Executive Magazine

In the spirit of Lebanon

by Nabila Rahhal December 29, 2014

written by Nabila Rahhal

Ahead of his trip to Brazil aimed at promoting Lebanese wine, Executive sat down with the head of the Union Vinicole du Liban (UVL) and chair of the board of Château Ksara, Zafer Chaoui, to discuss the sale of Lebanese wine both domestically and abroad.

Over the past few years, we have seen an increase in wine production in Lebanon. Is this trend healthy, and do you see it continuing?

The [wine] sector is directly related to the economic situation of the country, and it is only one sector among many. It is true that from the end of the Lebanese Civil War in 1990 until 2010, we have seen a very positive development in the Lebanese wine sector.

[pullquote]The sales of wine from Lebanon to Syria dropped by 80 percent, according to the figures we have from the UVL[/pullquote]

This development is related to three factors, one of them being that Lebanese people now consume more wine than before. Another factor is the number of tourists, which increased in the country from 1995 until 2010; the third one is that Syria opened up its economy and there was an agreement between Syria and Lebanon which allowed us to send a lot of our wines there.

These three factors have changed and this is a fact. First, the purchasing power of the Lebanese people has not increased during the last few years, and this — combined with a very small decrease in GDP, inflation and a lot of other problems faced by Lebanese citizens — led them to decrease the amount of wine they are purchasing.

Second, the number of tourists has decreased, particularly after the Syrian war started, causing people to fear coming to the region. And a number of Gulf states instituted a travel ban on Lebanon, while [some] European countries advised their citizens to avoid coming to the country.

Finally, the sales of wine from Lebanon to Syria dropped by 80 percent, according to the figures we have from the UVL. To add to this, after Lebanon and the EU signed the Association Agreement [a trade agreement that came into force in 2006], there has been a tremendous increase in the import of European wine to Lebanon. These factors together have brought a reduction in the total wine turnover in Lebanon, and figures from the UVL show that we are now producing less than in 2011.

What can be done to protect Lebanese wines from competition from imported European ones?

It is a question of civics. When you have a very good product in your country, you should be proud of it and promote it.

The Association Agreement between Lebanon and the EU is a necessity. We cannot ask the government to repeal it when we are deeply convinced that a free economy is the key to success.

At the beginning of 2014, the minister of tourism back then, Fadi Abboud, sent a circular to all restaurants asking them to include Lebanese wines on their wine lists, but not all of them complied.

Restaurant owners could also be asked to stop recommending French wines to their customers over Lebanese ones, and allow them to make the choice for themselves.

Also, we have wine sellers in the city that sell foreign wines, which is acceptable, but all these factors together have brought about an increase in the quantity of imported wines in Lebanon. In 2013, according to statistics from Lebanese Customs, wine imports were $12 million and almost exclusively from France … while we exported $14 million [worth of wine] to 40 countries, and not just France. We have to live with this, but we must also be aware that there is a problem.

[pullquote]All wine producers are working hard to play their part in export[/pullquote]

How about the export market? Has it been affected as well over the past few years?

All wine producers are working hard to play their part in exports. However, it is very important to know that you gain more in your own country because your own wine is known there, and you are proud of it. When you export, meanwhile, you have to face competition from all over the world and no one has this special attachment to Lebanon except for the Lebanese diaspora. So then you have to fight more and market your wine to a specific country, which requires much more effort than marketing it in Lebanon.

Also, exports are not easy, and the 2008 financial crisis affected the purchasing power in many developed countries.

What is the UVL doing to overcome these obstacles?

We try to work as a team and participate together in exhibitions which take place all over Europe, in order for people to know more about Lebanese wine as a country specific brand. We are very proud of our products, and I always say that the quality to price ratio of Lebanese wine is the best in the world.

How do you, as UVL, position Lebanese wine to the global market?

First, we try to have all wineries be part of the UVL stand, instead of each winery talking about its wine alone. We are trying to promote Lebanese wine as a whole. We are supported by many Lebanese embassies abroad, which is a new thing I would like to mention.

The minister of foreign affairs had a conference at the Phoenicia Hotel a couple of months ago, in collaboration with Lebanese Franchise Association president Charles Arbid, which was attended by [many] ambassadors and heads of missions. During the conference, the minister told them that we have to develop our exports; the political role of Lebanese ambassadors is not sufficient, and Lebanon no longer has that big [of a political] role to play. Diplomats are becoming economic agents of their country. I can tell you proudly that we hosted an event at the Lebanese Embassy in Paris where Lebanese wine was offered and promoted. On December 5, [2014], we have something similar in New York, where the consulate general has invited journalists and influencers to an event at the consulate aimed at promoting Lebanese wine. We are also hosting Lebanese wine days in São Paulo on November 27, [2014], and in Rio de Janeiro on December 7, [2014]. All of these events are organized by the ambassadors and the consulates of these countries and, as the head of UVL, I would like to convey my sincere thanks to these diplomats for their efforts.

These events are a part of the series of efforts to promote Lebanese wine with a good push from the heads of missions and their embassies, which is unprecedented and makes me proud.

Of course, the UVL has a part in this, and without the UVL it would not be possible. We are acting as a team and speaking the same language and this is what makes it possible. It is a very successful development which I hope will continue in several other places.

This is different from Lebanese Wine Day, which is under the auspices of the Ministry of Agriculture and largely sponsored by them. It is a day held in a different city each year, which started in Paris in 2013 and then Berlin in 2014, and we are aiming, with the close collaboration of the director general of the Ministry of Agriculture, for it to be held in New York in May 2015.

Other events include the international wine exhibitions which we attend under the Lebanese flag: ProWein in Dusseldorf in March, a big event which we go to hand in hand; Vinifest in Paris; and the London Wine Fair. We try to respect all parties and support small producers, who may need [the UVL] more than the big producers who can manage on their own.

The UVL organized and participated in a remarkable number of events [in 2014]. It was a year of great efforts to counterbalance the effect of the slowdown in the economy and the reduction in sales.

Lebanon remains a micro-producer of wine, even relative to some neighboring countries. What can be done to increase this number?

We need security and stability, especially in the wine sector. I can give as an example Château Ksara: in the golden years we received 75,000 tourists per year who would visit our natural caves and winery. Today, that number has dropped to 25,000. This shows the importance of security and stability.

I assume this is especially true for wine tourism in the Bekaa valley.

Here, I would like to ask the media to remember that the Bekaa Valley represents 40 percent of Lebanon. So we can’t talk about bad security in the Bekaa as a whole. The part of the Bekaa that is affected by the security situation is a small part of the valley, so the media should stop frightening people from going to the Bekaa [in general].

[pullquote]It was a year of great efforts to counterbalance the effect of the slowdown in the economy and the reduction in sales [/pullquote]

What more can the government do to support this sector in 2015?

Each year, the director general of the Ministry of Agriculture allocates a slightly higher budget [for the wine sector] than the previous year. He is targeting LBP 200 million [$132,000] this year compared to LBP 160 million [$105,000] last year. The event we are going to for sure is the New York one, and, if we can, we are trying to go to other cities in the US.

We will certainly try ProWein in March because it has become the largest European wine event of the year. [We will go to] France at the beginning of the year, then São Paulo and New York. We hope to find some other countries where we can also participate in events. Also, costs differ from one country to the other. For example, in New York the initiative was from the consular general, who just asked us to send the wine and he is taking care of all the rest. In São Paulo, it has been our initiative.

The success of such events depends on the people who attend: if they are strong in the sector and we manage to have a dialogue with them, the impact will be significant.

We have talked a lot about Brazil today, and I think the situation there is good. We are trying to sign a bilateral agreement with Mercosur, a customs union of five South American countries. Lebanon currently has no agreement with Mercosur, but the ministries of agriculture, foreign affairs, and economy are now pushing hard for this. If we sign it, wines shipped from Lebanon to Brazil will be taxed less than they are today, and this will push the market forward. For the moment, many colleagues do not want to [export to] Brazil because of the large taxes [levied there] on Lebanese wine.

December 29, 2014 0 comments

Business

Glass half full

by Nabila Rahhal December 29, 2014

written by Nabila Rahhal

They say few things are more enjoyable than a glass of fine wine or a single malt whiskey at the end of a long day — and it seems Lebanese drinkers agree. There has been a notable increase in specialized wine and spirits sellers across the country.

[pullquote]“When we started, there were only four to five wineries and now there are around 40″[/pullquote]

As Enoteca, a wine shop with branches in Zalka and Beirut, celebrates its 20th anniversary this year, its commercial manager Henri Debbane recounts that when they first opened, Lebanese consumed mainly whiskey and arak with their meals and there was little interest in wine, whether local or imported. “When we started, there were only four to five wineries and now there are around 40 so the number has increased. The consumption of both local and imported wine has increased a lot, and competitors in wine distribution have too,” says Debbane.

Importing wine

The signing of a major trade agreement with the European Union almost five years ago dropped custom taxes on imported wines to 35 percent, making drinking such wine more accessible to a wide range of consumers, explains Paul Choueiry, winemaker at Les Caves de Taillevent, a French franchise wine and spirits specialist store in Tabaris. “At the beginning, imported wines in Lebanon were only for wealthy people, because the taxes on them were 70 percent to protect local production,” he says.

Today, according to the wine sellers Executive spoke to, French wine remains by far the most consumed imported wine in Lebanon followed by Italian wine, while new world wines account for barely 5 percent of the total foreign consumption in Lebanon. “Globally, there is more interest in new world wines, but in Lebanon we still pay 70 percent custom duties on wines imported from outside Europe, which means that if we import a $5 bottle of Chilean or South African wine we would have to sell it at $40 to still make a profit, which is absurd,” says Choueiry, explaining that Les Caves de Taillevent does have around 25 bottles covering all the smaller wine production regions, but they are more complementary to their cellar and are seen as accessories.

Local wine in wine shops

The wine sellers Executive spoke to all have at least one Lebanese wine in their portfolio, with Les Caves de Taillevent and Vintage promoting local artisanal wines, whose marketing budgets do not allow them to reach a wider distribution channel.

Read Executive’s special report on Lebanese beer, wine and arak of October 2014

Yet, these are wine sellers usually frequented for their imported wine selection, and local wines find little footfall there. “We cater to an elite group in the sense that they have the time to pass by and select a special bottle of wine. When a customer is looking for local wine, he is more likely to visit a one stop shop such as a supermarket,” says Wadih Riachi, manager at Vintage Wine Cellar, a wine and fine spirits shop in Downtown Beirut, adding that this a good way to encourage local production.

Changing consumption habits

Riachi also talks of a global trend towards “drinking better,” explaining that Lebanese consumers’ palettes are becoming more refined as they are offered more variety, growing to more fully appreciate good quality wines and spirits.

[pullquote]Wine consumption is still growing at an annual rate of 5 percent in Lebanon[/pullquote]

According to Debbane, wine consumption habits are changing: “Following the global trend, wine in Lebanon is becoming a more accessible consumption product and is reaching a younger crowd. This shift happened gradually. Ten years ago, wine was only for celebrations, but now it has become an almost everyday drink,” he says. Debbane added that wine consumption in night clubs is virtually nonexistent, although it is increasingly popular in bars, lounges and restaurants, where wine lists have become more extensive compared to a few years back.

From Enoteca’s experience as both a distributor and wine retailer, Debbane has noticed that people tend to drink less expensive wines at restaurants while consuming the higher end vintages at home, attributing this to the economic situation in Lebanon. “It was mainly the tourists that spent on high end wines in restaurants and hotels, and since their number has decreased drastically, the industry has been hit on the on trade sector,” explains Debbane.

Yet wine consumption is still growing at an annual rate of 5 percent in Lebanon, according to Riachi — though he admits that consumption is still low when compared to the global market. Debbane agrees, saying that while consumption is progressing at a slow rate, it could be faster had the industry not relied solely on the local market, as is the case now due to the unstable situation in the country.

The wine sellers

With wine and spirits consumption on the rise, wine retailers are vying for their share of the bottle. Last winter saw the opening of Les Caves De Taillevent and this year the oldest French chain of wine specialist stores, Nicolas, also entered the Lebanese wine and spirits market, through the Etienne Nicolas wine seller in Monot, Ashrafieh.

[pullquote]With wine and spirits consumption on the rise, wine retailers are vying for their share of the bottle[/pullquote]

While it would be understandable for one to assume that competition is high among these sellers, with more than five specialized wine shops in Beirut alone, the retailers interviewed by Executive insist that they each have their own niche. Etienne Nicolas benefits from the large Nicolas network, meaning that they can offer more than 600 wines, spirits and champagnes, while Enoteca say they can provide a fine bottle of wine for as little as $10. Les Caves De Taillevent Lebanon, meanwhile, benefits from the Les Caves De Taillevent France’s network, thus offering artisanal imported wines in addition to their usual range. All wine sellers interviewed offer wine courses, such as ‘wine and food pairings’ or tastings, aiming to wider disseminate a wine culture in Lebanon, and hoping the attendees would buy a few bottles on their way out.

Perhaps the biggest threat to these wine sellers is the supermarket chains which usually, in Lebanon, keep a wide selection of mainly local wine, but some imported products as well. Yet, here again, wine sellers believe they have something extra to offer. “Our wine shops offer consultations with our wine store managers who have all undergone intensive wine training, an asset supermarkets do not have. Also, we have a wide range of imported wines which is again something supermarkets do not offer,” says Eudes Morgan, director of Les Etablissements NICOLAS S.A.

And in other spirits

While wine and spirits retailers in Lebanon generally have a stronger focus on wine, which is considered a ‘finer’ alcohol, those interviewed also have a vibrant fine spirits section, seeing a positive growth in the single malt whiskey category.

Although vodka is the fastest growing category of spirit globally, Ziad Karam, corporate relations director of Diageo, says that the whiskey category in Lebanon is the largest. “Even globally whiskey is leading because vodka, considered the biggest competitor from a category perspective, was not really famous until recently and has been driven by the emerging youth [18–24] markets where it is consumed as a clubbing drink,” says Karam.

Choueiry explains that prior to and during the civil war, there were only a few brands of whiskey that everyone drank and enjoyed. “Today, even in blended whiskey, we have a wider selection. We have also joined the global trend of [increased] malt whiskey consumption,” says Choueiry.

The rise of single malt whiskey consumption in Lebanon can be partly credited to Beirut airport’s duty free. Its manager Ramzi Nader recounts how, almost five years ago, they focused their efforts on marketing this whiskey through promotions, tasting booths and gifts upon purchase. “Single malt whiskey was becoming a global trend and we wanted to educate the Lebanese consumer on that especially since those who pass by the Beirut Duty Free are considered high end clients and would appreciate this effort,” says Nader.

[pullquote]Sales of whiskey had dropped in the last few years but are once again picking up[/pullquote]

Today, Diageo has introduced 10 brands of its malt portfolio into Lebanon and says it can see a response among connoisseurs and young people. Choueiry believes the single malts category has been embraced by the “in between generation, which has more purchasing power than the recent graduates, and is more willing to discover new brands of whiskey, while the older generation is emotionally attached to their brand of whiskey.”

According to Choueiry, sales of whiskey had dropped in the last few years, but with the introduction of new whiskey brands, and with the single malt, it is once again picking up and turning some of the new generation vodka drinkers to whiskey.

Whether single malt whiskey or wine is your drink of choice, it is certain that you will find what satisfies your taste at either the city’s wine retailers or simply at your local supermarket.

December 29, 2014 0 comments

Business

Downward spiral

by Nabila Rahhal December 23, 2014

written by Nabila Rahhal

Walk into one of the discount retail stores in Hamra or Furn El Chebbak and you will end up elbowing other shoppers to reach the display. It is a similar picture if you take a stroll to the Sunday flea market next to the Beirut River, where throngs of people hunt out the best bargains. But walk into a luxury goods store and you are likely to be one of few clients there.

Nicolas Chammas, head of the Beirut Traders Association, estimates that consumption in Lebanon is down by 5 percent, a significant percentage considering that, according to Chammas, consumption fuels 85 percent of gross domestic production. “The economic stagnation has affected all categories of products since tourists and expats avoided visiting Lebanon,” says Mher Atamian, managing director at Est. Hagop Atamian, a distributor of luxury and medium end watches in Lebanon.

Across Lebanon retail shops are closing down, with Chammas citing closures in Hamra, Verdun, Ashrafieh and downtown Beirut. “Even though Beirut has always had the largest share of the volume of watches sold, we rely on cities such as Tripoli, Zgharta, Sidon, Tyre and the Bekaa region in order to sell a good quantity of watches. However, this year some of these areas have really struggled due to the political situation,” says Atamian.

As in most other service sectors of the Lebanese economy, the retail sector’s bleak situation has been aggravated by the decreased purchasing power in the local market. This has affected almost all categories of retail, from durable items such as consumer electronics and furniture to fashion items, with the notable exception of staples and food, which have been positively influenced by the influx of Syrians residing in Lebanon.

According to Chammas, luxury goods were the most affected with Atamian admitting that growth was hard to achieve during these difficult times, but that they managed to introduce some imported brands to their midrange segment, which helped maintain their figures close to those of last year.

Costly luxuries

Local designers have also seen the dwindling sales in the local luxury market. Luxury furniture designer Nada Debs says she exports 65 percent of her products and blames slow sales on the lack of tourists and the poor economy, as well as the low footfall in Saifi Village where her boutique is located.

Chammas explains that as purchasing power among Lebanese decreases, a downward spiral effect is created, whereby those who could afford luxury products before the crisis migrated to the medium end of the market this year. Azadea, a Lebanon based regional retailer with more than 25 fashion and accessory brands and 90 stores in Lebanon alone, can attest to this. “2014 was a year of rapid expansion for Azadea and we can report a solid performance throughout the year, appealing to a wide audience of different tastes, styles and age groups,” says Aline Chabenne, the company’s country manager.

Chabenne explains that in times of economic crisis it is important for prices and products to remain competitive. She cites several strategies of affordability and good services to help their clients, including a dedicated customer service department, ongoing activities and promotions, and the Qanz — a gift card that can be used in all brand stores that are part of Azadea.

Creating an incentive for customers to shop has become a necessary tool for all retailers, and text messages offering all sorts of promotions and games have become common. “Our sales haven’t decreased by much when compared to 2013, however our profit margin has been affected considerably due to the various extra marketing promotions we did compared to previous years,” says Atamian, explaining that they offered incentives and discounts during various holidays, such as Mother’s Day or Valentine’s Day, to encourage people to buy.

Just as many migrated from the high end goods sector to the midmarket, those who were barely able to afford the midmarket found themselves sliding to the lower end of the retail market. This is the sector where you see the most activity, according to Chammas. “The low end sector, although it does not amount to much in global retail performance, is what is keeping a drastic situation from being deadly,” he says.

Shops like Eldorado or Big Sale, which offer all sorts of items at low prices, witnessed increased activity in 2014. More than 100 customers enter the Big Sale outlet store in Furn El Chebbak every day, and around half of them buy fashion items for their children or for themselves, according to the manager on duty.

Despite the bleak situation, retailers are still going ahead with their plans. ABC plans to open a mall in Verdun in 2017 and Azadea is introducing two new brands in 2015, as well as expanding its network of stores. Bets are on for an immediate and palpable improvement of the retail sector once the internal and regional security situations stabilitize.

December 23, 2014 0 comments

Business

Retail highs and lows

by Nabila Rahhal December 23, 2014

written by Nabila Rahhal

Executive sat down with the head of the Beirut Traders Association Nicolas Chammas to discuss the performance of the retail sector in 2014 and what can be done to prevent the country from entering into recession in 2015.

How would you assess the retail sector’s performance in 2014 as compared to 2013?

Cumulatively, it was a very frustrating and disappointing year. The first quarter was an extension of 2013 with its negative performance.

To be fair and objective, however, right after the formation of the government in the first quarter of the year, things picked up. This is because the government was a unified one, representing all parties and also because its formation led to the success of the security plan in Tripoli and the Bekaa, all of which gave consumers a sense of confidence. In Lebanon, we have great resilience and whenever the political and security conditions are fine, that immediately translates into improved economic activity.

We started to go downhill again on May 25, 2014, with the presidential vacuum, because psychological factors are extremely important in Lebanon and we felt the tension again. Also, at the beginning of the summer season, we had the explosion [and raids] in hotels of all places, which caused many tourists to cancel their trips to Lebanon.

So the summer started off badly and somewhat improved after the Eid Al Fitr holiday, but the incidents in Arsal at the onset of August, followed by the incidents in Tripoli, were the last nails in the coffin of the commercial and touristic sectors in Lebanon.

All in all, from the end of 2011 until the end of 2013, we were at an average of minus 35 percent and my estimate for the cumulative degradation until the end of October 2014 is another 10 percent compared to last year.

To what do you attribute this drop?

The situation has been dragging on for too long and the political situation has become drastically negative because the repercussions of the war in Syria on Lebanon are becoming stronger, with the onset of extremism in Lebanon and the increasing number of refugees in the country.

How does the presence of Syrian refugees in Lebanon affect the retail sector?

The World Bank itself found that the cost of the Syrian refugees coming to Lebanon is $2.5 billion a year, so let’s agree that the net balance is negative. There is a slight positive in basic food staples sales, but most of them are coming from abroad as the humanitarian associations bring most of their food aid from abroad, buying only a little from the local market. So the effect is marginal and you have ‘the tree that cannot cover the forest’.

How about the purchasing power of the Syrians who are residing in Lebanon? Is that helping the retail sector?

They are also using the country’s resources such as electricity, water and roads and this is costing us money as most of this is subsidized.

The real problem, however, is in the labor market where, because their wages are much lower than those of Lebanese workers, they are fast replacing the Lebanese. This is happening in many sectors, not only the traditional ones such as construction and agriculture, but also in trade, manufacturing, education and healthcare.

What happens is that existing companies want to decrease their production costs because they have witnessed a drop in their turnover, so the only way to survive is to reduce the cost of manpower and this is why they are resorting to the Syrian labor force.

This is a terrible thing because you are depriving the Lebanese labor force from working and earning an income, thereby decreasing their purchasing power, while the Syrians generally send their earnings back to Syria so there is leakage in the economic cycle in Lebanon.

This is a vicious cycle — when Lebanese households have less money, they consume less. When they consume less we, as traders, sell less and when our turnover goes down, we have to let go of more people.

At the same time, when you are getting Syrians to replace Lebanese workers, they are not paying for the NSSF [National Social Security Fund] or the government taxes. So we are suffering at the sector level, the economy as a whole is suffering and the treasury is suffering because it is collecting less money.

What can be done to deal with this situation, if anything?

This is a long term trend that will lead us to a terrible decline in economic activity. The government has to control and monitor the Syrian labor force and apply the law. They should take the necessary measures to stop this tsunami.

No country in the world would accept this and if you take a look at Europe, they have a ceiling on how many foreigners they let into their workforce per year, while here we have a parallel workforce of over 500,000 people who are willing to work for lower wages. At a minimum, they should control this situation and at the maximum, they should start sending them back to the secure areas in Syria.

How has this situation affected the retail space market? Were there any closures of retail spaces this year?

There were many closures in the downtown area, but also in the traditional and highly prestigious shopping areas such as Hamra, Verdun and Ashrafieh, according to information from the local trade associations. In normal times, you cannot find a space to rent there because they are prime locations, but today you can find many retail spaces and at reduced prices.

What happens is when there is one empty venue in a street, it contaminates its surroundings and won’t be filled for a long period with the owner finally settling for half of the original rent price.

Were different segments of the economy affected in the same manner by the situation? Or were some sectors more affected than others?

You have three segments of trade. The staples were more or less able to survive the situation, but still you are in the minus 5 percent to 0 percent range during 2014.

The luxury products were severely affected because of the lack of tourists and expats this year, which this segment has come to depend on, and we have a drop of around 20 percent.

Durables, such as furniture and professional electronics, also suffered, around minus 10 percent, but less than the luxury segment which I consider the most affected.

This year, we had a migration of people from the high end to the middle end and from the middle to the low end, and this is why the low end segment is working the most as the others have almost stopped. Our goal in the future is to turn the trend and drive people upward again, but it will be very difficult.

Are traders themselves preferring to store their money in bank deposits rather than investing it?

The phenomena of increased deposits in banks is of course a healthy one, but this is because of the lack of any other investment opportunities, causing business people to park their money in safe bank deposits instead of taking risks.

We, as traders, want more investment to happen, especially since the public sector is not investing any money due to the lack of a budget for 10 years, and so this is an engine that has been shut down.

There are two types of investments the private sector can partake in. First are investments in capacity, which traders will certainly not do as there is an oversupply of capacity and a dramatic drop in demand — a great mismatch. Instead of investments in capacity, we are witnessing a shrinkage in sale spaces and venues.

The other type of investment is in technology and development, but we are not doing it because the demand is not there and our money is being kept safely in the banks for now. We are sitting on the sideline waiting for better days to come.

How badly has consumption been affected this year?

Consumption is 85 percent of GDP, which is around $35 billion. So if consumption drops 1 percent we lose $350 million. See the effect? We are talking huge amounts here.

I estimate it has decreased by 5 percent this year and we know that by the number of sales we have been forced to do. Discounts are going from 10 to 70 percent in all seasons, and even to the point of clearances at times. Even with those huge discounts, people are not coming.

These sales are done to clear inventory, which we consider the root of all evil, because the seasonality factor means that your stock becomes obsolete. You have to liquidate it in order to buy new products to keep up with fashion and trends. We have to go through sales and things like this in order to monetize our assets because we owe money to the banks and to our suppliers.

What is the Beirut Traders Association’s outlook for 2015?

It all depends on the political situation and we need an electric shock. We need the presidential election to take place. Even though it will not solve all our problems by a long shot, at least it will show that we are able to come together and decide something. It would revitalize the institutional life in Lebanon, as the president is in the driver’s seat both morally and symbolically.

This electric shock could also be regional, say if Saudi Arabia and Iran reach a minimal agreement it would have a positive effect on Lebanon.

If this happens, I will become much more optimistic about 2015 because the wind could turn. If it does not happen, and it is business as usual, we are en route to a deep recession in Lebanon, even in the first trimester of 2015.

December 23, 2014 0 comments

Comment

Lebanese fall for ‘fast fashion’

by Laurence Leigh December 23, 2014

written by Laurence Leigh

Retailing in Lebanon in 2014 felt the impact of global trends, as well as influences particular to the chaotic situation in the Middle East. In particular, Lebanon’s ailing economy and the influx of over 1 million refugees from Syria has had a major impact on the sector.

According to Business Monitor International, while sales of sporting goods, electrical appliances and consumer electronics have been down by 7 to 10 percent, grocery retail sales in supermarkets and hypermarkets were up more than 5 percent. Significantly, the UN sponsored exchange card program for refugees has put LBP 300,000 ($200) a week into the hands of each refugee family to spend on food. Coinciding with this boost to demand, many refugees themselves have started small stores, increasing competition significantly. In fact, An-Nahar has reported that the number of small grocery stores in Lebanon has increased by as much as 70 percent. This has made life even more difficult for the small native operators — particularly in areas of north Lebanon and the Bekaa valley, where many refugee families are concentrated. In addition to this, like everywhere in the world, independent food stores have had to face continued growth in the number, and market share, of the major supermarket chains, which have been successfully diversifying what they offer. In Lebanon, this has included deep discount chains such as Fahed Super Value, premium stores such as TSC Signature, and the local Monop’ mini-markets.

With regard to clothing, the worldwide march of ‘fast fashion’ is also clearly apparent in Lebanon. Brands such as Zara, H&M and Bershka continue to do well, while independent small operators have experienced very difficult conditions. After many years of growth, overall the market is reported to have declined by about 4 percent in 2013 and will probably show a further decline in 2014. Indeed, some independent retailers say that their sales have been worse than at any time since the Civil War. Meanwhile, new players such as Gap and Victoria’s Secret have been penetrating the Lebanese market. While such new entrants will populate the malls that have become a dominant part of the retail clothing scene throughout the world, there are concerns that the Lebanese market is being oversupplied with such retail space given sluggish, or even negative growth in overall demand. The opening of the strangely named Beirut City Centre Mall (which happens to be in Hazmieh) has added 200 new retail units, while the new ABC mall in Verdun will add many more units when it opens in 2017.

[pullquote]Mall development is a matter of ‘location, location, location’[/pullquote]

Even more so than in other branches of the real estate business, mall development is a matter of ‘location, location, location.’ Not only that, but malls that fail to attract foot traffic in their early years can quickly enter a death spiral as the initial tenants leave, units sit empty and traffic falls even further. Pictures of abandoned mega-malls in China, built during a massive wave of commercial real estate speculation, stand as depressing witnesses to this phenomenon. Location is also a crucial factor in determining the demographics of likely visitors. In Beirut, the declining number of tourists has very seriously affected the downtown area, where many luxury clothing and accessory brands have placed flagship stores. In addition, security concerns have prompted frequent street closures during parliamentary sessions. This causes problems for retailers by making access and parking more difficult. The result has been streets dotted with unoccupied stores and restaurants. In addition, the luxury sector is facing challenges related to the relatively higher retail prices of their offerings in Lebanon because of the combination of import duties and VAT. Wealthy customers for these items generally travel frequently and can often find better deals on the same prestige brands in stores in Europe or the Gulf. While many of the luxury stores may remain open as ‘image-builders,’ it is probable that very few are profitable for their operators.

‘Fast fashion’

By contrast, the suburban malls that cater to midmarket customers looking for ‘fast fashion’ will continue to prosper in areas such as Dbayeh, where ABC and Le Mall are said to be performing well. Meanwhile ABC has had to reposition its Ashrafieh flagship mall after experiencing a major fall in traffic by offering more space to ‘fast fashion’ brands. Nevertheless, hopes remain high for ABC’s new Verdun mall as it is located close to many Gulf embassies, including that of Saudi Arabia, whose diplomats offer considerable spending power. The area is also popular with wealthy Lebanese families with successful business interests in West Africa. For them, having more opportunities to use their considerable spending power closer to their residences in Beirut while visiting the city will likely help this venture succeed. Thus, despite the general absence of wealthy tourists from the Gulf, well-to-do local families as well as Lebanese expatriates continue to look for the latest ‘hot’ fashion items in Beirut. And while female fashion makes up most of the market, increasing male interest in clothing and accessories may offer new opportunities, as recent research done by myself and my AUB colleague Leila Khauli-Hanna on male-female shopping habits has pointed out. Our conclusion was that the old idea that ‘men buy, women shop’ doesn’t apply, at least not in the Lebanese context, where the ‘metrosexual’ lifestyle is becoming increasingly apparent.

The impact of the worldwide trend towards online retailing has had a mixed impact in Lebanon. Even if stores such as Aïshti are entering the online marketplace, the penetration of e-tailing appears to be slower than elsewhere. Poor internet speeds, concern about credit card fraud and unreliable physical distribution systems have all contributed to this. This picture may change, however, as the global trend towards ‘omni-channel retailing’ gathers speed. This phenomenon refers to the increasingly seamless merger of online and physical marketing facilities. Aided by the ever increasing use of mobile products such as smartphones and tablets, customers can choose to research products and prices, initiate purchases, order and make returns either offline or online as they prefer. Marketers, as a recent report by Euromonitor put it, are enabling consumers to “experience the brand rather than separate channels within the brand.” Pioneers in ‘omni-channel retailing’ have included Macy’s department stores in the US, Waitrose, a UK supermarket chain, as well as giants of e-tailing such as Amazon, which is rumored to be opening a bricks and mortar store in New York as well as ‘pop-up’ stores in San Francisco. Even though this phenomenon may represent the wave of the future, both sides in the online/offline battle will have to meet challenges as they learn each other’s strategies in order to be successful.

[pullquote]The Lebanese love affair with extremely expensive weddings remains one bright spot in an otherwise cloudy picture[/pullquote]

Another global phenomenon among shoppers that is also apparent in Lebanon is their increasingly savvy and price conscious behavior. Customers are not only likely to compare prices for products they want on the Internet, but are ready to wait until these items go on sale. As a result, sale periods have tended to start earlier and last longer. Outlet stores, which were originally conceived as an out of town ‘no frills’ channel for surplus inventory, have now become a regular part of the retail mix, even for some quite upmarket brands. Production is now specifically allocated to them — even at the cost of potentially diluting their exclusive image.

Love for weddings

While little in this review suggests a great deal of optimism in the near future, one niche market seems to defy the general trend. The Lebanese love affair with elaborate and extremely expensive weddings remains one bright spot in an otherwise cloudy picture. Indeed, cost consciousness hardly seems to apply as some of the most extravagant of these events are rumored to have cost over $2 million. Despite the political and security situation, demand for dresses, catering, flowers and other items associated with weddings remains strong. For example, Noura, the upmarket caterer and patisserie, reports steady progress in its events and wedding business. Indeed, even if because of security issues some families are opting for overseas locations such as Tuscany, their wedding needs are often supplied by Lebanese sources. Love conquers all it seems — even in retailing.

December 23, 2014 3 comments

Business

Land of milk and money

by Paul Cochrane December 22, 2014

written by Paul Cochrane

Demand for dairy products, milk especially, is surging across the world as a result of changes in global diets and the marketing of its purported health benefits. Global turnover was forecast to reach $335 billion in 2014, based on 5 percent annual growth, driven by demand in Asia and particularly China, which is slated to overtake the United States as the largest dairy market by 2017, according to fi- gures from market intelligence provider Euromonitor.

When it comes to such a health sensitive product, this rampant growth has had its complications, especially in relation to ensuring hygiene standards, and to the questionable use of additives, preservatives and formulas to meet burgeoning demand and to spur on profits. Rocked by domestic dairy scandals, China has been limiting the amount of foreign powdered milk formula allowed into the country.

While the Lebanese dairy sector is in no way comparable in size or consumer behavior to China, there are parallels. The local dairy sector has grown and diversified over the past decade. Foreign and institutional investors have entered the market, branding and advertising has ballooned, and competition is now cutthroat. Ingredient and hygiene scandals have also erupted, in part due to company malfeasance, underhand competition and government action, as well as inaction.

Cream of the crop

The regulated sector is dominated by the ‘Big Four’ dairies. Taanayel Les Fermes leads with almost half of the licensed market and Khoury Dairy is second, followed by Candia (Libanlait) and Dairiday, according to Blominvest Bank data. Then come the medium sized brands with seven digit revenues peaking at $10 million, such as Center Jdita, Hawa Dairy, Massabki and Laqlouq. There are also the small scale brands and non branded products, which account for an estimated 40 percent of overall dairy production, regulated and unregulated.

Labneh, laban and cheese (halloumi followed by akkawi and double crème) still dominate local production and sales, but fresh and long life (UHT) milk are gradually replacing powdered varieties. Sales are up by 10 percent per annum for the past two years, and more dairies are offering fresh milk and UHT, with Center Jdita soon to release its own lines.

Flavored yogurt, probiotics and ice cream are also growing niches, while goat dairy production is increasing (see box). Such growth is being driven by heavy marketing and branding, as well as changes in consumer tastes. “The population is increasing and the consumption of milk is up as many Lebanese have traveled to the US or Europe, and come back with behavior learned there. That’s why there’s change,” says Mazen Khoury, production manager at Khoury Dairy. “Ten years ago you didn’t see people drink cold milk — always hot — but now you see it in the fridge, like in the US.”

High on a hill

Goat dairies are getting a little less lonely

Dairies continue to move into new lines, with Khoury Dairy expanding its goat dairy production, while a new firm, Goutblanc, is solely focused on goat dairy.

Goat dairy products are popular in the countryside, but have not made the same inroads commercially. Holding such development back was a hygiene scandal with small scale production some 30 years ago that has lingered in consumers’ minds; dairies have tried before to set up commercial goat farms but could not find a viable market. As a result, the founders of Goutblanc started raising 60 goats as a trial in 2006, and only started selling on the market in late 2014 once they had 600 milking females and felt there was enough niche demand.

According to Mazen Khoury, production manager at Khoury Dairy, goat products are less than 10 percent of the Lebanese dairy market, but are set to become a trend. The dairy has some 3,000 goats, and the firm is expanding production of cheese. Market leader Taanayel Les Fermes also produces goat products, but only Khoury and Goutblanc have automated goat milking facilities.

Goutblanc is banking on the rise in consumption of dairy products to help drive demand as consumers diversify their tastes. “Marketing has changed people’s habits and the tradition of eating food, and we are catching up in terms of [goat dairy] consumption with Europe and the world. So in our thinking, the Lebanese consumer will catch up, goat dairy produce will become a trend and we will be able to produce liquid goat milk,” says Walid Bou Habib, the company’s owner and general manager. He expects a return on their investment of $2.5 million within three years.

Aware of the renewed focus among the public about hygiene conditions, Goutblanc built its facility in Annaya according to specifications from French standards body AFNOR while Jihad Daher, a trained agricultural engineer and the dairy’s technical manager, has spent several years involved in goat husbandry. “A problem here is there’s no scientific support or vets specialized in goats, so we need to control all of that ourselves,” says Daher.

While still a small market, per capita consumption of dairy products is on the rise, says Khoury, but competition is tough. It is telling that Saudi Arabian dairy giant Almarai tried to enter the market over the past year, but abandoned its attempt due to low sales.

Institutional investment has heated up the competition, pushing branding and the need for returns. While Khoury Dairy is still a family-run business, Taanayel Les Fermes has Kuwaiti investors, Dairiday (Levant Beverage & Dairy Industries) has investment from Najib Miqati, and Bank Audi has invested in Libanlait.

The ‘Big Four’, however, are putting the squeeze on the medium sized dairies, which lack the means for advertising campaigns and to buy shelf space at supermarkets. “We fight the competition with our quality, but I’m not sure how long we can continue like this as we can’t pay like the competitors. There’s not much local competition over quality, it is fighting with capital,” says Wakim El Hawa, General Manager of Hawa Dairy, which produces some six tons per day and has an annual turnover of about $2 million.

Lack of regulation

One of the key problems, reported again and again by licensed producers, is that the sector lacks oversight and regulation. Indeed, neither the size of the sector, nor its production size, number of operators or even its true value, are known, with current annual turnover estimated conservatively to be about $200 million, although some estimate it to be as high as $500 million including imports.

“In terms of overall production, we don’t know, as a good proportion of the sector is small scale, which doesn’t reach the supermarkets,” says Shadi Hamadeh, chair of animal and veterinary sciences at the American University of Beirut (AUB). “So on the one side are big dairies, which are intensive and focused on cows, and on the other side [are] a huge number of small holders, [using] sheep and goats which are very much traditional agro-pastoral [and] are servicing villages.”

While the commercial dairies came under fire for additives and hygiene standards in early and late 2014 (see below), smaller dairies have not come under scrutiny from the government or the media.

“There are a lot of small dairies without licenses and distributors. No regulations, no taxation and they can put powder or starch in [their dairy products] as no one will go after them. The government only visits the several legal factories and not the illegal ones — it is a big problem,” says Alexy Shdeed, CEO of Center Jdita, which produces 20,000 tons of dairy products a year, with revenues of about $10 million.

His comments are echoed by Khoury Dairy. “Many factories are without licenses, but for us, the Ministry of Agriculture visits two or three time a year, and the health ministry checks regularly. It keeps up improvement in our factories,” says Khoury.

Small scale, big concerns

While commercial dairies have improved quality controls in recent years, according to Hamadeh, it is the unregulated sector that poses major concerns and is a factor in driving competition between brands.

“There are no regulations when it comes to milk and dairy products. You can buy milk from a person who has three or four cows behind his house and [who is] not registered with any ministry. Anyone can then produce cheese and sell it to a supermarket,” says Maya Mokdad, an executive member of the Lebanese Association for Food Safety, and a dairy sector researcher at AUB.

In rural areas, brands are not common and dairy products are often not labeled by manufacturers. “I don’t have a problem with naturally made products, as you can throw them away after a day or two [due to lack of preservatives], but at same time, you need to know who is accountable if there is, say, an outbreak from a bad cheese,” she adds.

[pullquote]“Most don’t test the milk, and the cows are not subjected to vaccination programs”[/pullquote]

The lack of traceability extends back to small scale suppliers, who typically lack access to affordable veterinary care and immunization programs. “Most don’t test the milk, and the cows are not subjected to vaccination programs, which is a major problem, as they may have a disease, Mastitis, due to unhygienic conditions. It is very common, accounting for around half of all cattle-related diseases, according to the agriculture ministry’s most recent study some three years ago,” says Mokdad.

This is of concern, as many dairies do not have their own herds and source from local farmers. However, the Ministry of Agriculture has worked to improve sourcing via milk collection centers, of which there are 40 in the Bekaa and Akkar regions — where nearly three quarters of dairy herds are located — collecting some 150 to 200 tons of milk per day from 3,000 farmers.

Meanwhile, in November, a triparty committee of the industry, economy and agriculture ministries was established to prevent the sale of dairy products from unlicensed sources and factories. Whether the move will translate into better regulatory oversight of the sector is another matter however, given the number of people involved and their economic dependency on small scale production, political affinities and the lack of inspectors to cover the whole country.

The ‘scandals’

The committee was set up following Economy Minister Alain Hakim’s announcement in late November that he would close the doors of several medium sized dairy firms for violating food safety standards. The move came just a week after the health ministry shut down a number of restaurants and slaughterhouses for alleged hygiene violations.

Hakim told the press that “these factories committed serious, first degree violations that directly affect the health of citizens as shown by tests and analyses,” and would shut the factories down “especially after the owners ignored warnings to rectify the condition of the factories.”

One of the dairies named by Hakim said that they were “shocked” by the announcement, as no inspectors had visited or given them a warning, only finding out on TV what had happened. “It is not true they will close the factory, and the government didn’t tell us the problem or the results. It’s a game of the big companies to remove us from the competition,” said a member of Hawa Dairy’s management.

[/media-credit]Part of Khoury Dairy’s production facilities

Center Jdita was also singled out by the minister for its labneh, which, ironically, won a Product of the Year Award (voted by consumers) in March. Shdeed said none of the factories had been closed, despite the minister’s statement, and his labneh had had 62 milligrams of potassium sorbate, above LIBNOR’s limit of 50 milligrams per kilogram. He stopped production of labneh for two days to address the issue.

The issue in November pales in comparison to what happened in March 2014, when TV presenter Joe Maalouf in his LBCI show “7ki Jeliss” carried out lab tests on labneh in Switzerland that showed traces of Natamycin in Khoury and Dairiday labneh, and sorbic acid in Massabki labneh. Natamycin is a food preservative used to prevent the growth of mold. In Europe it is confined to being a surface preservative for certain cheeses. In Khoury’s case, it was being used inside the labneh. Natamycin is approved by the US Food and Drug Administration and is used in several countries inside dairy products, although LIBNOR (the Lebanese Standards Institution, which is affiliated to the industry ministry) does not allow its use.

“The intention was not as claimed on TV, that it was dangerous. We told LIBNOR, OK, maybe we used it and did not mention it in the ingredients but we did nothing wrong for the health of consumers,” says Khoury. “We had a risk assessment done by AUB on Natamycin consumption and it is very safe.”

Following the show, Khoury removed Natamycin and the case has been closed by LIBNOR, but the expose had a negative impact on the dairy’s sales, dropping by 60 or 70 percent. Khoury Dairy then went on the offensive, inviting TV channel MTV to visit its facilities.

“We made a 90 percent recovery as people saw the technology, the hygiene and the passion, and we got the trust back. [As of October] we’ve recovered by 96–97 percent,” says Khoury. “In my opinion there’s no bad marketing as maybe 1 million Lebanese had heard of us before, now everyone has.”

Many of the dairy producers interviewed by Executive sympathized with Khoury Dairy, especially when they considered the underhand competition it supposedly faces, with the LBCI show only running adverts for a dairy not singled out for Natamycin or sorbic acids. Furthermore, two producers who spoke with Executive alleged that Candia (Libanlait) uses heat treatment to make labneh, which is forbidden by law, and furthermore removes all beneficial bacteria, but has not been taken to task for this. Libanlait did not respond to interview requests.

This incident certainly showed public concern about what is in food products, despite Natamycin being a common preservative. “Since dairy is a huge market, consumers were scared as they didn’t understand it. If another issue of pathogens comes up, consumers will ask for greater clarification,” says Mokdad.

While the brands will be kept on their toes to make sure quality standards are up to par, much more needs to be done to oversee the whole sector in order not to cripple a burgeoning economic segment that is not overly affected by economic and political instability.

“Things won’t change unless consumers are aware of food safety regulations, and the government has to implement such systems. What is needed is not standards to push dairies out of business, but [to] train them to be up to standard, that is the challenge for the whole sector,” adds Mokdad.

December 22, 2014 0 comments

Business

Retail slump

by Nabila Rahhal December 22, 2014

written by Nabila Rahhal

Across Lebanon, retailers continue to suffer from the slowdown in the local economy and the dwindling number of tourists from the Gulf, who were typically the sector’s biggest spenders.

With the exception of food and staple items, almost all categories of retail have been negatively affected as consumers choose cheaper stores, reflecting their income level.

The growing numbers of Syrians in Lebanon is a double edged sword, aiding the country’s overall level of spending while causing competition among the country’s retailers.

Yet the situation is not as dreary as it seems, with fast moving fashion items as well as outlet and discount stores witnessing a significant increase in footfall.

All hope is not lost. Retailers are developing unique coping strategies to boost their sales and distinguish themselves from competitors, while also keeping an eye on growth and planning to expand when the situation improves.

In this section:

– Laurence Leigh dissects retail trends in “Lebanese fall for ‘fast fashion'”

– Nabila Rahhal interviews Nicolas Chammas, head of the Beirut Traders Association in “Retail highs and lows”

– “Downward spiral” explains how consumers moved towards discount retailers in 2014

December 22, 2014 0 comments

Finance

It’s hard to enter when you can’t exit

by Executive Editors December 22, 2014

written by Executive Editors

EuroMena is a series of private equity funds managed by Capital Trust Group. The latest fund, EuroMena III, launched in June 2014 and aims to provide financing to fast growing industries in the MENA region. Executive sat down with managing director Romen Mathieu and executive director Gilles de Clerck.

Since we last spoke in June, EuroMena III has raised its first closing at $100 million. How close are you to your second closing?

RM: The objective is $200 million. $150–$200 million. At $150 million, we will be very happy. And we’re there, at $150 million. Consider it done. By February we’ll [formally] do the second closing at $150 million, then probably [we will need] another three, four [or] five months to reach the $200 million [mark]. Now if we’re lucky, we’ll reach $200 million by February or March.

Have you made any investments yet?

RM: No, not yet. We have made our first capital call, and I think the first investment or probably two investments should be made before the first quarter of 2015.

Your clients in the first two EuroMena funds include both institutional clients, such as the European Investment Bank, as well as family groups. Are their appetites changing?

RM: Look, the hardest thing you can do in our business is fundraising and exiting. In Europe it’s fundraising; exiting is easy because you have stock markets. We are in a region with no stock markets and it’s very difficult to exit. But fundraising is even more difficult. Because when you go to sell to someone and say: ‘Hi, I’m raising a private equity fund, give me your money — but you know, I don’t know when I will invest it, I don’t know when I will call it, I don’t know how much return I will get on a yearly basis, I don’t know when I will exit, and I don’t even know if I will give you the money back. And don’t ask me which companies I am going to invest in, I don’t even know that yet,’ the pitch is very difficult. The people that invest with us are the people who know us very well, who have seen us working and seen our track record. They are the ones who come and invest with us, or they’re very close to people who have already invested with us.

In terms of private equity, there are not a lot of funds based in Lebanon. Some banks have attempted it, but there are none now. Why is there so little private equity based in Lebanon?

RM: Because small is not beautiful in our business. So setting up a small fund of $10 [or] $20 million to make private equity in the region [is] not viable. The management fees won’t allow you to pay competent people to do due diligence. And for what you invest, you only get a small capital gain. You have to have a big fund. If a bank is involved in a fund, it doesn’t work. A banker is a banker, and an investor is an investor. All the funds where you had a bank involved just didn’t work out.

We’re in a region where exits aren’t easy. If you grow a company in Lebanon and you want to sell it — impossible. You don’t have stock markets here. You want to bring someone to buy a company in Lebanon today? I mean, who would come and buy a company in Lebanon today? So our secret recipe when we invest in a company is to take it regionally, to diversify the risk.

Even in the Middle East, if you look at data from the Middle East Private Equity Association, the amount of new funds created per year and total amounts raised is decreasing. Why is this the case?

GC: The fact that there are few funds suggests you have more maturity in this industry. People now understand that it’s not a business for amateurs, and that it’s difficult. Only the good ones who were successful in the initial years were able to continue and to carve out new teams that have been able themselves to raise funds.

RM: In the whole region, as Gilles said, first time players are being wiped out. The people who have stayed are those who have really proved that they have a track record, a business model and a serious reputation, which is very important in our business.

GC: I think if you look at the percentage of private equity as a part of the GDP, in this part of the world we’re still behind Europe 20 or 30 times, and 50 times behind the US. So there is still room to develop.

Well that begs the question, where do you want to go with this? What’s after EuroMena III?

RM: One billion [dollars]. If you know to drive on the right side, you continue to drive on the right side. Why would you go over to the left side? This is our everyday job. It’s private equity. We’ll never do anything other than private equity.

December 22, 2014 0 comments

Society

Preservation and innovation

by Nabila Rahhal & Thomas Schellen December 22, 2014

written by Nabila Rahhal & Thomas Schellen

Executive caught up with Tarek Mitri weeks after his appointment as the director of Issam Fares Institute (IFI) at the American University of Beirut. Sitting in his office in IFI, a building whose design he says he is not very fond of, Mitri talks about plans for Sursock Museum’s reopening, the cultural and artistic scene in Beirut, as well as his new post.

As the chairman of Sursock Museum’s Board of Directors, can you tell us how the Sursock project is coming along?

We are hoping to inaugurate it in spring 2015. It took us more time than expected as it was far more expensive than we had projected, but that’s not the only reason. It had to do also with the fact that we had a famous French architect, Jean-Michel Wilmotte, who lives in France and so getting things done under his supervision here understandably delayed the inauguration as well.

Sursock is one of the traditional palaces that were built at the beginning of the century and so its preservation is essential to us. I am someone who has fought, when I was Minister of Culture, for the preservation of our heritage of patrimonial buildings and I drafted a law for this that was voted upon in the council of ministers, but for some mysterious reason never made it into the parliamentary sessions.

At least we are preserving a building such as Sursock before this whole area is invaded by those monuments of ugliness such as the [residential high rise] next to us.

How will the museum be divided? And are there are any additions to the original museum?

Restoration has proven to be extremely difficult and, since we didn’t want to change anything in the architectural character but we wanted to expand the space, we had to add three floors underneath. We needed to develop a library and a good system for organization, all of which take space.

The main exhibition room will be on the second underground floor and will be used for temporary exhibitions, while we will use the old building for our permanent collection. Temporary exhibitions will last between two to three months and we will be inaugurating the museum with a major exhibition about Beirut in the eyes of painters from 1850 until 1960.

We kept the office of Nicolas Sursock in its place, and the Arab Divan was restored as it was falling apart before.

We also have an auditorium which we will use for cultural activities and possibly even for chamber music. We added a small restaurant and a gift shop so that people will come and spend more time, not just visit and disappear.

We now have 7,500 square meters when before we had 1,700 square meters so it’s almost four times the space as before.

[pullquote]The budget is still under discussion because we have not inaugurated the place yet[/pullquote]

May we ask about the cost and the budget of Sursock Museum?

The budget is still under discussion because we have not inaugurated the place yet. But the construction has cost us $12 million so far. I think there is more to be spent in the next few months because we still have furniture, sonography is not over and we need more acquisitions before we re-open, mostly the library needs to be developed.

How long was the museum closed for renovations?

Since 2007.

And were there any cultural activities by Sursock Museum during that period?

We kept organizing Le Salon d’Automne but having it in different locations, such as BIEL.

How will you reconcile the urban needs of Beirut with the kind of cultural need that will make the city better?

The challenge for us in the future is how to strike a balance between preservation and innovation, because culture is about creativity, and not all about preservation.

It is easier to continue doing the same things we did in the past, when we mostly organized exhibitions for Lebanese painters, had a yearly Salon d’Automne where we encouraged young artists to display their productions and gave them prizes, and finally, used to host international exhibitions. But now there is a new generation of artists who do things differently; you go to exhibitions now which are more about installations.

There is also a greater interest in Lebanon in photography, and we therefore want to integrate photography into our activities. We are in the process of agreeing with the Debbas family on transferring their archival material to us as they have the richest collection of photographs of Beirut and the region.

There are new ideas which are being discussed, as we would like to attract young people. I think they have, whether in music or figurative art, new talents and trends which we should not be oblivious to and instead try to engage with.

In the past seven years many galleries have opened around Beirut, such as the Beirut Exhibition Center or the Beirut Art Center, with each presenting a different focus. So where do you see Sursock being positioned in the context of the Beirut cultural field, starting next summer?

Galleries are commercial enterprises and we are not competing with galleries. We will not be selling paintings or any artwork. So we will continue to need galleries for the commercial side.

Now, there are a number of art centers that are mostly reflective of the innovation and creativity of the younger generation and I think they were the ones that were most pleased that Sursock is coming back to life because there will be a time, I hope sooner rather than later, where we will have synergy with those institutions. I mean, because of the history, size and location of Sursock, they may be able to benefit [from it] and we will have an open door policy with those spaces. So we don’t see each other as competition.

[pullquote]We are not managed, however, the way public institutions are, as we run it with a more private entrepreneurial culture[/pullquote]

AUB is starting its own museum in fine arts and has developed a gallery over the past three years. USJ is planning for another museum. Do you think there is a limit to how much art Beirut can take?

I think there are limits but it is up to those who are starting new institutions to think about that. We are not founding anything. We were there and we need to continue with our work. The other important difference is the relationship between public and private. We are unique in that we are a public institution but operate like a private institution.

We are public because we are a nonprofit foundation. Sursock donated this palace and the land as an endowed property and appointed the head of the municipal council as a custodian, and much of our money is public money. We are not managed, however, the way public institutions are, as we run it with a more private entrepreneurial culture. While everything else, such as AUB and USJ are private and that makes a difference, I think.

How many people came to Sursock on a regular basis?

We had about 5,000 visitors last year who came to the Salon d’Automne that we organized. But to be frank with you, those 5,000 are the [same] ones you will see in every other art event [in town]. I think the challenge for us is to widen the circle and try to get younger people and school children interested in art.

From your experience and background as minister of culture, is the interaction and intensity of exposure of the young Lebanese to art a priority?

I will always continue to insist on the need for cultural activity to transcend class, community and regional barriers in Lebanon. Part of the problem with cultural life in Lebanon is that it’s very fragmented.

I keep telling my staff that they have to remember every morning that Sursock is not a museum for Ashrafieh or Beirut, it is a museum for Lebanon. We used to be a francophone institution and now I am “Arabizing” it primarily for that reason. If you are a francophone institution, then you will get the French speaking elite. You won’t get school children from Southern Lebanon or Tripoli.

What is your program for the IFI, in terms of this public discourse?

I am still in the process of evaluating the existing programs so it will take some time before I orient them or add new programs. I won’t discontinue anything that used to be working so I will support all my staff who are engaged in solid work. There are very good pieces of research that are produced here, with others in progress.

But we are not just a classical research center, we are a public policy institute. So our main vocation is to bridge the gap between researchers, academics and intellectuals on the one hand, and policymakers and decisionmakers on the other. We need to facilitate dialogue between two communities of people that otherwise do not interact and often look down at each other.

Policymakers and politicians tend to think that academic work is irrelevant while the academic community thinks they are ignorant people. So there are two perceptions and our job is to tell policy leaders that some of the knowledge our university produces is relevant and useful for you. We also have to tell the academics that they can’t cut themselves off from public life as most of them do; they have to think of their relevance to society, especially in the social sciences.

As you are something of both, what do you see yourself as more: the academic or the politician and decisionmaker?

To politicians, I am an academic and to academics, I am a politician.

Do you see a role of the arts in bridging these differences between the public and academic stakeholders in Lebanon? Can art bring in added value on that side?

I think so, it is something for me to explore at this institute as well. I think art can play a role in bridging many gaps, including this one, because the two communities we are referring to are interested in its creation. Also because art in Lebanon will not survive if you are provincial and self enclosed. So you need to take into account people from other age groups, public opinions, social classes … If you only appeal to people like yourself, then your message will not be heard.

December 22, 2014 0 comments

Automotive Comment

It came out of nowhere

by Rachid Rasamny December 22, 2014

written by Rachid Rasamny

At the end of every year, automotive dealers typically begin massive liquidation campaigns to get rid of their older stock and make way for newer models. The 2014 campaigns are set to be more drastic than usual, as distributors face tremendous challenges that are curtailing their sales and piling up

the amount of inventory sitting in their stockyards.

Despite the ongoing civil strife in Syria and its spillover into Lebanon, as well as the presidential impasse — now in its sixth month — Lebanon’s shaky economy has still managed to grow slightly. Meanwhile, the automotive industry posted an 8 percent growth in sales in the first nine months of 2014 relative to the same period in 2013.

This growth is partly attributed to the resurgence of Japanese manufacturers, who have introduced competitively priced new models into the Lebanese market, supported by a 40 percent depreciation of the yen in the last two years. The growth is also led by the continued shift towards smaller cars, known as A and B segment vehicles. In fact, in the last five years there has been a paradigm shift by Lebanese consumers towards economically priced, more fuel efficient smaller cars, which has led to a large sales growth in this segment.

But in late August, Banque du Liban (BDL), Lebanon’s central bank, unexpectedly issued Circular 369, requiring a more stringent down payment on retail loans. This accouncement came as a shock to most as the default rates in 2014 remained relatively low and unchanged versus the previous year at just below 3 percent. The new rules, which went into effect October 1, require a minimum down payment of 25 percent on all future retail loans, including automotive and housing loans from Lebanon’s banks and financial institutions. While this move may make sense on a macroeconomic level, it has hindered most low to medium income families, many of whom will struggle to afford such down payments and face a lack of alternative means of transportation. These families — with monthly incomes ranging from $2,000 to $4,000 — usually purchase cars

that cost $10,000 to $20,000, which means that they will now have to deposit a minimum of $2,500 to $5,000, respectively.

a short sighted move

With the lack of an efficient public transportation system in the country and given Lebanon’s economic situation, this stringent circular is premature at best and will leave many Lebanese consumers struggling to commute. The last acquisition of public buses by the Lebanese government was over 16 years ago and only about a dozen are left on the streets today. The government’s plan to purchase 250 buses and have them on the roads by the end of summer 2014 unsurprisingly never took place. That is not to mention the still nonexistent train system.

From a car dealer’s perspective, at a time when the growth in the market is derived mainly through fierce competition, including price cutting by new automotive distributors, BDL’s circular has effectively curtailed sales in the most volume making — and low margin — segments. With their stocks now expected to pile up given the shock circular, distributors are now faced with two options: either contend with an increase in inventory or undertake large scale liquidation sales to deplete stock. Most will choose the latter, as huge working capital requirements, which is the minimum amount of resources dealers need to cover their operating costs, oblige automotive distributors to generate sales. To entice customers to purchase vehicles, car dealers are expected to begin lucrative campaigns, including offers ranging from lower interest rates to free registration, insurance and maintenance. Some dealers may even begin to internally finance customers who are unable to meet bank requirements, an unregulated and extremely risky financial undertaking.

Whatever method distributors adopt to enhance sales, the circular is bound to eventually provide customers with more rewarding offers in the short term as dealers will be scrambling for sales and coming up with more and more creative ways to adapt to customers’ limited payment means.

In the next year, however, dealers will most likely have to cut down on the inventory ordered to avoid such margin crushing campaigns and instead cope with lower sales volume. Customers will be faced with a stringent down payment, given the lack of other options for their daily commutes.

The BDL circular, an initiative that aims to support the economy by preventing a potential increase in consumer defaults, would have been better introduced in more economically friendly times or, even better, when the country would have finally adopted a more efficient public transport system.

December 22, 2014 0 comments