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Economics & Policy

Lebanon looks to Havana

by Dala Osseiran September 15, 2015
written by Dala Osseiran

Cuba, famous for cigars, salsa dancing and Che Guevara, is now open for business! In the past year, Cuba has slowly been opening up to external markets and Lebanon is one of the first countries to have set foot on this territory.

Cuba has undergone a number of changes in order to attract investments and business. First, they implemented the Law on Foreign Investment (LFI), also known as Law 118, which provides great incentives to attract new technology and foreign capital as well as increase domestic production. It also provides the main vehicles for foreign investment, be it a joint venture company, an international economic association contract or full foreign ownership. Its main objective is to establish the legal framework for foreign investments and the guarantees and legal security to attract and utilize foreign capital. It also provides greater tax incentives because of a special taxation regime: there are no more taxes on dividends. Companies in joint ventures are exempt from all taxes on profits for the first eight years, and thereafter only pay a 15 percent tax rate (previously 30 percent).

Opening the investment door

They are exempt from paying the wholesale and service taxes during the first year, from paying labor taxes, and from paying customs taxes for the importation of equipment, machinery and other assets during the investment process. However, foreign capital companies are obliged to pay taxes for the duration of their contract. There were also some key changes that helped to promote foreign investment, such as allowing 100 percent foreign ownership, recognizing the intellectual property rights and technological innovation of the foreign investor, and the guarantee to freely transfer profits abroad without paying taxes or other charges. Additionally, mixed companies, foreign owned companies and contractual international economic association are to receive preferential treatment concerning pricing, quality and terms when purchasing domestic goods and services. This law is oriented towards diversifying and expanding the Cuban market, as well as accessing state of the art technology, generating new jobs, harnessing new managerial methods and developing renewable sources of energy. It prioritizes 11 sectors: agriculture and forestry, construction, energy and mining, the food industry, healthcare, the light chemical and electrical industries, pharmaceuticals, the sugar industry, tourism, transport and wholesale trade.

Secondly, the Zona Especial de Desarollo (ZED) Mariel, the first special development zone created by the Decree Law no 313, is another method used to attract investments. It is not a free trade zone, but rather an area where production of goods and services are incorporated to promote innovation of new technology, industrial concentration, import substitutions, export generators, and sources of high quality jobs. It already ensures investors have basic infrastructure, access roads, a stable supply of drinking water and electricity, and a communication system interconnected with fibre optics. In this zone, there are some sectors that take priority, such as biotech and pharmaceutical, containers and packaging, renewable energy, agriculture, agro food industry, telecommunications and informatics, tourism and real estate, and investment and infrastructure. The objective of the ZED Mariel is to contribute to national development and generate exports, while promoting the replacement of imports, the transfer of cutting-edge technology and know-how, and skills referring to business management. It also aims to attract foreign investment, generate new sources of employment, favour environmental sustainability, develop infrastructure necessary for economic progress, stimulate the establishment of national or foreign enterprises and ensure its coordination with the rest of the economy.

The Portfolio of Opportunities for Foreign Investment states that there are 246 business opportunities presently in Cuba. They range across various sectors and domains, available in both the ZED Mariel and the rest of the country.

According to Rafif Berro, a representative from the Ministry of Economy and Trade, they have launched, along with the Lebanese Cuba Business Council (LCBC), a process to amend the trade agreements between Cuba and Lebanon. They are first reviewing existing agreements to see what can be improved, and will later change them so they become more specialized. This is not limited to the exchange of goods and services, but also encompasses joint ventures. They are grooming Cuba to become an entry point for this type of development. When asked about the future, Berro says he sees a partnership between Cuba and Lebanon. Some Lebanese products may be produced for Cuba specifically, such as programming and software development. Berro doesn’t believe it’s going to be a one sided direction, but rather a complementary one.

The Lebanese Ministry of Economy and Trade has also been seeking non-classical markets such as Cuba as a way to begin exchange with countries outside of the Arab world and Europe. They have launched negotiations for free trade agreements with Venezuela, Uruguay, Argentina, Brazil and Paraguay. Cuba’s favourable geographical location might be the entry point for these Latin American countries. In some ways, the opening of Cuba has happened at the optimal time for Lebanon since it will hopefully be the start of a long list of non classical markets.

Mohammad Choucair, the chairman of the Chamber of Commerce, Industry and Agriculture, said that the Chamber has given its full support to the LCBC in order to open the capacity for investing in Cuba. Lebanon is one of the first countries preparing itself for Cuba and the advantage it holds are threefold: (1) there is an existing diplomatic relationship, (2) the Lebanese know how to work in difficult countries (with years of instability and lack of resources) and (3) there are over 50,000 people of Lebanese origin already living in Cuba. A history exists between these two countries which will aid negotiations.

Early bird catches the Cuban worm

The president of the LCBC, Ali Kazma, is the person selling and promoting Cuba to potential investors. He has announced that the objective of LCBC at the moment is to prove its commitment to doing business in Cuba, which is why they have launched an impressive advertising campaign to promote the country through videos and other media. They want to show the Cuban government that the council is serious, and as part of this campaign, the first Cuban Lebanese Economic Forum will be held on September 29. Cuba is ready to open its doors but this has to be done slowly. The country is not equipped to handle all the demand, so it made a ten year plan. “We are just placing our foot in the door” he said.

Cuba has a lot to offer, its projects are worth $8 million and ZED Mariel has built the biggest port in Cuba. The LCBC doesn’t expect or want all the projects, but they do want a piece. Cuba Invest, a business created by Kazma but unrelated to the LCBC, has two projects lined up, including a boutique hotel which will hopefully be finalized by February 2016. “We believe it’s going to take 2 years to start generating a revenue on these projects. It’s a long process but it’s an investment.” said Kazma. Cuba Invest is not only working with Lebanese companies; it is recruiting international companies to work in Cuba through Cuba Invest. The first website, LCBCouncil.com, is already up and running.

Cuba still has a long way to go. There is uncertainty about the Cuban government’s commitment to foreign investment and state control of the economic activities which might hinder its prosperity. It’s a land that is in need of a lot of reforms. Lebanon can help it take the first step.

September 15, 2015 0 comments
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Banking 2015BusinessFinance

Take that exit

by Thomas Schellen September 14, 2015
written by Thomas Schellen

When investors look for an exit they don’t want to be shown the door. They want to see the cash consideration that rewards them for their risk – and they want to look good in the process; good for having created employment, good for respecting the environment, good for having contributed to economic growth, and good in terms of delivering corporate citizenship.

This attitudinal evolution is welcome news for one particular branch of the investor community: private equity professionals. Where 1980s-style incarnations of the private equity (PE) investment model were popularly depicted as slash-and-sell raiders, the PE funds of today can instead flash constructive partnerships and growth narratives of invested companies as their merit badges.

This is worth pondering when the latest reports on private equity in the Middle East and North Africa show glorious numbers about recent performances in fundraising, investments, and divestments – colloquially dubbed ‘exits’ – of PE funds in the Gulf Cooperation Council, Egypt, and other countries of the region.

Across MENA, 2014 was the best year for the region’s private equity players in terms of fundraising and investing since 2008, according to the Ninth Annual Report by the Middle East and North Africa Private Equity Association (MENAPEA) that was released at the end of July. The report disclosed investments worth $1.5 billion, representing a year-on-year increase of 118 percent, alongside an increase in deal numbers from 66 to 72, and a rise in average deal size to $32 million, which MENAPEA notes as a “post 2008 high”.

When compared with the previous year, fundraising revenue in 2014 leapt from $744 million to $1.23 billion, and exits increased in number from 16 to 20. The United Arab Emirates and Saudi Arabia had the greatest level of investments when viewed by value, respectively attracting 59 percent and 21 percent of the total $1.5 billion invested in the region (see comment page 82).

Getting the right backers for lebanon

By this measure, Lebanon appeared only in the margins, attracting a reported 1 percent of investment value. Curiously, however, the ratio was partially inversed when viewed by volume instead of value. In the number of PE investment transactions, Lebanon accounted for 13 percent of all deals in the region, compared to the 21 percent for the UAE, and 10 percent to Saudi Arabia.

Similarly, Lebanon captured 27 percent of all reported venture capital (VC) investment transactions in MENA last year, making it the regional leader in VC investment deals and continuing a trend observed in 2011-13. The MENAPEA report attributed Lebanon’s attractiveness to the regional VC industry to the fact that “the country is characterized by small and medium sized companies [SMEs],” without attempting to answer the question of how Lebanon might be differentiated from any other Arab country by the number of SMEs in the economy. The report made additional reference, however, to the Lebanese central bank support for investments in startups and SMEs.

As the MENAPEA report doesn’t drill down into country-level numbers on VC investment values or PE fundraising results and exits, it consequently upholds the image that Lebanon is a serious regional laggard when it comes to investment performances in venture capital and private equity capitalism. This impression is extended to and confirmed for the entire MENA region by the 2015 Global Private Equity Report from US-based consultancy Bain. While Bain’s global report occasionally agreed with MENAPEA that for MENA 2014 was a PE bumper year, PE exits today between Cairo and Kuwait City are still dwarfed by the worldwide growth rate and performance, specifically in divestments. According to Bain, exits from global buyouts shattered all previous records in 2014. “At better than 1,250 sales, last year’s exit count surpassed its previous peak of 1,219 transactions in 2007. And total exit value, at $456 billion, also blew past its previous record of $354 billion in 2007 and was 67% higher than it was in 2013,” the Bain report specified.

[pullquote]In the number of PE investment transactions, Lebanon accounted for 13 percent of all deals in the region [/pullquote]

However, statistical peaks and success stories are two entirely different things. Given the current surge in investor frustration with Lebanon, a single shiny PE divestment narrative may be equal in worth to an entire boom statistic elsewhere. Therefore, Executive made it a mission to learn more about a recent divestment under which the EuroMena 1 fund exited from Beirut-rooted Chedid Capital Holding (CCH), a rapidly growing financial services conglomerate specialized in reinsurance and insurance broking.

The relationship between Chedid Capital Holding and EuroMena started more than seven years ago when the reinsurance brokers were told by their auditors about the fund, explains Farid Chedid, the chairman and chief executive of CCH. It was an opportune moment as the company was exploring whether it needed new capital for expansion. “At the time we were looking to institutionalize our shareholding and enhance our operations at the board level through corporate governance, and it was the start of expanding our operation outside of Lebanon,” Chedid tells Executive. “Once we had reached a strategic alignment over what both we and EuroMena wanted, we started evaluating the group as it stood at the time. Next, after we reached an agreement on the valuation of our group, the process of due diligence was launched and in 2008 we closed the deal that they would be shareholders in our company at 14.5 percent.”

According to Romen Mathieu, managing partner at the EuroMena fund, the fund’s involvement with CCH overshot the optimal period for accomplishing its targets by about two years, something which Mathieu attributes, in an interview with Executive, to the challenging regional and global economic conditions of the last eight years. However, he insists that the equity participation in CCH brought great results for all involved, beginning with the divested company and with its new strategic investor, the Saudi Arabian family conglomerate Al Rashed Group.

“It was a beautiful exit for Chedid; They have a great partner now, and it was also a beautiful exit for EuroMena in these hard times. We showed that we can exit our companies in any circumstances; and it is good for Al Rashed [investment subsidiary] Rimco because it is the goal of business families who invest with us [to find] potential long-term investments which EuroMena is going to bring to them,” Mathieu enthuses.

[pullquote] It was a beautiful exit for Chedid; They have a great partner now, and it was also a beautiful exit for EuroMena in these hard times. [/pullquote]

Chedid confirms that during its search for an investor when exit planning, EuroMena consulted with a Dubai-based investment banking unit of Lebanese banking group, BEMO, and also cooperated closely with CCH. “They had several offers from investors, from Lebanon, the Gulf, and also from outside the region. We reached an agreement that would optimize the valuation for EuroMena and find the best partner for us. Finally we agreed to have Al Rashed Group as an investor who would acquire the shares of EuroMena and be a shareholder with us. The whole five or six years were a very positive experience for us,” he says.

Securing the funds and expertise

Mathieu tells Executive that the fund’s announced return of “2.4 times the amount” equates to an internal rate of return of 18 to 19 percent achieved by EuroMena 1 on the investment in Chedid Capital, but he declines to disclose the divestment’s exact dollar value. He notes, however, with an expression of personal satisfaction that he has been asked to remain on the CCH board, switching from a position as shareholder representative to a function as non-executive director.

The enhancement of corporate governance structures at CCH was one important outcome of the collaboration with EuroMena and included work on board and management structures, expansion of corporate governance in all parts of the group, and the creation of non-executive director (NED) positions. From having a board of just four members, and not one NED in 2007, the group has advanced to seven board members, three of whom are NEDs. “The reason I asked Romen to stay on as an independent non-executive is because he has a lot of added value to contribute,” Chedid says.

He adds that Al Rashed Group brings strong business acumen into the partnership, as well as “a fantastic reputation and a very large network of relationships and companies,” while the insurance and reinsurance expertise in the partnership resides with CCH. The collaboration has already been tested in practice, since Al Rashed stepped in as the required Saudi partner in 2011, when CCH set up a new business unit in the kingdom. According to Chedid, CCH’s reinsurance broking activity in Saudi Arabia grew so fast that their Chedid Re Saudi unit has become the largest reinsurance broker in the country.

Joined with Al Rashed through compatible visions and high ambitions, Chedid says the near-term growth plans for CCH are the expansion of insurance and reinsurance broking activities under a paradigm of “always targeting 25 percent year on year”, in both turnover and profits. Referring to their recent registration as a Lloyd’s broker, he adds that the group is now establishing a presence in London, and working on its growth in African markets from a base in Mauritius. He emphasizes, however, that the group is “emotionally attached” to Lebanon and regards the bond with the Lebanese market as “very important regardless of turnover and market share in relation to our regional market share.” It would appear this is an enticing success story, on not one but two fronts; private equity and insurance.

September 14, 2015 0 comments
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Economics & Policy

Iran: a pot of gold in the Middle East

by Dala Osseiran September 14, 2015
written by Dala Osseiran

Iran is the hottest emerging market in waiting. It possesses the most expansive industrial base within the region, including one of the biggest auto-manufacturing industries. And despite crippling sanctions, it has managed to place itself on the map among the world’s leading countries in cutting-edge sciences with advances in nanotechnology and stem cell research. Its energy projects are worth over $160 billion according to MEED, the business and intelligence consultancy. It’s a goldmine waiting to be explored.

A sanction-free Iran

Over the past year, there has been a lot of noise surrounding the Iran deal. The sanctions are set to be lifted by early next spring, and Iran will be free to take its place in the international community as a leading country in science, technology and medicine. The sanctions sought to isolate Iran economically, and weaken its trade with other countries, devastating Iran’s financial and oil sector. In other words, the sanctions found Iran’s Achilles’ heel and brought the country to its knees.

These sanctions were allegedly meant to stop Iran from building a nuclear bomb. The sanctions also targeted Iran’s financial and banking systems, seeking to isolate the latter from the international community. They curtailed the oil revenues which account for half of the government’s revenue, placed an embargo prohibiting American firms from trading with Iran, and froze assets as well as sanctioning any individual assisting Iran in weapons development. The UN sanctions included an embargo on materials and technology used in uranium production. The European Union also froze assets of individuals and entities that worked with Iran’s nuclear program, blocked transactions with Iranian banks, and restricted trade.

[pullquote]The sanctions found iran’s achilles’ heel and brought the country to its knees[/pullquote]

To ensure that the deal goes forward, Iran has to abide by some agreements. It has to limit uranium enrichment activities, including research and development, for eight years. It has to meet international standards for nuclear fuel produced, keep its stockpile under 300kg and sell excess quantities in return for natural uranium.

Significantly, lifting sanctions would enable the Iranian economy to run more efficiently by increasing productivity. It could also gain access to cheaper and easier intermediate goods and technology. On a global scale, its entrance could lead to lower oil prices, according to the World Bank which estimates a decrease of 14 percent by 2016 if sanctions are lifted.

The Iranian economy has been suffering from a recession for over two years. Though inflation has been muted due to tightening monetary policies, macroeconomic policies change frequently and are hard to predict, destabilizing the private sector. Consequently, growth has remained below potential, leading to high unemployment rates. Additionally, the sanctions caused the labor market to worsen; 200,000 jobs have been created each year, not nearly enough to satisfy the 800,000 to 900,000 people entering the workforce annually, according to the World Bank MENA Quarterly Economic Brief. As a result of unemployment, the younger generations are choosing to stay in school and obtain higher degrees, rendering them overqualified for most jobs Iran currently has to offer. Thus they are eager to attract new foreign investment. The Word Bank estimates that the government needs to create at least 5 million jobs a year to keep the unemployment rate at 10 percent.

How Lebanon stands to gain 

If the sanctions are lifted, the economy is expected to expand in 2016 when oil production, oil exports, auto production and expansion of trade increase, giving the economy a boost. This will present Iran with opportunities to take on investment projects and grow as a market. This economic windfall could produce sustained economic growth and employment, but that depends critically on the policies adopted by the government and its institutions.

Meanwhile, Iran’s stock market stands at $96.6 billion. The Tehran Stock Exchange rose 130 percent in 2013, and another 33 percent last November. With a sizeable market comes outsized risk. Some brokers manipulate prices and sell shares to favoured clients. Some companies provide false information, allowing them to buy and sell shares at their ideal price, while others have created subsidiaries to buy and sell their own stock in order to control stock prices. There are, however, a few analysts providing research and facts to inform buyers and shareholders. There have been some efforts to improve the situation, such as by revising the rules. But without an equivalent to the National Association of Securities Dealers (NASD), there is no one to enforce security laws, and regulate trading, which could open the door to a financial crisis.

As negotiations are proceeding, Lebanon is trying to enter this emerging market. A representative from the Ministry of Economy and Trade, Rafif Berro said, “We’re not initiating relations with Iran. It was frozen due to the sanctions, so now we’re giving it more heat. We want to continue what we started.” This gives Lebanon an advantage compared to other countries. The ministry is going to be relaunching negotiations in order to specify the preferential trade agreements and what kind of products they will include. There are already some sets of agreements that need reactivating and revising in the economic, agricultural and industry sectors. The ministry is also seeking joint ventures. Iran has industries that are highly developed and high tech, and Lebanon will be able to benefit from them.

The trade Lebanon conducts with Iran at present is not great in volume due to the sanctions, making it impossible to find a mode of payment that doesn’t breach international regulations. Three years ago, according to Rafif Berro, they tried to implement a mechanism that would allow Lebanon to export its fruits and vegetables, but this was unsuccessful.

[pullquote]Lebanon exports just $3 million worth of goods to Iran and imports $50 million. It’s up to Iran to change[/pullquote]

Mohammad Choucair, the Chairman of the Chamber of Commerce, Industry and Agriculture, had a different explanation to account for the low volume of exports. He said that 90 percent of Lebanese goods cannot enter the Iranian market because Iran had put in place regulations and restrictions that limit trade, not because of sanctions. Lebanese goods are certified, which means they can be exported to other countries. Therefore it’s Iran that needs to change its regulations to increase imports from Lebanon. He says that “Iran’s market is important to Lebanon, it’s a strong one and we are in need of new markets, but if trade agreements aren’t amended, this is just talk. Lebanon exports just $3 million worth of goods to Iran and imports $50 million. It’s up to Iran to change.”

It would be in Iran’s best interest to import some products such as fruits and vegetables from Lebanon, since the cost is lower, the distance shorter, and the quality of these products meets Iranian tastes. Removing sanctions might cause real exchange-rate appreciation. This means that exports would become expensive and imports cheaper for Iran. This might push them to import Lebanese agricultural products.

According to Berro, Iran is a market that could change the balance of the global economy. If Iran keeps its end of the deal and sanctions are lifted, Lebanon will gain access to the hottest emerging market in the world. Iran and Lebanon already share good relations, but now they need them to grow.

September 14, 2015 0 comments
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Special ReportWine Tourism

The long and winey road

by Nabila Rahhal September 11, 2015
written by Nabila Rahhal

Summer 2015 saw a new trend emerge among Lebanese people’s weekend plans: instead of the traditional beach club or lunch at a Lebanese restaurant on a trip to the mountains, more and more people were opting to spend a day discovering a new winery followed by a leisurely lunch on the premises.

Enotourism is defined as tourism in which the goal is or at least includes the tasting or purchase of wine, usually close to the source. In Lebanon, the Massaya winery can be credited with bringing the concept of wine tourism into the limelight through its Sunday buffets which date back to 2002. “The buffet is our way of enjoying our Sundays. It used to be for our friends, and then our friends invited their friends and it became an organized activity, but it is essentially what my family, my parents, would spend their weekends doing,” recalls Ramzi Ghosn, CEO and winemaker at Massaya, in an earlier interview with Executive.

Michael Karam, author of Wines of Lebanon, sees it as the natural evolution of any wine producing country to have forms of wine tourism such as food and beverage (F&B), outlets in wineries or wine tastings. “It introduces consumers to wines and creates a wine culture, and I think any winery that takes itself seriously recognizes that it has to have some kind of F&B activity, even if sporadic, to highlight the beauty of their winery and wine culture,” explains Karam.

Indeed, interest in wine tourism among the Lebanese is on the rise, evidenced by many of Lebanon’s wineries diversifying their visitor services to include more than simply wine tasting. Several wineries have introduced restaurants in their premises within the past five years or are looking into developing one. “Wine tourism is relatively new in Lebanon though more and more people are expressing an interest in it. And you have more wineries opening restaurants, as people like the combination of drinking wine for a good price while enjoying a lovely view,” says Jean Paul Khoury, owner and winemaker at Château Khoury.

The main role of wine tourism, from the wineries’ perspective, is ultimately to promote their wines to visitors. “It is becoming one of the most important activities for wineries in the world because winemakers have discovered that your most faithful clients are the ones who visit your winery, taste your wine and see how you do it,” says Hady Kahale, general manager at Ixsir Winery.

Karam believes that wine tourism is all about capturing the consumer’s imagination. “Wine is a product which you associate with lifestyle and dining and if a winery can tap into the imagination of the consumer and give them that kind of lifestyle, it has to be a good thing,” he says.

Group Wine Tourism

Beyond promoting wine tourism at their own winery, the wineries of the Batroun region, with the support of the municipality, are working together to promote wine tourism in their area as a whole. A drive through the mountains of Batroun reveals signposts pointing out the nine wineries of the area, and a map with all the wineries and their contact information was developed earlier for those who want to plan their tour. “What people don’t always know is that Batroun is one of the most important and oldest wine regions in the world and so we, the wineries of the area, believed it is important for this to be known and so we came together to achieve this,” says Kahale explaining that the idea they are slowly working towards is for people to not only visit the wineries but also to discover Batroun and spend time there.

This route has inspired other regions to look into the idea, with the four wineries in the Bhamdoun area reportedly exploring and developing the same concept. While the wineries of the Bekaa valley interviewed for this article all believe such regional tourism is important and say they are willing to develop it, they cited various obstacles that so far have stood in the way, “We cannot do that in the Bekaa first of all because the area is much more spread out, and second of all because of the congestion on the main roads – while in Batroun, the drive is scenic. Despite these obstacles, we should dare to have an organized Enotourism in the region and we are working toward that with an expert who will come up with proposals,” says Zafer Chaoui, chairman and CEO of Ksara and current head of the Union Vincole du Liban (UVL), Lebanon’s official association of wine producers.

Whether at the level of a single winery or of a wine producing region, it is clear that wine tourism in Lebanon is growing and so Executive chose to highlight a selection of wineries with some form of touristic service on their premises to learn more about what they offer and the impact these services have on their core business of wine production.

Château Kefraya

Château Kefraya’s restaurant began, in 1999, by serving cheese platters as accompaniments to wine samplings at the winery. As the number of visitors increased, according to Château Kefraya’s director of Hospitality Development Assaad Abiad, the Château chose to develop their wine tourism sector starting with wine etiquette and kitchen crew training, and the diversification of the restaurant’s offerings through a customized menu of food and wine pairing.

Their complete enotourism program of a full day of activities in the winery was launched in 2010. It includes first a guided “train” ride through the picturesque vineyards and vines used in the production of Kefraya’s wine, with a stop at an ancient Roman hypogea. Then follows a guided tour of the wine cellar, museum and treasure room (a room where the majority of Château Kefraya’s main vintages are stored) along with a thorough explanation of the winemaking process. Then, finally, a wine tasting with the opportunity for wine amateurs to make their own “l’Atelier” bottles, by creating a blend from different grapes and choosing a name for their own cuvée.

A shady spot to dine at Château Kefraya

A shady spot to dine at Château Kefraya

This holistic tour can take up to four hours, explains Abiad, with visitors often following it with lunch or coffee at the restaurant. The vineyard train ride tour costs $6 per person while the cellar visit and wine tasting are complimentary.

The winery capitalizes on its huge premises by including activities such as walking and biking through the vineyards, and by opening up their lush gardens for visitors to lounge in (these gardens can be reserved for weddings or other private gatherings during the summer).

Aside from the a la carte menu available on weekdays, Château Kefraya has a “Mouton à la Broche”, buffet on Saturday and featured wine with complimentary specialty dishes such as Coq au Vin or Lapin au Vin, and an entrees buffet on Sunday. While parents linger over their food and wine, their children are kept busy through an entertainment program which includes arts and crafts activities. Buffets cost $50 and include open wine.

The winery’s tourism services remain operational in the winter, with only the ride through the vineyards cancelled when the weather worsens. The restaurant moves indoors to the chimney room, where the furniture and ceiling are made out of oak barrels and furniture (this room can also be used for corporate conferences).

According to Abiad, Château Kefraya receives 35,000 visitors per year with the tour of the vineyards, the cellar visit and wine tasting being the most in demand activities. “Ten years ago the key area of attraction for our Lebanese visitors used to be the restaurant, but now it is the more cultural and educational aspects as they want to learn about wine. There is a growing wine culture in Lebanon,” he says.

Abiad believes this educational message, as opposed to financial gain, is at the heart of Kefraya’s enotourism programme. “It is a pedagogical approach to wine tourism because when welcoming people to our domain, we share experiences and knowledge, and the more you understand the product, the more you understand its quality. The more we can communicate what we do with visitors, the easier it becomes for them to appreciate the quality behind our wines and our terroirs. It’s mainly a form of communication,” says Fabrice Guiberteau, Oenologue and Technical Director at Château Kefraya, explaining the winery’s perception of wine tourism.

Of course, when visitors have a good experience at the premises, they leave with a favorable impression of the wine, frequently buying bottles from the winery’s boutique or noting down favorite vintages to buy when grocery shopping at a later stage, explains Abiad.

Château Kefraya’s enotourism program is still growing, with Abiad saying that plans to build a hotel on the premises, with a beautiful view of the vineyards and the surrounding mountains to complete the experience, are being studied.

Château Ksara

Château Ksara’s claim to touristic fame is its 2 kilometer long stretch of natural caves which have been used since the Roman era and are considered among the eight biggest natural caves in the world. Zafer Chaoui, chairman and CEO of Château Ksara and current head of the UVL, explains that these caves were discovered by coincidence at the turn of the 20th century and were enlarged during the First World War by the men who came to hide at the Ksara winery (which was then a Jesuit convent) to escape joining the Ottoman army. “The Ottomans respected that it was religious property and did not search it and so it is said that 300 men from the Bekaa valley spent the whole war period there and were protected by the Jesuits,” explains Chaoui.

With such a history, says Chaoui, the caves were a natural tourist destination and, prior to the war in Syria in 2012, attracted 70,000 to 75,000 annual visitors, split between foreign tourists on their way to Baalbek on organized tours or Lebanese people coming specifically for the winery. “Sixty percent of the visitors we received were foreigners and the rest were Lebanese. Many of these foreigners came from Damascus and travelled by bus to Ksara and then to Baalbek, spending the night in Hamma before going to Aleppo. These represented around 10,000 visitors per year,” recalls Chaoui.

Entrance to Château Ksara

Entrance to Château Ksara

This high number of tourists led Château Ksara to enlarge their restaurant and tasting facilities, explains Chaoui, and today they have three tasting rooms receiving three different groups at the same time and a restaurant with a capacity of 130. The restaurant, which is open only for lunch, features, aside from main dishes such as meat, chicken and fish, a salad bar open for lunch with cheeses and salads which pair well with wine. The average bill at the restaurant is $30.

Initially, the war in Syria caused a significant drop in the number of tourists to the Bekaa region, with the number of tourists to Château Ksara dropping to 25,000, consisting of mainly Lebanese residents and expats. Following the wineries of the region’s encouragement of the media to differentiate between the different areas of the Bekaa, this year the number of the visitors to the winery until July exceeded 30,000 visitors with Chaoui expecting the number to increase in the peak months of August, September and October. “While it’s true that there are security issues at the borders, the rest of the Bekaa region and the road from Beirut to Zahle is calm and safe. Many people don’t dare come to the Bekaa because of reports of conflicts by the media but the Bekaa is huge and one small area in turmoil is not the whole region,” says Chaoui.

Château Ksara aims for an even bigger number of tourists but it says that the goal is not to make profit out of the restaurant or visits but to emphasize the name and reputation of Château Ksara. “The people who visit our wineries talk about our wines to their friends and also buy from our boutique so it is profitable in that sense but what we work for is to maintain our image which is directly related to our history and size,” concludes Chaoui. 

Domaine Des Tourelles

Looking at the heavily congested Chtaura highway you wouldn’t imagine that tucked amidst all this sound and air pollution is an oasis of calm vineyards, greenery and a few charming houses which is Domaine Des Tourelles.

Domaine Des Tourelles prides itself on being a family owned winery as opposed to a corporate structured one and thus shies away from mass wine tourism. Having said that, Faouzi Issa, co-owner and winemaker at Domaine Des Tourelles, still recognizes the value of wine tourism in communicating the winery’s message and vintages to the public. “We usually keep a low visibility in the sense that we don’t have billboards and advertisements everywhere so we need to have people discover our wine through our version of wine tourism,” says Issa.

For the past five years, the winery has held an annual Fetes Des Vendanges (Harvest Festival) every September which is essentially a full day celebration of the year’s harvest including lunch on the winery’s premises. This event, which is open to the public through ticket purchases (price $60 for adults, $30 for children) has gained momentum over the years, and last year 400 people were going to attend before the event was cancelled due to the blockage of Dahr El Baydar road. This year, 350 visitors are expected to attend the event, to be held on September 13, 2015.

Domaine Des Tourelles receives individual or group visitors to their winery by request which, according to Issa, allows them to give more personalized tours and also reflects the visitors’ seriousness. “By mass tours, visitors won’t feel the passion of the winemaking because the employees who are hired to give tours don’t care that much. We want to keep our free time for the 10 percent who are really excited to know more about our wine,” says Issa, adding that the winery receives 5,000 visitors per year. The tour ends with a breakfast of raw meat if the tour was for arak making, or vertical tasting if it was a wine tour.

Issa says the family will be launching a five room boutique guest house on their premises before the end of the year 2016 which will be housed in a newly renovated building dating back to 1868 and containing all the charm of that period in its architecture and little artifacts. This private hotel will not be open to the public but used by the winery’s guests from distributors to clients to the media. “It will not be for commercial use because it is small. We see it as more for communication because we have a huge space on our premises and the hotel will ensure it stays alive,” says Issa.

Domaine Des Tourelles is also considering launching a restaurant next year. The concept they have in mind is a cozy authentic restaurant with home food cooked by the same lady who prepares the meals for the team during the grape harvest. Issa says the main goal for the restaurant will again be the promotion of their wines and not any financial profit. “We will not have a big operation for little profit therefore we went to the other end of having an experience similar to the villages of Greece where people drop by, have a meal for a small fee, enjoy good wine in a beautiful setting, have a nice experience and leave,” enthuses Issa, adding that wine will be sold at retail price in the restaurant.

After the events of last year in the Bekaa, Issa says this project was put on hold but that they are reconsidering it for this year: “last year was a turning point for the Bekaa and we were demotivated. This year we got more encouraged and excited because the situation is a bit better: we are waiting until the beginning of 2016 and then we will assess the situation in terms of starting the restaurant as we have the most practical location for those coming from Beirut,” explains Issa.

Château Khoury

Nestled between acres of vineyards at the outskirts of Zahle, with the backdrop of the beautiful Bekaa valley and it surroundings, lies the idyllic Chateau Khoury winery owned by Jean Paul Khoury and his parents.

Led by their desire to share their beautiful landscape with others, Chateau Khoury launched their restaurant last year, opening just for weekends and serving a buffet which Boutros says was quite successful. So far this year, and as Khoury is still recruiting to complete his team, the restaurant has only been open for lunch on weekends, but Khoury says they plan to become operational year long and in the evenings by mid September, 2015.

Catering for the restaurant is under the supervision of executive chef of the Mar Mikhael restaurant L’Humeur Du Chef, Jad El-Hage. The menu, explains Khoury, is both international – with traditional French dishes such as tarte flambe native to Alsace, France, where his mother is from – and local, with some Lebanese mezza dishes. “I cannot rely only on the people from Beirut and the coast to come here and so I have to cater to people from the Bekaa valley who are traditional in their cuisine taste,” says Khoury.

Khoury explains that ingredients for the restaurant’s dishes are organic and sourced from their own land, including rabbits, chickens, herbs and vegetables. “We promote the organic way of thinking and eating because this is who we are. This is the idea all around,” says Khoury.

The goal of the restaurant is to promote the winery and the scenic area they are located in which people should discover, explains Boutros. “We first thought of having a restaurant at the winery because people in Lebanon like to eat. They won’t think of visiting a winery just for tasting the wine but if they can eat, they will come. So we combined both of the activities and for me it is the best place to promote my wine and have people discover it and taste it while enjoying a beautiful view,” enthuses Khoury.

Khoury does not expect to make any profit from the restaurant before the third year of operation, given the situation in the region, and says they were doing very well last year before the problems with the Dahr El Baydar road blockage occurred.

Amongst plans for the future is a 15 to 20 room hotel divided between the winery itself and a little chateau, also on the winery’s premises, which will further Khoury’s plan to spread the beauty of their winery and surrounding land. Although the hotel has already been constructed, Khoury says the opening date has not yet been determined. “The investment for this (restaurant) is from my father, who owns a medical laboratory, and from the winery itself which is performing better each year. But for now, we will be waiting until the area calms down before we open the hotel,” explains Khoury.

Ixsir

Hady Kahale, general manager at Ixsir, defines wine tourism as the following: “Wine tourism is an experience, every single person who comes here to Ixsir and leaves happy is for me part of wine tourism. So wine tourism can be a restaurant, tasting, visit, hotel or even spa. I define it as welcoming people and providing them with a very good experience. I hope when they leave they understand a bit more about wine.”

Arriving to Ixsir winery, one is greeted by a 17th century seigniorial house surrounded by lush gardens and vineyards underneath which are three floors dedicated to winemaking and storage cellars. Having been named one of the greenest buildings in the world by CNN, and having also won the architectural international A+ Popular Award, the winery garnered a lot of attention from tourists, media and the Lebanese alike when it opened to the public in 2012.

In 2014, Ixsir launched their winery’s restaurant on the ground floor of the winery, next to their wine boutique and in their gardens which were initially used for hosting special events and gatherings. The restaurant is in partnership with executive Chef Nicolas Audi in his first venture into cooking for a restaurant rather than catering. “We work with Nicolas Audi because we know him from our private events and have seen how he works. We are great winemakers and are passionate about wine but the restaurant business is a passion by itself, food is a passion and Nicolas is passionate about food,” says Kahale explaining that in line with the philosophy of Ixsir wine being the wine of the mountains, the restaurant’s cuisine is Audi’s take on the traditional dishes cooked by Lebanese mountain folk, with whom he spent a lot of time discovering their recipes.

Dining at Ixsir's lush outdoor patio

Dining at Ixsir’s lush outdoor patio

Starting off indoors with a capacity of 60, the restaurant quickly expanded into the garden and to a final capacity of 200 which, according to Kahale, they will not go over in order to preserve Ixsir’s spirit. According to Kahale, the restaurant has been very successful so far and is almost always fully booked for lunch during weekends. “The first two months we had a huge success but I wasn’t satisfied because I was worried that people are just trying the latest new place, but now that they continue to visit and come back again and recommend it to each other, I am satisfied. I hope it becomes a classic place because we are on the right track,” says Kahale.

The winery received 17,000 visitors last year and already had 25,000 visitors by the end of July 2015. While it is hard to quantify the impact of wine tourism on sales, Kahale says the important thing is for visitors to have a good time, as that way they develop a strong relation with Ixsir and become brand ambassadors “We had baptisms, birthdays, wedding proposals, weddings among other life events at Ixsir. We cannot quantify its impact, like we cannot quantify anything in marketing, but it is indispensable not only for marketing but because we believe in that,” says Kahale, acknowledging that wine tourism surely influences sales, but not being able to place an exact price tag on that influence.

Wine tourism for Ixsir is an ongoing project and plans for the future include the further beautification of the gardens surrounding the winery and the introduction of signage in the vineyards to allow for guests to walk around and discover on their own instead of relying on hostesses. “We have one of the few botanical vineyards in the world, with 21 different grape varieties. And so we are developing signs to showcase the different varieties as it is rare to have these grape varieties side by side,” explains Kahale adding that these this will allow for a fuller experience in the winery.

Belle-vue

At the heart of Naji Boutros’ wine, Belle-vue, his restaurant and his hotel Le Telegraphe De Belle-Vue, is he and his wife Jill’s love for Bhamdoun, his mother’s hometown – and their desire to keep natives of Bhamdoun living and working in it.

In outlining how the winery came to be, Sandra Haddad – general manager of the restaurant and hotel – says Boutros’ maternal grandparents used to own the Belle-Vue Hotel, one of the oldest hotels in the Middle East, which was destroyed during the Lebanese civil war.

After being abroad during the war, Butros returned in the early 1990s for a trip to Lebanon and to show his wife the country. They went up to visit Bhamdoun and found it abandoned. It was then that Boutros decided to return to Lebanon and invest in Bhamdoun and its land, with the full support of Jill who had found a well preserved tile in Belle-Vue and presented it to Boutros on Christmas as a sign of her commitment to the area’s revival.

Boutros, whose background is in finance, found the concept of a winery to be the most suited to the job of both saving Bhamdoun’s land from being sold and also keeping the people in the area working the land and assuming administrative posts within the winery. So Chateau Belle-Vue winery was launched in the year 2000, and currently employs 10 people in the winery full time, with others on contract basis during harvest season. He used his own land, and rented more in Bhamdoun to grow organic grapes for their wine.

As visits to the boutique winery for tasting began to increase, Boutros felt the need to have a restaurant for visitors to pair their wine with food. So around four years ago, explains Haddad, Boutros bought an old estate which used to be the French Ambassador’s residence, and renovated its guard house into a restaurant – Le Telegraphe de Belle-Vue which opened two years ago in the autumn.

The restaurant started out small with a capacity of 20, and developed to serve a hundred with both interior seating and additional terrace seating during summer. Open both for lunch and dinners during summer, the restaurant does not serve less than 70 covers per weeknight and is full on weekends, says Haddad. During winters, covers average 40 per weekend night, and full capacity during lunches (they only open on weekends during winter).

Following the success of the restaurant, which Haddad says has already returned its investment, customers began asking for options to spend the weekend at Bhamdoun, and so came the idea of a bed and breakfast in the French Ambassador’s house. Haddad says the hotel, which has seven rooms in total, opened in September 2014 and was fully booked this summer starting May. Next year, the hotel will also feature a pool with a bamboo leaf filtration system. “We are an ecofriendly restaurant and hotel, with organic food usually from our gardens or land, and solar power,” says Haddad proudly.   

The hotel and restaurant property also features a study room for corporate conferences or training, a little shop where people can buy traditional food products made by Bhamdoun natives as well as Belle-Vue wine, and an outdoor wedding venue with a capacity of up to 300. In the future, Jill Boutros plans to launch a public library for Bhamdoun’s residents in the study room. The project employs an average of 25 people, all from Bhamdoun according to Haddad.

While Boutros has certainly diversified his business, the core of it all remains the winery, with the other businesses offshoots of it. “Because we are a boutique business, people usually hear about us by word of mouth or recommendation and sometimes they only hear about our restaurant or hotel, and not about our wine. We make sure to explain to all our guests that we are first of all a winery,” explains Haddad, adding that since Belle-Vue wine is not sold at supermarkets and is available solely in select restaurants and at the Telegraph shop, where the majority of visitors also buy wine.

September 11, 2015 0 comments
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BusinessFinance

A legacy of proper supervision

by Thomas Schellen September 11, 2015
written by Thomas Schellen

Whilst the Lebanese insurance sector is quietly perched on the edge of new opportunities, such as insuring a yet-to-be-established oil industry, it currently faces a severe destabilization risk. The lack of a commissioner has disrupted the key and evolving process of supervision, and there may be concerns over who will fill the position and how. Insurance industry luminaries are reluctant to go on record to comment on the situation, but word from some of the brightest companies is that they are concerned about a vacuum in the leadership of the Insurance Control Commission after the contract of ICC head Walid Genadry was not renewed earlier this year. The ICC commissioner of 13 years left office in May without anyone appointed to replace him at time of writing.

Sitting down with Executive for a review of the challenges and achievements during his time in office, Genadry declined to discuss the relationship between politics and insurance under the tenure of various ministers of economy and trade over the years. He was, however, unequivocal on the need to decouple insurance supervision from political risks and interests. He argues that the ICC has matured to the point where it needs to be removed from the embrace of the Ministry of Economy and Trade and established as an independent regulatory entity. He further adds that the post of the commissioner needs to be shielded from becoming a trophy job for individuals with political connections.

“As long as the supervisory authority depends on a political position holder it is still too easy to inflict damages on the institution,” Genadry says. “It needs to have independence and if the culture in the political realm is such that real independence will not be granted then the best form of independence would [entail] positioning the ICC in [the] vicinity of the central bank.”

Over recent years, experiences with the establishment and the operations of independent regulatory entities in Lebanon suggest that the independence of supervisors and regulators is still treated ambiguously in the political realm. However, the Lebanese system’s precarious political processes and partisan structures make it prohibitive to operate regulatory bodies under the tutelage of a minister. Indeed there have been no fewer than eight ministers of economy in office since 2000, and the period has also seen persistent legislative paralysis. In these circumstances, for Genadry, the independence of an entity such as the ICC can be possible by institutional affiliation with Banque du Liban, the country’s most reliable and non-political public financial authority.

[pullquote]”It is going to open the doors of hell if this position gets politicized and you start seeing this or that influential figure battling to get his man the job.”[/pullquote]

An even graver danger for insurance supervision would be politicized competitions for the position of insurance commissioner. The post has recently become more attractive, being viewed less as a serious mission and more as a nice position offering prestige and financial reward, Genadry says. “It is going to open the doors of hell if this position gets politicized and you start seeing this or that influential figure battling to get his man the job,” he continues. Three year mandates for insurance supervisors would not provide enough time for political appointees to learn and manage the complexities of the role, he adds.“Also, if the post becomes a political appointment, the team under the commissioner will become de-motivated. It is the team that counts the most in the work of the ICC – you have to have those people motivated to stay.”

An institution raised from ignominy

One can make the case that the current spectre of the insurance authority’s politicization would have been unimaginable without the work that Genadry and the ICC team have done over the past 13 years.

In the early 2000s, the Lebanese insurance industry was far from being a perfect machine. Although a hopelessly outdated 20th-century insurance law had been modified at the end of the 1990s, the sector’s fragmented corporate population of about 65 insurers was struggling both to demonstrate respectability and put the plethora of problems stemming from the civil war years behind it. Insurance supervision lacked any real power, and even the face-lifted insurance law was lagging miles behind the times.

When Genadry assumed his post as supervisor under these circumstances, the ICC team initiated its activities “with a big bang” of due diligence, holding the first ever external assessement of all Lebanese insurance companies. The exercise gave the ICC an unimpeded view of the financial health of the companies under its supervision. “This annoyed a number of people but we had clear auditor reports saying there is under-reserving and inadequate capitalization,” Genadry explains.

From this, the ICC started pushing companies to comply with requirements for larger reserving and improved financial prudence. The supervisory work was carried out and gradually expanded by the ICC’s two departments, the financial control unit and the market conduct supervisory unit; but the institution was short on staff and experience, Genadry concedes. “We were not really strong. We had to act and at the same time we were learning.”

One particularly demanding and newly legislated project, which by international standards was long overdue at the time, was the introduction of compulsory third-party liability (TPL) insurance for motorists. The measure, which was limited to covering physical injury, was of great social and economic importance, but the insurance supervisor was not yet ready to deal with the various implementation issues that arose. These ranged from price dumping and cash underwriting, practiced by shady providers, to fraud.

Between illegal practices by some, the inexperience of the ICC, and shortfalls in maturity and cooperation on the part of motor insurance providers, it took several years to overcome the problems associated with applying the compulsory TPL insurance regime for physical injury. The matter still lingers on today, albeit in a modified form, as the implementation of compulsory motor insurance for material damages seems to be advancing at the pace of a particularly unenthusiastic snail. But there is no good alternative to delaying the implementation of the material damages TPL cover. “Lessons we learned in motor insurance, along with the continued existence of a weak law, make it a must to be careful about how we introduce the material damage compulsory car insurance, which is high frequency and involves much higher premiums. This is why the ICC has engaged with experts from the World Bank asking them to work hand in hand with the ICC and the insurance sector to draft the appropriate application decress,” Genadry explains.

Walid Genadry Q&A

E Based on your experience of 13 years in the position, what are your recommendations for the next head of the Insurance Control Commission and for the work of the ICC going forward?

I would tell the new commissioner that one cannot regulate insurance, and at the same time be either a close friend, or an adversary, to any insurer. The commissioner has a role to regulate and supervise insurance. Because of this requirement, the commissioner has to keep a distance, because at any time they might have to penalize someone. The commissioner also has to exercise their role fairly. This is very important not just because of the principle of fairness but also because we are in a very small country. It is a country where the whole sector will know within 48 hours if you make a decision that could be considered in the slightest way debatable. You need to keep the reputation of the commission intact.

E What does this mean with respect to issues or requests that are presented through political channels?

You cannot be unfair. An insurer may have political connections but you cannot give the impression that some insurers can obtain favors and others can’t. Giving favors would destroy supervision. Would you go to see a World Cup game and pay hundreds of dollars for a ticket if you knew that the referee prefered one football team over the other? The second very important thing is that the commissioner has to act with appropriateness and integrity, knowing that they are a controlled controller.

E In what sense and controlled by who?

The insurers are not the only ones to be observed and controlled. When the commissioner does something wrong, they intervene, complain and affect change. Respect for the institution is important and must be earned. So the commissioner is controlled, first by the insurers and then by the brokers and other actors that deal with the sector, which could be lawyers or anyone else who is helping brokers and insurers. The commissioner is also controlled by his minister, as complaints about the commissioner go directly to him. Some complaints, when properly assessed, are a positive thing for the supervisor, as they prove that he is doing his work. Finally, the commissioner is also controlled and observed by certain people inside and outside the ministry, some of whom have nothing to do with insurance, and who do not necessarily like one another. This means that if the commissioner is perceived as doing a favor to one interested person or group, all the others will go against them. They have no leeway to make a mistake. Being a referee is a thankless task; that is the way it is designed. The other thing I would tell the commissioner is that they are working within a very weak legislative framework and this means that they have very little leeway to be flexible.

E How is that?

You would like at times to be flexible and push a company or an actor in the right direction but at the same time be understanding. But how flexible can you be on something that is already very weak? If you are flexible under those conditions, it means you are not supervising, and that is one of the problems of a weak legislation. Unfortunately, their role is not to be flexible. There are a few other things that I would say. We are not auditors, we are risk assessors. This means we have to look at a company as if we were general managers of it. We are not in the job of penalizing, we are in the job of deterring, and penalizing is a tool to catch attention. Ninety-nine percent of success is in what insurers refrain from doing by the mere fact of the supervisor’s authority deterring them from violations. This is why supervisory authority is at the heart of everything.

E What is your recommendation for the insurance companies?

They should put a lot of focus on governance. This doesn’t come from the state; it has to come from them. Governance is about everything. Secondly, companies in the sector should work on their products and even on the annexed services that are attached to the products to become more sophisticated. Third, companies should merge, because the game is becoming regional. There should be mergers but it takes a new law to help with mergers.

Tough road to love

The first years in the relationship between the revamped ICC and insurance companies were often characterized by push and pull. According to Genadry, it was not the challenges inherent to Lebanon’s economic environment, or the fact that the supervisory function of the ICC did not allow it to cozy up to the insurance industry, that caused the turbulence of the first few years. Rather, he says, this was due to a clash between the regulatory culture the ICC was trying to instill and the old guard system that, since the 1950s, did business as it saw fit.

For many years, including during the Lebanese Civil War, insurers had been left to their own devices and had remained untouched by public scrutiny and regulatory intervention. To move from this state to one of compliance with a supervisory authority required a change of attitude, and was a trial and error process, Genadry says. “This process had to begin with the ICC learning what it had to do while it was doing it, and while [also] facing opposition to what it was doing.“

The opposition was “at times harsh,” he adds, and rejected several regulatory initiatives and filed administrative lawsuits against measures that the ICC viewed as key supervisory decisions. Disputes went as far as the launching of an allegation of culpability directed against Genadry personally, which was eventually thrown out in court. “The objective probably was to get me disgusted and leave,” he says.

This did not happen, however, and relations between the insurance sector and ICC improved until around 2011, when insurers ultimately came to the realization that a fundamental change was required, and accepted that supervision was needed in the sector.

Since then, the ICC has shown visible and tangible results. It enhanced and institutionalized the financial review processes of sector companies, upgraded the oversight of intermediaries, improved the complaints investigation and resolution processes, helped embellish health insurance covers for expatriate workers in cooperation with the Labor Ministry, and developed its team in size and competency.

However, there is one crucial area in which the ICC has yet to make a breakthrough: implementing a new insurance law. In one of his first acts as commissioner, Genadry collaborated with international experts in 2003 to produce a new draft law. The draft was presented in 2004 and received hefty criticism, but was altered in the process and gained increasing support by 2007. However, it then fell victim to the freezing of legislative initiatives in Parliament. “If I today have one regret, it is that we couldn’t pass the law because in the absence of this law, Lebanon is presently at the bottom of legislative frameworks for insurance in the Middle East,” Genadry says.

According to him, the current law is insufficient on many counts and even acts as a barrier against crucially needed developments. It limits options in support of mergers and insurance industry consolidation, and does not allow the regulator to impose any new corporate governance requirements on insurance companies.

It appears to be a comfort to Genadry that a World Bank assessment of the Lebanese insurance sector highlighted how the ICC has been able to achieve very respectable outcomes of its supervisory work in recent years, despite the inadequacy of the existing legal framework. But the need for a new law persists, and as Genadry reviews his experience as insurance commissioner, and the recognition he received from international peers in top-reputed regulatory institutions upon the news of his contract’s surprising non-renewal, he says his main priority is to see the legacy of fair insurance supervision preserved in Lebanon.

Executive asked Genadry how he responds to allegations that he slowed sector development down during his tenure and why he stayed on in his post despite more profitable opportunities in the private sector. He easily dismisses the first allegation by pointing out that insurance premiums nearly quadrupled in the years while he was commissioner, and that sector profits likewise improved very handsomely even as reserves were boosted more than eight times. As to the question of why he did not resign from his job despite all the challenges, he says, “I believed in the importance of what I was doing and I felt that if I left, I would be a coward. I invested myself in a way that can be done only for a mission, not for a job.”

September 11, 2015 0 comments
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Cover story

10 STEPS TO A SMART FUTURE

by Executive Editors September 11, 2015
written by Executive Editors

1 Natural resource management

Our reservoirs have nearly been pumped dry by lack of foresight while pollutants threaten to contaminate our drinking water. In order to properly manage our water resources we must measure our snow and rainfall, regulate water usage, and invest in sanitation infrastructure. Our potential hydrocarbon resources must be developed for the benefit of the Lebanese people. Commit to removing political interests from exploration license negotiations and future subcontracting deals and ensure appropriate environmental measures are in place to protect from spills and other damage. Our coastal waters are polluted by runoff, we’re choking on exhaust, and garbage is literally being thrown into our valleys and forests. We need to protect our environment, its beauty and natural wonders.

For more in-depth analysis, see EXECUTIVE articles:

While Rome burns (#181)  /  Heads in the sand (#182)  /  Politics and public health (#186)  /  Non evasive action (#183)  /  All at sea (#183)

2 Workers’ rights

Women are integral to our workforce and vital to the health of our economy. We must not relegate their status to that of a second class worker – gaps in compensation, benefits, and workplace responsibilities must be closed. Maternity leave must be expanded and not viewed as an impediment to career advancement – likewise paternity leave should also be a worker’s right. We must also abolish the Kafala system for foreign domestic workers. In the interim, we should apply principles of equal treatment: we must protect against exploitation and abuse by enforcing contracts that limit working hours and grant time off. We must also ensure access to the same social safety nets of health and education to all legal residents of Lebanon.

For more in-depth analysis, see EXECUTIVE articles:

Women in the workforce (#188)  /  Domestic workers: ignored but active union (#190)

3 Refugees

Lebanon now hosts over 1.2 million refugees, many seeking asylum from neighboring Syria. The population increase has strained Lebanon’s resources so that basic needs are not being met. We need help from the international community to provide asylum seekers their basic human rights – the rights to shelter, education, health, and work. Rather than abhor their presence, we must contribute to addressing their needs to reassure donors so they continue to support the most vulnerable populations and invest in our infrastructure.

For more in-depth analysis, see EXECUTIVE articles:

Syrian refugees: lower the drawbridge (#177)  /  The root of good (#184)  /  The blame game (#189)

4 Promoting Lebanon

Tourism is touted as one of the main pillars of the Lebanese economy, and indeed it has real potential for growth.  Despite this, we’re not playing to our strengths. We must promote Lebanon’s geographic indicators and our tourism potential. Our products, such as wine, must be supported in the export market. Diversify tourism to promote rural and cultural landmarks with a clear strategy to promote Lebanon abroad.

For more in-depth analysis, see EXECUTIVE articles:

Tourism Starts at Home (#192)  /  Fix it and They Will Come (#178)

5 Utilities and public services

Our failing public services limit our economic productivity, harming in turn our environment and our health. We must commit to long term plans that provide us with 24/7 electricity, fast internet, and sustainable waste management. Start by appointing the electricity regulation authority to begin building power plants and increase generation capacity. We already have a plan from 2010 that calls for a capacity increase, a reform of the electrical grid, and an emphasis on renewable energy. Let’s continue implementing this plan. We need to further broadband internet penetration in order to drive growth and remain economically competitive. Activate Lebanon’s already installed fiber optic backbone, bridge connections from the backbone to homes and businesses, license more capacity to our internet service providers, and lower the costs of subscription. Abdul Monheim Yousef must be removed from at least one of his positions – such a blatant conflict of interest must end. We must also implement sustainable solutions to treat our solid waste. Invest in waste management capabilities nationwide to sort, landfill, incinerate or compost our trash. We must also teach ourselves to reduce our waste at the household level, recycle more and stop littering.

For more in-depth analysis, see EXECUTIVE articles:

Electricity: crumbling behind the country (#147)  /  Renewable energy (#194)  /  Light a fire (#190)  /  Flipping the switch (#189)  /  Master muddler (#189)  /  Waste: Tsu–Naameh (#187)  /  Knee deep in trash, political and literal (#193)  /  Criminal negligence (#194)

6 Infrastructure

We need to revitalize our national infrastructure to encourage economic development. We lack a national wastewater collection network and have treatment plants connected to nothing. This must be fixed once and for all. We can no longer dump wastewater untreated into the sea or onto the land, where it can contaminate our groundwater. Our roads are filled with potholes and we lack a real public transportation system. We must maintain the integrity of our roads, highways, bridges, and tunnels and build new thoroughfares to support economic development in even the most remote locations of Lebanon. We need to expand our limited bus system and invest in mass transit options that improve connections between our cities. Our points of entry are public assets that are vital to economic health. We need a strategy to integrate our seaports into international value chains, vis-a-vis each other, with organizational structures that prioritize the national economy.  

For more in-depth analysis, see EXECUTIVE articles:

Water: quality concerns (#183)  /  Public private partnership (#149)  /  The road to more traffic (#184)  /  A port policy for all (#192)

7 Private sector

The private sector is the backbone of Lebanon’s economy. For the nation to flourish, social and economic justice must increase and never be compromised. At the same time, economic justice will be condemned to subsistence living if economic productivity is ignored or impeded. Our banking sector is the jewel in the economic crown but that doesn’t mean it cannot be improved. Its taxation must be just. Banks’ conduct in financing the deficit and helping small businesses and citizens through lending has need for greater transparency and growth. Our industry has underused economic potentials that deserve to be nourished and equipped with smart investment support. Our businesses need better corporate laws to operate under and at the same time have to practice corporate governance that will attract investors. Our entrepreneurs deserve a boost in attention and our ecosystems for entrepreneurship and creative industries have much room for development.

For more in-depth analysis, see EXECUTIVE articles:

Taxes: Don’t kill our banks (#179)  /  Retail banking gains ground (#176)  /  Taming the central bank (#192)  /  Responsible to govern (#194)  /  Entrepreneurship: In praise of chaos (#184)

8 Public policy

Our treasury is in complete disarray and our public debt has spiraled. Our regulators lack authority and we base our policies, for which there is no transparency, on guesses rather than quantifiable fact.  We have no idea how our government really spends our money. We need to pass a budget to facilitate long term planning and to hold government expenditures to account. Empower regulators to oversee their assigned industry or market segment. These bodies need to be given teeth in their legal mandates, boards of directors need to be appointed while governing committees whose terms have expired need to be replaced. We need to build transparency into our public institutions by passing anti-corruption legislation. We need an access to information law and a law to protect whistleblowers. We must have an E-Government portal that centrally allows users to track legislation at ministries, the parliament, and the council of ministers from draft status through publication in the national gazette. Pretending our population is the same as it was in 1932 is ridiculous. Public policy and the private sector need quantifiable data to form the basis of decisions. Empower the Central Administration of Statistics and ministries with the tools and budgets needed to collect and disseminate statistics.

For more in-depth analysis, see EXECUTIVE articles:

Billions beyond budget (online only)   /  The incremental approach (#185)  /  Laying a foundation (#182)  /  Open the doors of parliament (#178)  /  A matter of perspective (#184)

9 Landuse

The legal framework governing our real estate sector is full of contradictions. Land wealth is concentrated into the hands of a few, leaving many residents to depend on outdated rental rules that discourage landowners from reinvesting in their buildings. We need to smartly plan our cities. We have far too many buildings and development projects that no one is buying because the average person cannot afford them. Real estate permits should be directly linked to proven demand. If a project won’t sell, it should not be built. We must provide public spaces for our children to play in and we must protect our ruins and cultural sites from development. Affordable public housing must be a priority. The government has to allocate money for the public housing fund it created with the new rent law. On top of that, it should create a scheme to incentivize the building of low-cost housing. Forcing developers to build two affordable apartments for every one elite apartment would be a good start. 

For more in-depth analysis, see EXECUTIVE articles:

Throw open the doors (#189)  /  Public parks, private payment (#176)  /  The dangers of stimulus (#191)

10 Public health

Our population is aging while risk of lifestyle diseases remains significant. We must maintain and improve quality – and advance universal provision of modern treatment – in our clinics and hospitals through reforming, financing and encouraging investment in our healthcare system. Health and quality standards in our food and consumable products must be maintained and improved. We must have institutional reform to create a serious, frequent and surprise inspection regime.

September 11, 2015 0 comments
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Leaders

Responsible to govern

by Executive Editors September 11, 2015
written by Executive Editors

The small matter of private property and the duties and rights that are attached to its ownership are to capitalism what the solid inner core is to earth. Thus it was a good time for Executive to perk up our collective editorial ears – which are always on the listen for deeper economic truths – upon the surfacing of a speech with the question, “Who owns a company?”, asked by no lesser mind than the chief economist at the Bank of England, Andy Haldane.

“At least for publicly listed companies, its owners are its shareholders,” Haldane asserts at the start of his learned discourse. It’s their prerogative to claim the company’s profits and control its management. “And it is they whose objectives have primacy in the running of the company”.

But then he turned to the issue of corporate governance, from a broad definition that corporate governance is “the set of arrangements that determine a company’s objectives and how control rights, obligations and decisions are allocated among various stakeholders in the company.” Haldane advised in this context that the implementation of corporate governance according to the shareholder-centric model found in the UK and US has produced short-termism and other forms of corporate behavior whose macro-economic consequences are far from benign and the micro-economic frictions of which can have very negative impacts on stakeholders. 

What erudite economists tell us about corporate governance in discourses such as Haldane’s is that it is not a box. There is no one-size-fits-all application of corporate governance. Corporate governance is, however, a vital process in the economy and it is vital for the health of the company, any company, to partake in this process. It is, moreover, vital that governments and regulators immerse themselves with full dedication in the setting up of legal frameworks and institutions that enable, strengthen and enforce corporate governance and create opportunities to invest into companies that demonstrate well-governed business potency. 

This is why we are appalled when we see that the corporate governance report cards of Lebanon’s handful of listed companies suggest aptitudes and attitudes which one would associate with either a hopelessly dull or an actively recalcitrant pupil. So what are we to make of it if corporate governance practice at the arguably best-known and, by market capitalization, largest non-banking corporation in Lebanon is rated as inadequate? What are we to think if one of the top five banks by profit, one that is noted among leaders in profit growth, is given a failed grade in corporate governance? (See story on page 68).

The only thing that one can call for – and one must – when faced with this documentation of insufficiency in the communication of board behaviors and corporate disclosures of top Lebanese companies, is for them to shape up; or shape up even faster and more so. There is no alternative. Lebanese corporate leaders, the whole alphabet of them, have to assign corporate governance to be the first entry in their daily agendas.

But the public sector too has to come out and play for good. The frameworks of corporate law are overdue meaningful improvements or rewrites if need be; and promises have to be meaningful. Talk of a soon-to-be-created electronic stock exchange for small and medium companies is not acceptable, even from the central bank governor, if a young reporter on a quest for details is told by the Capital Markets Authority to come back at an unspecified later time because nothing real can yet be said about the project. (see story page 78).

When Chinese currency and stock price tremors shook global financial markets in August, Andy Haldane’s insightfully incisive remarks on one of the pillars of capitalism earned extra attention by capitalists, as times of unexpected tribulations always present an occasion for productive introspection.

The dust of the latest storm in equity markets will settle. It always does. But as Haldane said at the end of his speech, “Challenges to the shareholder-centric company model are rising, both from within and outside the corporate sector.” He concluded that if his country wants to tackle these problems at their source, “a more fundamental re-rooting of company law” may be in order.

The conclusion of this conclusion may be that no corporation should ever think it can settle on last week’s corporate governance laurels.  Perhaps eternal volatility is the price of free equity markets and certainly no degree of governance can eradicate market risk – but the best answer to this is to improve governance to the greatest strength that is achievable at any specific moment.

September 11, 2015 0 comments
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Special ReportWine Tourism

New wine producing countries are making inroads

by Michael Karam September 10, 2015
written by Michael Karam

The Eastern Mediterranean is on the move. Greece may be on the ropes economically but its wines have never been more popular, with its indigenous Assyrtiko grape, grown mainly on the island of Santorini, the current darling among informed consumers. Turkey, for so long a country with a dubious reputation in terms of wine quality, is taking huge strides to remind the world of its impressive heritage and its dozens of indigenous grapes by retaining the services of an award winning PR manager and at least two Masters of Wine. Cyprus too is slowly shedding its image as a bulk producer selling cheap wine to thirsty European tourists and now has a slew of high quality boutique wineries. Throw in Macedonia, Croatia, Georgia and Armenia, and wine lovers can now mine a region that has been making wine longer than anyone else, with dozens of grape varieties to delight their palates.

Lebanon is also part of this exciting movement. Indeed, our tiny Mediterranean country with an even smaller production rate – 9 million bottles per year – has been something of a pioneer in promoting the wines of the region. In 2010, I was privileged to be involved in the Wines of Lebanon publicity campaign in the UK. It was the first time our leading producers worked together to promote the idea of Lebanon as a wine producing country. It was a well-trodden path, one taken by all the major New World wine producing countries and regions including California, Australia, New Zealand, South Africa, Chile, Argentina and the like, and in doing so we signaled our desire to be taken seriously.

We created a logo, opened a UK press office, held tastings at fairs, went on the road to London, Manchester and Bristol and held masterclasses at the London Wine Fair and Prowein in Dusseldorf. We invited high profile wine writers and sommeliers to Lebanon and they all left the country as fully paid up members of the “I love Lebanon” fan club, becoming informal roving ambassadors.

What made this all the more incredible was that it was all self-funded. There was not a penny from the Lebanese state, which was still unsure about what to do with wine. Meanwhile, regional neighbours were impressed, aiming to reach Lebanese standards. The Turks, for instance, put the word out that they wanted to do what the Lebanese were doing.

All this interest and increased regional activity comes at a time when Lebanese producers are quite naturally feeling the pinch. The results of generic campaigns are notoriously hard to quantify. Yes, sales in the UK have gone up by around 40 percent in the past five years and yes, there is no doubt that our stock has risen among the media and consumers alike. But now the government has to step in and pick up the slack.

In 2013, the state did make funds available, presumably because the growing popularity of Lebanese wine at home and abroad could no longer be ignored, but now the challenge must be to spend that funding efficiently so that Lebanon can not only compete internationally but can also take advantage of the current interest in Eastern Mediterranean wines. It won’t last forever though; before long there will be another region, country or grape to swoon over.

Thus, the challenges are twofold: Lebanon’s wine producers, who have shown so much foresight thus far, must recognize and react effectively to this increased interest in their product. Moreover, marketing must robustly position Lebanon within this geographical zone to remind consumers that we are a Mediterranean country as well as a Middle Eastern country, with a glorious culinary tradition – food plays a huge part in piquing consumer interest – and an awesome wine heritage.

But it is also essential that the state work even closer with the Union Vinicole du Liban, Lebanon’s association of wine producers, to spend what funding there is in the most efficient way possible. What has been made available so far has been generous, but spending has been wasteful. It is simply not enough to choose a major world city, hire a conference room in a five star hotel and turn up with our wines. Where to hold events and how to organise them should be the decision of people who know how wine must be marketed.

We have a great opportunity. Let’s not waste it.

September 10, 2015 0 comments
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Special ReportWine Tourism

Production of Lebanese wine is on a slow but steady growth path

by Nabila Rahhal September 10, 2015
written by Nabila Rahhal

People the world over have long been infatuated by wine, with writers and poets ranging from William Shakespeare to Abu Nawwas singing its praises.

Indeed, wine production has a very rich global history, with the oldest winery – discovered in modern day Armenia – dating back to 4100 BC. Lebanon’s own history with wine can be traced back to the Phoenicians who traded it across the Mediterranean to some parts of Europe. Some also believe that Jesus’ first miracle of transforming water into wine took place in Qana, Lebanon.

This rich history, however, is not without ups and downs. The Ottoman Empire banned wine production (save for religious reasons) and more recently, the Lebanese civil war largely put a stop to most industries in the country. Lebanese wine, however, has since survived these obstacles, emerging more diverse and interesting than before.

Brief Background

Following the end of the Civil War in the early 1990s, only five wineries (Château Ksara, Domaine des Tourelles, Château Musar, Château Kefraya and Château Nakad) were operating. However, the 1990s was an active period for the Lebanese wine sector. Seven new wineries were created during this time and the Union Vinicole du Liban (UVL), a private sector body made up of all existing wineries which aimed to coordinate and protect common interests, was established, according to Zafer Chaoui, current head of the UVL and chairman and CEO of Château Ksara.

The last ten years saw another boom in Lebanese wine production, with 23 additional wineries launching their first vintages and a few more wineries rumored to be in the works for 2016. In conjunction, general interest in wine consumption has also increased among Lebanese. “When I arrived to Lebanon in 2006, I noticed that people used to order mainly whiskey and spirits in restaurants. Today, I see more people ordering wine, so there is a wine culture growing in Lebanon,” says Fabrice Guiberteau, oenologist and technical director at Château Kefraya. Interest in wine culture among the Lebanese is also evident by the growing market for wine tourism in the country, with most wineries reporting an increase in visitors over the past few years.

Current status of Lebanese wine

Today, Lebanon’s 40 wineries, according to the UVL’s website, produce around 8.5 million bottles of wine annually, with Château Ksara and Château Kefraya accounting for almost half that number and with the other, relatively newer wineries, growing and increasing their production yearly. However, wine production is not only about volume but also  about quality, as Lebanon’s boutique wineries demonstrate. These wineries pride themselves on producing fewer bottles per year, believing that this allows them to offer better controls for quality and taste.

But wine production in Lebanon is very low compared with neighboring wine producing countries such as Greece or Cyprus. While Lebanese wine has thus far dominated the Eastern Mediterranean export market, other countries in the region are rapidly catching up. According to the wineries interviewed for this article, the reasons for the lack of real growth in wine production mainly include the lack of stability in the country which has discouraged major investments in wine production, the lack of serious government funds supporting the sector’s growth and comparatively low local wine consumption, despite the recent increase. “Consumption in Lebanon, which is the first and most important market for all of us, is definitely not growing as it should because of the lack of tourists and other reasons [which] we always state,” says Hady Kahale, general manager of Ixsir, adding that the winery still managed to achieve 50 percent market growth so far in the year 2015.

Exporting Wine

Today, the majority of Lebanon’s wine producers export a hefty percentage of their bottles, ranging from 20 to 60 percent according to the wineries interviewed. In fact, according to Kahale, the only two exports for which the balance of trade in Lebanon is positive are wine and jewelry. Michael Karam, author of Wines of Lebanon, explains that Lebanon has long been on the radar when it comes to wine because of the late owner of Château Musar, Serge Hochar, and his promotion campaign in the United Kingdom during the Civil War. More recently, according to Karam, Lebanese wine found success in the UK due to the Wines of Lebanon campaign, which was initiated and funded by the UVL in 2010 to collectively promote Lebanon’s wine in the country.

“It was a major turning point, not only in the way Lebanese producers marketed their wine but also in the way they came together as a group. It was a game changer and a momentous time in the history of Lebanese wine marketing initiatives,” says Karam, speaking of the campaign.

Indeed the UVL, which represents almost 95 percent of the wine producers in Lebanon, has done a lot to promote Lebanon’s wines beyond the UK. At international wine festivals the UVL represents Lebanese wine in pavilions and programs they fund themselves. “We understood a very simple fact which is that being part of a bigger cake is much more important than eating each other out of a smaller cake. If we were a saturated market with no growth and consumption is at a maximum, maybe then we would be in cut-throat competition [with one another]. But since wine consumption in Lebanon can still increase three fold, and we are able to export ten times more, with room for all, the only way to grow like this is by working all together,” says Kahale. Today the main export markets for Lebanese wines are France, where it is mainly sold to numerous Lebanese restaurants, the UK, Germany and the US, with some wineries citing clients in cities as far off as Tokyo and Sydney.

wine2

The Government’s Role

Any growth in the wine sector over the past decade can be attributed to the efforts of the UVL and winemakers themselves. While governments of wine producing countries typically support them with exports through generic campaigns, support from Lebanon’s government only recently kicked in. “I think as a result of the momentum which Lebanese wine gained through this initiative (the UK campaign), the government, which was previously reluctant to support the wine sector, realized that it couldn’t ignore Lebanese wine anymore, so in 2013 it sponsored a Lebanese wine day in Paris at the Four Season’s George V Hotel and another one last year in Berlin,” explains Karam. This year, explains Chaoui, the Ministry of Agriculture was planning to host the Day of Lebanese Wine in New York but as the annual budget has not been allocated yet, it appears to now be too late.

All winemakers interviewed commended the Ministry of Agriculture and the government for the positive role it was beginning to play in supporting this important industry in Lebanon. Some, however, felt that the budget allocated for wine production could be spent in a more efficient manner to maximize impact. “The government is playing a huge roll but the problem is that it doesn’t use its budget in an effective manner. It holds one event with a big budget when we can use the same budget in more diverse ways,” explains Faouzi Issa, winemaker and owner of Domains Des Tourelles. “Any state budget should be spent in coordination with the UVL, which has good experience in budget allocation for marketing initiatives; there needs to be strategic planning,” recommends Karam.

Others feel that the budget allocated for generic campaigns is a good start but more money is needed to be able to compete with other wine producing countries. “If historically you spend zero dollars on the sector and then you start investing up to $50,000, this is [beyond our] expectations, so coming from a zero budget we are extremely happy and grateful for what they did. But if we start comparing with other countries, where millions are being poured into this sector, it’s nothing. The day we receive financial support from the government – about $4 million dollars to cover international advertising and positioning – then we can really start competing with other neighboring countries,” explains Kahale. He added that while financial support from the government may be low, they have nonetheless been supportive and accommodating when possible, such as helping to create Routes De la Vins Du Nord.

Chaoui adds that the Chamber of Commerce has been supportive of the sector as well, allocating a yearly budget for wine production which is typically spent to supplement the government’s generic campaign. “This year, since we have no budget from the government for the generic campaign, we will go as the UVL to an exhibition in October in Brussels called Megavino where buyers come from the whole region,” he says.

Chaoui also urges the Ministry of Agriculture to prioritize funding for the National Wine Institute (NWI), which was formed last year but has yet to receive a budget to function properly. Once it does, explains Chaoui, the NWI, which has members from both the public and private sector, will assume the role of technically regulating wine production and ruling on appellations. “The NWI is what central banks are to local banks. We need it for technical and control reasons and for the reputation of the Lebanese wine,” concludes Chaoui.

Wine production in Lebanon remains on a steady course, not significantly increasing production but not decreasing either. Only time and the right budget will tell if production will eventually skyrocket.

September 10, 2015 0 comments
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CommentOpinion

Police brutality in Lebanon

by Nadim Houry September 10, 2015
written by Nadim Houry

The images of police and soldiers violently repressing demonstrators gathered in downtown Beirut on August 22 to protest the garbage crisis and political corruption sent shock waves through Lebanese society. Security forces beat unarmed protesters, turned water cannons on journalists, and fired rubber bullets towards fleeing crowds. The security forces even shot live bullets into the air, sending terrified families back home. 

The next day, as a new round of protests was called, a small group of angry protesters attacked the security forces with stones – eventually leading the security forces to respond with more teargas canisters, rubber bullets and water cannons. Since then, there have been almost daily confrontations in downtown Beirut between protesters and security forces.

The Beirut protests, like many social movements, pose a challenge for security forces, who have a dual responsibility – to protect the basic right to protest while also maintaining order. Even in overwhelmingly peaceful protests like the one on August 22, one can often find some protesters who throw stones or try to provoke the police. So how should security forces respond?

The United Nations Basic Principles on the Use of Force and Firearms provide that law enforcement officials may only use force if other means remain ineffective or have no likelihood of achieving the intended result. When using force, law enforcement officials should exercise restraint and act proportionately, taking into account both the seriousness of the offense and the legitimate objective to be achieved. Lebanon’s own police force, the ISF, adopted a code of conduct in 2011 which stipulates that, “Police members will not resort to the use of force unless it is necessary, proportionate and after exhausting all possible non-violent means, within the minimum extent needed to accomplish the mission.”

While the principle is clear, the challenge is how to carry it out during the often tense situations that arise during protests. In this respect, Lebanon’s security forces should adopt certain good practices that are employed in other countries. First, security forces should make every effort to communicate clearly with protesters before resorting to shooting teargas canisters or bullets in the air. This was demonstrably lacking during the Beirut protests, when security forces issued no warnings before resorting to violent means.

There also needs to be more coordination between the multiple security agencies on the ground, including riot police, other ISF units, the army, and units responsible for the security of parliament and government. For anyone monitoring their behavior on August 22, it appeared that there was no clear coordination among them.

There is also an issue of equipment. On August 22, as protesters tried to make their way to Parliament, they came face to face with soldiers equipped only with loaded machine guns. The encounter, caught on camera, shows soldiers who appear taken by surprise and who quickly resort to firing into the air. The shots angered the crowd, who threw water bottles and sticks at the soldiers. Luckily no one was hit with a live bullet. But one mistake and the death toll could have been terrible.

To control protests, Lebanon often relies on soldiers who are untrained in performing policing roles such as crowd control, and are frequently deployed without protective gear and equipped only with a standard machine gun. This has led to deadly consequences. In 2004, the Lebanese army was sent to face protesters in the Beirut suburb of Hay al-Selloum, which ended tragically when army troops opened fire at the protesters, killing five. Similarly in 2007, Lebanese army soldiers opened fire on Palestinian protesters marching near the Baddawi camp, killing two. In both cases, these deaths may have been avoidable if more appropriate equipment and orders had been issued.

But the right equipment isn’t everything. Witness accounts and footage from the August 22 protests strongly suggest that security forces used rubber bullets and teargas excessively. Many wounded protesters reported being shot at with rubber bullets as they were helping other wounded protesters or as they were running away.

Which leads to the main measure that has been lacking: accountability. Law enforcement officials who use excessive force should face criminal liability as well as disciplinary action. Yet, impunity is the norm in Lebanon. There is no indication that guilty officers in past instances of excessive use of force were ever held to account. The public prosecutor, interior minister, and even the prime minister promised to investigate and hold any official accountable for the August 22 violence. But given the authorities’ track record, trust in such investigations is low.

To overcome this potential breakdown of trust, many countries rely on fact-finding commissions that can hold public hearings and report their findings publicly. In some countries, national human rights commissions play a key role in investigating and issuing findings and recommendations to address police violence.  Unfortunately, Lebanon’s draft law for a National Human Rights commission – like many other reform projects –  has been stuck in parliament’s drawers for years.

The recent protests have brought to the surface the high level of frustration that the Lebanese have toward a political system that has repeatedly failed to provide them with basic services. Expect more demonstrations. Lebanon’s security forces need to show they can respect the rights of protesters lest they find that they become targets of protests themselves.

September 10, 2015 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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