CommentOpinion

Time to act

by Annalisa Fedelino
written by Annalisa Fedelino

Lebanon has been severely affected by the Syrian crisis that erupted in early 2011. The signs are evident everywhere, starting from a massive refugee presence, which is now more than one quarter of the population and outstrips the ratio of refugees-to-population in any other country inside and outside the region. But while refugees are fleeing to many countries, the spillover from the regional conflict runs far more deeply in Lebanon, further weakening the economic foundations of the country. Growth has sharply decelerated, from an average of 8 percent during 2008-2010, to less than 2 percent since, well short of potential. Prospects for a rapid recovery are not promising, as traditional growth drivers – real estate, construction and tourism – have been negatively impacted by overall security conditions and political uncertainty.

All of this has taken a toll on, among others, an already vulnerable fiscal position. Lebanon has been running large budget deficits and high debt ratios for many years; over the last decade, the overall fiscal deficit has hovered between 7 to 10 percent of gross domestic product (GDP).

A welcome exception came in 2014, when the budget deficit fell to 6 percent of GDP, though only on account of one-off extraordinary factors – such as exceptionally large revenue transfers from the Ministry of Telecommunications – that will not be easily repeated in the future. Despite these large fiscal deficits, there was a remarkable decline in the public debt ratio from a peak of 185 percent of GDP in 2006 to some 131 percent of GDP by 2012, largely driven by high growth and low real interest rates. However, with these factors removed, the public debt ratio has started to slowly rise again, remaining above levels that would not be advisable for other emerging markets.

Given the regional crisis and its impact on macroeconomic and political conditions, Lebanon’s fiscal deterioration since 2011 should not be too surprising. In fact, it is difficult to maintain good fiscal performance when the economy is not doing well; lower growth directly transmits into lower revenue, while spending tends to be more inelastic, almost automatically resulting in a worse budget position. And fiscal pressures are even more understandable given the significant shocks. The massive refugee presence, and its additional costs in terms of public service provision and security, need to be borne by the budget. 

What can be done?

But while Lebanon’s tough predicaments can be understood, they should not become an excuse for political inaction. Parliament has passed a package of laws in a show of unity and determination – largely triggered by the urgency to approve pending financial laws and expiring project loans. That same unity and determination should be marshaled into taking selected steps to stem adverse fiscal dynamics – with positive effects on confidence and the economy at large. Here are some suggestions.

1) Strengthen revenue collections. Tax revenues have significantly declined in the last four years, by some 3 percent of GDP. In addition to subdued economic activity and weakening tax compliance, this also reflects the lowering of select taxes (most notably, the decision to exempt gas oil from VAT in 2012). Initial measures by the Ministry of Finance to strengthen collections are welcome, but they should be built upon. And they should be flanked by policy actions, such as reinstating taxation of all fuel products and increasing fuel excises, which remain low by international standards. The current oil price environment provides the right opportunity to do so.

2) Contain spending. Spending composition is very rigid (about 80 percent is accounted for by interest payments, salaries and transfers to Electricité du Liban, EDL) and room to contain spending is limited without reform. EDL subsidies, which have recently declined on account of lower oil prices, would be a good place to start, also to create room for more productive and much needed infrastructure projects (Lebanon’s capital spending is one of the lowest in the region, at only 1.5 percent of GDP).

3) Promote more transparency in funding the government, especially in foreign currency. Public debt management is closely coordinated between the Ministry of Finance and Banque du Liban (BDL), Lebanon’s central bank, and the recent publication of auction calendars for government paper is welcome progress. At the same time, however, the government has been increasingly relying on BDL for its funding needs in foreign currency, given the cap on its FX borrowing. More market-driven funding mechanisms would enhance the transparency of fiscal operations and their costs.

4) Pass a long-overdue credible budget. Recent attempts to normalize spending and payments of salaries are positive, especially to avoid undue (and unwarranted) payment disruptions. However, these practices should not be a substitute for passing a comprehensive budget. Reliance on an official budget would also promote transparency by eliminating the need to execute spending through treasury advances – a problematic method of conducting fiscal operations in the absence of clear legislative spending limits.

The above steps can help promote credibility of fiscal management and put the debt back on a sustainable path, thus anchoring confidence. Targeted fiscal adjustment efforts and reform are needed now, as protracted low growth and increasing global interest rates – much expected over the coming months – will only contribute to worsen Lebanon’s weak fiscal position. Recent legislative successes suggest that progress can still be made, despite the many political constraints, when the consequences of parliamentary inaction are understood and shared. In the same vein – and in the same order of priority – fiscal measures should be high on the legislative agenda and be swiftly approved and implemented. Lebanon’s current vulnerabilities are not only fiscal, but fiscal is a good place to start addressing them.

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CommentOpinionRefugee Crisis

Time to wake up

by Khairunissa Dhala
written by Khairunissa Dhala

Following deadly attacks such as the ones that struck Paris in November 2015, western leaders and the media largely focus on increasing security measures and closing borders in order to keep ‘terrorists’ – which to some is synonymous with keeping refugees – at bay. This policy of closing borders is not new, however, and is often used to scapegoat refugees for the very crimes they themselves are fleeing from.

Since the huge influx of refugees to Europe over the summer, several high level European Union summits have been held in order to discuss how to respond to the ‘migration crisis’. Responses have centered largely on how to tighten borders, build more fences and find ways to stop refugees from leaving the first countries they fled to, known as the host countries. Many western European leaders responded to the huge flows of refugees trying to reach Europe’s shores by promising more money to the main host countries. Several high profile visits by European leaders have been made to Lebanon, Turkey and Jordan with the objective of negotiating increased humanitarian assistance to the region in exchange for tighter controls on irregular migration routes.

The international community’s inadequate humanitarian response to alleviate the suffering that Syria’s refugees have endured due to the brutal and protracted conflict in Syria and the precarious conditions which they have been living in for the last four years is shocking. Countries in the region, including Lebanon, have over time increased restrictions on Syria’s refugees entering the country. And for those already in Lebanon regularizing their stay or renewing their residency permits has become incredibly cumbersome. Western governments have chosen to remain silent on these issues. This is likely because of their own unwillingness to accept more Syrian refugees and their desire to ensure that the majority of refugees continue to be hosted by Syria’s neighbours.

Lebanon, which has the highest number of refugees per capita in the world, has struggled to cope with the over 1 million refugees, including Palestinian refugees, from Syria. Among the country’s concerns are fears of security incidents such as the attack in Beirut in November 2015, critically underfunded humanitarian appeals year after year, tensions between refugees and host communities and worsening socio-economic conditions.

However, the restrictions imposed by Lebanon have made the situation increasingly untenable for Syria’s refugees making it harder for them to seek asylum. In May 2014, the Lebanese government imposed new entry requirements for Palestinian refugees from Syria, including the need for a pre-approved valid visa from a Lebanese guarantor, effectively closing the border to them. Following this, in June 2014 the government announced that only Syrians from areas bordering Lebanon where fighting was taking place, would be allowed to enter. In January 2015, guidelines issued by the government came into effect, imposing new entry requirements on Syrians seeking safety in Lebanon. Categories for entry into the country include tourism, education, medical treatment and business. A category for ‘displaced’ was included but remains very narrowly defined and does not include those fleeing persecution. And finally in May this year, the UN Refugee Agency, UNHCR, was ordered to suspend all Syrian refugee registration and ordered to de-register those who had entered in 2015.

To their credit, until October 2015, the Lebanese authorities stood by their word not to forcibly return refugees to Syria. Any such returns would contravene the core principle of non-refoulement under international law, which prohibits the transfer of individuals to another country or jurisdiction where they would face a real risk of serious human rights violations or abuses. In October, this promise was almost broken when four Syrian refugees who had flown from Syria to Turkey were sent back to Lebanon, held by General Security and escorted to the Lebanon-Syria border. The intention of the General Security officers in charge was to deport them to Syria. Once the information reached the Minister of Interior, the deportation was halted.

Two Palestinian refugees from Syria were less fortunate. In November the brothers attempted to leave for Malaysia via Turkey. When they landed in Turkey, rather than letting them continue their onward journey, Turkish authorities put them on a plane back to Lebanon. In Lebanon they were detained by General Security officers before being escorted to the Lebanon-Syria Masnaa border crossing and forcibly returned to Syria. The brothers feared returning to Syria where they were due to serve their obligatory military service. Instead they remained in no-man’s land and appealed to the international community to protect them. A few days later, the Lebanese authorities allowed them to re-enter Lebanon for a limited period of time.

In addition to border closures, new criteria for renewing residency permits for Syrian refugees were introduced in January 2015. The highly complex and costly criteria for renewing residency permits has resulted in it being almost impossible for most refugees from Syria to regularise their status. The inability to legalize their stay has drastic consequences for refugees from Syria. Refugees with irregular legal status are exposed to a range of increased vulnerabilities, including the risk of harassment, arrest and detention by Lebanese authorities and exploitation. Freedom of movement is also curtailed due to the fear of crossing checkpoints without a valid residency permit. This in turn impedes refugees’ access to services including health care and education.

In order to renew residency permits, each Syrian over 15 years of age must pay an annual fee of $200. Additional costs such as transportation to relevant offices, public notary services and photocopying costs amount to an estimated additional US $230 – making the whole process cost almost twice the amount of the renewal fee. Furthermore, those registered with UNHCR must sign a ‘pledge not to work’. Those who are not registered with UNHCR must provide a ‘pledge of responsibility’ from a Lebanese national – this acts as a sponsorship for a work permit and requires the sponsor to take full responsibility for the Syrian person’s employment, housing, healthcare, food and other costs. All Syrian refugees must produce a ‘housing pledge’ which is confirmation from a Lebanese national that they lease a property to a refugee, or – for those living in informal settlements – a residency statement from the municipality. Anyone who entered the country through irregular borders is denied the chance to regularize their stay. Instead they must pay a fee of $633 and leave the country within five days. They can re-enter only if they meet the new entry requirements. If they are unable to pay the fine, they are permanently banned from re-entering Lebanon.

For most refugees, who rely on humanitarian assistance and, some on a low-income job in the informal labor market, the likelihood of affording to renew their residency permit is very low. UNHCR provides cash assistance to 29% of Syrian refugees who are considered the most vulnerable though the number of those considered vulnerable and in need of cash is around 50%.

For those who receive World Food Programme (WFP) food vouchers in the form of e-cards, over half cited them as their main source of livelihoods. Due to funding cuts, the WFP stopped providing food vouchers to one third of Syria’s refugees in Lebanon and Jordan over the summer and reduced the amount of assistance received by Syria’s refugees in Lebanon to $13.50 per person. In September they capped the number of people per family receiving a voucher at five people per household. An injection of funding in October 2015 has allowed WFP to increase the amount provided to $20 per person, per month. This source of humanitarian assistance has proved to be unreliable for most and even with the increase in the value of the food voucher, those receiving them are living on around $0.60 a day. Furthermore, in summer 2015, UNRWA – the UN Agency providing assistance for Palestinian refugees from Syria, cut assistance for shelter due to funding shortfalls. Faced with even more restrictions than Syrian refugees, including the need to renew residency permits every three months, the majority of Palestinians were wholly reliant on that funding as a source of livelihood.

Between January and September 2015, UNHCR have de-registered 149,000 Syrian refugees. Some were de-registered upon the request of the Lebanese authorities for having entered the country in 2015 while others were deregistered for other reasons. The other four most likely possibilities are: they gave up hope of a better life and returned to Syria; they chose to stay in Lebanon and are no longer motivated to be registered with UNHCR due to lack of assistance; they have found a Lebanese sponsor; they moved to a third country. UNHCR has reported an increase in onward movements of refugees from Lebanon in the second half of 2015 – though most of those leaving have come directly from Syria and transited in Lebanon. What is clear is that unless conditions improve and refugees are permitted to remain legally, staying in Lebanon for the longer term is not a viable option for refugees from Syria.

In order for refugees from Syria to be able to survive in Lebanon and to live in a dignified and sustainable way, the Lebanese government needs to ensure that no refugees who have fled Syria are forcibly returned by any manner whatsoever, including deportation or rejection at the border. It must ensure that refugees from Syria are able to renew their residency in Lebanon until there is a fundamental change in circumstances in Syria – meaning that it is safe to return. To this end, it should remove obstacles to residency renewal including removing the onerous criteria required and waiving the $200 fee.

The international community must significantly step up and substantially increase financial contributions to the UN and other humanitarian and human rights organizations responding to the crisis. It also needs to support the government of Lebanon in increasing the capacity of public services to meet the needs of refugees and the host communities that are impacted. Finally, it needs to share responsibility with Lebanon and its neighbours and increase the number of resettlement places provided to the most vulnerable refugees from Syria, including Palestinians who have fled Syria, over and above existing quotas. Refugees who are fleeing war and persecution must not be punished – they are fleeing the same violence and attacks that fatally struck Beirut and Paris in November 2015.

 

A different version of this article appeared in the December 2015 print issue of Executive.

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Art

Elitism, disruptiveness and a lack of strategy

by Thomas Schellen
written by Thomas Schellen

Works of art are of an infinite solitude, and no means of approach is so useless as criticism. Only love can touch and hold them and be fair to them.” (R.M. Rilke, third letter to a young poet)

When art maecenas Nicolas Ibrahim Sursock in his last will donated his mansion to the city of Beirut before he died in 1952, he did not just sign over a deed. He formulated a hope for his home country and city: “I wish there would exist in Beirut, capital of the Republic of Lebanon, museums and exhibition rooms open to everyone, where masterpieces and antiques would be preserved and displayed.”

To achieve this, Sursock apparently wanted an authority figure to exert custody over his treasure and appointed the mayor of Beirut as guardian of the Sursock Museum. The donor’s gift came moreover wrapped in another wish, that Sursock’s “fellow citizens would appreciate art and develop an artistic instinct.” With so much weight of patrician input on the museum, it was probably no wonder that the museum’s exhibition approach for many years exuded a certain flair of elitism and even orientalism until far after the time when orientalism fell out of favor with the Europeans who had perpetrated it.

Thankfully, with their reopening in October 2015, that approach has been replaced by a leap into the 21st century in the management of Sursock Museum. “They are coming down from their pedestal and I think it is very salutary. The women running it have a very clear idea of how they want to make an impact on a museum-going culture,” comments Nora Boustany, board member of the Association for the Promotion and Exhibition of the Arts in Lebanon (APEAL), an organization whose aims overlap with the Sursock Museum’s apparent strategy of bringing art closer to the people, instead of making people into appreciators of art. 

The bottom-up strategic design approach for developing a broad-based museum-going culture in Lebanon looks like a winner even as – and actually because – the top-down approach has been, and still is, prevalent in museums of recent vintage. A walk through either the diverse collections of the Robert Mouawad Private Museum (RMPM) near the Grand Serail or through the monolithic one at the Mineral Museum (MIM) that inhabits space at the Université Saint Joseph’s Campus of Innovation and Sports exposes the visitor to breathtaking exhibits – rare and many-colored treasures of the earth in MIM and in the RMPM superb antiques, tapestries, jewelry, historic Chinese porcelain and centuries-old Syrian pottery from places associated today only with terror.

The exhibits in both museums are private collections, and it is undeniable that their elite owners make all the important decisions about the delivery of these cultural goods to the public. Elite influence – which some economists might be fashionably tempted to call elite capture although the term in the sense of its definition appears applicable neither to art nor banking – is even more striking in the newest Beirut art museum, the Aïshti Foundation.

Truth be told, this museum takes the city to a new sphere of communing with art. The exhibition space is as perfect as an art museum can hope to be. Perhaps it is because the property is juxtaposed with a brutal environment of traffic and oil storage but from stepping into the first of the four exhibition floors until leaving the last, one feels there as if the UK’s Tate Modern, France’s Centre Pompidou and Germany’s Bundeskunsthalle had organized a joint venture for installing a museum in the best sense of the word in a locale that had for decades been seemingly deprived of culture and void of artistic atmosphere. At the same time, the reality of elite control could be no more visible than in this perfect museum’s attachment to an edifice of luxury consumption where the central interior space evokes reminiscence of a ziggurat filled with shrine after shrine dedicated to brands that represent consumerist deities of glitz and glamour.

Balancing bottom-up

and top-down

Given that the facts on the ground testify to the constructive role played by elite contributions, the best bet for developing an economy of culture and arts appears to be finding a balance between bottom-up egalitarian and top-down elite components. This also applies to financing of museums where it is difficult to avoid appealing to the generosity and self-interests of wealthy benefactors when one wants to develop a contemporary art museum from scratch. The financial attractiveness of artworks as investments under the wealth management paradigm and the contested market for museum-worthy art have led to ballooning of prices and this, as Boustany admits, is “a huge disadvantage for building a collection”. According to her, APEAL is still sorting out its approaches to entice art and financial donors, including the well-known lure of granting patrons the rights to have galleries named after them.

Besides this being a reminder that for any non-profit operator in culture and the arts there is always a thin line between giving deserved recognition and bowing to a presumptuous claim of elite status, the question over viable funding approaches looms as a yet-to-be resolved challenge over the Lebanese museum scene. According to Beirut Mayor Bilal Hamad this even applies to the Sursock Museum, where long-term baseline funding of operations is secured by inflow of money from the municipality. At legally secured transfers of 5 percent of fees for all building permits issued by the municipality, the funding represents “good money”, Hamad says, but cautions directly that the museum’s board cannot depend on this to suffice in the future, given that the museum is bigger and much more active in staging events and offering programs. “We can no longer operate the museum in the same way as in the past, with only one activity per year or every six months. We expect to have more visitors and [have] hired new employees whose salaries have to be paid, so [the board and us] have to look at other ways of supporting the budget. We are still thinking about how to do this,” he says.    

Noting that the museum landscape of Beirut is scattered with institutions funded by the state, the city, two major universities and private owners, and that insiders testify to the existence of the usual inter-institutional jealousies and quarrels, the sourcing of funds in the growing museum landscape seems certain to be a challenge. Foreign institutional donors are very helpful (and are usually well satisfied with small plaques of appreciation on the wall of a sponsored museum) but their contributions are based on decisions in their home constituencies and limited in time and amount. As for state contributions, the vagaries of political budget making and the overall situation of state funding in Lebanon are a strong deterrent from even thinking about how more political attention and public sector financing could be steered toward productive investments into the economy of culture.

But art spaces are no exception to the rule that competitiveness requires unrelenting efforts, including continual financial investments. In order to generate returns in job creation, social capital enhancement and positive direct impacts on gross domestic product, museums need to be competitive and enterprising. This in turn implies that there is a dual challenge present for the cultural sector; not only do museums individually need to acquire financial and strategic management capabilities to run themselves more productively, but private and public stakeholders in Beirut’s economy of culture are also in need of joint communication and strategic planning for the whole museum sector. Such planning would be prudent, agrees Beirut Mayor Hamad. “Today there is nothing called Beirut Municipality strategic cultural plan or vision. I am doing my best to support a lot of cultural activities and I have attended so many cultural activities but to tell you the truth, we have not even attempted to put together a cultural strategy for Beirut. This is a nice idea,” he tells Executive.

According to APEAL’s Boustany, collaboration with the Beirut Municipality and ministries such as the Ministry of Transport are part of the organization’s mission statement. Avenues of cooperation could start to be developed with the establishment of a museum mile or simple projects such as a culture bus, she says.

Once a museum-going culture gains traction in all quarters and strata of Lebanese society, there will be more interesting challenges than management and coordination. Every stakeholder and institution involved in culture tends to have their own ideology on what art should and should not do. One does not need to search far to see that freedom and disruption of the status quo are preeminent in the minds of many artists, in Lebanon as everywhere. A growing role of contemporary art in the country’s intercommunal transactions would very likely result in artists challenging both people and institutions who are currently in culturally dominant positions. However, from Boustany’s vantage point this is nothing to worry about in fundamental terms. “I have found in my experience working with contemporary art that artists coming from all confessions first of all work together. Their creative protests are more universal than sectarian, so even if the context is sectarian, the outcry is universal. Themes such as injustice, intolerance [and] gender inequality have found expressions in angry and provocative ways but the underlying subtext of values is not divisive,” she explains.

The harshest frontier

Thus remains the need to mention a barrier that already tremendously affects museums and has to be addressed for implementing a museum-going culture in Beirut. Quite literally going to a museum is a pain and a challenge in all too many cases. The American University of Beirut off-campus art museum is hard to find and some people say the on-campus museums are not easy to reach for all visitors, due to campus access controls. Walking to the Armenian art exhibition at the Beirut Exhibition Center in May 2015 meant to dash between noisy construction vehicles on a dust-covered road. The RMPM is sheltered from its road by trees and a magnificent garden – but to get there one has to first approach the soldiers at a security barrier for the embassy district. Executive has been told of numerous experiences by tourists who missed out on seeing the collections there because they could not find their way around the tightly controlled area.

As a whole impression, access to culture in Beirut is forbidden for anyone with disabilities and far too often a physical challenge even for able-bodied people. This is perhaps nowhere more acute than at the newest museum in the Beirut conurbation. Looking with a foreign visitor’s mind across to Aïshti Foundation after arriving in the Jal El Dib suburb from Beirut, the final approach to the edifice is about as inviting as a trip to Alcatraz across San Francisco Bay – without the boat. This is to say that the Beirut – Jounieh Autostrade is as formidable a barrier as any eight lane restricted-access motorway. There is a very rickety and repulsive looking pedestrian overpass but even after traversing its steep stairs, the visitor has to trail for five to 10 minutes along unsecured pavement that serves as an every-day racecourse to local motorists. Not appetizing in a country that is feared for its poor traffic safety (see automotive section page xxx).

All that could, of course, have been no hindrance for storied international guests at this museum’s opening who were ferried around Beirut in a fleet of German premium cars. Nor would it be a problem for the local clientele who drive their Porsche, Bentley or other luxury wheels up to the door of Aïshti Foundation, drop the keys into the valets’ hands and just walk up 10 steps to the entrance. But for the simple, culture-loving visitor who embarks on an individual journey to enjoy Beirut’s growing number of high-quality museums from the National Museum to the Aïshti Foundation, the barriers along the way are severe.

Beirut Mayor Hamad says he has a partial solution in the works, whereby a soft mobility project, which he presumes will be implemented before the end of his term in mid-2016, will transform Damascus Road and other streets in the capital into bicycle and pedestrian friendly roads with less space for motor vehicles. When taken in conjunction with plans such as APEAL’s Modern and Contemporary Art Museum, that sounds good enough to start dreaming about a better Beirut. But if one starts on that path, why not dream much bigger? Map note: addendum to legend of museums map: MAS describes itself as a venue that “facilitates cultural exchange” by “hosting temporary exhibitions”. While this entailed a show of works from the private collection of proprietor Tony Salameh in November 2015, the three-year-old venue functions at other times as a commercial gallery.

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Automotive

Easy riding

by Paul Cochrane
written by Paul Cochrane

Motorbike and scooter sales have been on a gradual upward trend for the past five years. In 2015 these sales were set to increase marginally, reaching 1,500 to 1,600 units, according to estimates by the Lebanese Association of Motorcycle Agents (LAMA). However, this data is not conclusive, as the dealers still do not disclose their statistics on the total figures or breakdown of model sales.

Dealers had hoped to be able to push sales up a gear in 2015, expecting that improved traffic safety regulations under the new Lebanese traffic law would attract more buyers. In the past, the greater practicality of two-wheelers to circumvent traffic congestion had often proven insufficient for luring drivers from car seats to saddles, because the roads needed to become much safer to attract more riders.

Another reason for dealer optimism was the new law’s stricter regulations on imports, and prohibitions against bringing used motorbikes into the country. But while dealers confirm that the ban on importation of bikes that are more than three years old has been applied since the new traffic law went into effect in mid-April, they say the traffic safety improvements did not materialize despite an initial flurry of enforcement by police and safety authorities. 

“I really pushed for the traffic law but it cannot be implemented if people are not educated about the rules,” says Marwan Tarraf, owner of Bikers Inc., the agent for Harley-Davidson.

Despite the benefits that the stricter import regulations bring dealers, there is concern about other stipulations in the traffic law. Dealers fear that the law does not allow for amendments, such as facilitating the importation of electric motorbikes, but are particularly worried about the implementation of restrictive regulations on motorbike riding.

 Within months of the new law’s enactment, the Ministry of Interior and municipalities decreed that bikers in Beirut needed a waiver from their employer and local municipality to ride after 7 p.m. “This rule forbidding riders to drive after 7 p.m. has impacted sales. It makes no sense, and should be removed immediately,” says Nagy Heneine, general manager for Commercial Affairs at Bassoul-Heneine, dealer for BMW motorbikes.

While the government is trying to regulate riders driving after dark, well-known safety threats to two-wheelers are not being mitigated. Risks of motorcycle riding are not specific to Lebanon, as demonstrated by statistics from Britain’s Department of Transport that say motorcyclists are around 38 times more likely to be killed in a traffic accident per kilometer ridden than car occupants. However, safer and better-policed roads along with better training of traffic participants would help a great deal, says Antoine Boukather, chief executive officer and manager of ANB Holding, dealer for Piaggio, Aprilia, Motoguzzi, Vespa, Gilera, Derby, KTM and Bajaj. “Losing so many kids on the roads is a real pity. Law enforcement will definitely help reduce such issues. It is the mentality and education of people that needs to be worked on, which takes time,” he says.

Mixed sales

While safer roads would be a boost, sales have also been impacted by lower consumer purchasing power and a circular from the Banque du Liban (BDL), Lebanon’s central bank, which requires buyers to pay down 25 percent when purchasing a home or motor vehicle. While dealers have largely gotten around the mandated down payment by offering in-house financing, the financing of motorcycle purchases is still rife with obstacles. Banks have been found to be less willing to offer motorcycle loans when compared with their financing offers for cars, and insurers are not offering motorbike insurance that is as comprehensive as other motoring insurance. No-fault coverage of accidents and full protection against theft are not available from most insurers, motorcycle owners say.

Another barrier, and one of the biggest stumbling blocks for buyers of cheaper models, is the motorcycle registration fee. At about $200 irrespective of the bike’s size, the registration fee is disproportionately high for the entry-level and budget segments of the market. “There are many things crippling bike sales, but particularly registration fees, which are 20 percent of the price for cheaper bikes. That’s a heavy extra cost for someone paying, say, $2,000 for a bike, plus an extra $1,000 for insurance, a helmet and other riding gear,” says Makram Rasamny, a manager at Rymco, dealer for Kawasaki and Peugeot.

These high costs led to a growing phenomenon of under-registration, particularly for cheaper scooters and bikes that cost less than $500. “The only solution [to increase legal sales of] lower priced bikes is to reduce registration fees. This will also help better control the market, as right now many bikes are not registered and we don’t know who is riding,” says ANB’s Boukather.

Positive effects of alleviating extra costs have been demonstrated through marketing strategies put forward by dealers, such as offering free registration and a helmet for scooters. For Rymco, this contributed to a 60 percent increase in sales of Peugeot scooters. Their motorbike sales on the other hand rose by some 10 to 15 percent.

 Bolstering the lower-end scooter and bike segment is considered key for the long-term development of the sector. New riders typically start out on a low powered bike, and then shift up to bigger engines over time. By offering attractive deals on lower-end bikes, despite the low margins, dealerships are banking on developing brand loyalty and visibility in the market.

ANB, which has 50 percent of the market, offers a range of bikes, and has expanded its lower-end offerings such as the Indian-made Bajaj, one of its bestsellers. “We’re investing in new brands from India, and scooters with 100cc and 110cc engines, with low prices, close to $1,000,” says Boukather.                     

Trends

While scooters and small engine bikes are selling well, Lebanese motorbike riders appear to be bucking the usual trend of starting with 250cc to 300cc bikes to learn on. “The weird thing is that small bikes are not selling much, with beginners going for 600-800cc bikes instead,” says Rasamny.

ANB Holding, which has seen sales rise by over 30 percent this year to 800 bikes, compared to 600 in 2014, has noticed more consumer behavioral change related to the country’s road conditions. “People are moving from superbikes (sports models with large engines above 800cc ridden in a reclining posture), which are not as practical in traffic, to naked bikes (a standard bike ridden in an upright position) with equivalent power. Another trend is to change from sports to adventure bikes as they’re more comfortable,” says Boukather.

For Harley-Davidson, bigger bikes are still the top seller, but sales are expected to be similar to 2014.

“We’ve seen some interest in new street models, the 750cc, probably because the price is more affordable. But the main interest that we’re noticing is bigger bikes for travel, mainly to Europe. The formalities for shipping bikes are expensive though, and if they were reduced would boost sales,” says Tarraf.

For Bassoul-Heneine, sales are restricted to high-end, more powerful BMW bikes, but the German make’s importer hopes that sales will spike, albeit from historically low numbers, with a new 300 cc model to be introduced to the market. “The market is growing quickly due to traffic congestion, with this year our best year, going from around 10 to 15 unit sales a year, to 19 in 2015,” says Heneine.

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Automotive

Fury road: the Lebanese chapter

by Paul Cochrane
written by Paul Cochrane

By all forecasts and estimates, 2015 was slated to have been a disastrous year for the automotive sector. Not just because of regional instability and sluggish economic growth, but more so the mandated increase in down payments.

Dealerships had been offering up to 100 percent financing on new cars, which had helped to keep annual vehicles sales at over 30,000 units, particularly in the compact and cheaper segments. Concerned that private debt was a potential bubble that could burst, Banque du Liban (BDL), Lebanon’s central bank, issued a circular in October 2014, requiring a minimum 25 percent down payment on vehicle and real estate purchases.

Dealers were up in arms about the decision, saying it would cause car sales to slide amidst a difficult economic environment, with some – including the Automobile Importers Association (AIA) – forecasting a drop of up to 30 percent.

 But instead of a plunge in 2015, car sales were up by 2 percent, as of the end of October, with 32,811 cars sold compared to 32,084 in 2014. The sector did not return to the levels of more than a decade ago, when total year sales in 2004 were 19,100. Indeed, the sector has managed to keep sales around the benchmark set in 2008 of 35,400 units sold per year, which had been driven by easier bank financing.

Furthermore, not all sales are accounted for in the AIA’s monthly statistics. “Sales don’t really indicate the sector perfectly, as there are a lot of deals and sales without cars being registered. If you compare 2015 to 2014, revenue has grown due to record sales. Dealers have incentives: we have stock and need to sell, and so are giving larger discounts,” says Fayez Rasamny, general manager of Rymco, dealer of Nissan and Infiniti.

However, despite the lack of perfect sales statistics or the widely accepted 2 percent sales increase, this does not imply that the sector is in rude health and consumers were not fazed by the down payment. Competition has been tough since the so-called “Arab Spring” erupted in 2011, and has only gotten tougher. “The majority of us are surviving at the expense of profitability. This survival mode was supposed to last six months to a year, but has been over three years now, so it’s somehow become a new way of living,” says Marwan Naffi, general manager at Gabriel Abou Adal & Partners, distributor of Volvo.

Veteran car dealer and honorary president of the AIA, Samir Homsi, summed up the overall situation. “Everybody is shooting at everybody and all the dealers were under pressure from manufacturers to deliver. In order to deliver, marketing and advertising budgets increased over 2014, and prices were reduced tremendously, so margins are very low,” he says.

The saving grace for the sector unexpectedly came from outside – the depreciation of the euro and the Japanese yen. A more advantageous exchange rate bolstered European and Japanese car sales, partially offsetting the down payment increase, while making brands more competitive against Korea’s Kia and Hyundai, which had grabbed more than 40 percent market share for the past several years due to low pricing and growing brand equity.

“When the yen went down, there was immense pressure on Korean brands to reposition models in pricing, to reduce the gap, and by doing so, everyone else had to follow. At the end of the day, this cushioned the impact of the down payment. If the yen and euro had stayed high, then definitely the drop would easily have been 30 percent,” says Farid Homsi, general manager of IMPEX, distributor for Chevrolet, Cadillac and Isuzu.

Japanese and European brands rebound

The currency devaluation of rival brands and the down payment have hit the Korean brands, despite the Korean won retaining its export competitiveness. Comparing last year with 2015, Kia and Hyundai have lost 8 percent market share, going from 13,535 models sold at the end of October 2014, with 42 percent market share, to 11,310 units, or 34 percent of the market.

Kia has retained the top sales spot, but Hyundai was bumped from second position by Toyota, with sales up 50 percent (BUMC, the Toyota dealership, did not respond to interview requests).

 “It’s been a real comeback for the Japanese and Europeans, despite the Koreans having built up a reputation,” says Antoine Boukather, chief executive officer & manager of ANB Holding, dealer for Mazda, which had a 10 percent sales increase this year.

Suzuki had a particularly good year. “Suzuki is now back to third position in Japanese sales, right behind Nissan and Toyota, grossing 250 percent versus 2014. The yen helped a lot and secondly, Suzuki launched a lot of new models the past year and is supposed to launch six models within three years, to 2017,” says Nabil Bazerji, managing director of G.A Bazerji & Sons, distributor of Suzuki and Maserati.

Dealerships attribute the drop in Korean brand sales and the rebound of Japanese and European brands to the cyclical nature of the car market. American and European cars had long dominated sales in the country, but market share started to be chipped away at by the rise of competitive Japanese models in the 1980s and 1990s. In the late 2000s, it was Korean brands’ turn to muscle in on the market through low-priced models and increased brand equity. Then a few years ago, newcomer Chinese brands started selling well, riding on the back of the shift to smaller cars and easier bank financing. Indeed, in 2013, Chinese brands were forecast to start gaining market share at the expense of the Koreans, much as Korean brands had elbowed out the Japanese and European brands.

Local dealerships entered into import exclusivity deals with Chinese brands, anticipating growth in a market that was increasingly dominated by small car sales. However, as the Koreans are experiencing, albeit to a lesser degree than the Chinese, brand heritage and a track history is hard to challenge over the long-term. This year, sales of Chinese brands plunged by more than 50 percent, from 469 in 2014, to 224 units. “It is very easy to sell cars, but it’s difficult to sustain sales (in the long-term). We will see brands peak and go down, but they could rebound if they manage to sustain sales for another 10 years,” says Rasamny.

The extra competition affected the Korean brands’ drive to bolster sales of larger and more premium models. “For the past three to four years there’s been a shift to smaller cars. Last year we were trying to enhance sales of larger cars, but this year, the yen dropped and made Japanese brands more price competitive, so we’ve shifted the focus again to small cars. So far, we’re targeted to remain at around 15 percent market share. We’re still number three in retail and aiming for number two by year end, given years of successive growth. Hyundai doesn’t want to be number one as it lacks the capacity to do so, but to be what it calls ‘the most beloved car company’,” says Rachid Rasamny, general manager at Century Motor Company, distributor of Hyundai and newly launched luxury brand Genesis.

Down payment impact

The wider impact of the down payment on car sales has yet to be fully felt. In part this is due to what one dealer called “greater creativity by the banks”, which have been providing consumers with two loans, one a standard car loan, and the second a private loan at the same conditions as a car loan.

What is clear is that the down payment increase impacted lower end car sales, which had been dominated by sales in the A and B segments – compact and small cars. “The A segment is very crowded today, and $100 can break a deal, which is why there’s massive competition and price fluctuations,” says Farid Homsi.

Retaining sales in the lower end segment, and the sector overall, is the need for a car due to the dearth of reliable public transport (see box). “The fact that a vehicle is a necessity to commute gives importance to small car sales and why overall sales are doing OK. But it’s extremely tough to operate in this segment, as nearly all brands have small models,” adds Homsi.

Of greater concern for the sector is the pinch in sales in the medium segment, which had dominated the market prior to the rise of the Korean brands and provided dealerships with higher margins than smaller models. “The market is moving in two directions. The middle size segment is fading away, to the benefit of the smaller cars and bigger sports utility vehicles (SUVs),” says Cesar Aoun, general manager of Mercedes at T. Gargour & Fils, which also sells Smart, Jeep and Chrysler.

Such a move follows a global trend for SUVs instead of hatchbacks or sedans, with SUVs 23 percent of the market’s sales compared to 18 percent in 2014, says Pierre Heneine, financial manager at Bassoul-Heneine, dealer for BMW, Mini, Renault, Dacia and Rolls Royce.

“The C and D (mid-size) segment is somehow weak, leaving us with two categories today, cars going for $8,000-$20,000 and above $40,000-$200,000,” says Nagy Heneine, general manager at Bassoul-Heneine.

But due to the demand for a variety of car models, from the small A segment car all the way to the large vehicle G segment, competition is set to rise further, while impacting on dealership margins to provide services and after-sales for a wide range of models.

“This is a challenge for distributors in terms of stock inventory, marketing, training, tools and spare parts, as more investment is required, so there’s more and more pressure on margins and profitability. That’s why we have to be more creative in up-selling and cross-selling additional services and features,” says Aoun.

New models

High end, premium car sales account for 3 percent of the overall market, according to the AIA. Sales in the premium category are considered stable, although down by half a percentage on 2014. “If you look at Bentley and Lamborghini sales, they’ve not moved on last year,” says Michel Trad, general manager of Saad & Trad, dealer of Fiat, Jaguar, Bentley, Lamborghini and Abarth. As with the whole sector, it is new models that are keeping sales buoyant. “When there are new models in the market people go crazy, and we get more interest from consumers,” he adds.

New models and good exchange rates led to some major increases in sales for certain brands. Land Rover is enjoying particular popularity, with 477 sold in 2015, while Porsche sales were up on 2014, to 270 units. Going beyond expectations, IMPEX had its best ever yearly sales of the Chevrolet Escalade, and Volvo sold out its new XC90.

“For BMW we had our best ever year in 60 years, up 89.5 percent, to 874 models, and Mini sales up 66.4 percent” says Nagy Heneine. Key models pushed other brands, with sales at Dacia up 15 percent due to an automatic model of its popular Sandero model.

Outlook for 2016

Dealerships are forecasting a slow sales year ahead with even more competition. “We project a flat year ahead. Anything positive, like a solution tomorrow for the trash crisis, might help in the short term, for one or two months, to work on consumer confidence,” says Aoun.

Such a confidence boost could also come from the appointment of a president to fill the void since Michel Sleiman left office in May 2014. “What we urgently need is to have confidence back, and the strongest way for this to happen is by electing a president. The day this happens, it will automatically trigger confidence and more sales,” says Boukather.

However, some think a new president would provide more of a boost to higher end cars as the purchasing power of consumers in the lower segments remains weak. “For mass brands having a president or not doesn’t make much of a difference, but for luxury brands it has an effect; the whole mood is crucial for luxury sales,” says Abou Adal & Partners’ Gabriel Naffi. 

All in all, 2016 is expected to be another challenging year. “At this stage, it is definitely looking challenging, and we’re not sure what to expect. We’ll give our maximum wherever we can,” says IMPEX’s Farid Homsi.

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Hospitality & Tourism

Repositioning Lebanon

by Nabila Rahhal & Nabila Rahhal
written by Nabila Rahhal & Nabila Rahhal

The waste crisis devastated tourism in Lebanon, but there is still opportunity to recover, argues Michel Pharaon.

  • Is it correct to say that the year 2015 seemed to be going well for tourism until the momentum crash-landed when the waste management crisis erupted in the summer and protests ensued?

We were in Dubai for an Arab ministers’ meeting in May and the secretary general of the United Nations World Tourism Organization (UNWTO) praised Lebanon [for hosting] an increase of 15 to 20 percent [in the number of tourists] in the first quarter, and this was remarkable.

This continued throughout the year and the [Banque du Liban (BDL), Lebanon’s central bank] praised this activity as well. Not only did the number of tourists increase but during the first trimester the number was even higher because we had what we didn’t have the year before: during the mid-season holidays in February in the Gulf, Lebanese expats came in high numbers. Today we are working to increase the [number] of expats coming to Lebanon because the UNWTO considers expats tourists when they are out of the country for more than three months.

I will tell you directly that political tensions did not affect tourism – although without them we would have been doing a lot better – but they didn’t affect development in 2015 compared to 2014 and 2013.

What affected it dramatically was the waste problem. I will show you just one graph of tourist spending in July [based on VAT returns]. We are not talking about something little; we are talking about a 45 percent increase year-on-year, which was great. What’s remarkable is that on July 25, at the height of the waste problem, Lebanon started to appear in global media outlets, including in the Gulf, and you [can] see on the graph that the decrease was immediate.

When you look at the average spending of tourists, shopping is only 24 percent, so when you see that there is an increase of 45 percent and you have travel, accommodation and entertainment, what we were about to witness this summer was a [spending boom] for two months which was completely smashed at the end of July. It doesn’t mean that activity stopped in August; it continued with all the Lebanese expats, but the thing we were realistically expecting didn’t happen.

  • In the context of the waste crisis, purely from a tourism perspective, what would you say was the worst: the waste on the streets or the anti-government protests?

I would say 90 percent [was because of] the waste.

  • The factors most talked about in the waste management problem are the cost of building plants and other related expenses, but now you are saying that the opportunity cost of not having a waste solution is actually affecting our GDP. By how much, percentage-wise?

The waste problem hurt us as citizens and as responsible parties, although I am not in the committee for waste [management], and I was really shocked. As minister of tourism I felt the sector was stabbed in the back because there was such an economic opportunity. If you say that maybe it affected tourism since July by a 15 to 20 percent [drop] and if tourism is 10 percent of the whole [economy], then, maybe 1 percent of the GDP [has been lost] since July.

In August we saw exceptional activity, with more than 100 festivals and rural tourism events which lasted until the end of September. We are talking about regions that were full; Jezzine, Ehden [and] Chouf – they were all full at the end of September.

  • Can you tell us more about the rural tourism strategy, who it is targeting and what is needed in terms of infrastructure to improve this type of tourism?

Rural tourism is still a small activity, and if we consider that it is 5 to 8 percent of all tourism activity, with the [right] strategy we see that it could easily go up to 20 percent. The emphasis we placed on it created a trend and this trend worked incredibly well in the summer, even more than we had thought, but in fact it’s young people who began to look at it.

The only negative part is that when we first looked at rural tourism, we saw a product which was cheap and could attract people from abroad. We could sell a one-week holiday for less than $900 including the flight ticket because a night at a good quality B&B in rural Lebanon was about $30. Unfortunately the demand suddenly went up and then the offer was not used to address this huge demand. So the price per night went up and now we are talking about $80 to $90 with the same offer which was $35 a year ago.

But when you have more demand than offers, it is an opportunity for people to go into this sector and create products in the region, linking it to the strategy and to the tourism industry. Now it’s more word of mouth, but we are creating a website which will be ready by the end of the year for the guesthouses, so everybody can reserve [online], and we are also working on quality control.

So it’s a small sector which is beginning to get organized and I think we will have success that we can easily encourage, if there is no unrest or waste, not only to the Lebanese expats abroad but also to the European expat community in the Gulf because they are looking for those green products.

  • You mentioned an opportunistic price inflation of rural lodgings. Does the ministry have any regulatory power to moderate such developments?

No, we don’t, but we do have the potential to say that it was much more economical at $30 -$35 than at the current $70-$80 [range] to encourage the villages to adopt these kinds of products.

Also, we are studying some kind of micro-financing from the banks because for some people to create a six-to seven-room project in a village, they still need $30,000 to $50,000 to organize things and a little education. So this is part of this strategy; the strategy for five years is developing the role of NGOs and particularly USAID which is doing a lot.

It is a sector where there is activity for the involvement of the municipalities, associations, NGOs and the ministry so something is happening in rural tourism and I am confident we will achieve our target growth rates before the end of the five years.

  • Regarding the ability of banks to facilitate rural tourism through loans or investments, is that already happening or is encouraging such financing a project that you envision?

It is happening today but on a case-by-case basis. What we are looking at now is how we can help with this as the ministry, possibly through an association. It’s almost a micro-financing scheme so it needs an association. We think the financing of rural tourism capacities is very important and also believe that the banks cannot really lose if they get involved.

  • It almost sounds like something that should be presented to BDL to become part of their Circular 331 promotions.

Yes, absolutely.

  • What are some of the ministry’s future plans for 2016?

There are four areas which we will be working on. Two initiatives that are being developed for next year [include] work on the Phoenician Route and on tourism for expats. Plus, whereas 2015 was rural-tourism focused, we are moving on to two new aspects in 2016: medical tourism and religious tourism.

  • The Phoenician Route is going from where to where?

The Phoenician Route resembles the Silk Road and it is a project that is going to be taken care of directly by the UNWTO. It is culture that is turned into tourism products. It will take a few years, but it is on the map today and we have decided with the UNWTO to pick three countries as the steering countries for this road: Lebanon, Spain and Tunisia.

  • Doesn’t it make your heart bleed when you see the visitor numbers for the National Museum and other museums in Beirut, considering that they have a lot to offer as well when compared with some of the world’s top museums that attract millions of visitors each year?

You’re perfectly right, and we have seen this as we begin to work on attracting Chinese tourists, some of whom didn’t have a clue that Lebanon has a history of 5,000 years, which is something very important to them.

In fact, even this Phoenician project is designed to make the world remember the history of Lebanon. So yes, you are right.

[With regard to] religious tourism, we are talking about more than 1,000 sites which are not protected today and are not highlighted, and resolving this will take a huge amount of work for years to come.

We are trying to turn these cultural touristic sites into jewels and assets to be preserved, and there is huge activity from the ministry of culture behind it. In addition, ecotourism [proponents] are also trying to awaken the region to the importance of preserving the environment, because they see it as a potential income for their region.

So promoting religious tourism, rural tourism and ecotourism may also help to preserve what is left of the beauty of our history and nature, which is unique compared to other Arab countries.

  • Do you have other target countries besides China which you are specifically focusing on as places to attract tourists from?

When you take expats, yes. We have the philosophy that every expat should visit Lebanon at least once in their life and be welcomed in a special way; it’s called the Anna program.

In the next [regional WTO meeting] we will also invite two or three countries from every continent to make an event, inviting these countries to talk about their relations with the Lebanese and their status as traditional friends of Lebanon.

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Real estate

Pushing for reform

by Matt Nash
written by Matt Nash

Despite the malaise affecting Lebanon’s economy, there’s still some life in the real estate sector. Developers are building, and people are buying new apartments – at least in some market segments. Stagnation is the sector’s buzzword, as it has been for the past few years, and market players are resting on demand related to population growth, hoping the boom years will return.

Executive sat down with Massaad Fares, president of the Real Estate Syndicate of Lebanon (REAL), and Namir Cortas, head of the Real Estate Developers Association of Lebanon (REDAL), to talk market conditions and challenges facing the sector. Both Fares and Cortas are also top managers at property development companies, and Fares also heads a brokerage firm. 

E   REAL has been running courses for real estate brokers with an aim to professionalize the sector for the past three years now. Can you tell us more?

Fares: We’ve developed a fundamental course about real estate brokerage. The next session will be in March. We are in the process of developing another course, a more advanced course, that will focus on assessing and determining the best use of land. This is to educate brokers, so if a client wants to build a school, the broker shows a plot appropriate for a school, not just any plot.

E   What do the existing courses

focus on?

Fares: The fundamentals of brokerage: zoning, how to read a title deed and how to understand the notes or encumbrances on a title deed. We brought experts to teach about how to do proper due diligence on a piece of land. We taught marketing and sales techniques because here, we know the unprofessional brokers can tell you anything. So we had sessions on the ethics of sales. You can’t just tell a client anything. This could be his or her life savings or a young couple who have borrowed money from their parents. We also taught them how to deal with developers. It was hard choosing what to teach because the courses are only for six weeks.

E   How many students have taken these courses to date?

Fares: [ A total of] 104.

E   Are you doing anything to institute a licensing process for real estate brokers?

Fares: We are working on two tracks. First, we’re working with the minister of economy to create a registrar at the ministry so anybody who wants to be a real estate agent must register. He’ll have to put a symbolic bank guarantee. And this only needs a ministerial decision, not a law. We’ve prepared it and sent it to the Shoura Council [to review its legality]. After the council, it will have to go to cabinet for final approval – and these days that can take some time. Registering at the ministry will mean that brokers have an identity card, and clients will be able to file complaints against brokers at the ministry. Also, in order to register at the ministry, a broker will need the visto bueno [or unofficial approval] of the syndicate. If we tried to require the official approval of the syndicate to register, we would need a law instead of a ministerial decision. On a second track, we have also drafted a law on real estate brokerage that we’ve presented to the Ministry of Economy. We still need to fine-tune it before it is sent to Parliament. We’re pursuing both tracks because the law will take a long time. The law will also make the syndicate an order, and then brokers will need the official approval of the order to register with the ministry.

And Minister [of Economy and Trade Alain] Hakim sees registration as a way to protect the consumer.

E   How does this protection work?

Fares: We promised the minister that, once the decision is approved, we’d do a campaign focused on: ‘Know[ing] your broker.’ And the minister said he will support us and make a public statement about the importance of using a licensed broker. Why should you buy a home from the concierge? So you don’t pay 2.5 percent? You are paying it, believe me. The broker can get you a better deal and better payment methods.

Cortas: And the concierge charges you too. At least get the service for the charge. 

E   What else is the syndicate doing now?

Fares: We have a recruitment program covering all of Lebanon, but we are waiting for the decision to be approved because if we go to any city outside of Beirut and want to have an open meeting, we want to be able to say they have to register. We need to have that to have a focus for the recruitment.

E   So your members are only from Beirut?

Fares: No, we have members from all over, but we have not done active recruitment. We had our members compile data from all over Lebanon and found there are around 600 real estate brokerage offices in the country. 

E   How many recruits are you aiming for?

Fares: Today, we have 153 individual members representing a bit more than 60 percent of the total sales in Lebanon. We have the most important brokerage companies as members already. All of the big deals are happening through these brokers. Our aim is to have 400 individual members from the 600 existing brokerage offices.

E   How about REDAL; what are you up to?

Cortas: This year we had two workshops on the 18 major taxes developers pay during the lifecycle of a project, which contribute around 30 percent to the cost of a development. Government officials don’t even look at these taxes comprehensively. They view each as an individual transaction so they don’t appreciate the damage it can do [to developers] and the importance of the sector to the economy. With these workshops, we’ve started a dialogue with officials from the Ministry of Finance. We’ve built very good relationships and are holding regular meetings and prioritizing a program. The problem is, most of the items on our wishlist require major legislation. We’re telling them 10 percent of a million is better than 20 [percent] of $100. And, we’re telling them that if the development sector suffers, 70 other occupations and trades suffer too.

E   What else are you working on?

Cortas: We still want to streamline administrative procedures related to actually building a development, but after consulting with different ministries and conferring among ourselves, we’ve reduced our ambition from a one-stop shop for everything to a pilot project for e-permits in Beirut. For this, we held a workshop at the Chamber of Commerce early this summer that was attended by the [governor] of Beirut. We highlighted how this would allow tracking [of permits], improve communication and effectively empower the applicant by letting him or her know exactly what stage the permit is at and exactly what paperwork is needed. We’ve told both the governor and the head of the municipality that developers would be willing to pay a premium to get fast-tracked through the permit process because it currently takes so long.

E   What’s the progress on this?

Cortas: We’re working with the World Bank and the International Finance Corporation (IFC) because they’ve helped implement programs like this in other countries. For the World Bank to help implement this in Lebanon, they will pay part and the government needs to pay part to show commitment. And the whole thing is not a lot of money; it’s around $1.2 million. And half of what the Lebanese government needs to pay is already committed by the Office of the Minister of State for Administrative Reform. But the governor has a problem. The money will come from the municipality, but he needs to sign.

E   Why is he dragging his feet?

Cortas: I don’t know. We need to follow up. We were lobbying on the one hand and the IFC was pursuing this independently. When we discovered that, we began working together. It will get done, but it takes time. For every small step of reform, there is so much rejection in this country. Taxes and bureaucracy are the two biggest challenges facing this sector.

E   Back to the taxes for a second; you said there needs to be a lot of new legislation. Have you drafted any of this legislation?

Cortas: We’re trying to make progress on important matters that do not need legislation or need less legislation. For example, we’re lobbying for a single body for valuation. This does not need a lot of legislation. Today there are too many committees that have the power to do valuation. We’re lobbying to have a role for our members in the valuation process to avoid over-simplification – for example, not every apartment in Solidere is as expensive as Platinum Tower, which has a direct sea view. And values can go down too.

E   Can you elaborate on the need for a single valuation body? How does valuing an apartment work today?

Fares: Let’s say, for example, you buy a unit in Sama Beirut. You buy on the 40th floor and the price is $10,000 per square meter. When you go to register it, you have to pay 6 percent on $10,000. Another customer bought an apartment on the first floor two years ago for $2,000/sqm. They will both register the property at the same time because registration happens not when a unit is bought, but when it is delivered. The real estate registry can tell the person who bought on the first floor that their apartment is worth $10,000/sqm because they saw what the other customer paid. They have the power to do this, imposing a price on someone coming to register. And they have the ability to call people back if they get registrations in the same area for a higher price. We need a price index (see overview page 120).

E   Aside from regularizing the valuation process, what else is REDAL working on to help improve life for developers?

Cortas: We hope to do something about the fact that we pay value added tax without being able to recover it. We’d also like to have first-time buyers exempt from registration taxes. But these last two things need legislation. We’d also like to increase the loan size available from the Public Corporation for Housing (PCH).

Fares: Today it’s $180,000. If we could double that, for example, this would cover a nice portion of the first-time buyers.

E   Last year at this time, the new rent law had just been passed. It has still not been implemented. What are your thoughts on the law?

Cortas: It’s a joke. The truth of the matter is there is no housing component to the economic policy of the government.

Fares: There must be a ministry for housing. Solving the old rent problem is easy. It would take maybe $2 billion to fix this problem and build the old [tenants] new housing. Let them keep paying their old rents in the new developments. Why not solve this completely? And our biggest problem as developers looking at Beirut is the scarcity of land. Solving the old rent problem would release so much property that would be available for redevelopment in areas that are so poor and so ruined. We could re-vamp these areas completely. Officials always want to solve economic problems with laws. If we had a ministry of housing, at least there would be new ideas.

Cortas: And there needs to be a planning component for real estate at the government level. Had the central bank not had the governor, with his understanding of the importance of housing and importance of subsidized loans, no middle-income person would be able to afford a house. This culture needs to come to the Ministry of Finance and the whole cabinet.

E   Given that prices are high today, especially in Beirut, who is buying?

Cortas: The need for housing is enormous. Especially at the lower and middle income level. There’s a mismatch. There isn’t enough property to meet the aspirations of young, educated people who are independent enough and wish to move out and get on the housing ladder. We have a duty as developers not only to create the right product but to create the right awareness. People do not know [enough about this]. We were in a meeting with journalists last year, and they were skeptical about whether they could afford to buy a new apartment. A colleague asked one of them, ‘What kind of car do you drive?’ He said, ‘A BMW.’ My colleague said, ‘If you can afford a BMW, you can afford a house.’

E   What do you mean by middle income, in terms of figures, and how do you plan to build for the middle-income buyer when there are no reliable statistics on what salaries people are earning?

Fares: We know [how to identify a target market by income] because we live here. We are used to knowing things, not in a scientific way, but in a gut feeling way. Today, [for an apartment costing] up to $250,000 or $300,000, there is such [high] demand that you cannot meet [it].

E   Can a couple earning a combined monthly salary of $3,000 afford this type of apartment?

Fares: Yes, between the central bank’s subsidies, some family savings and the PCH, they can. This segment of the market is about 25 to 30 thousand units per year, and this is from the normal growth of the population.

Cortas: The total shortage in this segment is around 80,000 units today.

Fares: And given the economic situation today, developers are hesitant to begin new projects but people are still getting married.

Cortas: And the buyer profile is changing [for example].

Fares: I have two single female customers who are buying apartments alone. They want to invest in a house; they don’t want to just rent.

Cortas: Because if you are a salaried person, how else are you going to save? How else are you going to build capital?

Fares: And it is difficult as a company to make money in this segment. I cannot compete with a mom and pop operation. A gentleman with his son who is an architect can park his car next to the development [site] and use it as an office. They don’t have to hire project managers and they can build to lower quality specifications because they don’t have a reputation to worry about. So for professional developers to compete with them, we have to go for large-scale developments – 80 or 100 units – to reach an economy of scale. So you’re buying 500 doors, for example.

E   You’ve spoken about the middle-income segment, but what about the high-income segment? Is there a significant amount of unsold stock?

Fares: I believe there are more than 1,000 units exceeding $2 million unsold on the market: about $3 billion [in total]. But this is not a big amount of money. The average of the sector is $6 or $7 billion per year – not this year – but in an average year. And no one is building these types of units anymore. There’s a window of opportunity here for investors.

Cortas: We were going to launch a campaign titled, ‘Now is the best time to invest in this beautiful country despite all its problems.’ We’ve decided to be sensitive to the ugly scenes and ugly garbage, demonstrations and delays.

E   Will this campaign focus on the local market or abroad?

Cortas: I think it will be [everywhere] once we stop harassing the world with our bad images.

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Entrepreneurship

The science behind the Top 20

by Executive Editors
written by Executive Editors

Innovators, it seems, are about as common as the cars which occupy Lebanese roads, but are far more conscious about the time required to reach their destination. Hot on the heels of our November 2015 entrepreneurship special report, Executive was keen to interview and scrutinise a number of both new and familiar faces in the ecosystem and compile our list of the top 20 entrepreneurs in Lebanon. With 2015 seeing more investment in terms of expertise, time and money, suddenly our cities have become awash with opportunities that favour the entrepreneurial brave – those who overcome the fear of failure and are motivated to join a fiery ecosystem. As Amelia Earhart, the first female aviator to fly solo across the Atlantic, put it: “there are two kinds of stones, as everyone knows, one of which rolls.”             

Dysfunctional government institutions have seen some new lows this year.  This failure to provide for even the most basic needs seems to have inspired entrepreneurs to kick-start ideas that are more human centered. In light of  this, Executive has decided to focus this year on companies that are either directly or indirectly trying to pull Lebanon back from the man-made abyss it seems to be staring into. Although financial revenues and economic performance are never far from mind, many of Lebanon’s most intriguing and innovative startups are still in idea or early stages. These often feature in one of the accelerators that have shot up over the last year. Consequently, yearly turnover and revenue were still in the theoretical and estimation stage for some, while others could disclose full figures and put financial pen to paper. Therefore, Executive – while valuing economic performance – was keen to offer a spotlight to the companies that were offering strong solutions to Lebanese problems, even if their financials were, at time of writing, virtual.

Aside from considering all types of companies, from idea-stage to the fully flourishing, Executive took note of the scalability and business models of the ventures under scrutiny. While innovation is exciting, an idea is unlikely to take form unless it can persuade investors – and consequently Executive – of its stringent commercial viability. Therefore, within this context, growth capabilities and business proposition were also never far from mind when compiling the list of Lebanon’s top 20 entrepreneurs, even though some ventures we examined seemed to answer all Lebanese problems. As Richard Feynman, the Nobel prize winning physicist, once said, “For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.”

 With the above in mind, Executive took into consideration three main criteria when compiling the list of Lebanon’s top 20 entrepreneurs:

1)   Environmental Impact: Inspired by the growing trash piles that decorate our country, the environmental impact of a startup’s venture was awarded strong weight in our methodology. If the company addresses a particular issue which has significant environmental impact, beyond collecting garbage, we examined what and how the venture is tackling it, and whether the idea would gain traction in wider markets. Companies were scored on whether the products they’ve developed, or are developing, – technological or otherwise – could make a measurable difference to the surrounding environment. These differences were examined in light of what improvements startups could make with environmental challenges that have otherwise been neglected.

2)   Social entrepreneurship: Safe to say, 2015 wasn’t the world’s greatest display of humanitarian empathy. Therefore, within our methodology, strong weight was also given to startups and ventures which have developed, or are developing, products which would have a dramatic improvement on people’s lives and take into account strong social and cultural goals. Companies which outline solutions that tackle some of the most pressing social issues in Lebanon, validated by market research, were scored highly.  They were also scrutinized for the viability of their solution or product so as not to fall into a public relations honey trap. The performance and profit was examined in light of how positive a return these ventures would give to society.

3)   Job creation: Startups have been analyzed in terms of what positive benefit they could have for the Lebanese labor market. Companies which have the potential to create, whether directly or indirectly, employment for local talent scored highly in our methodology. This was prioritized in light of one of the key goals of the entire ecosystem, which is to retain high level talent and mitigate the brain drain which Lebanon has suffered from over the last few decades. Within the category also featured the ability to create a job skill set for a user of the product, which could then be implemented when seeking employment.

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Entrepreneurship

The top 20 Lebanese entrepreneurs

by Executive Editors
written by Executive Editors

Lebanon’s ecosystem continues to go from strength to strength. The country’s entrepreneurs are bold and resilient, and they are unafraid of trying. They are tackling many of the country’s mounting issues, despite large obstacles, potential opposition and the entangled state of our current government. When EXECUTIVE chose its list of the top 20 entrepreneurs for 2015, it focused on enviromental impact, social entrepreneurship and both current and future job creation. This year’s top 20 have different strengths across the three categories, but they all reflect the growing success of the ecosystem as a whole.

Fallound is a startup founded by Stefano Fallaha and Emad Yehya, a high school student and a computer science undergraduate at AUB respectively, who identified a gap in the social networking and messaging market. Habib Haddad, the chief executive officer of Wamda, serves as their advisor. Their product is a ‘hands-free voice-based’ app which uses 27 second voice notes to create and deliver a stream of online content that forms the base for a social network. Fallaha conducted extensive research into how podcasts, an episodic series of digital media files, could gain greater traction and success, and from this developed the idea of having a short voice clips platform, hot on the heels of the way many users in Lebanon and the wider region send voice notes through the mobile messaging giant WhatsApp, which still predominantly caters for text chat facilities.

The app works by allowing the user to create a profile and upload voice clips which can be adjusted with ‘audio filters’ such as backing music or voice alteration. These clips are tagged for their content, for example ‘science in Lebanon’, and contribute to a news stream of consecutive clips which can be searched for, selected and played by the listener, akin to a playlist on iTunes with skip and other features included. Yehya is the brain behind the construction of an algorithm which automates and selects which clips from which profiles are fed to the user, and in which order. Fallaha also notes that user popularity metrics will be built into the algorithm’s programming. The content is people generated, and can be controlled using voice commands. Their main marketing feature is that Fallound caters for individuals who are occupied by a task, like driving, and can only operate in a hands-free capacity. The ‘voice’ is a traditional method of communication, and Fallound wishes to re-modernise the usage which they believe has the power to outstrip texting on the basis of its simplicity and speed.

Fallound’s main source of revenue will be through radio advertising, an industry which is worth $34 billion per year worldwide according to PricewaterhouseCoopers’ global and media outlook for 2014-2018, as the app itself will be free to download. The project has thus far been self-funded, with estimates around  $15,000 to date. Fallound has scheduled to launch the Android version of their product at BDL Accelerate on December 10, and their iOS version in January 2016. For seed funding, Fallound will seek investment of $100,000 to $150,000 from angel investors. Their future projections are estimates, but they anticipate heavy usage of the app in the first year, as they have entered discussions with Touch, a mobile operator in Lebanon, for future collaboration projects. They have planned for their marketing campaign to include celebrity endorsement, which Fallaha has also approached, and preliminary testing from 200 beta testers of their most viable product has yielded very positive results according to Fallaha. Fallound’s target market is global, as everyone who uses app-based services is considered a part of it, and their current focus is to create a large user base. Their expansion ideas would also bring more developers onto the team, which would provide many needed job opportunities to encourage Lebanon’s programmers to stay in the country with employment.

Figurit

Industry: Media and information extraction

Product: Figurit dashboard

Product launch: 2016

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Brand Voice

Bank Of Beirut

by Executive Editors
written by Executive Editors

Banks are fully aware that small and medium-sized enterprises (SMEs) are the backbone of the economy and a key driver for
growth and job creation. Today, SMEs account can account for more than 90% of all enterprises in Lebanon and estimates
reveal that they employ more than 50% of the working population.
Bank of Beirut has a long history of serving SMEs, start-ups and entrepreneurs and plans to have a long future with this
sector. “Not only do we believe that SMEs are key to ensuring economic growth, innovation and job creation, but we also
believe that supporting this sector is vital to help Lebanon overcome its challenges, and help the Lebanese stay in their land
and hold onto their roots” says Georges Aouad, Head of the Retail and Branch Division at Bank of Beirut who confirms that
supporting this sector forms an integral part of the Bank’s social responsibility.
Lebanon has been facing many economic challenges in the last few years, due to the prevailing situation in the
neighbouring countries. Those challenges highlight the important role that SMEs can play in supporting the economic growth
and achieving sustainable development.
Against this backdrop, Bank of Beirut has further developed its SME segment to respond effectively to the needs of this
market. Today, the Bank is instrumental in SME lending and trade finance, where it is consistently ranked as the undisputed
leader among all Lebanese banks.
Facilitating financing, supporting innovation, and allocating services and tools to small businesses are vital elements for
establishing a productive environment for developing SMEs. “No doubt that the success of a business starts with a brilliant idea,
but it is finance that makes the idea take off and networks and expertise that help it soar, and this is exactly what we provide
our customers with”, asserts Aouad. Finance, training and networks are three parts of the winning formula Bank of Beirut
provides to SMEs.
FACILITATING ACCESS TO FINANCE
“Helping the local businesses develop is a major aim of Bank of Beirut”, says the Director, as “SMEs and startups benefit
from a wide array of tailored business packages we have developed for them, including lending options, overdraft facilities,
current accounts, debit and credit Business Cards, in addition to Kafalat subsidized loans”. After having launched Caritas Micro
Credit Loan, offering local craftsmen an up to LBP 10 million funding, and Al Raed loan offering funding ranging between LBP 10
million to 30 million, the Bank has recently added to its existing SME, offering the B-Business Package with funding up to $100,000
for start–ups, self-employed and small businesses. The package offers a bundle of three diversified financing options so that each
SME gets funding the way it is best suited to their business, whether through a term Loan, a current account with an overdraft
facility or a free Business Credit Card.
SKILLED HUMAN CAPITAL
Beyond access to finance, Bank of Beirut also pioneered other practical ways to support the growth of small enterprises.
One of these being a tailored training program developed in collaboration with AMIDEAST. Aiming at providing SMEs with
the tools they need to grow their business, these learning and development solutions are designed to educate the workforce,
increase their productivity, and allow them to acquire new skills that help them create the competitive edge they need on the
market.
Aiming to maintain contact with small entrepreneurs and encourage them to stay in their homeland, Bank of Beirut is also
conducting, monthly roadshows on SME financing in Lebanon’s rural areas. The objective of these discussions is aimed at
facilitating access to finance and stimulating business growth in remote areas, in addition to the urban ones.
IMPROVING ACCESS TO NEW MARKETS
Access to international markets for small businesses can offer a host of business opportunities, such as larger and new
niche markets, lowered costs, increased sales and improved networks.
With this in mind, Bank of Beirut launched Bank of Beirut E-Way, an e-payment portal for corporates and SMEs allowing

them to go global with their business and trade their products and services through the net.
According to Georges Aouad: “Bank of Beirut E-Way sets the necessary foundations for encouraging local businesses”.
Designed to enable Lebanese corporates to expand their businesses online and take advantage of the international sales
opportunities, E-Way allows small and medium business owners to create and maintain online presence and expand their
business frontiers to new markets, reducing their running costs.
The launch of the portal stems also from the Bank’s corporate social responsibility towards Lebanon and the national
economy. This step not only strengthens the partnership between Bank of Beirut and the local businesses and boosts
Lebanese start-ups and entrepreneurs, but it also encourages Lebanese emigrants to stay connected with the enterprises of
their homeland and therefore contribute to the national economy.
WELL-DESERVED SME AWARD
These efforts brought recognition for Bank of Beirut. Awarded earlier this year as the fastest growing bank in Lebanon by
the “Banker Middle East”, the Bank has also received the Banker Middle East’s Award for the “Best SME card in the Levant”
in recognition of its efficient, simple and easy to use cash management solution, the Bank of Beirut Business Credit and
Debit cards. This solution aims to help the local businesses develop and grow by offering them an efficient and convenient
payment solution to better manage their expenditures and allow their employees to make business-related purchases.
Through all these initiatives, Bank of Beirut seeks to be a one stop-shop for SMEs that are on the lookout for a supportive and
reliable bank to help them grow their business.

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