, not only in terms of figures.”

Indeed, the Ministry of Tourism has adopted these guesthouses and boutique hotels into their rural tourism campaign, while Tourism Minister Michel Pharaon says they are looking to secure funding for those in rural areas who want to develop such projects.

Haddad goes on to explain how the guesthouse market has grown since L’Hote Libanais began operating, particularly among the local population. “At the beginning, all of them were foreigners, mainly Westerners. Nowadays, half of them are Lebanese people residing in Lebanon. They have booked more than 30 percent of the total number of nights for reservations made through L’Hote Libanais.”

Today, Kanj Hamade, senior consultant at Lebanese Industry Value Chain Development Program, estimates the number of guesthouses in Lebanon to be around 40 (13 of which are in the L’Hote Libanais network) but expects it to increase as investments in the sector continue to rise.

Because of this growth, L’Hote Libanais believes that customers need to be given more clarity as to what defines a guesthouse or a bed and breakfast; as such, they have developed L’Hote Libanais which Haddad says would ensure that the standards of quality are met in each of its guesthouses.

With increasing interest, both locally and abroad, the future can only be bright for this burgeoning, alternative style of lodging in Lebanon.

Indeed, the key driving force behind the performance of Beirut’s hotels this year was the corporate travel segment, known as Meetings, Incentives, Conferences and Exhibitions, or MICE.

Edholm says that “recently, corporate travel grew a lot with several exhibitions and meetings which we were hosting. These are events that go ahead no matter what is happening in the country because they are organized by local banks or regional companies and not international or multinational groups.”

A good year…but…

Despite the seemingly poor state of affairs, the hotels that Executive spoke to report that 2015 was off to a good start – with room occupancy rates generally exceeding those of 2014 – until the end of July, when the combination of the waste management crisis and the demonstrations and closures in Downtown drove tourists away.

“2015 was much stronger than 2014. We were several million ahead in revenue until August, when the garbage crisis really changed things. It wasn’t just the garbage but also the demonstrations, because people in the Gulf especially thought it was another Arab Spring,” says Edholm. He adds that growth for the first three quarters of the year was because of the improvement in the security situation and also because of the lack of negative media.

Director of Sales and Marketing at the Four Seasons Hotel Beirut, Maha Bourachi, also attributes their hotel’s positive performance this year to the increased stability in the country for the first three quarters of the year. “Naturally, [the first quarter], Q1, of 2015 was much better than the Q1 of 2014, where we had explosions randomly in the country. The Q3 of 2015 was also much better, as in 2014 in June there was the explosion of Duroy Hotel which imposed an immediate slowdown in business pick-up levels in the country,” explains Bourachi.

With the suicide bombings in Dahieh in November 2015, Edholm does not expect the year 2015 to end on a positive note for hotels in Lebanon. “With the bombing, we don’t see the year ending better, as Western countries are very sensitive to security issues. I think Jordanians, Egyptians and Iraqis would still come but we need a solid mix of travelers: we need the business travelers, the person coming for weekends or holidays, the suite guests if it’s a big family…”

Hustling for Business

While in previous years, hotels in Beirut may have been flooded with guests, today those in the hospitality industry are having to double their efforts and provide a variety of incentive packages in order to attract clients to their property.

“We are continuing to identify the strong performing key source markets for the hotel, and identify proactive business development initiatives to attract and grow our business levels from these markets. In a market environment as volatile as the Lebanese one, you need to constantly identify opportunities and tackle them proactively to grow your business,” says Bourachi.

Achour Holding’s Dana says they have have had to offer creative promotions to their guests in order to remain competitive. “We have managed [to sustain our business] through our year-round tailor-made promotions for corporate and travel agencies, and the MICE segment, in order to gain our share of business. Not to forget the online packages created for Ramadan and the summer period to attract locals and foreign clients,” she explains.

Edholm says the Phoenicia group chose to be much more present in the market this year from a commercial perspective, with their sales people travelling to Dubai, London and Paris among other cities in order to connect with travel agents and clients in those cities. “Just because you have a [precarious] situation you cannot stop being close to your clients, because when the business is back who will they call? And if the business is limited we should always be the first choice in terms of presence by visiting our key suppliers.”

Le Bristol’s Atrache also speaks of remaining active in foreign markets by participating in several travel fairs this year including ones in Berlin, London and the Gulf. She explains that this is particularly helpful for reversing the negative PR about Lebanon: “We tell [attendees] that we still have the nightlife, and the archeological and cultural sites, and that it’s a good idea to come now and take advantage of the special rates we have since the country is no longer really on the tourist map.”

The modern world and hotels in Lebanon

As part of their strategy to attract customers, more and more hotels are embracing the digital world, with Edholm pushing for more online and social media coverage among other online activities in Phoenicia, and Bourachi says that online digital campaigns to promote Four Season’s food and beverage (F&B) outlets would be part of their plans to grow their business in 2016.

“The market has changed. In the past, you used to get phone calls to book a room; now you have a room management system. You are online and you need to have a solid website and social media presence to be competitive,” says Atrache, recalling the changes in Le Bristol’s hotel market since it opened in 1951.

Dining and wining in a hotel

Hotels in Beirut generally have solid F&B and banquet hall offerings which they can rely on to generate some revenue, to a certain extent, when room bookings are low. The Four Seasons says their F&B offerings are constantly being developed with new menus and creative ideas while Edholm says F&B outlets will also be a key focus of Phoenicia in 2016.

However, Atrache warns against an overreliance on F&B and catering. “At Le Bristol, we are known as the caterers, but it is not enough to keep the payroll of all the services the hotel provides with only the catering department.” She explains that although catering constitutes 60 percent of their revenues at the moment, its cost is much higher than maintaining rooms.

Despite the ever-changing winds, the business of hotels in Lebanon is hanging in there and finding new ways to adapt and grow. As Atrache concludes, rather darkly, “Hospitality needs to keep on going because this is the heartbeat of Lebanon: we have no oil, we have no gas, we have tourism and this is what we are all about.”

Clearly, this is a sector worth fighting for, and if Lebanon loses its grip on it, the future will not be so bright for this small but ambitious country.

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Hospitality & Tourism

A tale of two countries

by Nabila Rahhal
written by Nabila Rahhal

Addmind is primarily known for creating successful entertainment concepts and venues such as Iris, Indie and White, which was the winner of the 2015 World’s Finest Clubs Award. The year 2015 saw the company re-enter the food and beverage (F&B) domain, following a few unsuccessful ventures 10 years ago. The company took over the La Plage complex in Ain El Mreisseh and reconceived it into the Madame Bleu Beach Club and three restaurants: Popolo, Boulevard Beirut and Sea Salt.

The company also partnered with the restaurant Shogun Downtown over concept design, music and cocktails while its owner Aref Saadeh shared his food expertise.

The company’s growth in Lebanon was coupled with further expansion in the United Arab Emirates. Tony Habre, CEO of Addmind, said Dubai now constitutes 55 percent of the company’s total turnover and estimated growth to 65 percent by the end of 2016.

Executive speaks with Habre about the diversification of Addmind’s portfolio and about the dynamics and challenges of operating in two distinct markets simultaneously. 

E   Can you tell us why Addmind chose to extend its portfolio outside of nightlife?

Yes, we are diversifying into restaurants because it’s a natural and organic growth for us; we’ve been growing steadily as a company and we’ve always followed the trend in Lebanon and what people want. There’s still a big need in Lebanon for restaurants; even with everything happening, people still go out. There are fewer people, but there are still people and not a lot of new restaurants have opened recently so I think in the right place, there is a market for that.

I think La Plage and Shogun are set in great locations; they just needed the right concepts. It was a perfect place to refresh our restaurant concepts and diversify them.

E   And you did not feel that such concepts are changing your brand identity?

No, if you go to Boulevard Beirut you will see that the logo, design and setup look like us. Popolo looks a lot like us and so does Madame Bleu. We are integrating with something that we like and where we would like to go. Honestly, where we failed is in places where we wouldn’t like to go.

E   Can you compare 2014 to 2015 in terms of the overall growth of the company?

Our huge growth is in the UAE. In Lebanon, the nightlife almost stayed the same despite growth at the beginning of the year before the political situation took its toll, but I would say that, overall, the nightlife stayed more or less the same.

Because we started doing restaurants, we had growth at the company level within Lebanon but it’s still a bit early to know how much.

So far the nightlife, including beach clubs, constitutes 70 percent of our company’s businesses, with the restaurants making up the other 30 percent, though by 2017 I think it will be 50-50.

E   How do you manage your staff between Lebanon and the UAE?

We have a lot of common staff between Dubai and Beirut.

We have a big office in Dubai but the top management (global operations director, F&B manager, human resource manager, finance manager, etc.) are the same in both cities. Before, even the general managers (GM) were the same but since we grew a lot in Dubai we had to have separate GMs.

E   Are you facing a shortage of qualified staff? If so, is it more of an issue in Beirut than in Dubai?

It’s a problem everywhere. On the contrary, had we not had this base of people that we employed and trained in Beirut, there was no way we would have accelerated in Dubai. Our strength is in our staff who we were able to bring to Dubai.

By January, we will be around 900 employees of which 250 have been with us for eight years and are considered the pillars of the company, having started as wait staff and gone on to fill management positions.

We are opening our own academy, the Addmind Academy, in 2016 for our own team. The whole idea is to train our existing staff and our future staff in a very professional manner because it’s all about the staff at the end of the day.

Lebanon has a lot of good people and we have the service gene in our blood, but they just need training and language [skills] which is one of the problems we face in getting them to Dubai.

E   What are the major differences you have seen between operating in Lebanon and Dubai?

The cost of doing business in Dubai is the actual cost of doing business. It’s a country with an extremely high barrier to entry; the rents are extremely high, and your cost of business is also very high because you are getting many of your employees from outside and you have to pay for their visas and accommodation. Basically, the setup [cost] of a business is extremely high. It’s good if you are already doing well because as the barrier to entry is so high, it is difficult for competition to enter the market unless it is very strong.

This is the opposite of Lebanon, where you don’t have this high cost at the start, as your employees are already in the country and so are you; you are not mobilizing yourself. Also, [in Dubai] later on the cost is in the rent that is triple that of Beirut and the Lebanese employees who cost you at least double or triple [the amount in Lebanon] there.

This is why I say the revenue percentage is higher in Dubai but the profit percentage is better in Lebanon.

E   What are the rewards of operating in Dubai?

It’s a great country where revenues are really high, it’s stable and the market is there. You have 100,000 Lebanese living in Dubai with a considerable income and another 60,000 in Abu Dhabi. So you are starting with a good share of the market.

The financial risk in Dubai, however, is higher than in Lebanon because the investment there is bigger, but once you do well, you do better.

E   Are your venues in the UAE attracting only Lebanese or has your client base been diversified to include foreign expats?

The Lebanese help you get started but then they all have their cosmopolitan friends so we don’t have more than 30 to 40 percent Lebanese in our places. You have Emiratis, Palestinians, Jordanians, Iraqis [and] Europeans; you really have people from everywhere and since we have different types of places, we attract different nationalities to each.

E   Are you thinking of expanding beyond Dubai?

The Gulf Cooperation Council is going to come organically but in the coming two years it’s about time for a move to Europe. I’m sure it won’t be easy. It wasn’t easy in Dubai but we’ve done it once and we will do it again.

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