Economics and Policy
Lebanon’s budget deficit in the first six months of this year continued to rise amid falling revenues and increasing expenditures, the Finance Ministry has announced.
French energy firm Alstom announced that it has won a contract worth around $227 million in Saudi Arabia to supply steam turbine generators for the Shuqaiq power plant.
Dubai real estate firm SKAI Holdings has recorded sales worth $653m since the launch of its $1bn Viceroy Dubai Palm Jumeirah project in May.
In recent years, tourist arrivals to Gulf Cooperation Council (GCC) countries have increased from 23.5 million in 2006 to 29.7 million in 2011, representing a an average annual growth rate of around 5 percent. The Gulf region, as well as the Middle East overall, are clearly part of a global trend that has made tourism as important to the world economy as the automotive sector. But governments in the GCC have to do much more if their countries are to participate extensively in the global growth of hospitality and benefit from the 70 percent increase in global tourist arrivals over the next 20 years that is predicted by the sector’s main international organizations, the UN World Tourism Organization (UNWTO) and the World Travel and Tourism Council (WTTC). If accurate, that will mean a whopping 1.8 billion global tourists a year.
While the six GCC states have considerable tourism potential, none has made tourism a national priority. As a result, the direct contributions of tourism to gross domestic product in Kuwait, Qatar, Oman and Saudi Arabia range from 4.5 to 7 percent, while countries such as Spain and Hong Kong achieve 15.2 and 18.5 percent contributions according to WTTC and Euromonitor. Until they invest in tourism strategies and better plan their hospitality offerings, GCC countries cannot fully benefit from a sector that accounts for 9.3 percent of world output.
Enhancing the experience
Three factors currently prevent the GCC tourism sector from reaching its full potential: a subpar mix of tourism products, insufficiently developed sector enablers and systems that discourage tourism.
First, most GCC states have a below-average assortment of tourism products because of limited variety, undifferentiated product quality and sporadic marketing. Examples of the narrow range of offerings include Saudi Arabia’s focus on religious tourism, Bahrain and Qatar’s stress on business offerings and Oman’s concentration on beaches.
In terms of quality, the GCC could obtain globally recognized quality certifications. Only the United Arab Emirates has beaches with “Blue Flag” certifications, a mark of water safety and good environmental practices. Similarly, there are too few attractions designated as UNESCO World Heritage sites despite the region’s considerable historical endowment. GCC countries also tend to market and promote their tourism products unsystematically. They participate infrequently in international tourism fairs and do not take advantage of digital promotion channels.
Second, most GCC countries have not fully developed the enablers that support and boost the sector. For example, they lack a long-term strategic plan for tourism and do not consistently develop human capital for the sector. The governments do not invest substantial amounts into tourism and there is not enough done to encourage private sector investment.
Third, there are systems that discourage tourism. These include stringent visa requirements and environmental sustainability standards that are lower than they should be. An area where change is happening in this regard is public transportation. Although it is underdeveloped, the region is undertaking significant investments in rail and metro systems worth around $70 billion.
This analysis applies primarily to the GCC states with nascent tourism sectors but not fully to the UAE and specifically Dubai, which embarked on planning, building and marketing its tourism sector years ago and consequently is one step ahead when compared to other GCC states or fellow Emirates.
The GCC’s tourism sector also has six competitive advantages. First, GCC countries are in generally strong economic health, allowing them to invest in tourism products. Second, the region has ample airport capacity to handle large volumes of visitors, with convenient connections to countries that are major generators of tourists. Third, GCC states have great appeal as business tourism destinations given their infrastructure for meetings and conventions. Fourth, the region’s cultural amenities are improving, with ancient sites being restored and important new museums in Kuwait and Qatar promoting the contemporary arts. Fifth, the GCC has good weather for a significant part of the year when top tourism markets for beach leisure activities are in low demand. This allows the GCC to be a “sun and beach” destination when competing markets are off-season. Sixth, the GCC’s reputation for safety and stability can attract security conscious travelers.
To build on these advantages, GCC states have to treat tourism as a multilayered ecosystem. Understanding the sector in this way allows them to address shortcomings in the ecosystem through three sequential steps that yield a national tourism sector strategy.
The first step is to define the ecosystem. Its major components are tourism products and services, attractions such as beaches and culture; sector enablers that build up the sector, such as marketing and promotion; and system enablers, such as infrastructure, safety and security which influence tourists’ perceptions of a country.
Building their tourism ecosystem requires GCC countries to understand what tourism products and services they offer at present and then concentrate on a few core product areas. That requires them to define and take inventory of all offerings including those related to culture, sun and beach, nature, sports, lodging and food. GCC countries also have to examine sector enablers.
These typically fall into five categories: planning, promotion, marketing, human capital development, and research and statistics. Generally, a central tourism planning entity (CTPE) oversees these activities with a mandate to diversify tourism offerings and increase tourism-related investments.
Finally, countries must examine their system enablers — such as infrastructure, health and safety — to see where more attention is needed.
The second step is to choose a strategic position and value proposition. This involves selecting the main sources of tourists, which are preferably large and close. Countries then need to narrow the potential sources of tourists by segment, such as business or budget travelers, families or retirees, which has implications for the average spend of these tourists and the anticipated growth in their numbers. This allows GCC countries to decide which products to prioritize, bearing in mind whether the product is inherently in demand, is ready to be offered, and can compete.
GCC countries will benefit from focusing initially on a clear and well-articulated value proposition that differentiates them from competing destinations. For instance, GCC countries may offer their tourism products to the broader Arab market; they may become business and conference hubs, or adventure holiday destinations. Lacking the maturity of established tourist destinations, we recommend that countries refrain from hasty pursuit of multiple value propositions.
Offering one product, such as beaches for anybody to sit on, is different than having a value proposition. An example for a focused value proposition would be culture holidays for high net-worth visitors from Europe, where a CTPE has identified an activity, a geographic source of tourists and a segment of that source market, and where supporting parts of the ecosystem are put in place.
As opposed to multiple propositions that would scatter efforts and prevent GCC countries from developing a well-defined brand, we see the best practice in focusing on a clear value proposition formulated around few products but with a variety of quality offerings.
The third step is to set up an appropriate institutional framework. This allows the CTPE, which is at the heart of the framework, to obtain the maximum impact from tourism initiatives and integrate tourism into the national development program. The CTPE is typically responsible for setting policy and drafting and enforcing regulations. In some countries, the CTPE develops and executes projects.
By developing a tourism strategy, GCC countries can help in diversifying their economies, increase the skills of their workforce and create jobs in complementary sectors such as retail and construction.
Economics and Policy
Lebanon’s central bank plans a further boost next year to an economy hit by war in neighboring Syria and domestic turmoil, but the package will be smaller than this year’s $1.46 billion, its governor said Monday.
Lebanon's Caretaker Prime Minister Najib Mikati signed a decree Monday to authorize the advance payment of $800 million to pay the salaries of public sector employees.
Oman's plans for a national railway project will be fast-tracked and completed in a single phase instead of three as proposed earlier.
Iraq’s oil exports were cut sharply by a pipeline leak and work at southern ports, industry sources said, raising concern among buyers of prolonged outages despite Iraqi assurances.
Companies and Business
Dubai real estate developer DAMAC Properties has handed Saudi Binladin Group a $96m to construct a luxury housing project in Riyadh.
Barclays has been branded reckless by a British watchdog for failing to disclose payments of $511 million in advisory fees to Qatari investors who helped bail it out during the financial crisis.
Economics and Policy
Regional markets rose sharply on news of a US-Russia deal over Syria.
Attacks across Iraq took more than 46 lives on Sunday and 25 on Satruday.
60 percent of Lebanese say their savings accounts are smaller than they were a year ago.
Companies and Business
Real estate giant Solidere is projected to make $52 million in profits in 2013.
Zain Iraq expects wealthy individuals to be the main buyers in its IPO.
Saudi Prince Alwaleed bin Talal says he will not sell his shares in Twitter when the company makes its upcoming IPO.
Sport can heal and unify a nation, as shown by Lebanese basketball club Sagesse (Hekmeh) in the late 1990s. Their green and white colors waved across the country when the club was crowned Asian Club Champion for the first (and second) time in Lebanon’s history. But sport can also have the exact opposite effect, and such is the case for Lebanese basketball today.
Rattled by feuds and infighting, the 2012-2013 season was halted several times and eventually ended without a winner, and on July 18 the International Basketball Federation (FIBA) suspended the Lebanese Basketball Federation (LBF) from international competition. Consequently, the national basketball team — already in Manila — was not allowed to take part in the FIBA Asian Championships. Replaced by Iraq’s national side, the Lebanese flew back to Beirut on July 21, not having made a single basket.
Rodrigue Akl, the national team’s point guard and captain of Sagesse, was on his way to morning practice when he heard the news. “I passed by the doctor’s room, which is always the players’ hangout on international trips,” says the 25-year-old star. “The manager was there. He told me, though his face said it all, really. We were all very sad and angry, yet the biggest shock had come earlier, in Taiwan, when FIBA had first warned the LBF.”
The national team left Beirut on July 4 to play the Taiwan William Jones Cup in preparation for the all-important Asian Championship. Three-time finalist Lebanon was not a favorite for the Asian title, but there was a lot at stake. A top three spot meant qualification for the 2014 FIBA World Championship in Spain.
“We had a very good chance of qualifying,” says Akl. “Iran was the favorite for the Asian title [and won], but countries like China and Jordan didn’t have such a strong team this year, while we had [former NBA player] Loren Woods.”
“I was at the 2010 World Championship,” saysAkl. “But I was the youngest on the team, so I only played for one and a half minutes. Today, I’m one of the senior players and I had high hopes to play a major role this time. But, well, ‘they’ killed my dream.”
Champville vs. Amchit
To understand who ‘they’ are and the reason for the LBF’s suspension, we must go back to last May, to the league’s quarterfinal playoff games between Champville and Amchit, two of the main protagonists in this tragic tale. Based in Dick El Mehdi in Metn, Champville was Lebanon’s reigning champion. The money trail behind both teams evidence the role that politics have played beyond the sidelines.
Most of Champville’s annual budget of $1.7 million stems from four main investors, Wadih al Absi, Elias Bou Saab, Jozef Hgoussoub and Ghassan Rizk, each investing $300,000. “Four different people, yet all with the same political color,” laughed Champville board member and press attaché Jad Deaibess. The orange on Champville’s jerseys reflects the color of the Free Patriotic Movement’s (FPM) flag.
Basketball is so far the only sport in Lebanon to be broadcast live on prime time television. The rights to the 2012- 2013 season were sold for $350,000, which is evenly divided over the clubs, after the LBF takes its cut. The latter moreover takes a cut on ticket sales, while every club member pays a federation membership fee. Finally, the LBF receives an annual contribution from the Ministry of Youth and Sports, which this year amounted to some $300,000, as the Lebanese national team was set to play the FIBA Asian Championship.
The main part of the clubs’ budgets stems from individual sponsors and political parties. As basketball is broadcast live, many politicians perceive it as an excellent platform for exposure. Basketball is arguably the only Lebanese sport in which an athlete is able to make a decent living, and more. Average salaries amount to some $3,000 to $4,000 a month, while the league’s top players may earn up to $20,000 a month. According to Robert Paoli, who played basketball on a national level before the game entered the professional era, the LBF League cannot be considered healthy. “All professional clubs depend on an external financial source for their survival, while there is no tangible return on investment,” he says. “That makes them vulnerable.” Take what happened to Zahle-based club Anibal. Backed by Wadih al Absi, the team in the 2011-2012 season ended as runners-up in the league, while it won the Lebanese Cup. Following a disagreement with the club’s management, Absi withdrew his money for the 2012-2013 season and took star player Rodrigue Akl with him to Sagesse. Anibal promptly ended last in the league and were relegated.
Absi is a reoccurring name in Lebanese basketball. He is the owner of the First Lebanese and First Kuwaiti construction firms that, among other projects, helped build the $750 million American embassy complex in Baghdad. Two years ago, Absi sponsored Anibal Zahleh, which promptly finished second in the season and won the Lebanese and Asian Cups.
In the 2011-2012 season, however, Absi withdrew from Anibal and put his money into Champville. In the 2012-2013 season, Absi not only bankrolled Champville but also Sagesse with almost $1 million, until the Lebanese Forces took over in early 2013. In addition, Absi also paid part of the annual budget of Beijeh and Antranik, and even coughed up the national team’s budget to travel to the Philippines. Absi was not available to comment on the reasons for his generosity, but it is widely believed among those with whom Executive spoke to be related to the planned (but postponed) 2013 parliamentary elections, with either Absi or a close ally of his expected to run.
While Champville, presided over by Jad Kahwaji, the son of the Lebanese Armed Forces commander Jean Kahwaji, is linked to the FPM, newly promoted Amchit is closely connected to President Michel Sleiman, whose son acts as the club’s honorary president. Its annual budget of an estimated $1.3 million is provided by a group of local businessmen and, reportedly, one Gulf investor. As every Lebanese person knows, the FPM’s founding father, Michel Aoun, and Sleiman can hardly be called best friends.
26 seconds
On May 5, Champville won the third playoff game and led the best-of-five series by 2 to 1. Hence, Amchit had to win the upcoming fourth match to stay in the race. It was scheduled for the next day, May 6, at 10:30 pm. Two hours before the match, however, Interior Minister Marwan Charbel, who is linked to President Michel Sleiman, asked LBF President Robert Abdallah to postpone the game due to “security issues.”
“It is strange there could be any security issues, as Champville supporters were not allowed to enter the Amchit stadium,” says Jihad Salameh. Salameh is not a LBF board member, yet as Secretary General of the Mont LaSalle Sports Club he is regarded as one of the main power brokers in Lebanese basketball and sports in general. Salameh also heads the FPM’s Youth and Sports program.
“I don’t know what security concerns the minister referred to,” says Dany Hakim, Amchit’s director of basketball. “You should ask him.” The 32-year-old is one of the sponsors behind Amchit, the club he has supported since childhood. He was also an LBF board member, but resigned earlier this year following the alleged embezzlement of $131,250 by LBF President Robert Abu Abdallah. The latter denied the accusations and appointed an auditor.
“I did send the LBF an official protest regarding the third game, as it ended in a brawl, while the Champville supporters used abusive language,” says Hakim who, prior to the playoffs, had requested the LBF, in vain, to appoint international referees. “The LBF board should have had a meeting and responded to my protest, but never did.”
With 26 seconds to go in the third game and Champville leading by five points, there was indeed some agitation between the players and staff during the third playoff, while the crowd chanted. Yet, looking at the images, it is clear nothing major happened. It was a matter of words, not fists, and as such not an unusual scene in basketball anywhere in the world. Interestingly, Hakim himself appeared to be one of the most agitated people on court.
Many insiders believe Charbel acted on “special request” from Sleiman when he called the LBF to postpone the fourth game. It is thought that Amchit aimed to buy time to prepare for their must-win game. Some even whisper Amchit aimed to play the game only after Champville returned from playing in the West-Asian club championship (WABA Cup) which took place from May 11 till May 18 in Iraq.
Unfair game
Following the minister’s interference on May 6, the LBF postponed the game until May 7 at 4:45 pm. “We arrived early afternoon, but the Amchit stadium was closed,” says Champville’s Jad Deaibess. “The game was then again postponed till 10 pm. We waited in the bus for about two hours, surrounded by Amchit fans, but the stadium remained closed.”
“The LBF had told us the fourth game would be played on May 7, but not at what time,” Hakim says. “On May 7, they only told us at 1:00 pm that we had to play at 4:45 pm, but we could not prepare the team on such short notice! We suggested [we] play on May 8. Instead the LBF postponed it till 10 pm that same evening, yet failed to inform us in a proper manner. They should have called, faxed or emailed us. Instead, we were told by [Lebanese Broadcasting Corporation]. So, we decided not to play.”
Conforming to the rules, the LBF handed Amchit a 20-0 loss for failing to appear. Consequently, Champville won the series 3-1 and, following its win in the WABA Cup on May 18, went on to play the semifinals against Sporting. However, Amchit had not yet given up the fight just yet. It sued the LBF over the 20-0 loss, arguing the club had not been properly informed.
“Amchit had a point,” says sports journalist Tony Khalil. “On May 7, there had been a meeting with all parties involved at the Ministry of Interior, including LBF President Robert Abdallah. There it was decided that the game would be played on May 8. Later that day, however, the LBF changed its mind and failed to properly inform Amchit.”
“One main problem of Lebanese basketball is that the federation is run by absolute amateurs,” he continued. “Another one is that, because of the politics involved, everything is polarized and no one is willing to compromise. It’s a sad story.”
Against the clock
Following a judicial decision to temporarily freeze the semifinal series between Champville and Sporting, which then stood at 1-1, the LBF on May 30 announced the league would be halted until the court’s final decision. “The situation is very dangerous with all the interference, which could lead to the banning of Lebanon from international competitions,” said LBF President Abdallah at a press conference. “While we were trying to find a way to finish the league quickly, the situation has now become critical for the national team in their bid to qualify for the fourth time to the World Championship.”
On June 6, the court decided in Amchit’s favor. As the club had not been properly informed, it said, not only should the disputed fourth game between Champville and Amchit be played again, but so should the two semifinal matches that had already been played between Champville and Sporting. The LBF appealed.
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The national team returns from Manila following their disqualification (Photo: Daily Star)
Although Amchit reportedly offered Champville a win without playing so that the league could run its course, the LBF on June 16 sent a complaint to FIBA. Some people have asked themselves why did the LBF turn to FIBA? They include Hakim and national team coach Ghassan Sarkis.
“Couldn’t they have waited until August 12 [the end of the Asian Championship] to address the issue with FIBA?” Sarkis says upon his return from the Philippines. “It wasn’t innocent at all to raise the issue, and although the clubs [Amchit and Mouttahed] made a huge mistake by filing a lawsuit… it wasn’t the first time in our sports history. I’m deeply sorry because we have lost a golden chance to qualify [for the FIBA World Championship.]”
Perhaps the LBF, who couldn’t be reached for a reaction, wanted to play hardball and finish the issue once and for all. On June 28, FIBA replied. It offered the LBF a one-week grace period and demanded that all court cases be withdrawn and its decisions annulled, while also stipulating that all professional clubs sign a memorandum of understanding (MoU) aimed at establishing an appeal commission within the LBF to avoid future court cases.
“We refused to sign the MoU,” says Hakim. “We don’t have a problem with Champville. We have a problem with the LBF. If we trusted them, we would have signed. Now we told them: ‘first show us an appeals court, then we’ll sign.”
Four clubs (Amchit, Byblos, Sporting and Mouttahed) refused to sign the MoU. They are the same four clubs that contested the LBF elections, which were overwhelmingly won in November 2012 by FPM-backed candidates. It is not a coincidence either that all these clubs are supported by political powers opposed to the FPM.
One week after the FIBA deadline passed, a Lebanese appeals court decided the Amchit case in favor of the LBF. Yet this was not enough for FIBA. It seems FIBA wanted to end the lawsuitphenomenon once and for all. It gave the Lebanese clubs one last chance to sign the proposed MoU within 24 hours, yet to no avail.
The FIBA’s final letter, dated July 18, emphasized the LBF’s suspension had not been taken lightly. “It was indeed approved by the FIBA Central Board due to events of the utmost gravity whereby one club has been able, with external political support, to disrupt entirely the smooth running of the Lebanese National Championship. It has also been able to obtain a decision by a state civil court cancelling technical and sporting decisions taken by your federation…Your federation was not and still is not properly armed to face political interferences and solve sporting disputes within its own structures.”
“We suspended the LBF, because we cannot accept political interference in sports,” says FIBA Secretary General Hagop Khajirian. “That’s not just the case for basketball, but for all sports. We had previously heard about political interference, mainly by Lebanon’s minister of interior, but the reason to suspend the LBF was the court case. A sports federation needs to be strictly autonomous. Decisions can be questioned at an appeals commission within the federation and, ultimately, at the Court of Arbitration for Sport in Lausanne. We trust the LBF to change its statute, which should happen in early September. As soon as that is done, we are ready to lift the suspension.”
“Every revolution is for the better,” says Hakim with a wry smile. “Of course, it is sad for the national team, but now we have the chance to create a proper appeal commission and a truly professional league. In the end, the national team will profit from that too.”
It remains to be seen if the national players share his optimism. Sure, an appeal commission will be an improvement for a smoothly running league. And normally, it should not be too hard to find three or five wise heads, who can cut the knot in case of conflict. But this is Lebanon. Appointing those arbiters could very well become the next arena for yet another endless fight over sect and political color.
“You often hear older people in Lebanon complain about the country, but I always stayed positive,” says Rodrigue Akl. “But, I must say, this time I was hugely disappointed and I actually looked into playing elsewhere — Brazil maybe, as I have a Brazilian passport. But, well, for now I have a four-year contract with Sagesse, so I’m not going anywhere. Let’s just hope the problem gets fixed and serves as a lesson so that it will not happen again.”
Economics and Policy
The Gulf Arab state of Kuwait will deposit $2 billion in aid in Egypt’s central bank next week, the Egyptian central bank governor has said.
An extension by Lebanon of a key deadline for its first oil and gas licensing round may be a setback but will not end the plans, experts have said.
Lebanon’s merchants and traders are contemplating not paying the value added tax in November in order to press politicians to speed up the formation of a Cabinet.
It has been no magical mystery tour for Lebanon’s hospitality sector this summer. In advance of the year’s main vacation season, optimistic voices such as Phoenicia Hotel owner Mazen Salha had dared to hope for good tidings, political blessings and the enthusiastic return of Saudi guests after Ramadan observances. Instead, the resounding summary in August was as ominous as can be: coffin nails.
Uttered by caretaker Tourism Minister Fady Abboud to describe the impact on tourism of the abduction of two Turkish pilots in Beirut, the phrase all too soon had reason to resurface. Whether foreign or domestic, any incident of terrorism was the last thing that Lebanon’s tourism sector wanted to see but as hate not fate had it, terrorist attacks against civilians struck Shiite quarters near Beirut on August 15. A week later, twin bombings that targeted worshippers in Tripoli constituted the vilest single act of shedding civilian blood in the country since the 1996 Grapes of Wrath bombing of a United Nations shelter in Qana.
No wonder that Pierre Achkar, head of the hotel owners’ association, feels that this is a time when he could do “nothing” to improve the situation of a hotel sector with income in the year to date described as less than half of the peak tourism year of 2010.
The magnitude of the revenue contraction jibes with the trends reported by the Ministry of Tourism. According to its latest data the first seven months of 2013 saw around 750,000 visitor arrivals, down by 43 percent when compared with the same period in 2010 and 13.5 percent lower than between January and July of last year.
According to Achkar, hotels outside of Beirut have a few positive occupancy surges generated by Syrian and Iraqi customers while hotels in the capital benefit from the basic visitor volume that the city draws at all times for business or leisure. During the Eid al Fitr holidays in early August, some luxury hotels in Beirut filled to capacity but stays were shorter and room rentals were overall closer to 75 percent than to full occupancy.
The occupancies at the same luxury hotels dropped back to around 30 percent at the end of August and the reservations outlook for September was no better, said industry sources on condition of anonymity because they were not authorized to disclose the information at the time.
Other factors
As other fluctuation factors may have come into play, the drop in rates cannot wholly be attributed to last month’s security incidents and bombings. But conventional wisdom and professional data universally see a strong correlation between security and visitor flows; it would be foolhardy to expect anything other than further waning of visitor inflows in September and sector debility that may well last through to the religious holiday season of Eid Al Adha in mid-October.
Lebanon is not alone in the Middle East in suffering from tourism impairments this year. Egypt, where tourism is one of two hard currency providers along with Suez Canal receipts, is looking at a vanished summer resulting from the recent military coup overthrowing Mohammad Morsi and the violent clashes that followed. Some alternative destinations, such as Abu Dhabi, anticipate seeing above-average visitor numbers in October amid the expected extension of security risks in the Levant, but all this is of no comfort to the Lebanese hospitality industry.
With so few customers, why not have a nap?
The developments of the past eight months make it highly unlikely that Lebanon will perform according to predictions for year-on-year growth of 1.8 percent to $4.2 billion in direct tourism receipts and of 2.3 percent to $11.4 billion in combined direct and indirect receipts. But even if it is overstated, this forecast for 2013 by the World Travel and Tourism Council (WTTC) signifies the importance to the national economy of what the WTTC calls the tourism industry and tourism economy.
Tourism industry under this definition entails all direct contributions of travel and tourism to gross domestic product, which in the WTTC assessment amounted to $4.1 billion in 2012, representing 9.3 percent of Lebanon’s GDP. The multiplier of direct tourism receipts into the fluffy tourism economy, adding all indirect and induced economic effects to the direct results, is usually a factor of two to three. This means that by WTTC reckoning, Lebanon has a 24.5 percent “total” contribution of tourism to the economy and is among very few countries at the high end of tourism contributions to GDP along with island nations such as the Seychelles, Cape Verde and Barbados.
Such numbers cannot be accepted blindly, commented Garrick Aird, a tourism consultant and entrepreneur based in Beirut. “I don’t believe most of the numbers. The contribution of tourism to GDP is not reliable. It is a best guess,” he said, using the example that a Lebanese expatriate on a home visit will often already bank some of his income in Lebanon and thus will be spending money that is already in the country, meaning that it is an error to just multiply visitor numbers by average spend to reach a view on the contribution of tourism to the economy.
Recent explosions in Beirut have further damaged tourism
Whether the WTTC assumptions about the Lebanese tourism industry and tourism economy hold true or not, the hospitality industry is vital to society here beyond the various avenues in which visitor numbers and their expenditures can be extrapolated into GDP contributions. Plus, given the probabilities for new expansion of hostilities in Syria and further spillovers into Lebanon, lamenting further about how bad tourism in 2013 has been would be pointless.
Coping mechanisms
Executive therefore ventured to search for hospitality cases that work and for strategies by which tourism businesses and entrepreneurs cope with the situation. Venturing into the nooks and crannies of the Lebanese rural landscape, we found how entrepreneurial operators are creating success stories in boutique hotels and inns, achieving practically complete occupancies in the niche of small, quality-minded hospitality ventures.
Combining innovativeness with coping strategies, restaurant operators this year are capitalizing on their nature loving patrons to enjoy the outdoors. Summer venues have seen a renaissance and have allowed operators to divert traffic from their conventional “winter venues” — bars, pubs, and restaurants. Together with the resilient festival scene, these hospitality offerings and attractions all have in common that they address the domestic tourism market.
Banking on the local market was also the coping strategy employed by Ziad Kamel, hospitality operator and chief executive of The Alleyway Group. After growing his company together with business partner Patrick Cochrane, Kamel ventured into a restaurant focused on the segment of high-spending tourists.
Assuming that there could be no better place to start such an operation “than a luxury marina that is surrounded by thousands of luxury hotel rooms, which at the time were always at 90 percent occupancy,” The Alleyway Group invested $1 million into Amarres, a French eatery in the Zaitunay Bay development in the Beirut hotel district. Opening at the start of 2012, the venue initially performed according to expectations but then was hit heavily in May of the same year by advisories which Arab countries issued against travel to Lebanon.
Bittersweet investments
Hanging on for another 12 months, Kamel decided to close the restaurant and write off $1.5 million in investment and operating losses. The coping strategy was the expansion of the group’s other French restaurant brand, Couqley, into a second location. It was a “bittersweet moment” to shut down one venue and open another at almost the same time in May of this year, Kamel said, but it was a strategic decision to cut losses in a location that is dependent on tourism and that is in a situation of no demand without prospect to be resolved in the short or medium term.
Instead of throwing good money after bad in the Zaitunay Bay locale, Kamel allocated about $1.15 million in total for investing into the second Couqley and toward redeveloping two pub concepts in Beirut’s Gemmayzeh quarter, plus some innovations. This is all based on the resilience of the domestic market, he said. “We target Lebanese who work and live in Lebanon. These Lebanese don’t stop going out when the situation deteriorates — when there is an incident, business goes down only on the day or the following day but then it resumes.” In the wider context of the restaurant sector, Kamel, who is also the treasurer of the restaurant owners’ association, characterized the current time as a struggle for survival by three out of four venues. This, however, is a result not only of the dearth of foreign visitors.
Strong years of economic growth and good tourism in the second half of the past decade resulted in many restaurant investments and bar openings which today are not sustainable, especially if they target tourists. However, the sector is also fundamentally plagued by absence of standards and infrequent enforcement of regulations, he admitted, attracting countless operators who anticipate glamour and quick profits but have zero appetite to collaborate with or seek consulting help from the Syndicate of Restaurants, Cafes, Night Clubs and Pastries. Among the restaurants, Kamel sees “many losers and few winners”.
Those best positioned to survive are the operators that offer good value for money and have their own identity, ideally one developed over considerable time. “Generally the establishments that have been around for generations with top-of-mind awareness seem to be weathering the storm.”
Deeply embedded into the Lebanese hospitality sector’s struggle for survival appears to be the disorganization of the tourism industry. For Aird, the dominant impairment today is not the absence of Gulf visitors per se but the fact that access to Lebanon has not been developed because of the complacency of sector players.
Inherent contradictions
“If, rather than assuming that the flow of revenues is going to carry on forever, the market had been correctly diversified over the years that would have been good, I think this situation wouldn’t have occurred,” he said, citing airline structures whereby business travelers from Europe are discouraged from flying to Beirut and companies like his own will not bring clients to Beirut in the summer because available seat capacity is taken up by long-haul Lebanese expatriate travelers who in economic terms do not represent the average spend on hotels, restaurants etcetera that a business traveler represents.
There is an inner contradiction in the Lebanese tourism industry whereby the national openness to visitors clashes with long-standing deficiencies in the structure of the hospitality sector and the factors that determine success or failure of tourism.
For example, the World Economic Forum’s rankings on competitiveness in travel and tourism show Lebanon as the globally leading country, number one, for affinity to tourism in 2013. This is a measure of the attitude of a country’s population to visitors and the size of tourism in national GDP, among other points.
At the same time, Lebanon was among the worst-ranked countries when it came to environmental legislation and preserving nature as a tourism resource. It also ranked far below its station in the quality of tourism policies and regulations, ground transport infrastructure and security. According to the WEF study, the most competitive countries in tourism are not at all the cheapest countries. All global insights and studies on tourism today point to the importance of developing the sector strategically to be able to compete in a future where the contribution of tourism to global GDP will be only going up further.
The Lebanese affinity for tourism has potential that points outside of Lebanon’s borders, in many different ways. Kamel is an example of an entrepreneur who is now preparing to transplant his restaurant concept to other markets in the region. Aird on the other hand has leveraged his company’s expertise in tourism consulting into the creation of a hotel feasibility software package that was developed in Beirut and is serviced from there. The product, called Xiscope, was launched last March and surpassed first-year sales targets within four months of operations.
Coping strategies and methods to successfully leverage the tourism potential of the Lebanese into growth businesses may be found in many niches and often these opportunities seem to lead beyond Lebanon’s borders. That provides a strong note of well-warranted optimism at a time when the road to a flourishing tourism market and industry in Lebanon is long and winding.
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“We are not just a counter hamburger restaurant. We are a gourmet hamburger restaurant. That’s our niche.” With these words, Nadim Hammoud, chief executive of Par Contre, the founding company of Brgr. Co, summarizes the philosophy behind a burger joint that has been one of the country’s most successful since its 2010 launch in Ashrafieh.
Three years on, Brgr. Co now has two venues in Lebanon — the first in Ashrafieh was an investment of $500,000 and the second in downtown cost Par Contre $750,000 — one in London and a catering line that is busy all summer long. Revenues have tripled, says Hammoud, and are now close to $2 million. Par Contre has no plans to slow down and is expanding Brgr. Co locally and internationally, as well as branching into different culinary concepts, such as the soon to be launched Pzza Co, a $700,000 Italian restaurant concept that will turn its oven on in the Beirut Souks in October. Par Contre will also be launching their new 400 square meter (sqm) central kitchen in the area over their downtown venue, into which they invested $600,000.
Burgers are not new to Lebanon and many have childhood memories of the country’s first national burger joints which opened in the 1970s and 1980s, including Winners or Juicy Burger. In the 1990s came the advent of fast food, with Burger King and McDonalds setting up shop in Lebanon.
Such burger joints, and the success they met, established the foundations for future burger ventures in Lebanon. Starting in 2010, more than five ‘burger only’ diners opened up within a two year framework. Riding that burger wave was Brgr. Co. According to Hammoud, people are becoming more conscious of what they eat and are demanding traceability — to be able to track their meals back to a clean and safe source — and better quality food, something he says Brgr. Co is able to provide in a meal not commonly associated with refined dining.
The company’s Dowtown Beirut branch is proving a success
Brgr. Co’s emphasis on quality is also illustrated by their collaborators: Hussein Hadid, a well-known Lebanese private chef with 20 years of culinary experience in New York and 15 in Lebanon developing his own catering line and kitchen, is one of the partners in Par Contre and the creator of Brgr. Co’s signature burgers. “Hussein’s name is a seal of quality for our venues,” says Hammoud.
Other key figures that Brgr. Co has worked with include the architect behind their warm and classic décor, Gregory Gatserelia, an interior designer who has worked on Nikki Beach resorts around the world, as well as Cocteau and Balthus restaurants in Lebanon, and Maya Karanouh’s branding agency TAGbrands. “This is Brgr Co: all of the elements we use are quality and we are putting them all to work on the hamburger business. Probably, we’re the first globally to put this much emphasis and effort on a hamburger business and given it this much quality, elevating it like this.”
Quality does not come cheap, however. According to Hammoud the average bill at Brgr. Co is $20, which he says is “very affordable.” The bill can easily grow however, beyond the basic options, and online user reviews place the average cost for a burger and fries at no less than $30, which they generally agree is a little overpriced, despite it being a good burger.
The company imports its meat from Australia
When it comes to quality, Hammoud explains that Brgr. Co’s patty options are three different cuts of Australian Black Angus beef, generally accepted as the best beef on the market. They are offered in 8 ounce, 6 ounce, and 4 ounce sizes, the latter, which costs LL11,500 ($7.70), being the most in line with prices elsewhere on the burger market in Lebanon. “People will give you the same price [for the 4 oz burger] but not with Black Angus beef which we have. So, if you look at value you are getting, you are getting better quality at the same price,” rationalizes Hammoud.
If one goes for the 8 oz or 6 oz cuts, or tries one of Hadid’s signature burgers and adds appetizers, and extras such as fries or coleslaw, the cost begins to rise steeply, but
Hammoud maintains that their prices are reasonable for what they offer. “On some burgers we have very low margins as we are trying to respect the title of being a hamburger place, but at the end of the day when you come here and taste our burgers, you feel the quality and this costs money,” says Hammoud, explaining that while lower margins may not be financially sound, they hope to hook customers and thereby increase their visits.
With an average turnover of 400 to 500 customers per day on a weekend and 250 covers on a regular day in their Beirut Souks venue, Brgr. Co seems to be doing well despite the price tag.
Selling ice to the eskimos
Brgr. Co will be launching three new venues in Lebanon within the next three years, with one of them set to open in ABC Verdun upon its launch in the year 2015, according to Hammoud. Internationally, Brgr. Co London’s Soho branch — which opened as a franchise in December 2012 and seats 55 — is performing solidly, with around 300 to 400 covers per day. “Our London venue is as big as Ashrafieh’s but performing as well as Solidere’s, as the volume of people in London is different from Beirut,” says Hammoud, adding that the response for Brgr. Co London has been positive and that sales are growing. He is looking forward to their Chelsea branch which will be opening soon and will seat 100. Hammoud attributes their success in London to the high quality provided in everything from the décor, to the waiting staff’s crisp white uniforms, to the meat which comes from the Buckler Estate in Scotland. Brgr. Co London follows the typical franchise model of territory fees and a percentage of net revenues and is in strict coordination with Par Contre, which provides all recipes and implementation training according to set manuals.
Brgr. Co also has plans to open in Manhattan, New York, “the land of hamburgers” says Hammoud. While he realizes that New York is going to be a big challenge for them, Hammoud believes that, judging by the performance in London, chef Hadid has the ability to take Brgr. Co there. Hammoud explains that the New York expansion will be a franchise fully funded and owned by one of Par Contre’s board members in Beirut who will be funding all of the company’s growth in the United States.
This westward expansion is unusual for a Lebanese restaurateur and Hammoud sees it as adding value to their brand through perceived success in cosmopolitan cities that already have a thriving and competitive market for gourmet burgers. However, their next move might see Brgr. Co coming back to the Middle East. One of Par Contre’s partners is seriously contemplating an expansion in Dubai, a more natural “next step” for restaurants expanding from Lebanon.
“Par Contre is funded and overseen by a board of directors or partners who have the means and the power to see the company grow and go global,” Hammoud says. The board is made up of Hammoud, Hadid and three silent partners. Par Contre follows a ‘sweat equity’ model in which each of the partners owns 20 percent of the company but only the three silent partners invest capital in it — Hammoud and Hadid’s contribution is their hard work and ‘sweat’. Par Contre invested $3.5 million total, with $1.5 million coming from a subsidized loan from the central bank.
Par Contre, and its main business Brgr. Co, are still laying the foundations for success and heavily investing in their growth, explains Hammoud when asked about the return on investment which he says will be slow and not before the next five years. “It takes time to build quality and that is why the board is being patient. They are not looking for the quick buck,” says Hammoud.
Correction: A previous version of this article erroneously referred to sweat equity as “Swot equity”. The text has been changed to properly identify Par Contre’s business ownership model and more clearly explain the concept of sweat equity.
Economics and Policy
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