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The Buzz

Business briefing: 2 Oct 2013

by Executive Staff October 2, 2013
written by Executive Staff

Economics and Policy

Israeli Prime Minister Benjamin Netanyahu on Tuesday dismissed a charm offensive by Iran's new president as a ruse concocted by a "wolf in sheep's clothing," and declared that Israel was ready to stand alone to deny Tehran an atomic weapon.

More from Reuters

 

Egypt’s economy will only grow 2.6 percent in the fiscal year ending June 2014, well below the 3.5 percent the government expects to achieve, according to a new poll.

More from Reuters

 

British Prime Minister David Cameron has weighed in on the row over worker abuses in Qatar, saying the state "must do better" after an investigation by a UK newspaper exposed an alarming number of foreign workers dying in the runup to the 2022 World Cup.

More from Arabian Business

 

Companies and Business

Islamic banks in the Gulf's rich Arab oil exporters are likely to keep growing faster than conventional banks, but their advantage in profitability is disappearing, according to a study released on Tuesday.

More from Reuters

 

Qatar has again ranked as the top financial centre in the Middle East, according to to the latest Global Financial Centre Index.

More from Arabian Business

 

The head of Investment Development Authority of Lebanon has said that he expects foreign direct investments to the country would fall by 21 percent in 2013, as the political stalemate and spillover of the Syrian crisis were scaring off potential investors.

More from The Daily Star

 

The head of the European Club Association (ECA), a body which represents Europe’s top football clubs, has been fined over a third of a million dollars by tax authorities for failing to declare two Rolex watches worth around £84,000 ($136,000) when he was searched by customs officials after returning from a trip to Doha funded by the FIFA World Cup 2022 hosts.

More from Arabian Business

October 2, 2013 0 comments
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Editorial

A crude state of affairs

by Yasser Akkaoui October 1, 2013
written by Yasser Akkaoui

September was a silent month. For days on end the Lebanese sat glued to their televisions waiting for the seemingly inevitable American strike against Syria. Daily life hardly seemed relevant in the face of the impending threat and fear of how such a move could turn the region upside down.

The worst part was knowing that the decision that would so deeply affect us was not ours to make. As those in Moscow, Washington, London and Beijing debated our future, we were powerless to do anything but sit silently and wait.

In the end a deal was reached to allow all sides to walk away claiming victory, but this sense of helplessness has permeated Lebanese society in so many ways. Take the country’s offshore oil and gas, which is likely to fundamentally transform the country. Whether it brings about the healthy, wealthy society we want to see or leads us further down the road to being a failed state depends so much on our politicians.

Many of the signs are worrying. Politics is creeping in — the delays of the last month are the result of political interests being put before those of the nation. All sides appear to be jostling for position, seeking to get their share.

This is potentially catastrophic. Our economy is already so deeply politicized that it fails to function. If this were to spill over to oil and gas the cumulative result would be the waste of the country’s underground wealth. This is not mere conjecture, but based on decades of evidence from across the world.

Yet we are not on the streets demanding our politicians put aside their interests and think of the country. We are not campaigning for true transparency and honesty in this most important of sector.

Worse still, part of us has already accepted that there is nothing we can do — the politicians will negotiate a deal in which everyone gets their cut, apart from the people. We feel totally powerless.

This is not good enough. We must work together to ensure that politicians stop trying to get their sliver of the pie, their own little kickback. We must make them so scared of us they can’t help but be honest. And most of all, we must demand that they recognize that these resources are ours, not theirs.

October 1, 2013 0 comments
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The Buzz

Business briefing: 1 Oct 2013

by Executive Staff October 1, 2013
written by Executive Staff

Economics and Policy

Lebanon is expected to host a donor conference in November as the government seeks to secure additional aid to weather the increasing economic burden resulting from the influx of Syrian refugees to the country.

More from The Daily Star

 

Syria’s pound has recovered about 40 percent against the dollar in the past month, gains that Central Bank Governor Adib Mayaleh said were due to the waning risk of a US strike and government intervention.

More from Bloomberg

Wealthy Gulf states are likely to see their oil and gas revenues drop next year but heavy government spending and increasingly energetic private sectors will keep economic growth robust.

More from Reuters

 
 
Companies and Business
 

Lebanon's finance ministry promised Monday to pay the state’s outstanding debts to contractors in four installments before the end of this year.

More from The Daily Star

 

More than $100m of deals have been generated at the 5 Franchise UAE Expo.

More from Arabian Business

 

The Qatar World Cup 2022 could be held in November, according to the new president of the International Olympic Committee.

More from Gulf Business

 

October 1, 2013 0 comments
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Economics & PolicyTourism 2013

A home away from home

by Nabila Rahhal September 30, 2013
written by Nabila Rahhal

Living in Beirut can seem unbearable during the summer months.With the sun blazing, traffic jams and construction noise, one begins to dream of a getaway to a more serene environment.

This desire for escape is the driving force behind the rising number of boutique hotels and bed and breakfasts in Lebanon’s mountainside and even in the more quiet areas of Beirut.

Across Lebanon, there are around a dozen genuine maison d’hotes or bed and breakfasts — eight of which are profiled on the website L’Hote Libanais — characterized by the owner residing in the house and sharing vacant rooms with guests, offering them homemade breakfast in the package.  Executive also uncovered more than 10 small boutique hotels and guesthouses which have opened their doors in the past year and a half.

Promoting their lodgings mainly through social media, owners of these hotels are without complaints this summer. Where larger operators are struggling to attract visitors from among dwindling foreign inflows, the rural boutique hotels tell Executive of  full occupancy on all weekends and holidays and more than 60 percent occupancy on regular weekdays. The warm and friendly atmosphere of these hotels has proven a hit with Lebanese either visiting on local tourism or on a short-retreat from the bustling city.

 

Villa Clara

Although situated within a walking distance from busy downtown Beirut, Villa Clara Boutique Hotel feels notably tranquil. This is made possible by the location of the two-floored 1920s-style villa on a quiet side street off Armenia Street in Mar Mkhayel — Beirut’s up and coming art district — and the fact it is surrounded by 100-year-old paradise trees, which allow guests to wake up to the sounds of chirping birds instead of the noise pollution associated with Beirut.

Its placid location makes Villa Clara — launched in December 2012 — ideal for those who are on business in Beirut but still seek a peaceful and authentic area where they can experience such Lebanese traditions as neighbors on balconies inviting them for coffee or having their shoe fixed at the local shoemaker.

Villa Clara has seven fully serviced rooms, each painted uniquely and decorated with pieces designed by the likes of Andree Putman or Philips Aurelle, giving the boutique hotel a reputation of being design-oriented and artistic. At the time of the interview with Executive, the rooms were fully booked on all days of the week until the end of August — with reservations piling up for September. Villa Clara is promoted mainly through word of mouth, recent guides on Lebanon and social media sites such as Facebook or TripAdvisor, where users have posted photographs, as well as commenting on the friendliness of the owners, the fast internet connection and the good French food in the restaurant, which is a part of the Villa Clara project. 

Marie-Helene Gougeon, who along with her French chef husband Olivier owns Villa Clara, says her guests are mainly Europeans on extended business trips, as well as some expats and Lebanese couples seeking a romantic getaway. “They are looking for a place that is calm where they can discover the city in a pleasant way,” says Marie-Helene.

With its common salon and open garden, Villa Clara is a dynamic yet intimate hotel and guests are often seen mingling together in quiet conversation or seeking recommendations from Marie-Helene — who has a PhD in business and design — on local designers and authentic experiences in the area. Yet Marie-Helene insists that she is running a hotel, not a “bed and breakfast” and so guests are to have their privacy respected whenever they seek it.

$165 for single room with breakfast and $180 for double, breakfast included. Wifi and valet parking included.

 

Bouyouti

 

Bouyouti was not initiated as a commercial venture. Three years ago, the hotel’s owners, the Bazergis, stumbled into the hospitality sector upon the suggestion of a French family friend.

The Bazergis have a 40,000 square meter (sqm) green land surrounding their family home in Deir Al Kammar, in the Chouf region of Lebanon, including a pond, a cave and a small farm. Inspired by his love of the nature in the area, Rafic Bazergi designed and built eight little huts on the land as a hobby. “Each time, he would be planning to build a home for the caretaker but we would tell him it’s too pretty and suggest another purpose such as a guesthouse or an atelier for my mom who is a designer,” says Rawan Bazergi, the daughter and spokesperson for the project.

When the family friend first suggested they use the huts as hotels, the Bazergis were hesitant about letting strangers into their private land but the friend encouraged them by saying he would only send them his trusted contacts. Being hospitable and friendly by nature, the Bazergis found that they enjoyed hosting guests and decided to take the hospitality business seriously, adding a pool to their land and ensuring each guest house had full amenities. 

Midway through this year, Rawan created the logo and social media page for Bouyouti and the family has been receiving reservation calls ever since leaving them almost fully booked until September 21. According to Rawan, 70 percent of Bouyouti’s guests are Lebanese who either want to discover the well preserved nature in the Chouf area or enjoy a calm break away from their busy schedules in the city. The remaining 30 percent are Europeans of various nationalities. Bouyouti’s guests usually stay for one night but some have stayed for a week as a work-related retreat.

When explaining the appeal of their boutique hotel, the Bazergis quoted their guests who have said that they feel at home in Bouyouti, since they are given a charming guesthouse to themselves rather than a generic room in a hotel. Also of interest to Lebanese youth, says Rawan, is being able to explore areas of their country that may be previously unknown to them and also enjoying the greenery — something of a rarity in the capital.

Building on the serene image projected by Bouyouti, the Bazergis plan to start yoga retreats and are considering spa accommodations. While Bouyouti has the facilities to remain open year long, the Bazergis are still in debate about whether or not to do so. “This remains more our home than a commercial venture,” says Rawan and so profit won’t be a factor in that decision. Instead it will be decided on what would be appealing to guests.

A two-person guesthouse goes for $200, breakfast included. Four people would pay $300 for a fully furnished hut, including towels, with all services and pool access.
 

La Maison De La Foret

Now in its first summer of operation, La Maison De La Foret is a 35,000 sqm boutique resort village consisting of a restaurant with a capacity of 150, a snack bar, bungalows and tents for 50 guests, as well as a myriad of outdoor activities including hiking, mountain biking, rock climbing and donkey rides — enjoyed by both adults and children.

Born out of a public-private partnership between the Union of Municipalities of Jezzine and a company established by Tanya Nader, her brother Antoine and Amal Bou Zeid, La Maison De La Foret’s main objective is to promote eco-tourism in the Jezzine region, South Lebanon.
Nader speaks of the boom in eco-tourism among the Lebanese over the past 10 years, giving the example of Al Chouf Cedar Nature Reserve where, a decade ago, only a third of the 6,000 annual visitors were Lebanese while today the reserve receives 68,000 annual visitors among which only 6,000 are foreigners.

According to Nader, however, South Lebanon has been largely left out of this local tourism boom so far, particularly as there are no big attractions like Baalbek or the Cedars in the area. “What we do have is the biggest pine forest in the Middle East which means that eco-tourism could be a big factor in promoting tourism to the area and helping it grow both economically and socially,” says Nader. Eco-tourism seems to be a big factor indeed as La Maison De La Foret’s outdoor activities alone see a turnover of over 600 people during the weekends.

With 24 full-time and 27 peak-time employees, in addition to the suppliers and various handymen associated with the project, La Maison De La Foret is benefiting the region economically as well.

La Maison De La Foret is performing better than Nader expected and its bungalows are fully booked Thursdays, Fridays and Saturdays until the end of September. Its tents, which are usually reserved on a week-by-week basis, were at 50 percent capacity for two weeks in mid-August.

Nader divides her Lebanese clientele — who account for 75 percent of her guests — into three groups: families with children looking for fun activities; groups of friends between the ages of 18 and 30 looking for outdoor adventure; or expats seeking to discover new areas of Lebanon. The remaining 25 percent are foreigners residing in Lebanon and Nader says she has not received any tourists in the resort yet.

La Maison De La Foret will be operating year round with seasonal activities and Nader will be targeting schools and corporate sector retreats in spring and Fall when the weather in the region is ideal. 

Bungalow $125 for the first person and $25 for each additional person including a large breakfast of locally produced foods.

Tents $35 per person with a shared bathroom.

 

Beit Al Batroun

 
While Collete Kahil was living in London, she entertained a dream of owning and operating a bed and breakfast in Lebanon. After five years of working on its construction, with the aid of one stone master from the area, Kahil realized her dream in July 2013 with Beit Al Batroun, situated minutes away from the Batroun highway, on a hilltop overlooking the touristic beach clubs below.

Beit Al Batroun is a true bed and breakfast as Kahil lives in the charming house and has her room right across from the guest room on the first floor. The ground floor has two other rooms, making a total of three rooms in Beit Al Batroun, which have been fully booked since day one and remain so until the end of September with Kahil already receiving inquiries about New Year’s Eve. 

Kahil is pleasantly surprised by the success of her venture, which she has promoted only through her Facebook page and word of mouth from satisfied guests. She explains the appeal of Beit Al Batroun by mentioning the serenity of the area, which is still in proximity to the more active beach restaurants of the Batroun area. She also feels her bed and breakfast concept is unique in Lebanon and people are enjoying the novelty of being a guest at someone’s home, especially one as appealing as Beit Al Batroun, which has vintage pieces from Middle Eastern history — each with their own story — collected by Kahil herself over the past 10 years.

Kahil first thought she would be catering mainly to foreigners but has only received two foreign groups so far, with the majority of her guests being Lebanese from various regions. Beit al Batroun will remain in operation until November but Collette is considering accepting guests after that and hopes to cover costs, and not to return the investment on the house itself which she considers her home for life.

$160 a room with breakfast.

 

Kroum Ehden

Kroum Ehden is the first venture of Optimum Holding — a real estate development and professional services company located in Beirut serving mainly Europe and North Africa — into the hospitality sector as both as owners and operators through their offshore company Fantazy Hospitality Events.

An ambitious project of six phases, phase one is Kroum Ehden, which spans over 14,000 sqm area of land and opened its doors this July at a cost of over $6 million. The luxury boutique summer destination has a restaurant, a beach resort with two communal cascade pools, a lodge with four suites for families and six chalets for couples each with a private pool, outdoor night spot and an Italian pizza bar.

Gaby Tayoun, chairman and CEO of Optimum Holding and owner of Kroum Ehden, chose the area for personal and emotional reasons, including the fact he is a native of Ehden. He says he is pleased to contribute to the economic and social growth of the northern region of Lebanon by employing 82 full time staff who are also hospitality students in the universities of the area and through creating more activity in Ehden. Future phases include boutique stores, a spa and wellness center, a winter hotel and residential serviced villas with seasonal leasing. But Tayoun adopts a “we will see” approach to future plans as he believes that Lebanon’s foundations are too unstable to build a solid business plan.

Phase one is performing better than expected and Tayoun says they are flattered by the positive feedback from Lebanese expatriates — who are their main clients — along with Lebanese residents looking to try something different. Kroum Ehden’s Lodge had 84 percent occupancy — including weekdays —since its opening in mid-July and ongoing until September while the main restaurant which has a capacity of 250, is seeing two or three turnovers on weekends.   Tayoun attributes Kroum Ehden’s success to the fact people are seeking peace of mind and he proudly says no local news is played on their TVs or found in their magazine selection. Guests also enjoy the luxuriously authentic surroundings and the activities provided by the resort — paragliding and hang gliding to name a few — as well as by the surrounding area.

Tayoun says there is something for almost everyone in Kroum Ehden, from the middle class young professionals enjoying the healthy food in their restaurant, to the wealthy professionals relaxing at the pool, to the youth from neighboring areas enjoying sunset drinks and late night parties in the lodge.

Average restaurant bill: $35 per person for a five course meal, comparable to good restaurants in the region.

Suite in the lodge: $290, including breakfast with wifi connection and access to private and public pools.

Chalet in the lounge: $190 with wifi and access to all pools..

September 30, 2013 0 comments
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The Buzz

Business briefing: 30 Sept 2013

by Executive Staff September 30, 2013
written by Executive Staff

Economics and Policy

Lebanon’s economy may grow faster than economists expect this year, the country’s central bank governor has said.

More from Bloomberg

 

But a World Bank forecast that predicts Lebanon’s unemployment rate will double in 2014 is still underestimating unemployment, according to local economists.

More from The Daily Star

 

Qatar's real growth in gross domestic product slowed slightly to 6.0 percent year-on-year in the second quarter of 2013 from 6.2 percent in the first, dampened by a drop in global oil prices.

More from Reuters

 

Egypt has received $7 billion out of the $12 billion in aid pledged by Gulf countries, its central bank governor has said.

More from Reuters

 

Companies and Business

Three Gulf companies recently have been banned from working on projects associated with the World Bank under its corruption and fraud policy.

More from Arabian Business

 

Dubai’s Majid Al Futtaim Holding, the sole franchisee of hypermarket chain Carrefour in the Middle East, will not pursue investments in Egypt and Syria until stability returns to the two countries.

More from Reuters

 

Dubai-based developer Nakheel said on Sunday that it sold 262 homes, with a combined value of $125.2m in the first day of sales at the newly-launched Warsan Village.

More from Arabian Business

 

September 30, 2013 0 comments
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The Buzz

Business briefing: 27 Sept 2013

by Executive Staff September 27, 2013
written by Executive Staff

Economics and Policy

Egypt's central bank has received a $2 billion deposit from Kuwait, the governor said on Thursday.

More from Reuters

 

The Middle East Quartet published a plan on Thursday to revive the ailing Palestinian economy, in an effort to support peace negotiations between Israel and the Palestinians.

More from AFP

 

The Arab Monetary Fund (AMF) has extended $117 million in credit facilities to Jordan to help the aid-dependent country make faster progress in structural economic reforms.

More from Reuters

 

Companies and Business

A flight by foreign companies from violent unrest in Egypt threatens to drive up vacancy rates at offices and malls and prompt international investors to shift funds to sub-Saharan real estate.

More from Reuters

 

Mubadala, the Abu Dhabi investment fund with a mandate to develop the emirate’s local economy, on Thursday posted a 10.4 per cent rise in first-half profit boosted mainly by income from financial investments.

More from Reuters

 

Airlines in the Middle East will splash out $550bn on growing their fleets over the next 20 years, according to a new forecast from US manufacturer Boeing.

More from Arabian Business

 

Small- and medium-size Lebanese banks are looking into ways to survive in a competitive local market amid international demands to increase their capital.

More from The Daily Star

September 27, 2013 0 comments
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Economics & Policy

A degree too expensive

by Wilfried Vanhonacker September 26, 2013
written by Wilfried Vanhonacker

As the new batch of students begin classes at Lebanon’s universities and families prepare to pay painfully high — and seemingly rising — tuition fees, it is time for a provocative question: does higher education have to cost so much?

Before coming to the American University of Beirut, I spent a few years in Moscow building the foundation of a new business school, the Moscow School of Management (MSM).  It was founded by a group of private entrepreneurs who felt that existing business schools no longer catered to the market needs, especially not the ones they had experienced in the tumultuous aftermath of the collapse of the former Soviet Union. With the emergence of new and transition economies in Russia and countries such as China, India, and Brazil (the “BRICs”), the need was growing for entrepreneurial talent that could lead in difficult, uncertain and unstructured environments. A key focus of MSM was to nurture such talent and at the same time generate top-dollar revenue that could finance the school.

Entrepreneurial talent typically has lots of energy and ideas but no patience and money. Hence, the pedagogy and the revenue model had to be custom-designed. Pedagogy had to be hands-on, experiential, accelerated, and individual-focused. Tuition-based education was not an option since the students had no money to pay. For the revenue model, our approach combined success fees from project-based learning and part of the management fee of a commercial venture capital (VC) fund set up to invest in successful start-ups.

Compared to typical VC funds, we charged a higher management fee but kept a lower carry; hence, the higher management fee enabled us to finance the startup academy, and investors had a larger than normal carry in projects. Hence, through this novel fundraising mechanism, we got short-term operating cash and investors had a potential higher long-term payout; more importantly, the budding entrepreneurs received a relevant but cheap education. The solution proved a win-win for all and made a compelling case that models other than those that are tuition-based are possible to alleviate the rising costs of higher education.

With college tuition across the world reaching new heights, a college education is becoming a luxury few can afford. More worrisome is that it is a luxury whose value is increasingly being questioned as well. The data does not lie: across the world, employment rates of college grads have been dropping. More surprisingly, the rates are worst in emerging markets.
In China, the graduating class in 2013 is 7 million; if recent placement statistics do not improve, over 60 percent will not find employment where graduates use what they studied and get paid a salary that would pay back their education in their lifetime. College education is no longer a sure ticket to employability and a rewarding career. And that puts the increased tuition costs in a rather precarious light.

While it is not the time to keep kids out of college, changes are needed and universities have to reinvent themselves in more ways than one. This could be a tall order for the many academic institutions that have barricaded themselves in ivory towers. But it is exactly this insularity that educational institutions have to overcome if they want to succeed in a global environment where companies and other organizations have built networks by allowing their boundaries to blur.

Rising to the challenge

Why are tuition fees so high and rising? The answer is simple: universities are expensive to run. No doubt, significant savings can come from more efficient operations but research infrastructure, faculty, pedagogical technology and other ingredients core to an academic institution are expensive to acquire and maintain.

Some universities are subsidized by governments but the latter are all under pressure to rein in bloating budget deficits. The University of California (UC) system, which contains some of the best academic institutions in the world, has faced severe state-spending cuts for years, and just recently the Anderson School of Business at UCLA opted to privatize its popular MBA program in order to secure its survival. Although governments do play a role in basic education and research,   relying heavily on government funds is not sustainable.

University endowments give a buffer but there are limits to fundraising especially in times of economic uncertainty. Education has an edge in philanthropy but where overall giving has increased, the number of capital campaigns universities are running has grown exponentially. No university should feel safe banking on endowment increases on one side and tuition increases on the other. Different business models are needed.

In fact, it is not that difficult to think of alternative models to make education free. Wouldn’t it be wonderful to have a global MBA that is free? As an education provider, you could be highly selective in who you enroll and as such create a truly optimal social learning environment. For business schools, and professional schools in general, this is relatively easier and more so if they are truly and actively plugged into the business community whereby alternative revenue-generating models could drive business education costs down, conceivably to zero.

At MSM, I created an MBA program almost entirely based on project-based learning. Students spent only four months in Moscow taking classes, and the rest of the program was built around five projects that were executed on three different continents.  And these were real projects for real clients. The projects have to be meaningful to keep student teams motivated and achieve learning; and the projects have to be relevant for the clients to maintain their active involvement.

The clients paid for all expenses plus a success fee. The selling proposition was simple: McKinsey quality at a fraction of the cost! Who would not go for that and in the process get a real preview on the available young talent out there? It is not much of a stretch to think of expanding the project-based learning model to the point where the clients’ fees pay for the entire education of the students.

Rebuilding bridges

And more complex partnerships beyond the private sector are possible to finance education (and make it more market-credible in the process). One could explore education financed through social impact (or innovation) bonds in a public-private arrangement. This financial innovation has become popular in the United States in recent years for financing private educational projects with clear social targets that imply significant government-budget savings such as lowering unemployment benefits, healthcare costs, etcetera. 

How about tackling the challenge of employability of college graduates via bridge programs executed through partnerships with industries that have significant entry-level talent needs? The companies involved could partly subsidize the program (with the rest of the cost covered through social impact bonds) not to mention provide much needed industry-specific content. This leaves students, companies and even governments better off — a ‘win-win-win’ one might say. It is very possible, but conceptualizing new business models for education requires a fundamental rethinking of what the role of education is and how to best execute it at an affordable — or free — level. Is the role of education simply to certify academic competence? Or is it professional competence? Is it enough that students know what to do or should they also know how to get it done?

All these ideas are quite disruptive to academic institutions steeped in tradition. They scare traditional faculty and university administrators alike. It requires them to change. That will only happen with visionary leadership and change management competence. Ironically, the very institutions that study, research and teach the gospel on these very concepts are the ones that often lack these crucial competencies. Change is a serious threat to their survival. But remaining attached to traditional methods will not be sustainable either.

 

Wilfried Vanhonacker is a professor and the Coca Cola chair in marketing, The Olayan School of Business, American University of Beirut

September 26, 2013 0 comments
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The Buzz

Business briefing: 26 Sept 2013

by Executive Staff September 26, 2013
written by Executive Staff

Economics and Policy

A new body has been established to monitor and combat the deadly Middle East Respiratory Syndrome (MERS).

More from Arabian Business

 

Abu Dhabi's government has approved $4.3 billion in infrastructure and social welfare spending.

More from Gulf Business

 

Amid a boom in real estate, experts are urging Dubai's government to take steps to avoid another bubble in the sector.

More from Gulf Business

 

Iraqi authorities have threatened to cut off payments to the Kurdistan Regional Government if a new pipeline bypassing central government controls begins operations.

More from the Daily Star

 

 

Companies and Business

Dubai-based Emirates airline will receive seven more Airbus A380s by year's end, bringing the size of its A380 fleet to 43, says the company's president.

More from Gulf Business

 

Citigroup is seeking an injunction to block a claim of $4 billion by the Abu Dhabi Investment Authority. The Authority accuses Citigroup of breaches of contract and good faith. A similar complaint was dismissed earlier this year.

More from Gulf Business

September 26, 2013 0 comments
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Business

Following the crowdfunding

by Thomas Schellen September 25, 2013
written by Thomas Schellen

It is rare enough that a Dubai-based financial venture sees Lebanon as one of its key target markets and is eager to set up a Beirut office during these confusing times. It is rarer still that a new option is offered whereby Lebanese entrepreneurs can access that extremely scarce resource: affordable equity funding. The conflux of these two factors in the new crowd investing platform Eureeca in itself makes the venture worth looking at, even as their particular version of the crowdfunding concept, which claims to be the first “global solution” of its kind, raises its own cloud of questions. 

For small and medium enterprises (SMEs) in Lebanon, the venture wants to serve as a vehicle to raise equity in an open-access private placement structure. From the perspective of financial markets, Eureeca hopes to complement established but very restrictive funding organizations such as investment banks, venture capital and private equity players.

Related article: Zoomal, Lebanon's online project funding site

The company could be a positive threat to established capital raising practices handled behind closed doors in investment banks, says Eureeca’s general manager Sam Quawasmi, a former investment banker. “The internet disrupted a lot of businesses and a lot of sectors over the last decade but finance has not been disrupted yet. I think that crowd investing will disrupt the way in which finance is being conducted right now,” he says as he explains his passion for the enterprise. “What I like about it very much is changing the way of finance to a much cleaner, newer way of finance. It will provide a mechanism where raising capital or selling shares will happen in a much cleaner and more transparent manner.”

Eureeca launched operations in May, about a year after first announcing itself as a startup in beta testing. On both occasions, the company’s cofounders — Quawasmi and business partner Chris Thomas — made well-orchestrated marketing noise in local and regional media. A third jubilant publicity push came in early July when Nabbesh.com, an online skills matching site, achieved its funding target of $100,000 after a 12-day equity raising campaign on Eureeca.

Nabbesh was promoting itself beside two other companies on the platform in Eureeca’s first round of sparring with potential investors. There was no PR push and no statement on the site in August when the 90-day fundraising period for the other two companies expired without them having reached anywhere near their respective equity raising targets of $300,000 and $630,000.

However, the flop rate is calculated and in the long term will probably be much higher than two out of three. Like in all appeals for capital to angel investors, venture capitalists or private equity players, failures will always outnumber the successes also under the crowd-investing model, Quawasmi concedes. He sees a 25 percent success rate as possible, an optimistic estimate when compared with the humble success rates that SMEs have in conventional capital raising, often around the single digit percentages.

According to Quawasmi, the companies that Eureeca wants to see on the platform are to be operational and revenue making. This means there is room for nascent business plans but indifference to funding less profitable personal education or music projects — the norm on the largest crowd funding sites, Kickstarter and Indiegogo. 

The company expects that the first year of operations will yield some 20 to 30 successful funding events out of 70 to 100 companies that would appeal on the platform for equity. The minimum investment that each company is supposed to look for is $20,000, but there is no upper limit and the preferred ticket size is well above the minimum. “Our sweet spot is between $2 and 5 million in terms of valuation of companies who are looking to sell 5 to 10 percent [in equity] in exchange for $300,000 to $500,000,” says Quawasmi.

Companies should not expect to rely on an online version of cold calling to reach such targets. Statistics quoted by Eureeca show that the first tier of the funding crowd comprise relatives, friends, clients and existing stakeholders who contribute 30 to 40 percent of the investment that the company seeks. Attracting a second tier of investors relies on the buzz that the internal crowd of family, friends and fans generates around a company.

In Quawasmi’s opinion, the close relationship between equity seekers and their internal crowd also makes it less likely that fraudulent and pretend ventures will appear on the platform. “When a business like a pizzeria reaches out to its own friends and family and clientele to get them to participate in the success of their approach, we don’t think that the SME would think of defrauding its own friends and family and future client base,” he says but admits to a “high risk of general failure” as Eureeca is in essence “merely a transparent market place”.

Rules of the game

Eureeca’s contribution to the realm of online financing in this sense is an offshore structure that makes crowd investing legally viable for companies from numerous jurisdictions — but one learns by digging into the FAQ section of the site that SMEs cannot apply if they are based in Saudi Arabia, Japan, the United Kingdom, the United States or “any country on the Financial Action Taskforce list”.

Money laundering watchdog FATF issues two lists of no-go and strategically deficient countries. Iran is one of two in the first category along with North Korea; the second category currently has 12 countries, among them Yemen, Syria, Turkey, Pakistan and Indonesia. Eureeca’s count of 18 barred jurisdictions means that not only the world’s most vibrant entrepreneurial ecosphere, the US, is excluded but so are sizeable chunks of the Middle Eastern and Islam-centric markets. 

To be prepared for scrutiny by suspicious authorities such as FATF, Eureeca is protecting itself against running afoul of anti money-laundering rules by a layer of one-time compliance checks that investors have to undergo. To be active on the site, investors have to pay a $15 fee for the third-party compliance service. Equity seekers also have to undergo “certain due diligence and compliance checks,” Quawasmi says. “Both parties in this game will be compliant.”

There is no indication that the business model includes any assumption of liability for the investments that are promoted. Other than accommodating SMEs with room to display their business plan documentation and projections, Eureeca stays clear of scrutinizing company financials anzd such things. It alerts its equity seekers, however, to their legal responsibility to “act truthfully at all times” and provide “clear, honest answers” to all questions from the investor crowd.

The Eureeca operational philosophy then is crowd rule based on the assumption that, as Quawasmi puts it, “money is efficient. We leave it up to the entrepreneur to apply his own valuation, whether through an independent party or not. It is completely democratic.” He expects to see companies approach the platform with over- and understated valuations but insists that it will be up to the market to believe or disbelieve these valuations.

Under the all-or-nothing principle, the equity seeking company will receive the collected funds only if the full target is met. The success orientation of Eureeca means the platform owners get paid only if the full funding targets are achieved. Only in this case, they take a cut of 7.25 percent from the total while the investors receive shares in correspondence to their investment.

These shares, under current setup, are not tradable in any form, Quawasmi says, meaning that investors who want to divest have to offer them to the issuer and are not allowed to sell at all if the issuer declines to buy and gives no permission to sell to a third party.  
These and other policies and standards, however, appear to be works in progress along with other aspects of the operational formula — such as a system to rate investors or the company’s recipe for attracting franchisees which would represent and promote the platform under some kind of profit sharing formula in geographic territories. Another option is partnership with an insurer that would underwrite the risk investors take on the platform. 

The ambiguity of some points is not surprising. Crowd investing guidelines, regulations and best practices are currently in the early phase of formation across international markets if legislators and regulators have even looked into them. On the practical side, the biggest project funding success stories so far were the $10.3 million raised in 2012 for Pebble, a smartwatch, and $12.8 million raised last month for Ubuntu Edge, a smartphone. Both campaigns offered their product-to-be to donors but the Ubuntu campaign, although being the top-grossing crowd funding story to date, reached only 40 percent of its target and effectively didn’t get any funding out of the effort. This example alone speaks to the need for entrepreneurs and platform operators to get smarter on the processes and develop the options that will make basic crowdfunding perform in the long run, let alone the need for more complex crowd investment methodologies where commercial transaction parties, investors, financial watchdogs and a plethora of national regulators and legislators are stakeholders.

Eureeca, which according to Quawasmi raised capital of $3.25 million from a crowd of 17 investor-shareholders before its launch, is coming to Beirut with plans to have an office up and running within this or the next quarter. One of its selling points to the local market is that high-profile financial head Nasser Saidi is an investor and deputy chairman of Eureeca’s board of directors. Featured in the testimonials section of the Eureeca homepage, Saidi’s comment on the company reads, “Eureeca.com enables the enablers.”

The marketing mantra that Quawasmi and Thomas use in communicating their company is total confidence that crowd investing will become an integral part of the financial industry within the next decade. “I think in 10 years’ time we will look back and ask how on earth did we exist without crowdfunding and crowd investment?” enthuses Quawasmi, who is not averse to being considered as a contender for the next Arab internet billionaire.

September 25, 2013 0 comments
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Consumer Society

An evasive business

by Riad Al-Khouri September 25, 2013
written by Riad Al-Khouri

After decades of unbalanced economic growth amid pseudo-liberal reform, the Middle East exploded in the turmoil of the ‘Arab Spring’, and many of the business groups that anchored pre-2011 developments vanished from the political scene, or otherwise recast themselves.

Addressing this process, “Business Politics in the Middle East” looks at the role of the private sector in light of the recent regime changes, the role business plays in orienting state policies, lobbying of government by private sector interests and the mechanisms by which regimes seek to keep businesses dependent — important topics that usually do not get much attention.

The book also provides insights on some individual businesses, what their impact has been, and what their prospects are. Of particular interest is a discussion of the nexus between business and the Muslim Brotherhood, an especially timely topic in view of this summer’s developments in Egypt.

The editors, Steffen Hertog of the London School of Economics, Giacomo Luciani of the Paris School of International Affairs and Princeton University, and Marc Valeri of the University of Exeter are well known in Middle East scholarly and policy circles. Luciani is perhaps the most prominent, having worked extensively on the topic of rentierism in the Arab world with, among others, Hazem Beblawi, the current prime minister of Egypt.

The book’s starting point is that in the two decades before the ‘Arab Spring’, many Arab countries underwent a restructuring of state-society relations in which lower and middle-class interest groups retreated while big business benefited through integration into policy-making and opening of economic sectors previously dominated by the state.

The ‘Arab Spring’, which is likely to lead to a more pluralistic political order in the long term, has changed much of this, with the business segment of society that was often close to the old regimes playing a less pivotal role. However, this remains a work in progress, as the current process of change in Egypt, Tunisia, Syria, and other countries shows.

While the book was published in April of this year, it is not, strictly speaking, about the ‘Arab Spring’ — four of the book’s nine country case studies cover Gulf countries where there has been no upheaval, including Oman, Kuwait, the United Arab Emirates, and Iran, the latter of course not even being Arab. The project underlying the research started in 2007 under the heading of “The Role of the Private Sector in Promoting Economic and Political Reforms”. Many of the volume’s chapters were clearly begun pre-2011.

In some cases, prefatory remarks and new concluding paragraphs were added to update research that was mainly undertaken before the ‘Arab Spring’; and the overall effect is of writers running to catch up with current events. A two-part work might have been preferable: the first bit talking about the pre-2011 situation, followed by stand-alone country analyses of business politics in light of the ‘Arab Spring’ and what the future could bring.

However, to return to the Egyptian and other regional events of the past few months: is a third phase now beginning — perhaps a long ‘Arab Summer’ — that will see extended clashes between conservative and radical forces? If so, where does business fit in scenarios of the next stage of regional turmoil? The whole question of business politics might be submerged by the current lack of certainty; in the words of Robert Springborg, author of one of the book’s two fine essays on Egypt, “such uncertainty is certainly not advantageous to business, so for the immediate future it will be on the sidelines as the political struggle is played out by more powerful forces.”

Is this book now therefore a document of the past, and does the whole story of business and the ‘Arab Spring’ need to be rewritten in another effort? The answer is that, as it stands, Business Politics in the Middle East is a solid contribution to the literature on the political economy of the region, but nevertheless will need updating in a new edition soon.

Riad al-Khouri, a Jordanian economist who lives and works on the region, is principal of DEA Inc, Washington DC
 

September 25, 2013 0 comments
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