Society

Nicolas Chammas

by Nabila Rahhal
written by Nabila Rahhal

Executive sat with Nicolas Chammas, head of the Beirut Traders Association (BTA), to discuss the performance of the trade sector this year and what can be done to support it through these tough times. 

How would you describe the trade sector in the year 2013?

2013 was an extrapolation from 2012 and even more catastrophic in some ways. I even referred to September 2013 [as the United States discussed airstrikes on Syria] as Black September, a throwback to the civil war years and the Black September then. It was then that, for the first time in forty years, the employers association took the decision to strike for the day and though we were practically shooting ourselves in the foot, the situation was that drastic and it forced us to take to the streets and demand that a government be formed.

In terms of the BTA FransaBank retail index we had an across the board double digit decline of 15 percent for the third quarter of 2013 as compared to the same period in 2012.

Were some trade segments worse affected than others?

In trade, you have three segments, the first of which is the staples segment, which is the essentials that never stop because people have to eat, drink and dress. This sector was barely positive despite the fact that we had a continuous flow of refugees, all of whom consume. But the issue is that they get donations from abroad and products in kind or get goods from Syria. 

The second sector is luxury goods. This was severely hit in part because Lebanese purchasing power decreased and expats were not returning home as frequently, but the biggest blow to it was that visitors from the Gulf Cooperation Council (GCC) countries continued to avoid Lebanon. GCC tourists account for 45 percent of tax refunds on duty free purchases, with Saudi Arabia making up to 25 percent of those, so their absence had a big impact on this segment and other nationalities do not at all make up for this lack.

The third segment is durable goods such as furniture, appliances and cars. This sector also reported drops except for the automotive section which saw an increase in numbers of units sold but a decrease in dollar value, as more and more consumers shifted toward smaller and cheaper cars.

As far as the traders are concerned, we got hit at the top of the line, on the turnover across all segments. We have the volume effect because we are selling fewer goods and the price effect because we are selling the products at a discounted price. We found ourselves giving discounts and sales for almost 52 weeks of the year when previously we had two sale seasons which lasted a maximum of six weeks throughout the year. This is a loss for us, but we sometimes have no choice as we need to clear our inventories due to the seasonality effect and to keep up with the trends.

What would you say is the major problem for the trade sector today?

The lack of growth. The 15 percent drop in the BTA Fransabank retail index is huge (Q3 2012 to Q3 2013) when you know that trade represents one third of the gross domestic product formation in Lebanon. So when the trade sector sneezes, the economy catches flu and my bet is that the overall growth rate of the economy will not exceed 0 percent this year.

In Lebanon, we have two economies: the financial economy, meaning the banking system (and the monetary policy) which is doing well with good indicators however you look ­— the strength of the Lebanese pound, the reserves of the Central Bank and the liquidity and profitability of the banking sector.

When you look at the real economy, which is composed of the productive sectors such as industry, services, and trade, this is where we are suffering. So it is basically a tale of two economies; one economy is doing well and the other is doing terrible. But, eventually, the financial economy will be infected by whatever happens in the real economy and they are already starting to feel the pain and are taking more provisions.

What can be done to salvage this situation and support the trade sector in Lebanon?

What we need is stability.  We need the ban on travel for GCC nationals to be lifted and we definitely need their involvement and clear engagement in Lebanon again. We need the return of confidence from not only the Lebanese consumers but also the Lebanese and foreign investors.

What we mainly need, to say the least, is the formation of a competent cabinet which can restore the trust in the Lebanese economy. This is a necessary but not sufficient condition as we also need some restoration of security conditions as well as the sovereignty and dignity of the state. How can one invest in this country if there is no rule of law?

As for the merchants’ sector specifically, we ask to be aligned with the other sectors as far as some incentives are concerned. For instance, we have not benefitted at all from subsidized loans which went pouring into other sectors such as industry, agriculture and IT. True we are a traditional sector, but we have been bleeding money for the past year and desperately need to restructure our debt and decrease the service of this debt (the outstanding debt of this commercial sector is around $10 billion and the debt service is six or seven billion dollars without taxes).

This is why we are in a shouting mode whenever people speak of the new salary grid which will cost the economy around LL2,000 billion ($1.33 billion). It will break the neck of the treasury and the national economy as it will impose on us unbearable fiscal pressure. We understand they have been waiting for 17 years for this revalorization of their salary but is it wise to time it in the worst possible year for the economy?

What is the Beirut Traders Association doing to support the traders of Lebanon?

On the macroeconomic front, we work to try and stop such crazy initiatives as the new salary scale grid.

We work on the sectors front to give the indexes, which are based on real sales figures, giving us the ability to know exactly what is happening. We are currently in the process of producing an investment index with Bank Med, which is a forward-looking indicator of the jobs and opportunities of tomorrow. You can say we are getting our toolbox in shape to be able to present more scientific arguments.

We also worked with BLOM Bank to produce the Beirut Traders Association Shopping Card which is proving to be a success as we barely started and already we have 500 retailers on board. Our objective is to have thousands of cardholders, which will give advantage to the traders because of the number of cardholders and because they are part of a network and will get a commission on all sales that are done through these cards. The consumer will get incentives in terms of exclusive discounts and they will get the possibility of credit through BLOM Bank.

Through this card we are trying to encourage the smaller and medium-sized retailers by bringing them some extra business. 

We try to be useful to our members through practical initiatives such as the credit card as well as more theoretical positions such as the indexes. I think we are doing the best out of a terrible situation.

What are your expectations for the year 2014?

The pessimistic scenario is if the same geopolitical circumstances of 2013 prevail in 2014, the decline will go on, creating a much more difficult situation as our capacity to endure is being tested every single day and financially speaking we are already using our strategic reserves, so it will become tougher.

If the situation remains as is, we will be at a stable standstill. 

If, in the Geneva processes, there is some sort of breakthrough regarding Syria, then Lebanon will benefit immediately because the Lebanese economy is very fragile but at the same time it is very resilient; you push the reset button and there we go again. In that case, I will be optimistic about the future of the economy in Lebanon.

0 comments
0 FacebookTwitterPinterestEmail
Society

Grapes of worth

by Nabila Rahhal
written by Nabila Rahhal

"Wine is a way of living; it is your vines, your terroir… You are, first of all a farmer,” says Ramzi Ghosn, co-owner and winemaker at Massaya, one of Lebanon’s leading boutique wineries. Indeed, for most Lebanese wine producers, their work is first and foremost a passion that has also spread the Lebanese wine gospel both at home and abroad.
The industry has also witnessed new steps toward regulation. This year saw the official creation of the National Wine Institute, a public-private body that will eventually control all areas of the sector. There is still much work to be done but the Lebanese wine producers Executive spoke to are confident they are on the right track.

Lebanon has a rich wine history, dating back to 7,000 BC according to modern scholars. The Phoenicians began exporting wine across the Mediterranean where it developed a reputation for quality, which continued until Lebanon became part of the Ottoman Empire and wine production was forbidden except for religious purposes.

The Jesuits, at what is now Château Ksara, produced the first modern Lebanese wines in the mid 19th century, but with the end of World War I and the arrival of the French a previously unprecedented demand for wine arose. This led to a genuine wine culture that was sustained until the onset of the civil war in 1975, when production was brought to a virtual standstill.
At the end of the war, there were only four functioning wineries: Châteaux Musar, Ksara, Kefraya and Vin Nakad. They joined the International Organization of Wine and Vine (OIV) and officially resurrected the Union Vinicole du Liban (UVL), today Lebanon’s most effective wine lobby.

The sector really began to move in the mid-1990s when a slew of new producers, such as Massaya, Heritage, Clos (now Château) St Thomas, Domaine Wardy and a newly invigorated Domaine des Tourelles appeared on the scene. They were followed soon after by Châteaux Khoury and Ka, Ixsir, and Karam to name but a few. 

Today, there are around 43 wineries in Lebanon, producing a total of 8 million bottles a year, according to figures from the UVL. Hady Kahale, general manager at Ixsir, says the wine production sector supports 3,000 to 4,000 families. Lebanese wine is exported mainly to the United Kingdom, France, Dubai, Germany, Sweden and the United States and has penetrated markets as far off as China and Japan.  

A mechanism for progress

“Things are going well for the wine sector but with progress, you need to have a mechanism in place to regulate this sector and market the country,” says Michael Karam, author of  “Wines of Lebanon”.

This year finally saw the public sector — through the ministries of agriculture, industry and economy — wake up to the idea of winemaking as a productive sector of the Lebanese economy. “Wine production has become such a dynamic sector that the public sector had to acknowledge what is going on and answer a need,” says Kahale.

In June 2013, an official Lebanese delegation led by the director general of the Ministry of Agriculture Louis Lahoud, attended the OIV conference for the first time — an event they plan to attend next year as well. The ministry, with the guidance of the UVL, also held a “Day of Lebanese Wines” in Hotel George V in Paris and will be hosting a similar event in Berlin next year. The OIV chairman was officially invited to Lebanon this year.

But perhaps the most significant ministerial activity was the approval of the creation of the National Wine Institute (NWI), a public-private initiative that will eventually play the role of tailoring rules and regulations regarding Lebanese wine production, as well as allowing for fundraising and NGO support, explains Faouzi Issa, co-owner and winemaker at Domaine des Tourelles.

In explaining how the institute came to be, Serge Hochar, president and general director of Château Musar and current head of the NWI, recalls that in the late 1990s the three major wineries of the time, Châteaux Ksara, Kefraya and Musar, asked for the passing of a law to create a national wine institute to help them in their exports (by giving credibility to Lebanese wine).  

“In 2000 we got the law which asked for the creation of a regulating wine institute. The law was officially recognized this January 2013 and the institute was approved this May,” says Hochar. Though the NWI is not yet functioning, its creation is a positive step in the development of the sector.

Current head  of the UVL — and also CEO and chairman of Château Ksara — Zafer Chaoui says, “The approach of the Ministry of Agriculture is far more positive now and they are very interested in our sector, but this government has a restricted budget and we sincerely hope this commitment will remain unchanged when there is a government with full power. We then hope to receive this support with a budget as we need to help the smaller producers attend exhibitions worldwide, which is what other countries do.”

Though the winemakers interviewed have learned to rely on themselves and each other for financial support, they see government support as adding weight to their industry and believe it will have a positive impact, especially on the international market, if sustained.  

Brewing domestic interest

Fueled by the growing number of local wineries and wine retailers in the country, along with a rising global trend, wine appreciation among Lebanese has increased, and greater focus has been put on comparisons, production and tasting explains Paul Choueiry, manager of the restaurant and wine bar Les Caves de Taillevent in Beirut.

“Healthy competition among wine producers has improved production as a whole and that, coupled with individual marketing efforts and local wine festivals, has indeed piqued the interest of Lebanese consumers,” says UVL’s Chaoui.

Château Ksara has been the dominant force in creating greater consumer awareness. With a production of nearly 3 million bottles (modest by global standards but representing 35 percent of Lebanon’s production) and with a range of 14 wines, it has made a significant impact both at home and abroad.

“Since the 1990s the Chateau Ksara management has invested heavily every year to guarantee our quality is never compromised,” says George Sara, the winery’s chief commercial officer. “We use state-of-the-art equipment, regularly plant new vines and ensure that our vineyard management is second to none. We may be the oldest and most successful Lebanese producer but due to the competition we must always be at the top of our game.”

Lebanese consume almost two bottles per capita annually, according to statistics from the UVL — a number which Massaya’s Ghosn believes is very low and a result of several factors including the Lebanese preference for hard liquor with their meals, the competition arak provides and the previously limited number of wineries.

Still, Ghosn and the wine producers interviewed feel this number is increasing steadily and while Châteaux Ksara and Kefraya dominate the local market, according to Nayef Kassatly of Château Ka, greater exposure to different varieties of wine will create a more level playing field as consumers develop a more attuned taste.

“Locally, consumers go for the big names and it will take time for the more recent wineries to catch up. We wine producers should educate the consumer so communications, press releases and wine tours are very important,” says Kassatly. “The emphasis is on quality and everyone is doing better: the grapes are better, wine is better. So yes we can have more regulations but the best referee is the consumer and the consumer today recognizes good taste,” adds Kahale.

“Some have this idea that Lebanese wine is substandard but that’s not true,” says Karam “we can compete pound for pound with the best in the world in terms of quality — especially at the entry level.” 

Still, Lebanon has to go up against imported wines which are perceived by many consumers as better. Chaoui explains that, after an agreement with the European Union, customs on European wine were reduced, which increased the quantity of imported wine to 1,200,000 bottles a year, 12 percent of Lebanon’s local consumption.

Indeed one of the recurrent complaints voiced by wine producers interviewed was how some restaurants in Lebanon exclude Lebanese wine from their menu. “While you cannot prevent the consumer from choosing foreign wines in the supermarket, we have a problem with the on-trade, namely restaurants, in that some only have foreign wine in their menus. This perception should change and the government should impose on restaurants to have at least four local wines of their choice on their menu. We should be proud of our country’s products,” says Issa.

Other local market challenges cited were those common to all sectors of the economy this year, including the dwindling number of tourists, the deteriorating infrastructure, the decreased local purchasing power and the increased price of land.

Drip for drip

The relatively limited Lebanese market can only take one so far, and Lebanese winemakers have long carried the name of their country abroad through their wine. Château Musar began during the civil war. “I was not looking for Lebanese consumers; I was looking for knowledgeable wine consumers and I positioned my wine as a fine wine. Other wineries benefited from this. Today, Lebanese wine is positioned as a good high level wine which is important,” says Hochar.

The reputation of Lebanese wine abroad is in large part due to the efforts of the UVL and although Lebanon’s production remains low when compared to other wine producing countries, UVL members hope their capacity vis-a-vis European producers will increase and are enthusiastically planning for further events, now that there is government support. “We are a small drop in the sea of wine production but we have huge possibilities worldwide and every one of us is trying to find our niches. No doubt the world is huge, our wine is good and it is not difficult to sell the part of this quantity which goes into export all over the world,” says Chaoui.

Issa explains that internationally, the UVL works together on generic campaigns to promote “Wines of Lebanon”, citing a campaign in the United Kingdom as an example, where their combined efforts with the UK-based Coco PR to execute a generic campaign included events, roadshows, participation in the London Wine Fair and media trips to Lebanon’s wineries. All this has created a positive vibe for Lebanese wine, which has translated into better distributors and increased sales, with the UK being the number one market in terms of value for Lebanese wine today.

“We are working for Lebanon, and in the end it will benefit all of us. After this equal visibility and campaign… it becomes up to each winery to distinguish itself through its quality and history,” says Issa. 

In the international market, regulations and a good image become important because wineries get only one or two chances to attract a consumer to Lebanese wine and if that consumer should happen to try a lesser quality Lebanese wine, it is unlikely he will become a fan, explains Kahale.

France is among the three main markets for Lebanese wine, due to the prevalence of Lebanese restaurants there, according to Chaoui. Some wineries, such as Ixsir, focused first on the international market in France before creating a separate marketing strategy to penetrate the Lebanese restaurants; still others put their efforts into different markets.  “[Being considered] ethnic [foreign] is not an insult because people like to discover such categories but you cannot only be ethnic, you have to be in the real world as well,” says Kahale.
Chaoui summarizes other difficulties facing Lebanese wine on the international scene: “The global economic crisis of 2008 affected us all because the average citizen’s purchasing power has gone lower and people won’t consider drinking wine their top priority in times of crisis.

Also, there is an overproduction due to the crisis and prices are getting lower so competition is getting fiercer as compared to a period of economic boom,” adding that Lebanon lost a major export market in Syria this year due to the continuation of the crisis there.

Pressing on

A final challenge the Lebanese wine industry faces is the neccesity to compete on quality and not price internationally, because of its smaller production numbers.

Karam recommends that Lebanese wineries promote certain grapes — such as the indigenous white Obeideh and the red Cinsault which, although French in origin, has been around for over 150 years — to come up with wines with a Lebanese identity that would be a welcome change for the international consumer. “We could have a Lebanese signature wine,” says Karam.

The year 2014 promises to be an active one for Lebanese wineries with Ixsir launching a restaurant on their winery’s premises, Massaya creating a new winery in Fakra and the opening of Lebanon’s first wine museum by the Saade family, owners of Château Marsyas and Domaine Bargylus in Syria.

Most wineries will likely continue to sustain growth, however Ghosn expects that some of the older wineries may consolidate or scale down and he does not believe the sector will witness the same growth it did for the past five years.

Whatever the future holds for Lebanese wines, the path they have carved is smooth and wide and it seems wine will continue to be known as one of Lebanon’s more interesting exports.

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

A big market for small cars

by Paul Cochrane
written by Paul Cochrane

For consumers, 2013 may go down as one of the best years to have bought a car, with dealerships touting offers galore, from free registration and buy-back schemes, to $300 fuel vouchers and extended warranties. But for dealers, the market is so competitive that margins are exceedingly tight, profit is limited, and sales staff are scrambling for every potential buyer. 

Difficult though the market may be, it has not descended to the level of Dubai in the wake of the 2008 crisis, when some dealers were offering deals of buy one car, get a second half price. The Lebanese car sector has not stooped to such supermarket retailer style discounts. But aggressive advertising and deals are indicative of the overall state of the car sector, which has become dominated in the past few years by the A category — compact cars — that account for some 90 percent of all new car sales in 2013, while the luxury segment accounts for just 2 percent.

As of the end of October, 29,198 new cars were registered, up just 2.2 percent on the same month in 2012. Overall, the total number of registered new and imported used cars has dropped 7 percent in the first 10 months of the year compared to 2012, according to the Automobile Importers Association (AIA).

“The best months for sales are usually June, July and August, but they were almost the worst months of this year,” says Nagy Heneine, general manager of Bassoul-Heneine, dealer for BMW, Renault, Alfa Romeo, Mini and Dacia. Indeed, the number of registered cars dropped by 26 percent in August, while September figures dropped 17 percent compared to the year before. The lack of tourists also caused car rental companies to refrain from upgrading fleets, further impacting sales.

“Before the summer season we used to have those dates locked in logistically and have the inventory to cater to rentals, but that is no longer the case,” says Farid Homsi, general manager of IMPEX, distributor for Chevrolet, GM, Cadillac and Isuzu.

But while figures are not rosy for the sector overall, sales are likely to reach the 30,000 mark by year-end — not a bad result considering the current depressed economic environment and ongoing political instability. The figure is significantly above the 19,100 vehicles sold in 2004, although behind the benchmark figure set in 2008, of 35,400 units, which largely continued until the recent economic slowdown as the conflict in Syria started to spill over into Lebanon. 

“Back in 2009 and 2010, the economy was growing and there was optimism. Unfortunately due to the war in Syria those golden years have ended, slowly but surely. It is now a very difficult market and we need to find ways to sell cars that we didn’t have four years ago,” says Heneine.

What has kept sales buoyant are compact cars with price tags of around $11,000, making the market a volume game, as well as heavy marketing. “Everyone is making big concessions. Margins are very tight, and that is why there’s sales,” says Homsi. “Margins are low or break-even for more expensive cars, as even consumers in that segment are more demanding. Otherwise people postpone buying, whereas small cars are more of a necessity for daily use.”

got the mettle

Sales of compact cars aside, dealers are somewhat surprised that sales are holding up given the lack of consumer confidence. But this can be attributed to the state of crisis seemingly becoming the norm. 

“I feel the Lebanese are getting blasé. Five to 10 years ago when there was a bombing, the country would stop for a month. Two years ago, it would grind to a halt for a week. Now it is a few days and back to normal. People have become accustomed to the situation, and that’s why they are still buying,” says Negib Debs, in charge of Infiniti at Rymco, which also has the dealership for Nissan and GMC.  

Debs’ position is backed up by sales of Infiniti, which were up 80 percent on last year’s figures. Other higher-end Japanese cars have also had strong sales, with Lexus, Subaru, Honda, and Mazda reporting double digit growth, and Mitsubishi roaring back into the market to seventh in the rankings through aggressive marketing and a compact model, up 157.58 percent.

Yet while the bottom has clearly not fallen out of the market, it is the mid- to high-priced brands selling A and B segment cars — compact and small size — that have suffered the most in the Japanese, European and American segments. Overall sales of the European brands, which take just under 20 percent of the market, were down 1.73 percent, with Opel, Renault, Seat, Citroen and Alfa Romeo all down in the double digits. American brands, which have 5.49 percent of the market, are down 13.4 percent. Although Chrysler and Ford have had a good year, up 128.57 percent and 92 percent respectively, sales of Jeep, GMC and Dodge            are down. 

Such an imbalance between brands can be put down to new models coming on the market. “Some brands have been more active due to new models, and the yen depreciating has helped Japanese brands catch up, to have a kind of come back. But there’s definitely more competition and that’s why new models help a lot, as customers like new products,”           says Homsi.

BMW, a long time favorite brand among the Lebanese, saw sales drop 38 percent this year, but is banking on a new stable of models to bolster sales next year. “For us, 2013 was a transition year for BMW in terms of models, but 2014 will be a year of BMW, as [we are] launching new models,” says Heneine.

Among the Japanese brands, which account for 27 percent of the market, it is Nissan and Suzuki that have had the weakest sales, down 14 percent and 0.35 percent respectively. For Nissan, this is due to the brand having no A segment car, a new version of its small model, the Micra, and a less competitive exchange rate on the yen for much of the year. The Japanese giant had long been a top seller alongside competitor Toyota until five years ago, when they were both knocked off the top two spots by the Korean brands with their cost competitive cars, which now have 45 percent of the market. Kia has 26 percent and Hyundai 19.7 percent, while Nissan trails with 15.71 percent. 

The struggle to keep customers

As a result of the Koreans’ rise and Nissan still keeping a relative edge, these three brands have 61.41 percent of the market, reflective of the downward shift in car size due to lower purchasing power and high fuel costs. Indeed, for Chevrolet, 60 percent of its sales come from its compact car, the Spark, and the remainder in the B and C categories. As a result, Mazda is having to go the extra mile to emphasize quality over price.

“What we see is that people have a monthly budget of between $200 to $300 to pay for a car. With such a budget, cars produced in Korea and China have an 80 percent market share. What did we do in response? As Mazda are produced in Japan, we don’t have that monthly budget — it is $400 instead — so we increased sales by emphasizing the better quality of the cars,” says Anthony Boukhater, CEO manager of ANB Holding. The dealership, like others, has also invested in a new showroom and after-sales facility, added a further eight showrooms to its dealer network, and is using innovative marketing techniques. “We are putting adverts live on TV four times a day on four channels. Not 30 seconds, but 7 to 8 minutes [in total],” says Boukhater.

With so much choice on the market, and dealerships chasing after a limited number of buyers, after-sales and customer care have become important parts of a dealership offering.“The big challenge is to ‘loyalize the customer’ as Lebanese customers are very volatile,” says Heneine.

While the Korean brands made inroads and volumes in the compact segments, helped by a move away from used cars to new due to better fuel efficiency and bank loans, the market leaders are also making headway in the less cost-sensitive segments, adding to the competition. “Before, Hyundai sales were focused in the B segment, but now we are selling C. The Tucson is the number one 4×4, which is something we never achieved before, so each year a notch on the belt,” says Rachid Rasamny, sales and marketing manager at Century Motor Company, distributor of Hyundai. 

Aware of market dynamics, Hyundai has expanded its physical presence around the country to ensure it retains its position as the second best selling car in the country. “Since 2009, we’ve doubled the number of showrooms, to 24, to get in areas where there’s no other car company and there’s a market,” says Rasamny.

way of the Chinese

Reflective of the turn away from used cars to new is the fact that veteran car dealer Chidiac Motors entered the dealership business with Chinese brands JAC and DFSK. “Before launching we did our research and felt that an invasion of Chinese cars over the next decade will happen, as it did for the Japanese in the 1980s, and the Koreans now,” says Daniel Chidiac, CEO of Chidiac Motors. “It has not been easy to enter the market but we’re doing well, with sales up 58 percent on last year.” 

Chidiac is not alone in believing in the potential of Chinese brands, with other dealers also acquiring importation rights, with Rymco (which holds Nissan) gaining a 50 percent stake in Chery, NATCO (Kia) launching BYD in the market this year, and in June 2012, Rasamny Automotive Industries (Hyundai) launching Geely. 

Indeed, Chinese brands had the biggest gains among all brands in 2013, up 75 percent on 2012. But, at 616 units, Chinese brands only account for 2 percent of the market, although up from 1 percent last year. 

The Chinese brands are likely to gain ground in years to come, with Geely utilizing the technology of Sweden’s Volvo, which it acquired in 2010, and JAC touting its 5-star safety rating and international design. “The passenger cars are designed by the same company as Ferrari, electrical systems by Bosch, and the engines by Mitsubishi,” says Chidiac.

Limited Luxury

Luxury sales have not done so well this past year, although there are certain exceptions, such as Land Rover, Volvo, Cadillac and Mercedes, whose sales rose 3.7 percent, and is now the ninth top brand in the country. But luxury and C segment sales are limited due to sheer demographics. As Executive reported earlier in the year, based on Credit Suisse’s Global Wealth Databook 2013, median wealth per capita is just $6,076, while 48 percent of privately-held wealth is in the hands of some 8,900 Lebanese, just 0.3 percent of the population. Such statistics are mirrored in the fact that just two Lamborghinis, one Aston Martin, two Rolls Royces and 18 Maseratis sold this year.

“The very rich can afford anything, but the middle class is no longer a big segment,” says Heneine. “Nevertheless, we sold 25 BMW 6 Series Grand Coupe and some 7 Series. So, not a downsize overall, but smaller cars are the bestsellers. Look at the mix, the best selling is the 3 Series — always the volume seller — at 25 percent of sales.”

The loss of wealthy Gulf Arabs who vacationed or lived in the country, due to governmental travel warnings, has been a further hit for sales and, in particular, after-sales. “We’ve had zero cars from the Gulf [into the garage]. We would fix them here otherwise. When there’s no Gulf Arabs or visitors, it affects the whole business,” says Michel Trad, general manager of Saad & Trad, dealer of Jaguar, Bentley, Lamborghini, Fiat and Abarth. “I built a Lamborghini showroom, but in the end, I need customers. Should I build a Fiat showroom to satisfy the manufacturers? We are not         Monte Carlo.”

As Samir Homsi, president of the AIA, pointed out, dealers are dependent on manufacturers bringing out smaller engines and models that reflect market demand. “By mid-next year hopefully the Q50 Infiniti will have a V4 engine. It is a problem, the lack of a V4, and other brands are feeling that too, such as Audi and Mercedes,” says Debs.

Saad & Trad are awaiting the new “mini” Jaguar, while Infiniti has high hopes for its new small model.  “People are still worried about image, so they drive a small car with image, a [Fiat 500] Abarth not a [Kia] Picanto,” adds Debs.

Some dealers, however, appear resistant to the changing dynamics of the market, downplaying the rise of the Koreans and the Chinese, as well as the downward shift in spending and vehicle size. But in the years ahead, as congestion increases, fuel costs remain high and with economic forecasts far from bright, those that adapt to this turbulent market will be able to stay, maybe not in the fast lane, but certainly on the highway. 

“The market has shifted from large cars to small, and dealers should take that shift into consideration and change inventory orders and marketing strategies,” says Rasamny. “Look at Europe, demand is for the small segment, and they shifted. India has always been about small cars. We’re similar to those markets, and I don’t see   that changing.”

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

Jean Riachi – Q&A

by Executive Editors
written by Executive Editors

Jean Riachi is the chairman and CEO of FFA Private Bank, Lebanon’s largest investment bank. Riachi sits down with Executive to talk economic outlook, investment opportunities for the bank, and strategies going forward.

What is your opinion of the macroeconomic situation — what’s influencing it and what are the biggest challenges for the country in 2013?

I think 2013 was the year where the regression of Lebanon was revealed and really felt, while probably it started in 2011. It might not be very clear when you look at the macroeconomic figures because they don’t show a big decrease in activity, but we really do feel that, and I’m talking not about recession, but about regression, because the country has entered into a phase of not only much slower growth but also a lot of sluggishness, a lot of bad mood. Now in terms of the banking sector, it has not translated yet into bad figures in terms of loan portfolios…but I think that it will show in the coming years.

In terms of pure investment banking activities, we were very much frustrated by this year because we had a number — not a big one — but a number of merger and acquisition (M&A) deals that were on the right track, where we had started this trend of talking to family businesses — some wanted to restructure, others wanted to sell, others wanted to expand by buying. We had a number of mandates that were going very well, for very interesting deals, that did not go through…We had in numerous cases people sitting together, so the matchmaking was done. Negotiations started on very good grounds, but with time passing you had buyers seeing their figures going down month after month. [They were] worrying about what will happen on the other side, and at the end [you had] both sides deciding to withdraw from doing any deal, because the buyer was worried of doing a deal at the wrong moment at the wrong price, and the sellers were worried about being forced to lower their expectations while everybody says this [situation] is cyclical and things could come back.

So yes, it was a very frustrating year in terms of investment banking/M&A activity. Now we have had a few successful stories in raising capital for companies, but interestingly nothing where the core business was in Lebanon. So [the way] for people like us to survive is to use Beirut as a base but to do deals or invest in markets that are outside markets.

When you say outside markets, is it more industry destinations or more geographic destinations? Let’s say, looking more at Africa, or looking more at Europe, or looking more at certain specific industries where you see growth in the medium-to-long term?

We are not dogmatic. I mean any interesting deal is something we are going to work on. Depends on what business line you’re talking about; we have capital market activities, brokerage, we have asset management activities, and we have real estate and finally we have investment banking activities. Since maybe 2007 there have been no more capital markets. At the time, the breakdown was maybe 30 percent in Lebanon and 70 percent outside Lebanon, I mean dealing on markets outside Lebanon. Today it’s 95 percent outside Lebanon and that started earlier. We cannot say that our brokerage activities were affected. Actually they grew a little bit in 2013. If you look at asset management, as well. All our investments — investments we do for our clients — all the assets we manage for our clients are outside Lebanon.

Looking forward to 2014, when you meet with your board of directors and you want to put together a strategy for 2014, how do these meetings look?

You know, when you are an investment bank and you have your home market, especially when you are a leader in your market, which is our case, this is where you can do best. Now we have to take things as they are and say, ok, we don’t have a local market. Our domestic market is frozen, so let us try to build on what we have to grow our operations.
It’s important to remember that people still have money, I mean, there is a lot of cash in the hands of the Lebanese, and they are looking for investment opportunities. So our role is to try to find, to source, to study, to evaluate, to do due diligence on opportunities, and if they don’t exist in Lebanon, we’ll go and get them outside Lebanon.

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

‘2014 will be the toughest yet for banks’

by Executive Editors
written by Executive Editors

François Bassil is the chairman and general manager of Byblos Bank and head of the Association of Banks in Lebanon. Bassil sits down with Executive to talk about the bank’s performance in dire economic times and the bank’s strategy for next year.

How do you gauge the performance of the bank in 2013?

In 2013, it wasn’t bad. It was an acceptable year up until now, at least up until last month [October]. We made a [positive step with] the bank’s balance sheet up 8 percent, and deposits increased 7 percent the first nine months of the year. There was a small decrease of profits of 6 percent. We took a lot of provisions because of the situation in Syria. In general, all Lebanese banks worked hard this year but their profits were stagnant. And credits to the private sector increased by 5 percent.

Next year will be difficult because unfortunately there is the security problem in Lebanon, there is the political problem, there is the rift within the political class, which is not able to agree to form a government. The administration is crumbling…banks are not on an isolated island. They will be affected by the economic sector which is on the brink of…well up until now it hasn’t collapsed. There are just difficulties in certain sectors, in tourism which has been affected the most. Up until now banks are not calling upon their dues, neither from the hotels nor the restaurants. They are instead rescheduling debts. This can last one year, two years, but not any longer.

What strategy do you have for 2014 in such an environment?

There is a new development now with the accord between Iran and the international community. That will likely have a positive effect on the whole region. Will it have a direct and immediate impact on Lebanon? That’s a question mark, it all depends. If it has a direct effect and leads to the formation of a new effective government inspired by the Baabda declaration, I think it will be a positive step for the country. Otherwise, we are in the course of establishing the budget and perspectives of the three next years. In any case we have already taken measures to activate our activities abroad.

Of course if Syria’s health improves, we have a lot to do in Syria and it will improve the situation in Lebanon. Everything depends on what is going to happen in Syria. These improvements do not enter our outlook for next year’s budget, for our plan in 2014. Instead we continue to take provisions, and [know we will]stagnate in Syria. We are managing a crisis in Syria.

We are developing our activities in Iraq. There are ways to develop despite certain precarious regions like Baghdad. In Baghdad we don’t have a lot of activity. We have a presence there; we have to be there. We were one of the first banks there. And we have operations in Basra and Erbil that are working well. In 2014 we are going to open in another city in the region of Kurdistan. In Iraq, I am optimistic that we are going to double our numbers.

In [the Democratic Republic of the] Congo (DRC), we bought a bank that belonged to Lebanese. They kept 33 percent, and we bought 66 percent. It is beginning to be profitable [after] three years. The first year we had some losses, but the next year we had small profits, this year was good. And next year I think it will be much better because we have developed relationships with local and foreign companies established in the DRC.

And we are becoming more and more active in Africa, especially in the Congo. We have a team that travels in Africa, looking for business, and we are going to count on our foreign relations for 2014. Of course, if things budge in Lebanon for the better, we are here.
Besides that, the problem for Lebanon is whether the state can continue to pay its personnel.

Is this a real danger?

It’s a real danger because banks do not want to continue to finance the deficit of the state. If you have a client that is gradually going out, and taking no measures to improve his situation, to continue to finance him, to help him, without any effort on his part…he is a big client to the banks. He is continuing to squander the money that he is receiving, and making no effort. Besides this, his revenues are diminishing because his business is diminishing. In the business community, there is a decrease of productive activities, of the taxes paid by individuals, of the taxes paid by businesses. Next year, they will decrease much more.

0 comments
0 FacebookTwitterPinterestEmail
Banking & Finance

Hadi Naffi — Q&A

by Executive Editors
written by Executive Editors

Hadi Naffi is the executive general manager of Banque Misr Liban (BML). Naffi sits with Executive to talk about strategies for a small bank to remain competitive in the Lebanese market, and the impact of turmoil in Egypt.

Tell us about the performance of the bank in 2013.

Our deposits increased by over 12 percent in the first 10 months of the year. Our advances to the private sector, the credits to the clientele increased 16-17 percent. The situation is healthy, the situation is good for now. We are making profits but we are not making as big profits as we could have expected in a flourishing economic situation, that’s all. The times are tough, we are fighting, we are working hard, but our numbers are good. We have witnessed a serious development of our bank.

In Lebanon there are five large banks that alone dominate 60-65 percent of the market. When you think that in total there are 49 banks in Lebanon, of which 10 control up to 85 percent of the market, the others have to fight for the remaining 15 percent of the market.
When we arrived [on the scene] in 1929 BML did not even represent 0.5 percent of the market. Today, despite its growth, we only represent around 1.1 percent of the market. That’s nothing.

Have the developments in Egypt had a negative impact on your bank?

None. None because it is Egypt that invests in Lebanon, we don’t invest anything in Egypt. We are completely autonomous, and the flow of investments [means it] is the Banque Misr in Egypt that invests in the capital of Banque Misr Liban. The BML doesn’t invest anything in Egypt, doesn’t give credits to Egypt.

What were your largest investments in 2013?

We have made many investments that are not apparent, we have invested in technology, in the sense that we are updating our IT platform.

We also invested in the workflow of operations within the bank to ensure a higher quality of service to the clientele.

Today we are in very tough competition between banks. The only thing — the only value added thing — that one bank can have over another is to offer a more sophisticated service which responds better to the needs of the clients. The more sophisticated it is the better equipped we are to participate in an active competition.

Small banks, when they are dynamic — such as the Credit Bank led by Tarek Khalife — the reason they are dynamic is because they want to attract capital which will allow them to take a bigger share of the market. To what extent does BML have this option?

Dynamic banks, such as Tarek Khalife’s…they see big. They have reason to see big. They tell themselves, ‘by staying dynamic I will be able to show that [others] have an interest in joining me.’ This is normal. The only difference between Tarek Khalife and BML is the following: Over there it’s under the control of the family of Tarek. Here it’s under the control of an Egyptian financial institution. The decisions within Tarek’s bank will be made more easily.

So would the idea of augmenting capital and having a more aggressive strategy work?

It exists, but I will explain one thing. When I arrived here at the end of 2007, the capital was LL27 billion — a little less than $20 million. In 2009, I asked for an increase in capital. We brought it to LL100 billion. Today, we don’t [increase capital] because we don’t need it. We know that the Basel II and Basel III calls for capital adequacy ratio of liquidity coverage rate and all of that and we have completely conformed. Certainly we will need to increase the capital when there is an increase in activity, but this will come with time.

Today the Banque Misr in Egypt is subject to compliance with regulators there. To what extent, on a regulatory level, do you have to accommodate?

Today, we are living in an environment of globalization, a world of globalization. All regulators, worldwide, in the emerging countries and in the developing countries, are referring to the recommendations of Basel committees. Basel II and Basel III have [put forward] many recommendations, some very complicated. But in all cases, all regulators are applying them, though in different ways. But at the end of the day it’s the same regulation everywhere. This problem is not raised [for our bank] at any time because actually [we all follow] the same regulations. It’s all based on the Basel committee.

0 comments
0 FacebookTwitterPinterestEmail
Society

Dressing down

by Nabila Rahhal
written by Nabila Rahhal

It was a common sight this year to see sales assistants lounging on the doorframes of their trendy boutiques in Beirut, sleepily waiting for customers to walk in. Meanwhile, the public was assaulted by a barrage of text messages urging them to benefit from the latest sales, discounts, and ‘unbeatable’ offers. This was a hard year for the retail sector in Lebanon.

Retail’s issues are the same as those of other sectors: a lack of wealthy tourists hunting for the latest fashions, coupled with lowered local purchasing power which has caused many Lebanese to downgrade their tastes or skip buying all together, save for necessities.  

Figures from Global Blue Lebanon of purchases by tourists who reclaimed their value added tax for the first nine months of 2013 as compared to the same period in 2012, show a decrease in spending across almost all nationalities of tourists, with most significant drops coming from the Gulf Cooperation Council countries (GCC). 

Renata Zeidan, owner of Santiago Boutique, a multi-brand upscale boutique with branches in Ashrafieh, downtown Beirut and Kaslik, says her business has dropped 15 to 20 percent, mainly due to the decline in tourist numbers, especially the wealthy Syrians who used to come to Lebanon for the weekends and Arab and Turkish nationals.

Nadim Chammas, CEO of Menawear, distributor of Slowear in the Middle East and North Africa region, says that the initial plan was for the the Slowear flagship store in Beirut to act as a model they could present to others in the region. “I had many potential customers and clients who were supposed to fly in and see the store in Beirut but most of them cancelled their trip [due to the incidents we had last year],” says Chammas. 

MID-MARKET SUFFERING

Although Hamra Shopping and Trading Company (HSTC) expanded significantly this year, opening four new stores in Lebanon and two in Baghdad, its chief executive officer Rami Rayess says they were not immune to the effects of the current unstable political situation and they had a challenging 11 months, though they are still waiting for the increased activity the holiday season will bring to formally assess the year.

With purchasing power on the decline, and the internal situation showing no signs of improving, it was no wonder that Lebanese chose to spend less on fashion and luxury items this year. “Even Lebanese who have money are spending less because psychologically they are not in the mood to spend and are not going out as much,” says Zeidan.

Luxury goods in Lebanon, as is often the way, did not appear to feel the sting of the declining economic situation as deeply, and it’s still possible to hear, for example, of the latest $35,000 Piaget watch being sold to a local a few days after the model arrived in Lebanon, and of people spending thousands of dollars on a bottle of cognac. Executive’s special report on luxury goods in August 2013 concluded that the sector is performing relatively well. 

Instead, it is the mid-market that is suffering and Zeidan feels that this is a global problem. She describes how, when she was at Milan Fashion Week this year, it was only the luxury brand stores, such as Hermès and Chanel, and the mass market retailers that were busy while stores targeting the mid-market were empty.  

In Lebanon the challenge is felt more acutely, due to the added difficulties of local instability. This has caused retailers such as Zeidan to rethink their strategy and opt for less expensive brands without sacrificing quality. “Fashion has changed and the mid-market clients’ lifestyles have changed to the cheaper products worldwide and we have to keep up,” says Zeidan.

Still, although Lebanese mid-market shoppers may be opting for lower-priced retailers for everyday wear, they still frequent the mid-market stores for special items. Sales assistants at the downtown boutiques say they had increased sales during prom season and in the summer, Lebanon’s wedding season.

Looking back at 2013, Slowear’s first year of operations in Beirut, Chammas says, “The response was more than we expected from the Lebanese customers and I thought it would take more time to achieve this level of success with them. Of course we suffered from the fact that there were practically no Arab tourists this year and this part of the business on which we were also relying did not happen, but the rest was good.”

Lebanon saw the longest sales season this year with almost 52 weeks of discounted items, according to Nicholas Chammas, head of the Beirut Traders Association. The reason behind this was to clear inventories and make room for the new collection of season friendly items, though some items were sold at a loss, according to Chammas. A quick glance at shops during that period would show that, although many browsed the shops, few came out with bags in hand.

Considering the expenses retailers have to pay, some items cannot be sold at lower prices while still being viable. “This is why our clothes have to be expensive, considering what we spend to get them into the country, the rent prices we have to pay, the electricity bills and employee wages. The consumer cannot afford this but we cannot afford to have it cheaper as well,” says Zeidan.

PAYING THE RENT

Beirut is the 37th most expensive country for retail rent in the world, according to a survey by property consultants Cushman & Wakefield with locations such as downtown, ABC Ashrafieh and Hamra popping up in the list of the most expensive retail spaces in the Arab world.

“Prices in downtown are very expensive and are the same as those in New York which has a much higher volume of shoppers than Beirut. This is really too much and one wonders where we are heading,” says Zeidan. She adds that this is the reason one sees many empty shops in Central Beirut and although landowners are working to reduce the rent fees, they would still be considered expensive. 

The Beirut Traders Association, along with BLOM Bank, have issued a credit card that will encourage shopping in small and medium enterprises with reward points and hope this initiative will inject some much needed life into the sector.   

Retailers Executive spoke to are going ahead with their expansion plans, with Slowear expanding further into the Middle East and launching two points of sale in Dubai, and a new point of sale in Qatar and Kuwait and HSTC planning to pursue expansions in all aspects of their business both in Lebanon and in the countries where they are already in operation. 

 “On the Lebanese side, I am optimistic,” Chammas says. “Lebanon can always offer you a surprise. When everything is doing well, it unfortunately comes up with a surprise you didn’t expect and on the other side when things are bad you get a good surprise.”

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Back in the black

by Joe Dyke
written by Joe Dyke

There were very few positives for the Lebanese economy in 2013, but the industrial sector was perhaps one of them. If 2011 and 2012 were years of crisis — with the Syrian civil war destroying trade routes and wreaking havoc with business plans — 2013 was a year of adaption and stabilization.

In the first eight months of 2013, industrial exports totaled $2.2 billion, an increase of 12.3 percent from $1.9 billion in the same period in 2012, according to the Ministry of Industry. Industrial imports reached $217 million in the same time period, up 7.7 percent from $201.4 million in 2012. The government does not collect accurate information for total industrial output but Neemat Frem, head of the Association of Lebanese Industrialists (ALI), told Executive that growth was “certainly double digit” in 2013. These figures were, admittedly, starting from a low point after terrible years in 2011 and 2012, but growth is growth and there was precious little of it in the Lebanese economy this year.

In fact, industry was one of the key reasons why Lebanon’s economy grew at all in 2013. The meager 1.5 percent growth in gross domestic product (GDP) achieved nationally was — according to World Bank figures — mostly from industry. While services — the traditional driver of the economy — and agriculture made up less than 0.5 percent of GDP growth, industry alone was responsible for over 1 percent.

This is somewhat of an anomaly, mostly due to the rapid decline in services, which in the boom years of 2008 and 2009 made up over 7 percent of GDP growth. Industry’s input to GDP growth has never been more than nearly 3 percent in 2010, and is unlikely to be the major driver if and when the economy does start to grow again. But the positive numbers do point to a strong level of resilience in the sector.

RELATIVE RESILIENCE

Eric Le Borgne, lead economist at the World Bank’s Lebanon branch, agrees that “in relative terms” industry was a success in 2013. “The big losses have come from the services sector; industry has remained a small part but relatively resilient. It has been resilient even though some sectors have been impacted by the trade disruptions through Syria and the Gulf/GCC customers going through Syria. But overall what we see is relative resilience.”

Confidence is gradually returning as well. Banque du Liban’s Balance of Opinions quarterly business survey — a key measure of how industrialists perceive their positions — was at -5 in the second quarter of 2013. While this was clearly negative (a positive score means that more industrialists forecast growth than decline), it was up from -11 in the same quarter 2012, and -8 in the first quarter this year. There was, however, clear geographical divides with those in the North (-30) and Beirut and Mount Lebanon (-7) negative, while those in the Bekaa (+5) and the South (+34) were positive about the coming months.

In terms of policy, it is hardly a surprise that little if anything was done by the government to support industry in 2013. The industrial sector has long complained of marginalization — the industry ministry is one of the worst backed financially, with an annual budget of little more than $5 million — and the fall of the government in March made policy-making impossible. Caretaker Industry Minister Vrej Sabounjian, however, denies that his time in office has been a failure. “[We] have achieved a lot of things, but of course there are some things we could not do yet — especially because in the last 6 or 7 months we have not had all the powers of execution,” he said.

The biggest disappointment has perhaps been the failure to implement the tax reduction for Lebanese exports, which would see the rate fall from 15 percent to 7.5 percent. The deal was first backed by the government of Omar Karami in 2005 but has yet to be implemented. A year ago Sabounjian told this magazine it would be done in 2013, but he now believes the collapse of the government in March and the subsequent failure to reach a unity deal has made it impossible in the short term. “It is in the parliament. It has been over seven or eight months in the parliament but I hope one day they meet again and finalize this law,” he said. Industrialists have grown weary of political promises and none that Executive spoke to believed the decision will ever be implemented.

The fall of the government has also led to a moratorium on all plans to develop other parts of the framework for Lebanese industrialists. Lebanon’s bid to accede to the World Trade Organization (WTO), which officially began in 1999, is now all but consigned to history. In February USAID, the American development agency, indicated as much when they cut their funding aimed at supportting the bid. “We had done everything we could and it was up to the government of Lebanon to take it to the next level,” Heath Cosgrove, director of economic growth, water and environment of USAID said, explaining the decision. The key competition law which needs to be passed for WTO status to be granted has been sitting on parliament’s to-do list for a while, but the economic interests of the country’s oligopolies make sure it never makes it to the top. Improvements to intellectual property laws, research and development schemes and tax incentives also went unmade in 2013.

But the absence of government support may be helping unite the industrial sector. ALI’s Frem told Executive that industrialists have given up hope of government leadership but are looking to improve support within the sector. Chief among their proposals is an industrial park (see box above), which, if it is formed, will be run without any government support.

MEASURING GROWTH

Similarly ALI is seeking to establish an industry index to reliably measure industrial development. Among the key indices to be included will be job creation, investments, proper industrial output statistics and a yearly overview of change in costs. In a country where reliable data on almost any sector is lacking, this initiative is to be welcomed.
More fundamentally, however, Frem makes the case that the shockproof nature of the industrial sector means that there should be more focus on orienting policy towards supporting it. “We are living in a country that is built on many fault lines, so we shouldn’t build an economy that is not resilient,” he says, referring to the service and tourism-oriented focus of the economy. “In 1974, 25 percent of Lebanon’s GDP was from industry. Now it is 10 percent but it should be around 20.”

0 comments
0 FacebookTwitterPinterestEmail
Comment

Iran’s power dynamics – the old and the new

by Gareth Smith
written by Gareth Smith

As 2013 opened, Iran’s Ayatollah Ali Khamenei was struggling to manage an unpredictable and often truculent president in Mahmoud Ahmadinejad. At the end of 2013, Iran’s supreme leader oversees a president trying to improve relations with the United States, Europe and the Saudis and to instill tighter fiscal discipline. That culminated in the November deal in Geneva to reduce global sanctions on Iran in exchange for limits to its nuclear program.
The election of Hassan Rouhani upset those ‘experts’ who see Khamenei as micro-managing most aspects of Iranian politics, security and economy. In reality, Khamenei rarely leads from the front but prefers to wait for consensus — or stalemate, or inertia — to emerge from the interplay of factions scattered around parliament, Qom, the military, intelligence, the charitable trusts and the provinces.

Khamenei has been dubbed “Bismarck with a turban” by Ray Takeyh, the former State Department official now at the Council on Foreign Relations, but he is surely less decisive than the Prussian whose limited wars redrew the map of central Europe. Caution rather than calculated risk-taking has helped Khamenei become the longest serving leader in the Middle East.

There has been wide agreement in Iran on the desirability of an international agreement over the nuclear program. This results in part from the halving of Iran’s oil exports by sanctions introduced in 2012 by the United States and European Union and also from the long-term stagnation of the gas sector (Iran’s net exports in 2012 were only 4.4 billion cubic meters from output of 160.5 billion, a poor return from the world’s largest reserves of 33.6 trillion). Ayatollah Ruhollah Khomeini, founding father of the Islamic Republic, famously said the Revolution was not about the price of watermelons, but Khomeini was practical when necessary, especially in his 1988 decision to accept peace with Iraq.

The November agreement with the  P5+1 — the permanent members of the UN security council plus Germany — is a significant step. But even this will not automatically restore the formal bilateral relations with the United States broken since the 1979 Islamic Revolution. Neither will it suddenly remove the geopolitical rivalry between Iran and Saudi Arabia.

But the new ‘balance’ could well suit Khamenei. It leaves opponents of talking to the ‘Great Satan’ with their ideology to cling to: no doubt Hussein Shariatmadari will continue his stinging editorials in Kayhan newspaper exposing the follies of trusting the US. Meanwhile, Iran is expected to receive up to $7 billion in relief from economic sanctions under the deal, desperately needed to stimulate economic growth, projected at just 1.1 percent for 2014 by the London-based Economist Intelligence Unit.

Hence Khamenei’s judicious tweets, which on the one hand have warned of US duplicity while on the other assured fellow Iranians that the nuclear negotiation team are not “compromisers” (over Iran’s ‘rights’ and ‘red lines’) but rather “our own children and the children of the revolution.”

Syria is more of a conundrum. Arguably, stalemate in the war might also look to Ayatollah Khamenei like ‘balance’. From Tehran’s perspective, Bashar al-Assad seems better placed on the eve of 2014 than 12 months earlier. In August 2013, former president Akbar Hashemi Rafsanjani stirred a hornet’s nest in Tehran by accusing the Syrian regime of using chemical weapons, promoting a debate as to whether Assad was expendable. Now the pendulum has swung back. If the regime’s offensive in Qalamoun opens an effective corridor to Aleppo, and if the opposition continues to fragment, then Tehran may well return to collective expressions of long-term friendship.

But Syria is messy. Those fighting the war are more and more embittered. Although relatively contained, the conflict is percolating into Lebanon, Turkey and Iraq. It has reinforced the Saud family’s sense of insecurity, and strengthened the forces of militant Sunnism regionally. Iran’s own Sunni minorities, especially the Kurds and Baluchis, are restless.

Khamenei never shared the triumphal Shi’ism asserted by Ahmadinejad. Pragmatists in Tehran have never lost sight of the math: Shia are just 15 percent of Muslims worldwide.  And in military terms, some estimates put GCC defense spending at 10 times Iran’s, a startling figure even ignoring Israel’s arsenal and the US presence including the 5th Fleet based in Bahrain. Khamenei would for sure know the old Persian proverb: “He who wants the rose should respect the thorn.”

Gareth Smyth is the former chief Iran correspondent of the Financial Times

 

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

‘We couldn’t do anything in 2013’

by Joe Dyke
written by Joe Dyke

By his own admission, caretaker Minister of Economy and Trade Nicolas Nahas has had a frustrating year — as a member of a resigned government, unable to implement policy, but still blamed for the stagnating economy. Executive sat down with him to discuss the impact of the conflict in Syria and the formation of a new government in Lebanon.

What stage is the Lebanese Syrian Conflict Trust Fund [to help stabilize the economy] at and how much will you be seeking?

It is an idea. It was developed during the visit of President [Michel] Sleiman to New York and has been taken on with the World Bank in Washington. We have organized several meetings where we have set [out] the social and economic impact assessment.

We have given [donor countries] the priority of the government, we have given them the concept note of the trust fund, we have given them the way to go forward. It is up to the countries to figure out how they participate.

There have been different kinds of responses — countries that have already pledged to the fund, others have said they will study it, others prefer bilateral [aid].

Do you believe that without a new government potential funders will not give?

We are not there yet. We are in the process of making the idea workable. We are setting the priorities, we are taking advantage of the time in front of us before the donor meeting where everything should be ready — including a new government.

Could formal refugee camps take some of the strain off the Lebanese government, as the bill would be picked up by the international community?

Being in camps or not being in camps wouldn’t change that. Whenever they are registered as a refugee they are taken care of by international organizations.

But they are using the already crowded public school sectors and public hospitals, rather than specific facilities paid for by the international community…

Whenever we can help them, we help them. It is not a matter of being in camps to cater for health and education and everything. They are registered as refugees and the United Nations organizations have the means to give them the services.

Would you agree 2013 was a lost year in terms of policy making?

2013 was a year where there was no government. So by definition no government — no policy. There is no government.

For yourself in 2013, would you say you had any successes — things you achieved despite the collapse of the government?

Again, it was a resigned government. How could we see any?

The Finance Minister Mohammad Safadi has said that he believes there could be 0 percent growth in 2014. Is that a view you share?

I don’t know from where he has these assumptions… The figure in 2013 and the figure in 2012 don’t show we will have 0. But let us see, it is early to speak about 2014.

What should be the first priorities of the incoming minister of economy, whoever he or she is?

Stability, stability, stability. Whenever there is stability the private sector is capable of generating the kind of activity which is needed to have growth again.

There are a lot of things that are totally possible — all it needs is a political solution on when and how to start this huge set of reforms which should be implemented in every aspect of Lebanon.

There is an incredible amount of negativity about 2014 among the Lebanese business community. What would you say to those who are worried they might lose their businesses?

They are right to be conservative, to be alarmed, but the figures do not show that we are in recession. We are in a slow motion growth; we are not in the peak time, we are in the down time. The economy is about peak and downtime.

The most important [thing] is to consolidate our activity, to reduce our costs and to wait until the external factors are there to allow us to go forward with the economy — as happened in 2006, as has happened every time since 1975.

This year we have seen the highest level of industrial machine [imports], we still have the creation of new companies, the central bank has made available new loans. There are so many initiatives going on, and there is activity. But there is no other way — we consolidate, we reduce our costs and we wait until we go for a new launch.

0 comments
0 FacebookTwitterPinterestEmail