Business

Raise your spirits

by Nabila Rahhal
written by Nabila Rahhal

Whether enjoying a glass of single malt whiskey after a long day, celebrating a special occasion with champagne, or simply catching up with friends over a couple of cocktails carefully prepared by a mixologist, it seems that alcoholic beverages constitute a part of life for many of us. While some other industries, such as the hospitality or retail industry, saw a decrease in their overall revenues in 2014 when compared to 2013, the spirits industry saw a growth in that period, aided by an active end of 2014.

2014 versus 2013 in terms of sales and growth 

According to Naji Hmouda, business manager at Neo Comet, the spirits distribution company which is part of Fattal Holding and distributes Bacardi, Martini and Dewar’s, among others, 2014 started out even worse than 2013 for the spirits industry from a macro perspective, due to the assassination of former Finance Minister Mohamad Chatah. The attack occurred a few days before New Year’s Eve 2013 and caused many people to cancel their celebrations, which in turn led to an accumulation of stock for many spirits.

[pullquote]The Lebanese consumer has become almost the sole client of the hospitality sector[/pullquote]

Carlo Vincenti, owner of G. Vincenti & Sons who says his spirits portfolio includes Poliakov vodka and Label 5 whiskey, also considered the market at the start of 2014 to be tough. This was due to the continuing effects of the economic and social difficulties that have affected Lebanon, including a combination of the repercussions of the Syrian crisis and the dwindling economic capabilities of the Lebanese consumer, who has become almost the sole client of the hospitality sector given the lack of tourists, according to Vincenti. 

Yet, Vincenti says his company added the Beam Group — which includes Jim Beam bourbon and Teacher’s whiskey, among others — to their portfolio in 2014. The company managed to double Beam Group’s volume of sales in Lebanon from 2013, making 2014 a good year overall for the Vincenti Group. 

According to the spirits distributors Executive spoke to, the summer season was also somewhat sluggish in terms of sales but took a sharp upward turn during Eid El Fitr. Sales peaked during the holiday season in November and December 2014, which usually accounts for 40 percent of a spirits distributor’s annual sales. Hmouda explains that, once a sense of security and stability was restored in Lebanon towards the last quarter of 2014, they felt the positive effects in their profits and were able to make up for most, if not all, of their losses of the first half of the year, calling December 2014 a “phenomenal and amazing” month, comparable to some of the best Lebanon has seen in the past 10 years.

Etablissements Antoine Massoud (EAM), distributor of SKYY vodka and Jose Cuervo tequila, saw a growth of 15 percent in spirits sales in 2014 as compared to 2013. This was thanks to a strategy where EAM let go of some brands in their portfolio and added new ones, all the while “capitalizing on a few but bigger and better brands than we used to represent in the past,” says Anthony Massoud, managing director of EAM. 

Diageo, the multinational alcoholic beverages company and spirits producer with a $73.3 billion market capitalization, is mainly known for Johnnie Walker, which held 31.6 percent of the market share in whiskey consumption in Lebanon in 2013, according to the International Wine and Spirit Research (IWSR). With their regional offices now in Lebanon, Diageo considers the country to be “the showcase of the Middle East and the leader of nightlife in the region,” according to Ziad Karam, MENA corporate relations director for Diageo. 

In fact, the company witnessed solid growth of slightly more than 15 percent, according to Jad El Osta, IMC general manager at Diageo. “We basically followed the consumers’ taste and location, offering them a Diageo brand for every income level and every new drinking trend and location,” says El Osta. 

[pullquote]“Consumers are looking for more complexity in what they drink”[/pullquote]

What the Lebanese are drinking 

Not all spirits are created equal and some types had a better year than others, according to the brand representatives and owners Executive spoke to. After skyrocketing for the past five years and increasing by 13.4 percent between 2008 and 2013 according to the IWSR, vodka consumption among the Lebanese in 2014 either stagnated with some brands or increased at a normal pace with others. “Consumers are looking for more complexity in what they drink and, whatever you do, vodka will always be considered a mixer,” says Vincenti.

The exception to this trend seems to be the vodka brand Grey Goose, with Hmouda saying that, “Fattal had excellent double digit growth in the vodka category in 2014 driven by the deals we did and the brand Grey Goose, but I cannot say it is the same for everyone.”

Whiskey, the third most consumed alcoholic beverage in 2013 after beer and mixed drinks according to the IWSR, remained the most consumed spirit in Lebanon by far with 471,000 nine liter cases purchased in 2013, almost double the second largest category of spirits consumed that year, vodka. Within that category, there was growth in the single malt whiskey consumption, though the volume remained small when compared to overall whiskey consumption, according to Hmouda. 

This increase was driven mainly by the global trend towards single malt consumption and by more maturity and awareness regarding the quality of spirits among the Lebanese consumer. Vincenti saw double digit growth in their single malt categories and Diageo, which owns 28 malt distilleries in Scotland, believes they managed to attract many consumers in this category through their strong market presence and wide portfolio of malts. 

EAM took the single malt trend to another level by opening the Malt Gallery in December 2014, a high end spirits concept store with a focus on malt whiskey. “We saw that there are a lot of wine stores but no conceptual liquor stores. Our aim is to educate the Lebanese consumer on this trend and develop the premium category in Lebanon through whiskey classes, dinners and trainings” says Massoud.

Closely related to the growth of single malt is the rising popularity of mixology, i.e. mixing cocktails using premium spirits, another global trend that Lebanon is now embracing. “The trends are moving towards cocktails and the good thing is that many of the bar owners are taking it very seriously and are training their staff in presentation and mixing,” says Hmouda, adding that such premiumization brings a better, more specialized type of business to the distributor, while also lending diversity and more complexity to the spirits sector in Lebanon.

Marketing the liquor 

Capitalizing on these trends and on spirits consumption in general necessitates that each distributing company develop a competitive growth strategy which plays on their brand portfolios’ strengths. “We players try to find where we are competitive and where we can add value based on these trends. We at EAM are reorganizing our strategies and portfolio and implementing this with our trade partners,” says Massoud. 

Sustaining a strong market share and ensuring annual growth of a company’s brand consumption requires targeted and specialized marketing such as visibility in venues, sponsorship deals with venue owners and special activities and events — referred to as below the line advertising — as opposed to mass media marketing through traditional media channels or above the line advertising, explains El Osta. “We only began to spend on above the line marketing last October but in marketing below the line, we are very strong and present, considering such activities volume generators. Instead of reaching the consumer through TV ads, we reach them directly in the venue through the bartenders or shop owners whom they trust. The market is moving from the bulk towards the differentiated and specialized,” elaborates El Osta. 

Other distributors are also focusing on below the line marketing, with Massoud attributing 25 percent of what he calls their trade marketing budget to secure their brands’ visibility in hospitality venues through sponsorship deals and quality presence in places such as Skybar where they are the main vodka partners.

According to Hmouda, Fattal’s marketing budget is mainly being spent on below the line marketing. “In a better situation, half of that budget should be on advertising, but today with all the pressure on maintaining relatively reasonable prices, some of our marketing investment is going behind that. Until such times when we have steady growth, we will look back at our strategy of spending to have more consumer and image communication rather than below the line marketing,” he says.

Challenges in the on trade and off trade sectors

Despite 2014 being a relatively good year for spirit vendors, alcohol distributors do not operate in a vacuum and the challenges facing the Lebanese economy certainly had an effect on their business.

Regarding the on trade sector, or the hospitality venues, Vincenti explains that one issue they had to deal with a lot more in 2014 was delays in payment from hospitality venues, which were having a difficult couple of years due to the economic situation in Lebanon. Hmouda says Neo Comet has also had to deal with more deferred payments over the past three years, calling the situation “dangerous” but saying that this year was better than the two preceding it. 

[pullquote]“New venues open at a very fast rate in Lebanon and close at an equally fast rate as there is no regulation”[/pullquote]

“New venues open at a very fast rate in Lebanon and close at an equally fast rate as there is no regulation or study into their financial feasibility. We [spirits distributors] end up losing the most as we deal with these operators who can close down anytime if their business fails, sometimes still owing us money,” complains Massoud, explaining that they have become cautious in who they deal with and are focusing on the big operators in Lebanon who they know are sufficiently reliable.

Such a situation has led to low morale both among hospitality venue owners and their distributors, who themselves have their payments to make and their quotas to maintain with the companies they represent. 

The off trade sector, or the retail stores, according to the distributors interviewed, account for the bulk of their sales and generally constitute a more significant market for them as opposed to the on trade sector. The off trade sector saw an increase in their spirits sales, according to Vincenti, because people consumed more alcohol at home in 2014, especially around the New Year which saw many celebrations held at home. “This is a good thing for us because when people consume alcohol at home, they consume more,” says Vincenti, adding that reaching the consumer is easier in the off trade division as all the brand choices are right on the shelf, as opposed to a bar which is influenced by exclusivity deals with distributors. 

The off trade still represented challenges to the spirits distributors, namely due to the fact that the number of retail outlets increased significantly in 2014. “Supermarkets in Lebanon are cannibalizing each others’ business through prices which are eating away at their profit margins. Their businesses are not operating in a healthy way and when this happens, I am the one with the supplier who has to pay for this in one way or another, by either delaying payments or granting them additional requested terms such as discounts or marketing incentives,” says Vincenti. 

Whether in the on trade or off trade sector, Lebanese will continue wanting to have a good time and so, as long as this attitude prevails, spirits distributors and producers in Lebanon will always have a reason to toast.

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Economics & Policy

Running on empty

by James Haines-Young
written by James Haines-Young

We were all completely shocked,” says Shams, a Syrian refugee and mother of two from north of Homs province, commenting on December’s announcement by the UN World Food Program (WFP) that it had suspended payments of food aid to Syrian refugees. “It really bothered us because everything we get, we get from the UN,” she explains.

After months of warnings, the WFP simply ran out of money and was forced to delay the payment of vital assistance to 6.35 million Syrians displaced by this nearly four year long conflict. Suddenly, refugees across the region who rely on aid handed out by the international community had to go without this vital lifeline.

[pullquote]Funding troubles for the Syrian crisis appear unlikely to be a short blip, but part of a downward trend[/pullquote]

When one of the world’s largest providers of fundamental emergency aid starts to experience major funding issues — potentially leaving millions of people in six countries without assistance — it causes concern for both refugees and the region as a whole. Unfortunately, funding troubles for the Syrian crisis appear unlikely to be a short blip, but part of a downward trend, which in the coming months and years could also cause problems for many other agencies reacting to the crisis. In October 2011, just seven months after the start of the Syrian crisis, the WFP started an emergency operation inside that country. At the time, the response was localized and relatively small scale, initially only targeting 50,000 individuals for a period of three months with a total budget of $1.9 million. As the conflict rapidly expanded, so did the operation of the WFP: by the start of 2013, they were targeting 1.5 million people; by October 2013, this had increased to 4 million, and on the eve of 2014, 4.25 million Syrians were receiving assistance across the Middle East. Today, nearly 6.3 million Syrians receive food packages or assistance to buy food in Syria, Jordan, Lebanon, Turkey, Iraq and Egypt — a project with a total budget of $2.2 billion.

What the WFP provides

Inside Syria, the WFP has been buying and distributing food directly to roughly 4.25 million internally displaced persons (IDPs) through 27 partner organizations that work in all of Syria’s 14 governorates. However, unlike many of the countries in which the WFP works where food itself is scarce, local markets in many of the host countries for Syrian refugees had the capacity to supply the necessary food; the issue for most refugees was simply paying for it. Therefore the WFP moved from its traditional method of distributing food parcels to a printed voucher system. This allowed people to exchange the vouchers for food of the same value, at a number of shops. 

But by October 2013, the refugee population had swelled so much that the printing, distribution and reconciliation of the printed voucher system had become incredibly inefficient. In its place, the WFP introduced cash cards. The card acts, and looks, the same as any other debit card — it is even issued by MasterCard. The only distinguishing feature is that it has the words ‘humanitarian aid’ written across the top. The WFP credits the account monthly, allowing families to shop as they need throughout the month. As with the voucher system, refugees are still tied to shopping at particular participating stores. However, the main advantage of the cash card over vouchers, for the recipients, is that families can now shop when they want and need to rather than having to receive all their food in two installments when they cash in a printed voucher. It is also more secure as lost cards can be cancelled and refugees need to show proper identification and their UNHCR registration certificate (which has a unique number that is also stamped onto the card) in order to use it to purchase food. According to the WFP, about 88 percent of those the WFP assists outside of Syria and Iraq are now on the cash card system. In parts of Iraq the WFP and partners still provide direct food distribution as, due to the ongoing security situation, the market is unable to provide the food needed. 

[pullquote]”Donors were very generous in the early years of the Syrian crisis but we are nearly in the fourth year now”[/pullquote]

What went wrong

Despite these improvements, the WFP has run into a major problem. At the beginning of December, the WFP announced that it would be suspending operations due to a lack of funding. “Donors were very generous in the early years of the Syrian crisis but we are nearly in the fourth year now. Since August we have been starting to run out of funding and we started warning [donors] when we saw this coming. Despite this, in December we had to cut funding completely,” says Joelle Eid, communications officer for the World Food Program’s Syria response. Luckily, after a mass appeal to the public, as well as private and national donors, the money to cover December was raised and cash cards were recharged on December 9. However, as winter storms and heavy snow hit the region, including Lebanon and Jordan, conditions worsened for many and a huge question mark hung over what would happen after January. 

The WFP has assessed the basic level of subsistence in Lebanon at $30 per person per month. While the cash cards give individual families autonomy on how they use this to feed their family, there are rules about what can be bought. The WFP restricts the money to buying food items, while clothing and cleaning products for example are not permitted. This is enforced through a contract with shopkeepers whereby they agree to a set of terms — including making sure that the rules on what’s purchased are followed and not hiking up prices for refugees — in order to continue being an eligible partner; the WFP and its partners then check up on shops to ensure this is followed. Upon receiving the card, families are given a seminar on nutritional value and how to make the most nutritious food possible with the available budget and ingredients. “I go and buy oil, stock, rice and macaroni,” says Hamda, a Syrian mother of two from Yarmouk who has been in Lebanon nearly two years. Although Hamda says that she has been getting by, she insists that things are far from easy. “Ninety dollars for a month just doesn’t buy anything for three people,” she says, adding that she doesn’t buy any meat as it is expensive and she is very skeptical of the quality and age of the meat on sale in her local shop that takes WFP cash cards. 

Where the issues came from

The WFP relies fully on voluntary donations from national governments, international organizations, companies and private individuals. While private donors made up the 11th largest funding source in 2014, the scale of the organization’s Syria response necessitates donations on a scale that is hard to find outside of direct government funding. The WFP needs approximately $120 million a month in order to adequately provide basic food assistance to 4.25 million people in Syria and 2.1 million outside of Syria. According to Eid, when funds ran dry in December, the WFP was $64 million short of what it needed to fund operations until the end of 2014. After a major emergency funding campaign, which included a social media push with the hashtag #ADollarALifeline, almost 14,000 individuals and private sector donors in 158 countries contributed $1.8 million dollars. A further $52 million of the final $88 million funds raised in December were a direct donation from Saudi Arabia. The World Food Program entered the new year with just $20 million, which had already been earmarked for operations in Syria.

[pullquote]”People are more likely to assist with natural disasters like floods, tsunamis or volcanoes.”[/pullquote]

The WFP budget summary at the end of 2014 highlighted that the “WFP received $365.8 million, or 40% of the requirements, for its food assistance programme [inside Syria] in 2014. Late and insufficient resources forced WFP to adjust the composition and size of its GFD food basket [General Food Distribution basket] almost every month, and resulted in lower calorie food baskets than had originally been planned.”

“It’s always different if it’s a man made disaster rather than a natural one,” explains Marc-André Hensel of World Vision, one of the WFP’s partner organizations that manages food aid in the midwestern areas of Lebanon’s Bekaa Valley. “People are more likely to assist with natural disasters like floods, tsunamis or volcanoes. Syria is this big confusing monster [and] we are all, including the international community, just clueless what to do [about it],” he continued.

Eid is stoic about the current situation, “It’s quite clear now that funding for the region will not be as generous as last year or the year before. The more the conflict is prolonged, the more there are other issues that require donor attention — the Ebola response, for example. Funds are coming in at a slower pace and are less … ‘driven’. This is something we have to get used to and we’re forced to respond as per the status quo. So if we get 70 percent funding, then we can plan for the next period accordingly. There are difficult choices we all have to make.”

Funding gaps have resulted in massive delays in aid (World Food Program)

Funding gaps have resulted in massive delays in aid (World Food Program)

What the WFP is dealing with now

The funding crisis highlights one of the biggest challenges now facing the program: forward planning has become almost impossible. In the early phases of the response, the WFP could plan months in advance, preplanning for acute emergencies and, crucially, ensuring a constant supply of food to Syria and Iraq where physical food parcels are still distributed. In Syria, it can take up to six weeks from purchase to supplying warehouses across Syria before aid reaches the IDPs and refugees, as transport is slow and there can be delays. This means that a funding gap of even a few weeks can cause substantial delays in people receiving food in Syria.

In mid January, the WFP announced its basic needs for the next three months. For the period of January to March 2015, the WFP will require $300 million to distribute 70 percent of the aid it had previously been disbursing. The latest figures show that at the moment the WFP has about $257 million, 86 percent of this funding requirement. While it will endeavor to continue to provide for all 6.35 million refugees they have been assisting with aid, the amount each person will get will have shrunk by at least 30 percent. In Lebanon, this translates as a reduction from $30 per person per month to just $19 per person per month.

The knock-on effect upon refugees is the most pressing issue for the WFP, but funding problems also impact the organization as a whole. Shortages force the WFP to make revisions to the entire organization, from staffing levels to offices. It constantly has to balance operating costs with delivery to make sure that as much as possible goes to helping people on the ground, but if it is forced to cut back staff and centers too much, it risks not being able to respond to the needs of the people it is trying to help. The operational costs of the WFP last year were approximately 5.4 percent of the total budget for the Syria mission, with staff salaries the most significant single cost. 

A more stable solution

Neither Eid nor Hensel believe that a more stable funding situation is possible under the current systems. The way that aid is given means that it is not possible to ensure future funding as it is completely reliant on the generosity of donors, and at a time when many Western nations are undergoing government cutbacks and austerity, foreign aid budgets are a tempting thing to cut. 

[pullquote]The amount [of aid] each person will get will have shrunk by at least 30 percent[/pullquote]

At the start of 2015, the UN formed the Regional Refugee and Resilience Plan (3RP), its latest annual outline of the crisis that brings together the national plans in Lebanon, Jordan, Iraq, Turkey and Egypt into a single unified regional response. The 3RP states that there is a need for $5.5 billion to help 3.4 million Syrian people outside of Syria in 2015, as well as 2 million members of the host communities. The 3RP is just one way that agencies, including the WFP, are trying to ensure that the Syrian crisis does not fall off the radar of international donors. While today the WFP is having funding issues, it is by no means the only organization experiencing a more difficult working environment. 

January and beyond 

January’s reduction in cash card payments was not the first cut refugees had seen, although previous shortfalls had been made up in a second payment. Such remuneration seems unlikely in this case. “The prospects are not too good this year,” explains Hensel. Means testing is almost impossible, Hensel points out, in part because the needs and situations of individuals can change on a weekly or even daily basis. 

There are now basically two options for the WFP and partners, like World Vision, in the short term. The first option, as has happened this month, is to reduce the amount paid out to all recipients so that they can continue to give everyone at least something. The second option is to highlight vulnerable groups and then prioritize assistance to these over others. Hensel believes that groups such as children under five, the elderly and the disabled are likely to be prioritized over other groups during the next year. There are also programs underway to identify the most vulnerable areas and groups, although this will take several months to have an effect.

Other organizations are looking for options to fill the gaps. “This is not such a good situation because if per month we’re looking for $30 million, what does $1 million or so mean? It’s a drop in the ocean. [At World Vision,] we have not agreed on any one-off payments because our supporters want something more sustainable, what happens the next month or after that?” says Hensel.

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Leaders

Tsu-Naameh

by Executive Editors
written by Executive Editors

Typically, not much thought is given to trash once it’s removed from the home — out of sight, out of mind. Not so in Lebanon. The problem of garbage disposal in the country has become a chronic and pressing issue. Every couple of years, the issue comes to a head: for one reason or another, trash isn’t removed from the streets, a public outcry ensues and the government devises yet another plan to fix the problem once and for all. Yet somehow, these plans always go unimplemented. Instead, bandaid solutions are applied with the promise that a long term plan will be studied. And once public outrage subsides, the issue is pushed to the side and all but forgotten.

In the latest iteration of this cycle of inaction, last month the government outlined an amended plan for waste management through a short (and hence vague) resolution that organized the country into six regions and called on the finance and environment ministries to launch waste management tenders for trash collection, treatment and disposal in each of these regions within two months. Bidders are to propose treatment and landfill sites themselves; if the winning bids cannot secure the sites within one month of being awarded the contract, a much more bureaucratic process begins, involving the Council for Development and Reconstruction, the Ministry of Environment and the Council of Ministers.

This plan is therefore not ideal. But it has a chance of success if the government remains committed to it — and commitment is perhaps the largest problem in Lebanon’s ongoing waste management fiasco.

[pullquote]The Naameh disaster is not an isolated incident, but the result of a pattern of bad waste management decisions[/pullquote]

Here’s one example: the Naameh dump, in a valley south of Beirut, was intended upon its opening in 1997 to be an interim solution towards developing sanitary landfills across the country. After 17 years, the dump has quintupled its original capacity spilling toxic emissions onto its environ creating what was meant as a stopgap solution into a long term public health and environmental crisis.

The Naameh disaster is not an isolated incident, but the result of a pattern of bad waste management decisions. Lebanon’s government has repeatedly promised that long term, sustainable solutions would be identified, outlined and delivered. These promises have gone unfulfilled. Instead, the government has consistently failed to implement any plans — even when they hold great potential.

To illustrate this point, let’s quickly run through the country’s catastrophic history of waste management. In 1997, the government produced plans to close the Normandy dump — where Biel sits today — while simultaneously constructing two composting plants, two sorting plants and two new landfills. In reality only one smaller composting plant was built, the service provider collecting waste expanded its area of coverage so that the sorting facilities operated beyond capacity, and when the landfills surpassed their planned lifespan, the rate of waste fluid seepage increasing while intensifying the release of odor and gas. In 2003, the Ministry of Environment devised another plan wherein sorting and composting plants and landfills would be built in each of the 26 districts in the country, with most of the chosen site locations for the waste management facilities rejected. In 2006, the plan was resuscitated and altered: 26 landfills became instead seven landfills spread around the country. This amendment was also rejected. In 2010, the government endorsed a plan to adopt waste-to-energy technologies, and in 2012 contracted a consulting firm to study the application of waste incinerators to produce electricity in urban areas. But in 2013, after months of preparation outlining a strategy to implement waste-to-energy incinerators, the government resigned. As part of that plan, the Naameh dump was to be closed this past January, a deadline that has not been met but rather extended for an additional three months with an option to further postpone its closing.

[pullquote]There are now some 700-plus open air dumps in the country[/pullquote]

With no real commitment to a solution, residents have resorted to dumping garbage anywhere they can — there are now some 700-plus open air dumps in the country. These dumps are not only ugly and smelly, they’re ticking public health timebombs. Leaking — and potentially toxic — fluids and gases not only damage the environment by contaminating the soil and groundwater, but also threaten the health of residents living in the vicinity of the dump. According to a September 2014 report by the United Nations Development Program that assessed the environmental impact of the Syrian crisis on Lebanon, the most common health concerns to nearby populations of these open air dumps are eye irritation, tuberculosis, diarrhea, typhoid, dysentery, coughing and scabies. Open burning of waste at these sites releases toxic air pollutants such as carcinogenic dioxins and furans.

With evidence of public health and environmental concerns piled higher than the garbage itself, the Lebanese government cannot wait to negotiate a new long term solution. It must instead commit to its latest plan — and this time, follow through. Announce the tenders, award the contracts — but only in an open and transparent process — and push through the acquisition of new waste treatment and landfill sites. The current plan is not perfectly designed, but we can no longer allow the best to be the enemy of the good. Because if we do, Naameh and the open air dumps will only grow, and everyone will lose.

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Economics & Policy

The dirt beneath the stretcher

by Marie Kostrz
written by Marie Kostrz

Located in the Jisr al-Wati district of east Beirut, the infectious medical waste treatment center of NGO Arcenciel is never empty. All day long, trucks bring in tons of waste generated by 112 hospitals in Beirut and its surroundings. Since 2003, Arcenciel has carried out a very necessary task: sterilizing medical infectious waste, which often contains contaminants and is capable of spreading diseases. Among the waste is blood, used bandages and syringes. Although it often occurs in Lebanon, these should not be mixed with domestic waste: burning or burying infectious waste without treating it first is very dangerous for the environment and public health.

Treating medical infectious waste is new in Lebanon: before 2002, sterilizing it was not common practice. Most waste was eliminated alongside domestic refuse or dumped in the open. Some was also incinerated. “We used to incinerate them by ourselves. For about one year Sukleen took them but it stopped when the Bourj Hammoud incinerator closed,” says Youssef Rahal, the former head of the waste management section at Hôtel Dieu Hospital. Until now, only two organizations have been in charge of treating medical infectious waste in Lebanon. According to Joseph Hallit, an official from the Ministry of Environment in charge of auditing hospitals’ medical infectious waste management, Arcenciel deals with 80 percent of the treated infectious waste. The remaining is taken by Safe, a sub-branch of Mirage for Waste Management & Environmental Services, which treats medical infectious waste of hospitals in the Tyre region. A handful of hospitals also treat the waste themselves, such as Haykel in Tripoli and Clemenceau Medical Center in Beirut. All of those using in-house treatment use the autoclave system, whereby a machine crushes the infectious waste, then uses very high temperatures to sterilize it. Once this is done, medical waste is no more harmful than any kind of domestic waste, and it can then be given to domestic waste treatment companies like Sukleen in Beirut or Lavajet in Tripoli. This system is considered much less harmful to the environment than incineration, which was used by hospitals before, or disposing of it alongside domestic waste or burning it in bonfires.

Specialized facilities are required for the disposal of medical waste

[/media-credit] Specialized facilities are required for the disposal of medical waste

Syrian crisis effect

Overflowing with yellow plastic bags used to transport medical waste, the Jisr al-Wati treatment center is facing a new challenge. “We are receiving about four to five tons [of waste] every day, compared to the two and a half tons three years ago,” says the head of the center Mohammad Keserwani. While the increase can be partially attributed to a growing number of hospitals opting to treat their own waste, this is not the only reason. “With the arrival of Syrian refugees the quantity of waste has also increased a lot,” Keserwani adds, saying that Arcenciel’s system is now jammed. “It is now working 24 hours a day, compared to 12 hours before the Syrian crisis.” 

“We have more breakdowns because the system is not [designed to work] so much. This sometimes forces us to move waste to another center to be treated,” he notes. Arcenciel has four other treatment centers throughout Lebanon, and activity has increased in all of them. While Arcenciel treated 1,858 tons of medical waste with infectious risks in 2011, this amount rose to 2,356 tons in 2014.

The hospitals that have an agreement with the UN to treat Syrian refugees — including 50 private and 15 public facilities — are particularly affected. One of them, Al-Kibbeh Public Hospital, in Tripoli, has noticed a significant increase in its infectious waste. “We generated 42,380 kg in 2014, whereas it was only 29,327 kg in 2012,” says the hospital’s hygiene supervisor Rania Ahmad. “New services have been added so it is only normal that infectious waste increased, but that is not the only reason. It is also due to an increase in admissions — mainly pregnant Syrian women.” 

The hospital has just implemented a new system which measures the quantity of infectious waste generated by each service. “For the first week of January 2015, labor and delivery services generated 95 kg and the neonatal intensive care 91. Other services, meanwhile, produce much less infectious waste, such as the intensive care unit which made 16 kg or the emergency 26 kg,” she adds. According to figures viewed by Executive, for the past two years these services have been provided to about as many Syrians as Lebanese, meaning the hospital’s activity has significantly increased. In November 2014, 125 Syrian women delivered babies at the hospital, compared to 155 Lebanese. “For every pregnant woman, we also have to plan for two persons: once the baby is born the nursery services are also affected by an increase of infectious waste,” Ahmad explains.

In September 2014, the Ministry of Environment published a report entitled “The Lebanon Environmental Assessment of the Syrian Conflict and Priority Interventions,” which confirms this trend. “The harsh weather and tough living conditions that refugees are facing are having a direct impact on their health. This increases the burden on health care centers in Lebanon and results in an increase in the quantity of infectious medical waste that requires proper treatment before disposal,” it notes. According to the report, there was a 420 ton increase in infectious waste in 2014. 

[pullquote]“In [addressing] the Syrian crisis, priority is given to food and health care supplies … but infrastructure is forgotten”[/pullquote]

“We would like to buy another autoclave in order to increase our sterilizing capacity, but it costs around $500,000,” explains the head of the environment program at Arcenciel Olivia Maamari. “In [addressing] the Syrian crisis, priority is given to food and health care supplies — including vaccines — but infrastructure is forgotten, yet it needs to be reinforced because it is weakened by this crisis.”

A lack of needed protocols

This increase, while emanating from a particular context, highlights a long standing and serious issue: infectious waste is not properly treated in Lebanon. According to the September 2014 report, “Review of records for the quantity of infectious waste collected and treated at Arcenciel facilities in 2013 revealed that 72.2 percent of the waste (303,4 t/y) [is] being collected and treated by autoclaving and shredding while the remaining (116,8 t/y) [is] being disposed of in the environment.” Minister of Environment Mohammad Machnouk spoke about this problem in late December, after dangerous medical waste was discovered in coastal and mountainous areas. 

Some hospitals fail to treat all their infectious waste. “I saw some sharp containers, plasters with blood in municipality garbage cans,” says Ghazwa Barakat, who is in charge of waste management at Nini Hospital in Tripoli. Barakat was a consultant for a UNDP-led project in two hospitals in South Lebanon in 2010 and 2011 in coordination with the Ministry of Environment, and completed a study on infectious medical waste management for the Union of Private Hospitals in Lebanon in 2012. According to this report, only 32 percent of public hospitals treated their infectious waste in 2012, compared to 54 percent of private ones. “There is a lack of understanding about infectious waste in our country, even among the top management staff. Often, people are not convinced of the importance of treating this waste,” she says. In some cases, hospitals set an infectious waste treatment disposal plan but don’t use it. Barakat stresses the importance of regular staff training sessions to avoid these missteps.

[pullquote]“The Ministry of Health makes no distinction between hospitals that respect the law and those that don’t”[/pullquote]

According to Barakat, it is also a money issue, since treating infectious waste correctly is costly. It requires separating infectious and domestic waste, as well as special garbage cans for infectious waste and special containers for syringes. A low-temperature room also has to be procured for infectious waste storage. Every step of the process requires trained staff and managers. “At Nini hospital, we pay $6,000 per year for sharp object containers and $10,000 for yellow plastic bags,” Barakat adds. Organizing staff training also comes at a significant cost. “However, the Ministry of Health makes no distinction between hospitals that respect the law and those that don’t. It reimburses the hospital $26.50 per night for every patient, regardless of what the hospital does or doesn’t do.” 

Barakat suggests that the Ministry of Health should increase its support for hospitals that carry out infectious waste treatment properly. The Ministry of Health did not reply to Executive’s request for an interview to explore this point. Some hospitals merely ensure they prioritize services, because they don’t have money for other systems, like waste management. Hallit adds that some establishments just want to save money: “A lot of Lebanese hospitals are family businesses whose main aim is to make profits. In these facilities, decisions are often made by people who do not have any skills concerning medicine and waste management, they don’t see the necessity to spend money on it.”

“Many stakeholders have studied the possibility of establishing a treatment center, but at this point all of them have stopped, saying it is not advantageous,” says Viviane Sassine, the head of the chemical safety department at the Ministry of Environment. This point of view is shared by Najib Jaber, in charge of quality control at Safe. “Until now, there is no collective consciousness among health professionals concerning the importance of treating medical waste,” he says. “The more they realize the importance of such measures, the more they will treat their medical waste, and this in turn will create a lucrative business to treat it.”

[media-credit id=1966 align=”alignright” width=”230″]hospital-waste_5[/media-credit]

According to him, at this point it has not developed into a very attractive market. “In addition to the large amount of Lebanese bureaucracy, companies need to have a lot of money. Building a medical waste treatment plant costs around $500,000, and it is not very lucrative yet,” he says, adding that Mirage can handle the low profit margins because it is not their main activity. “We did it because it was the continuity of our waste treatment activity but it is not the most profitable activity we have.” Mirage provides a wide range of services, such as street sweeping, hazardous waste management and water treatment. Jaber explains that Safe charges either $0.60 or $0.70 per kilogram of waste, depending on how far the hospital is from their treatment center. While he refuses to give an exact figure for how profitable the enterprise is, he denies it is a significant contributor to company’s overall profits. “We have a very small margin and we cannot consider it something that is very lucrative, because we only treat three or four tons of infectious medical waste per month. It is not enough to generate significant margins,” Jaber says. “If the aim was to make a profit we would increase our prices.” He adds: “We make profits mostly from our hospital cleaning and maintenance service. The infectious waste treatment is a service we offer because our aim is to protect the environment.” 

An existing but unenforced law

Lebanese law, however, requires hospitals to take care of their infectious waste. Issued in September 2004, Decree 13389 amended an earlier decree issued in 2002, implementing Environmental Law 444, approved by Parliament the same year. This law defines how to manage infectious medical waste and presents ways to ensure and verify the efficiency of the sterilization process. In 2010, the Ministry of Environment conducted an audit to check whether hospitals are respecting the rules. “We took the initiative to sue 88 hospitals, 16 public and 72 private ones, which do not respect the rules,” says Sassine. However, five years later, none of the violators have been forced to close or have paid a fine. “After we pressed charges, many hospitals provided us with information about their infectious waste treatment processes. The court asked for a second visit to be conducted,” says Sassine. “But they did not rule against anyone.” 

“I have seen places where there are yellow plastic bags in boxes, but they were not used by the staff,” notes Hallit, who was in charge of the latest audit of waste management in hospitals undertaken by the Ministry of Environment in 2013 and 2014. “Hospitals spent many years without being subjected to controls; it takes time to spread the culture of waste management.” 

[pullquote]The Ministry of Environment lacks human and financial means to monitor infectious waste management[/pullquote]

However, a former employee of the Ministry of Environment, who was dealing with the infectious waste issue and spoke on condition of anonymity, argues that the ministry lacks human and financial means to monitor infectious waste management. “There is not enough staff to regularly check [whether] the law is being implemented, to make sure that accreditations are renewed regularly,” he says. “There is not enough [in the]budget. Even if the law exists, it is nearly impossible to enforce.” 

Arcenciel and monopoly

Arcenciel’s medical waste treatment system was funded partly via donations. Since 2003, it has received $1,485,278 from the European Union, the Spanish Agency for International Development Cooperation (AECID) and the French Agency for Development (AFD). According to the head of the waste management program, Arcenciel is barely able to cover operating costs, so it does not make any profit. The initial price Arcenciel charged medical establishments was $0.55 per kilo in 2003, and this has now been increased to $0.60. “We are not looking to make any profits,” Maamari says. Revenues from Arcenciel’s medical waste management program and the donations they have received funded the building of waste treatment centers, as well as training for hospital staff on proper waste management and autoclave maintenance. “Our aim is to serve the public interest. Thus, we made an official proposal to the Ministry of Environment to give our entire network to an incorporated company. The health establishments that use the network would be shareholders, proportional to the number of beds they have.” Until now, however, the ministry has not responded to the request.

[pullquote]Arcenciel has a near monopoly on the sterilizing sector[/pullquote]

More than 10 years after Arcenciel first began treating infectious waste, another fact is clear: the NGO has a near monopoly on the sterilizing sector. George Khayat, the owner of hospital equipment supplier Khayat Medical, tried to enter the market but failed. In 2002, he answered to a tender for selling and managing a common autoclave which would be used by four hospitals: AUBMC, Saint-Georges, Makased and Hôtel Dieu. “I calculated the expenses needed for installation, waste sorting, collection and sterilizing: it was $0.35 per kilo,” he explains. This figure is much lower than the $0.55 per kilo demanded by Arcenciel when it started in 2003. At this price, Khayat says he was planning to have a 25 percent profit margin per kilo. “I then did the Environmental Impact Assessment (EIA), but for one year and a half the Ministry of Environment did not give me any answer.” Finally, the ministry asked Khayat to hold a public meeting in Beit Mery, where the autoclave was planned to be established. Hôtel Dieu’s former waste management head Rahal recalls: “As soon as people heard it was for medical waste they were strongly opposed to the project … It is always the same problem when it comes to infectious waste: companies can never find a place to set up their treatment system because public opposition is very strong.” Without the approval of the municipal council, Khayat never got authorization from the Ministry of Environment. “I lost more than $20,000,” Khayat laments. 

According to him, the arbitrary way approvals are given discourages other entrepreneurs from investing in the market: “At the same time I was awaiting an answer from the Ministry of Environment, another company, Env-Sys, received approval in 40 days.” The former employee of the Ministry of Environment, who was employed by the ministry at that time, says that no technical approval was given for Env-Sys by the director general or minister of environment allowing it to treat infectious waste. He adds that Khayat’s company was the most serious of those trying to get the ministry’s approval. “There is a lot of corruption in the ministry,” he notes. “Choices to give accreditation to establishments in charge of sterilizing infectious waste are not based on objective and technical criteria, but rather political or personal ones.” 

Things were easier for Safe because the tender they answered was published by the Abbasyeh municipality in Tyre. As it was the municipality’s decision to acquire a medical waste treatment plant, there was no local opposition. “We decided to apply for a financial grant offered by the EU to Lebanese municipalities which had projects to treat waste,” explains Abbasyeh’s mayor Ali Ezzedine, who was vice-mayor in 2005, the year the tender was submitted. The municipality won the grant and the treatment plant opened in 2008. The land and the treatment plant are owned by the Abbasyeh municipality, which chose Safe to manage it. “According to public tender regulations we have to choose the cheapest company. Safe was the one,” Ezzedine says. Safe now treats infectious waste from three hospitals and two polyclinics. 

[pullquote]”I have a lot of customers who would like to enter the market, but it is very hard to change the current system”[/pullquote]

Jacques Chahine, general manager of Edessa, a company which conducts EIA and studies for prospective companies that want to enter the infectious waste treatment market, corroborates that challenges exist in the sector. “I have a lot of customers who would like to enter the market, but it is very hard to change the current system in Lebanon that gives 80 percent of the market to Arcenciel, even if our studies show that it could be easy to offer cheaper prices than those of the NGO.” According to him, it is also due to the law. “Arcenciel started its work with a special authorization to treat infectious waste, because Decree 13389 was not implemented at that time,” Chahine explains. Arcenciel started to treat infectious waste in 2003, but didn’t get its first license until 2005. “But for companies that have tried to enter the market after 2004, it is hard to meet the ministry’s requirements.” Arcenciel’s Maamari clarifies that the Ministry of Environment had started to audit the NGO’s centers in early January in order to renew their licenses, adding that they have all done the EIA since 2003. 

Haykel hospital in Tripoli launched a general environmental protection plan in 2005 and recycling is now a general rule in the establishment. This is not all. Treatment of infectious waste is part of the plan too. Haykel is one of the few Lebanese hospitals that has purchased its own autoclave for sterilization. “It requires a lot of investment at the beginning, but in the long run it is cheaper than Arcenciel. The cost is $0.50 per kilo,” explains Imane Abdo, head of waste management at Haykel. The hospital invested $37,000 in the machine at first, which has a capacity of treating 10 kg per 30 minute cycle. The hospital treats about 120 kg of infectious waste every day. Abdo underlines that the process is complex and onerous. In addition to the special plastic bags, boxes and purified water needed for the machine, the hospital has to send reports about biological indicators and waste treated every two months to the Ministry of Environment, as well as regularly training its staff. “The process is very intensive, I think that is why there are not so many hospitals which have their own autoclave,” Abdo says. 

Medical waste awaits sterilization

[/media-credit] Medical waste awaits sterilization

In a context where infectious waste treatment is still perceived to be more of a burden than a necessity, hospitals prefer to call on Arcenciel, as exemplified by Tripoli’s Al-Salam Hospital. “I started to look at the process to purchase an autoclave, but when I saw all the monitoring and reports we have to do, I decided that it was simpler to work with Arcenciel, even if it is a bit more expensive,” admits Al-Salam’s director Gabriel Sabeh. This commonly held thought is lamented by infectious waste treatment professionals. As Edessa’s Chahine says, infectious waste is highly dangerous and should not be moved by trucks — as Arcenciel does — but rather treated on site. 

A lot more remains to be done to make medical infectious waste management optimal. A large proportion of medical facilities are not subject to the Ministry of Environment’s oversight. According to Decree 13389, medical establishments other than hospitals should also treat their infectious medical waste. Labs, aesthetic centers or dentist clinics are not inspected at all in Lebanon. The lack of human resources at the Ministry of Environment makes their effective supervision difficult. “We are just three employees in the department,” says Sassine. “We started with hospitals and we will continue to audit the other facilities but we don’t know when.”

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Leaders

Dear Ms. X

by Executive Editors
written by Executive Editors

We in Lebanon love to complain about traffic. But when we tire of bemoaning our clogged roads, we often move on to another popular gripe: the poor state of the country’s information and communications technology (ICT) infrastructure. Internet speed is slow, mobile data connections come and go as you move, and calls drop with annoying frequency. While both the current and former telecoms ministers have promised jumps in internet download speed, the country’s speed ranking embarrassingly fluctuates near 170 out of 196 countries whose internet speeds are tracked by the Ookla Netindex. That’s better than dead last — as was the case in October 2011 — but still not the lightning speeds that will usher in the billions in economic activity that we were promised. Given the fact that successive telecoms ministers have touted the goal of creating a ‘knowledge economy’, Executive set out to examine the actual state of Lebanon’s ICT infrastructure — to better understand where we are now and what needs to be improved. We did not expect the answer to be so difficult to find.

[pullquote]ICT infrastructure is the property of the Lebanese government[/pullquote]

ICT infrastructure — from our national data and telephone backbones to the copper wires that connect the backbone with users’ homes to the base stations sending out mobile phone signals — is the property of the Lebanese government. But because these assets are built and maintained with taxpayer money, they also belong to the people. And the people have a right to know how their money is being spent, what they are purchasing and the status of those investments.

We reached out to Ogero, the state owned enterprise that monopolizes fixed line services, but were denied an interview. Back in June, when Telecommunications Minister Boutros Harb called Ogero’s director general and booked a meeting on Executive’s behalf, the director general promptly kicked Executive out of his office. Never to be deterred by such a refusal, Executive spoke with employees of the Ministry of Telecommunications, top market players and even a company that completed north of $50 million in contracting work on an ICT infrastructure project, but received divergent answers to the most basic question: is Lebanon using a fiber optic backbone for data traffic?

It is absurd and unacceptable that such a simple query cannot be answered with a Google search. Even more ridiculous — and indeed worthy of public outcry — is that government officials tasked with developing ICT infrastructure do not themselves appear to know. Executive will keep searching and will not stop our investigation until we have solid, verified answers. In the meantime, we believe the person with answers must be out there. That person has an obligation to the nation to honestly and transparently explain where we are and what is needed for further improvement. Will Mr. or Ms. X please step forward?

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Economics & Policy

Out in the cold

by Greg Demarque
written by Greg Demarque

January’s winter storms battered Lebanon with heavy rain and snow at the start of 2015, once again highlighting the poor living conditions in which most Syrian refugees live. Executive travelled with members of the international Orthodox Christian charities to two camps in the Bekaa Valley, Qoub Elias near Chtaura and Tell Serhoun near Dalhamieh. There, dozens of tents housing Syrian refugees had collapsed under the weight of mounds of snow and well water had frozen in the sub zero temperatures. Despite help provided by NGOs, many refugee families still lack basic necessities such as blankets, warm clothes, shoes, medicine and medical care, as well as wood and fuel to burn.

Despite help from NGOs, some refugees still lack the bare necessities, even shoes and warm clothing (Qoub Elias)
Winter hit Syrian refugees living in Lebanon hard, leaving them abandoned amid very low temperatures (Qoub Elias)
Children play in the streets of informal settlements despite the cold (Qoub Elias)
Children proudly pose behind a wheelbarrow filled with wood (Tell Serhoun)
Young children are the most vulnerable to these severe temperature drops (Tell Serhoun)
A number of tents collapsed due to heavy snowfall. Inhabitants had to take shelter in other tents as they wait to find the right material to start building again (Tell Serhoun)
Heavy snowfall has made accessing the tents difficult (Qoub Elias)
The cold weather has made even basic everyday tasks complicated (Qoub Elias)
Ahmad fell ill during the winter storms and was bedridden for several days with a high fever. The lack of medical care and medicine is a big concern for refugees (Qoub Elias)
People try to keep warm any way they can. Without a wood stove, refugees use an open fire to warm their tent (Tell Serhoun)
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Editorial

Riddle me this

by Yasser Akkaoui
written by Yasser Akkaoui

For an entire month, our investigative reporters tried to answer a painfully simple question: is Lebanon using its fiber optic backbone for data traffic? The result — we still don’t know. It’s a mystery wrapped in a riddle inside an enigma! Even the minister might not know.

Instead, there are people hiding something, and I can only conclude that it’s their own ignorance. It is 2015. We should have installed and started using fiber optics many years ago. Investing in information and communications technology (ICT) infrastructure is a proven GDP booster. Look at Ireland. The emerald isle’s transformation from a failing industrial economy to a tech hub should be something both policy makers and the board of IDAL are ceaselessly trying to emulate. Instead, our country’s leaders and chief promoter are letting opportunity after opportunity pass by, taking our best and brightest along for the ride.

So why is nobody presenting a strategic, long term national plan? Imagine the return on a serious investment in ICT infrastructure. Actually, you don’t have to. According to a 2012 study by Booz & Company for the Ministry of Telecommunications, a properly invested and restructured ICT sector could bring economic gains of over $2 billion in just five years. For comparison, routing fiber to every home and business in the country would only cost some $300 million according to industry contractors.

This country has so much to offer, especially when it comes to human capital: from designers and production companies to consultancies like Murex and Strategy& (whose regional office, uniquely, is based here). With truly modern ICT infrastructure, just think of how many more companies we could lure here and of course how many of our most talented would stay. 

Given this, it is infuriating how myopic our policymakers are. If only they would read an economic study once in a while. Or at least try to google one. Since they can’t answer the most basic question about the country’s internet infrastructure, let me pose a different one: how many even know what Google is?

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Economics & PolicyICT infrastructure

Big fish, small pond

by Livia Murray
written by Livia Murray

Sitting in a room where two rotating cylinder lenses track you and project a blown-up high definition image of you to your colleague sitting in Jordan, and vice versa, may be disconcerting for any number of reasons, but for Hani Raad, general manager for the Levant region at networking giant Cisco, it is a time saving routine and just another day of business meetings conducted over Internet Protocol (IP) telephony.

According to Raad, while products as state of the art and futuristic as the IP telecommunications have somewhat of a fan base among certain business segments in Lebanon, the country is missing a sizeable market for, and investment in, the more mundane market of networking infrastructure.

Routers, modems, switches and fiber optic cables are certainly one of the less hyped lines of business, but they do make up the backbone of the internet, which is not of negligible relevance to a country that wants to call itself modern.

And while sexy topics such as the internet of things come to the forefront of piquing one’s interest in Information and Communications Technology (ICT), even with the municipality of Beirut participating in the Arab Future Cities Summit in Dubai last November, judging by current investment levels in ICT infrastructure Lebanon seems far off from having smart highways where cars and speed limits talk to each other.

[pullquote]“Don’t think we don’t know what you’re doing. Don’t think we don’t know where you’re walking”[/pullquote]

It is not that there are no sophisticated technologies in Lebanon. Just by entering a mall your very own mobile devices can sell you out to the marketing campaigns of a store near you. As Raad tells Executive from one of Cisco’s teleconference rooms, “Don’t think we don’t know what you’re doing. Don’t think we don’t know where you’re walking.” Indeed, every person these days is rather easily traceable through their mobile devices. This, Raad explains, is a symptom of the internet of things in Beirut.

But while not all things in our world feel the need to be connected, the majority of the people do, and having the networking infrastructure to achieve this is crucial for our modern day and often long distance communication needs. This provides the opportunity for foreign companies the likes of Cisco, Huawei, Ericsson and Alcatel–Lucent to come and carve out a share in what is, admittedly a rather meager market, but one whose people share a strong desire to be connected.

Public sector stinginess

Whether it is spiffy new technologies or basic backbone infrastructure, the pervasiveness of these technologies depends on the willingness of client organizations to invest. And unlike our Gulf neighbors, many of whose governments have made lavish investments in ICT, the Lebanese government is not an ideal client to provide a Lebanese company’s bread and butter through deals in the networking hardware market.

Lebanon has already witnessed companies being put in a shaky situation if they can only rely on the government as a customer. With a government budget upwards of $50 million supposedly allocated to the internet backbone, two companies, local civil works company Consolidated Engineering and Trading (CET) and multinational networking equipment giant Cisco, admitted to Executive that they had not been paid in full for projects they had delivered.

CET won the bid in 2011 for the milestone project to lay down Lebanon’s fiber optic backbone infrastructure, connecting exchanges together as well as heavy users such as the army. With a $55 million budget mostly allocated to the civil works part of the project, CET dug one million meters of trenches to lay down the 4,000 kilometers of fiber optic cables, according to Dany El-Horr, CET’s vice president. The work of purchasing and pulling the cables was subcontracted out to Alcatel–Lucent as part of a strategic partnership, which, the VP explained, acquired the cables from Samsung.

But whereas this project was carried out, CET has not yet been paid all of the money owed to them. Though the project did increase in size from the one originally contracted, El-Horr claims that as much as 25 percent — about $15–20 million dollars — has not been paid.

This does not bode well for CET, whose tender was the cheapest “by far” compared to those of the dozen others that were presented to the government whose inability to pay has ended up “in a total loss” for the company. Indeed, El-Horr estimates that the price came to about $12 per meter of cable. “It was very dangerous for us to get into that project with very low prices,” he says. They were expecting to break even, to make or lose 1–2 percent. Though El-Horr admitted that their primary goal wasn’t making profits, but rather for the prestige and know-how, he laments that with these amounts “who can sustain that?”

The Lebanese government also has outstanding accounts with Cisco, according to Raad. But for the multinational, the money owed to it by the government does not seem to be an amount it can’t swallow. Cisco is one of the multiple vendors taking part in Lebanon’s internet infrastructure as far as anything related to routing, switching, international gateway, etc. Though the size of the company ensures that it can better sustain losses, Cisco’s loss would likely have been smaller in value and, as Raad expresses, “our projects are not those megaprojects.”

Not only is the Lebanese government bad at paying the outstanding accounts to its telecommunication infrastructure providers, but it is also quite dysfunctional when it comes to installing new equipment in general. Even a Cisco donation of two of their treasured IP videoconferencing screens to the government through their involvement in the Partnership for Lebanon, an initiative to modernize Lebanon’s communi-cations infrastructure, were never installed according to the GM. “They couldn’t agree where and how and the process to install them,” he says.

Educated guesswork

While the image of gleaming state of the art Cisco equipment sitting in boxes uninstalled makes for a nice anecdote, it is the symptom of a much larger problem which is the inability of the Lebanese government to make and implement policy for the sector, which has hindered it particularly in terms of managing capital expenditures. In a world where government investment can shape the telecoms market, Lebanon is at somewhat of a disadvantage.

In fact, Raad states that the Lebanese market could not even grow to become a tenth of any given Gulf economy. “We don’t have the money for that,” he says, citing the similar projects in many GCC economies, whereas in Lebanon there are no transformational projects underway, just the good old timid upgrading and expanding plans for organizations.

With public sector projects “few and far between,” Raad is somewhat optimistic, citing the donations this year — such as Saudi Arabia’s pledge — as hope that the public sector will move a little bit in the coming year. But all in all not even 10–15 percent of what Cisco does goes to public sector clients “because they don’t spend,” according to Raad. Their public sector clients include the Ministry of Finance, Ministry of Interior, and the Internal Security Forces, though he qualifies that most of these infrastructure projects come from grants from international organizations such as the European Union and the World Bank.

Though the government is not a big spender, state run fixed line network operator Ogero controls much of the infrastructure and the internet service providers (ISPs) and data service providers (DSPs) have a minority share of the market. “The service providers sector is not as dynamic and, lets say, lucrative as it should be,” says Raad, who likens the acceleration of the ISP segment to “blood flowing in the veins” of the company. 

Unsurprisingly, Cisco’s main line of business in Lebanon is the financial and enterprise sector, a natural choice given the prominence of the banking sector. Raad claims that top banks, as well as top universities, hospitals, and service providers are Cisco clients for everything related to switches, routers, wireless, security, IP telephony and video.

[pullquote]“When we look globally, I know where I am. When I zoom to Lebanon, I don’t know where I am”[/pullquote]

While no single company Executive spoke with could give a precise number for the market size for networking hardware, it can be assumed with some certainty that it is a small number. “In reality, the fact [is] that we don’t have data and we don’t have things to track this data, I only can assume,” says Raad. “When we look globally, I know where I am. When I zoom to Lebanon, I don’t know where I am.”

Though it is difficult to measure the total worth of the units that are being used, one number that has been thrown around for over a decade now for the ICT market is the figure of $250–300 million. More recent numbers from Investment Development Authority of Lebanon (IDAL) pegged the IT market size at $337 million in 2012. Raad assumes that if about 45 percent belongs to personal computers and hardware, a company in the networking hardware industry is left with a market size somewhere north of $150 million and south of $200 million.

But such low figures, already barely an educated guess, could quickly become irrelevant with one deal. “We stopped a long time ago at Cisco to look at market share,” says Raad, who claims they track their performance instead based on growth, employee productivity, number of accounts and service provider environment. Cisco works with more than 300 customers a year in Lebanon, according to the GM, and he claims they have had growth or at least flat year on year performance in every year since 2000.

The next big government project would be the fiber-to-the-home, or the last mile, which would require a budget of roughly $300 million according to El-Horr — the same number given by a former official from the Telecommunications Ministry who spoke on condition of anonymity. Most of that expense, like the laying of the fiber optic backbone, would go to the civil works part of the project, about 70 percent, according to Roger Ghorayeb, who oversees several countries for Alcatel–Lucent including Lebanon, Syria, Kuwait and Bahrain.

Stiff Competition

But despite the slight market size, doing business in networking hardware in Lebanon has attracted several international companies. Just as they compete globally, the usual suspects Alcatel–Lucent, Huawei, Ericsson, HP, Cisco and smaller companies like Juniper are continuing the onslaught in Lebanon.

Raad claims that Cisco has benefitted from being the first entrant to leap into the world of routers and switches in the Lebanese market since the inauguration of their Beirut headquarters in 2000. He adds that their majority stake in the market for internet hardware infrastructure has only dropped slightly, from a quasi monopoly to a current estimate of over 80 percent — though he qualifies that this is a guess at best. He claims that since most projects in Lebanon center on upgrades and expansion, and that Cisco already has the installations, it is harder for a competitor to come in and sweep up a considerable market share.

Competitors like Huawei may have some advantages when it comes to their ability to set their prices at a slightly more appealing rate. Raad claims that while Cisco currently dominates the enterprise space, Huawei could get there “at some point,” though it is not out of character for GMs of ICT companies to downplay the current activities of their competition.

Even smaller fish like Juniper have historically posed a threat to giants like Cisco on the global scale, such as when in 1999 they released their first product and took a sizeable piece out of Cisco’s market share in network routing. Cisco’s GM of the Levant says that the present competition from Juniper is rather negligible, though the latter does sell its products through Lebanese company Crystal Networks.

As technology changes, of course, there will be new competitors in the market. But the big ICT companies of our day continue struggling not only against each other, but also to stay relevant. Many giants of the networking hardware world are focusing their operations to be more specific. Alcatel–Lucent launched its ‘shift plan’ in 2013 to refocus their main lines of business on IP networking, cloud technologies and ultra-broadband access after the company ran losses for several years. While their operations are now back in the black, the process demonstrates that these giants have enough resources to withstand years of negative cash flows.

So as far as long term strategy goes, at least in Lebanon, not all incentives may be based on immediate profits. Ghorayeb explains that Alcatel–Lucent may engage in projects with limited profitability but that may bring value in the long run, value which he describes as that which “can be a reference, better perspective on long run or profitability, several things.” Their clients in Lebanon include the Ministry of Telecommunications, Ogero, Alpha, Touch, DSPs and ISPs, as well as EDL, Solidere and the Beirut Central District’s broadband network. “When we win a project, we are convinced it is vital for [the] country and company. Even if the contract is losing from a profitability point of view, we take it if [it] can bring value in [the] medium or long term to [the] country or company,” he says.

It is hard to be hopeful for the market for networking hardware in Lebanon. As long as nothing changes in the ability of the Telecommunications Ministry to come up with a spending plan and stick to it, the market will continue to operate under the same constraints. The most severe being, according to Raad, the lack of an ICT vision with tangible plans, outcomes and execution. “Today if I want to point you to Lebanon’s national ICT plan for the next five years, I can show you the Jordanian one,” he says. “I haven’t seen one for Lebanon.”

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Economics & PolicyICT infrastructure

Playing to your strengths

by Matt Nash
written by Matt Nash

When you’re barreling back down towards Beirut on the Nahr al-Mot highway, staying in the right hand lane means a workout for your car’s shocks as you hit sewer cover after sewer cover. Smoothing out the ride means either driving in the left hand lane as faster motorists drive on your back bumper or zoom past you on the right, or making a ‘middle lane’: half left lane, half right lane or half right lane, half shoulder (where it exists). Once you’ve found a way to avoid the sewers, there are only the potholes and globs of dried cement that fell from leaking trucks to maneuver around. This, of course, is to say nothing of the hairpin turns. The highway suffers from both design problems and a lack of maintenance.

[pullquote]All complaints about dropped calls, slow speeds and high prices aside, the country’s ICT infrastructure is still its most advanced[/pullquote]

Then again, the construction and maintenance of pristine roads is arguably not Lebanon’s strong suit. The same goes for the electricity and water networks and pretty much every other piece of physical infrastructure save for the air and sea ports. For information and communications technology (ICT), however, this was not always the case. With both mobile phone and internet infrastructure, Lebanon in the early to mid 1990s was a regional leader. And all the complaints about dropped calls, slow connection speeds and high prices aside, the country’s ICT infrastructure is still its most advanced — aside, as mentioned, from the two international transportation gateways, Beirut Port and Rafik Hariri International Airport.

Benchmarking

While there may have been doubters 30 years ago, it has become gospel truth to those who measure such things that investment in ICT infrastructure, as well as increasing mobile phone penetration and broadband internet access, are absolute necessities for a country keen on global competitiveness. In 2009, the World Bank took an econometric model it had developed based on “the experience of 120 countries between 1980 and 2006” and applied it to Lebanon. It found that “a 10 percentage point increase in broadband penetration in [the country] would result in a recurring point estimate of 1.38 percentage point increase in the growth rate of GDP per capita, equivalent to $400 million per year.” Additionally, the study says the “fiscal contribution resulting from this additional growth is estimated at a recurring $90 million per year.” According to the International Telecommunication Union’s most recent data for Lebanon (which comes from 2012), despite 61.25 percent of the population having an internet connection, there are only 451,000 broadband connections. There is clearly plenty of room for growth.

On the Networked Readiness Index, produced as part of the World Economic Forum’s Global Technology Report, Lebanon ranked 97 out of 148 in 2014, a three spot drop compared to 2013. In addition to ranks, the index assigns countries a value between 1 and 7, with Lebanon clocking in at 3.6, slightly better than its score of 3.5 in 2013. The index comprises 10 pillars, each subdivided into between three and nine indicators. On pillar three, infrastructure and digital content, Lebanon’s rank jumps to 77 of 148 with a value of 3.9, just shy of the upper middle income group average of 4. 

Of the five indicators used as part of pillar three, however, the country’s rank is dragged down by “accessibility of digital content,” for which it ranks 115 out of 148. The value for this particular indicator comes from the WEF’s Executive Opinion Survey as a result of the answer to the question: “In your country, how available is digital content via multiple platforms (e.g., fixed-line internet, wireless internet, mobile network, satellite)?”

On the other indicators for pillar three, Lebanon was much higher: electricity production measured by kilowatt hours per capita (59), mobile network coverage as a percentage of the population (56), international internet bandwidth based on kilobytes per second per user (71) and the number of secure internet servers in the country per million people (61). Perception bias of the executives surveyed could be dragging the country down on the infrastructure pillar as the other numbers, which point to actual physical equipment, suggest Lebanon should be above the upper middle income group average.

The Glory Days

Before the Civil War erupted in 1975, three subsea cables designed to carry telephone traffic connected Lebanon to France, Egypt and Cyprus,  and the country also hosted three earth links, beaming communications to satellites operated by Intelsat. The country had more than 400,000 fixed line telephone subscribers. Years of conflict severely damaged the cables and the earth links, as well as most of the country’s telephone infrastructure. That said, development of the sector did not come to a complete halt during the war. In 1982, Taha Mikati, whose brother Najib served as prime minister briefly in 2005 and then again from 2011 until 2014, began offering radio and satellite communications in Lebanon through Inteltec, which two years later became part of Investcom. Given the infrastructure damage and continuing hostilities, business was booming, and Investcom went on to set up Lebanon’s first mobile phone network. It was a 1G (first generation) analogue system that began operating in 1991. Three years later, the government was in full rebuilding mode and signed two build–operate–transfer (BOT) contracts to develop new, 2G mobile networks using the Global System for Mobile Communications (GSM) standard. Around the same time (some sources say 1991, but pinning down an exact date has proven difficult) Sodetel, a company held in equal partnership between the Lebanese government and Orange (then known as France Telecom), introduced the internet to Lebanon. The American University of Beirut was using this network, called Libanpac, by 1993. According to a research paper from 1994 written by Nabil Bukhalid, then AUB’s director of network services, the institution was paying $58,000 per year for a monthly quota of 20 megabytes delivered at a speed of 1.2 kilobites per second. Commercial users began logging on in 1996 when the government started licensing private sector ISPs.

[pullquote]While privatization is still the law of the land, there have been no serious efforts to implement it since 2007[/pullquote]

Must be the money

The Mikatis’ Investcom, in partnership with Orange, won one of the BOT contracts through a joint venture commonly known as Cellis, and a company called LibanCell, majority owned by the Dalloul family along with Telecom Finland (today Sonera), won the other. The government cancelled the contracts, set to expire in 2004, two years early.

In 2002, LibanCell and Cellis signed management agreements with the government as plans first floated in 1999 for privatization of the networks began looking like they might come to fruition. Despite a new telecom law (431) in 2002 laying the groundwork for privatization and a failed bid round for the networks in 2004, selling these assets has still not happened. The government signed management contracts in 2004 with Kuwait’s MTC (today known as Zain) and Fal-Detecon, a Saudi–German partnership. Zain still manages one network under the brand Touch, while former Telecommunications Minister Gebran Bassil cancelled the management contract with Fal-Detecon for the network branded as Alfa in December 2008. In early 2009, Egypt’s Orascom Telecom won a management contract for the Alfa network, although in 2012, the company’s name changed to Orascom Telecom Media and Technology after a merger between Orascom Telecom’s parent company, Wind Telecom and Russia’s VimpelCom.

While privatization is still the law of the land, there have been no serious efforts to implement it since 2007 and the current Minister of Telecommunications, Boutros Harb, wants to rework the management contracts but still not fully privatize the networks (see box). Beginning in 2008, however, the government, which has control over the mobile managers’ CAPEX, invested in both 3G and long term evolution (LTE or 4G) technologies.

Failed reform: It’s almost a tradition

On July 23, Telecommunications Law 431 will turn 13, by virtue of its publication in The Official Gazette on that day in 2002. The law has three major components: privatize the two existing state owned mobile phone networks; establish an independent regulator/supervisor for the telecommunications sector; and create a private company called Liban Telecom to operate the fixed line telephone network and develop a third mobile phone network, as well as offer internet services, among other things.

While provisions of Law 431 regarding the establishment of the regulator were implemented and privatization of the existing mobile networks was attempted, the project of Liban Telecom never even came close to implementation. Consequently, the law, hailed at the time as a modern one which promised to be a foundation for astounding economic growth, has yet to be implemented.

After the law’s passage, the government invited bids for privatizing the two mobile phone networks whose ownership had been reclaimed by the state a while earlier. However, the privatization attempt was aborted as all received bids were judged too low. The government instead opted to sign management contracts with the very same operators which had developed the two mobile networks under build-operate-transfer contracts. Another attempt at telecommunications reform and privatization was made in the context of the 2007 Paris III donor conference for Lebanon but it also failed due to a lack of political will to sell state assets.

That said, in 2007 the government did appoint board members to the Telecommunications Regulatory Authority, which the regulator Law 431 called for, but a 2011 decision by the Shura Council, a consultative body that rules on the constitutionality of laws, stripped the TRA of its powers, handing them back to the Ministry of Telecommunications (although the TRA still has an office and paid staff, even though its board’s “non-renewable and non-extendable” term ended in 2012).

Throughout the past 13 years, no serious effort has been made to create Liban Telecom, which would replace Ogero, the state owned fixed line operator which also controls most of the country’s internet infrastructure.

Potentials for implementing Law 431 in the foreseeable future sound vague at best. Gilbert Najjar, head of the owner supervisory board which liaises with the two mobile operators on behalf of the government, tells EXECUTIVE that new Telecommunications Minister Boutros Harb is not pushing for privatization, but does want to revise the contracts with the network managers. Najjar cautions, however, that the networks are actually the property of the government, not the ministry, so the minister can make recommendations, but ultimately the full cabinet must make a decision.

As Najjar describes it, Harb aims at a revision and gradual expansion of the two mobile networks’ management contracts, which are up for renewal in April. In a first revision, the contracts would return responsibility for the networks’ operating expenses (OPEX) from the government to the managers, reversing a change initiated by then Telecommunications Minister Nicolas Sehnaoui in 2012. The contracts had previously only called for the government to pay capital expenditure (CAPEX) for the networks.

For the longer term, Najjar says the current idea is to renew management contracts in April for a two year period. After these two years, a tender for new, longer-term management contracts would invite bids and the terms of these contracts would “liberalize” but not privatize the sector, he adds. Pressed on what the difference is, he offers that instead of a full sale of telecommunications assets Harb’s plan involves signing contracts valid for “15 years, 20 years, 25 years,” where the winners would “rent” the frequencies and equipment, which would still be owned by the state.

At the same time, Najjar says, Harb wants to tackle the other two stipulations of Law 431 by appointing a new TRA board and by bringing in a new consultant to corporatize Ogero, essentially turning it into Liban Telecom. He estimates all of this should happen within two years. That said, if a new president is elected, the constitution mandates that a new government must be formed. How Harb’s plan will sit with the next minister is an open question.

The Internet and Ogero

While the mobile network saga has produced plenty of mudslinging, it pales in comparison to the accusations of intransigence and law breaking you hear when asking those supposedly in the know about the development of the internet in Lebanon. While the half government owned Sodetel first brought the internet to Lebanon in the early 1990s, it wound up in the hands of Ogero in 1994. That year, the government gave rights to manage all of the Ministry of Telecommunications’ infrastructure to Ogero — also a state owned firm, first founded in the 1970s to manage telegraph lines owned by a now defunct French company called Société Radio Orient. The 1994 decision was meant to last five years and help a struggling ministry rebuild the fixed line telephone network. Since then, Ogero has operated the country’s fixed line phone network as well as most of its internet infrastructure.

Unlike the mobile phone market, however, the internet market is liberalized. Private sector internet and data service providers have been operating since the mid 1990s, however they rely on Ogero both for access to bandwidth they resell to customers and for access to ‘centrales’ spread across the country that link individual users to the actual internet. Several private sector ISPs have been complaining for years that Ogero is purposefully holding back bandwidth to keep its market share, as Ogero is also an ISP.

The president and CEO of Ogero, Abdel Moneim Youssef, is also the director general of operation and maintenance at the Ministry of Telecommunications, which Youssef’s critics argue is illegal. In his role at the ministry, Youssef also signs for any telecom equipment imported into Lebanon, which private sector ISPs argue he takes his time doing. Youssef is notoriously difficult to interview, even though some who know him described him as able to charm people. When Executive was admitted to Youssef’s office in June for an interview appointment, he said he knew nothing and referred us to Toufic Chebaro, director of IT at Ogero. In a brief exchange before having this journalist ushered out of his office, Youssef told Executive at the time that private sector ISPs didn’t need more bandwidth. Chebaro, who refused an interview request for this report, said in June the ISPs were selling bandwidth to illegal service providers as well as the two mobile network managers, alleging that the networks used it to supplement bandwidth they were buying from Ogero to offer 3G services. 

Falling behind

While Lebanon was a regional leader in building both mobile phone networks and internet infrastructure in the 1990s, the country did not stay on top for long. The Ministry of Telecommunications has an ownership stake in three submarine cables completed in 1995 and 1997, capable of carrying both voice and data traffic, but Lebanon did not make another investment in extra international capacity until signing a 2008 agreement to build the IMEWE (India–Middle East–Western Europe) cable that runs from India to France. Similarly, Cellis and LibanCell introduced an early version of mobile internet — GPRS, also known as 2.5G — in 2001, but 3G didn’t arrive in Lebanon until 2011. 

That said, the 3G investment was more forward looking as it included an LTE component. While 3G coverage is almost nationwide, only Beirut has access to LTE. Gilbert Najjar, head of the owner supervisory board at the telecom ministry, tells Executive that the board — which acts as a bridge between the government that owns the networks and the private companies that manage them — is in talks with the network managers to increase LTE coverage in 2015. Najjar says he anticipates that the managers will each invest $100 million to expand coverage. 

On the internet side of ICT infrastructure, the private sector led the way in developing new ways to bring customers faster connection speeds than the dialup service, which is all Ogero offered until 2007. Private data and internet providers were making use of satellites and various wireless technologies before Ogero slowly began rolling out a digital subscriber line (DSL) service, which uses copper wires instead of existing phone lines, in 2007. Rumors of an imminent DSL roll out began spreading five years before the service was actually offered. 

One element in the delay, according to news reports from the time, was fear that widespread and fast internet would lead to more Voice Over IP (VOIP) activity, particularly for international calls. With the government having a monopoly on telephone calls in Lebanon, VOIP has long been a feared revenue thief and remains officially banned. Following the introduction of DSL, the next major investment in infrastructure was the 2011 contract awarded to construction firm CET to install a fiber optic backbone for both voice and data traffic. As Executive went to print, however, we have not been able to verify whether or not the backbone is actually being used.

 

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Beirut's private coastReal Estate

The coast of progress

by Matt Nash
written by Matt Nash

As activists push ahead with a lawsuit to prevent the development of nearly 110,000 square meters of coastal land to the south of Beirut’s iconic Pigeon Rocks, Fahd Hariri — the son of late Prime Minister Rafic Hariri who has a stake in an investment company which indirectly owns some of the land — is shopping around for ideas on what to do with it.

In mid December, the Civil Campaign for the Protection of the Dalieh of Beirut — using the locally known name of the land — published an open letter to architect Rem Koolhaas whose company, the Office for Metropolitan Architecture (OMA), they alleged had “been commissioned to develop a design for a projected development” on the land. The letter reiterated the activists’ arguments that the land — while privately owned since Ottoman times — has been used as a public space for generations and should remain open to the public, not used as a site for another private development. Koolhaas replied in the comment section of the online magazine Jadaliyya, where the letter was published, and said that “there is in fact no project, just a series of initial explorations” that OMA was conducting on behalf of an unnamed client. OMA did not respond to an interview request.

According to various records Executive has seen, the Hariri family owns a large stake in much of the Dalieh land, but does not own it all outright. 

[pullquote]”[OMA] gave us a proposal which … for the moment, is not the one that we will choose”[/pullquote]

A source managing the land on behalf on the Hariri family told Executive in August the family had no plans to develop the land for “the foreseeable future.” Contacted again after the OMA news broke, the source said he was not familiar with the negotiations and named Fahd Hariri as the man looking to make plans. Hariri cofounded the development company HAR Properties, and Executive called HAR in an effort to reach him. Instead of Hariri, Executive was pointed to his partner, Philippe Tabet. When explaining that we wanted to speak with Hariri about the negotiations with OMA, Tabet interjects, “OMA is not the only option.” He explains that the Hariri family is keen to build on the land but is facing a number of difficulties. Firstly, Tabet says, the family requested project proposals from “many, many architects” and notes “one of them is OMA. They gave us a proposal which … for the moment, is not the one that we will choose.” In fact, he says, none of the proposals have yet piqued the interest of the Hariri family.

During the interview, Tabet repeatedly uses the word ‘we’. When asked what he meant, he explains “the Hariri family and the other owners.” Asked if HAR Properties would develop any future project, he says it was too early to answer. He offers, “I don’t think there will be any project before two to three years from now.” Tabet says that the goal is finding a project “for everyone, for nature, for Beirut, for the public, for us,” but notes it “is very difficult to have a project that is feasible, I mean, financially feasible and at the same time in terms of greenery and nature. It should fit and be responsible.” He reiterates that “we” are focusing “very seriously” on making sure the land is open to the public and continues to be a green space.

The land itself is divided into 14 plots, according to the Beirut Municipality’s cadastral map, most of which have multiple owners. Under Lebanese law, every plot of land is divided into 2,400 shares. When the land has one owner, that owner has all of the shares. If a plot of land has multiple owners, the shares are divided, and in such a case all of the owners have to agree on a development project before construction can begin. Given that Tabet said he was speaking for Hariri and the other owners, Executive points this fact out and asks if the other owners have agreed to develop. “No, no, no, not yet. We don’t have a feasible project for the moment, to convince them. We should have a feasible project. [Since we don’t], we cannot convince them.”

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