Economics and Policy
Deposed Egyptian autocrat Hosni Mubarak has been flown out of prison by helicopter, freed after more than two years in jail, with no convictions against him.
International business consultancy groups pay great attention to developments in global wealth and luxury markets. As yet, however, the Eastern Mediterranean region has not been researched or measured against other luxury markets, and, presently, studies of the Middle East and North Africa focus on trends in the Gulf Cooperation Council states.
Given the widening divergence between the rosy economies of the GCC and the gloomy ones of the Levant, it will be of little value for Lebanese luxury vendors to know that consulting firm Bain & Co estimates the regional luxury goods markets to be worth 6.3 billion euros ($8.37 billion), or 3 percent of the global market for luxury goods.
According to Bain, over 40 percent of the 6.3 billion euros are generated in the United Arab Emirates alone, which together with Saudi Arabia, Kuwait, Qatar and Bahrain account for over 90 percent of the MENA region’s spending on luxury goods. This assumption leaves a very humble pie for vendors of luxury goods in other MENA countries including Lebanon, even when taking into account that the definition of luxury goods used by Bain is restricted to items of hard luxury — such as jewelry and watches — and soft luxury goods — fashion, perfumes, apparel and so forth. The Boston Consulting Group includes travel, hotels, cars, spirits, dining and spa experiences in its definition. The group’s research measured the contribution of luxury goods and services to the global economy to be near $1 trillion in 2010.
One result of Bain research will be of interest to retail organizations in the region: upscale shopping malls have been a smashing success for marketing luxury goods in the Middle East. Dubai Mall is a particularly big magnet for big spenders, accounting for about half the luxury market in Dubai which in turn represents 30 percent, or about 2 billion euros, of the regional market by Bain’s reckoning. That means that Dubai Mall achieved luxury turnover of 1 billion euros ($1.32 billion) in 2012.
Regional growth trends for luxury markets are hard to identify when the data is so thin, but Bain expects “important growth” for luxury in the Middle East in 2013. It says this expansion will be driven by economic growth, new malls and a dual apptetite for “traditional local” and “global luxury brands” from younger and mature consumers alike.
As far as global numbers go, Bain sees an overall trend of slower growth after three years of double-digit annual increases from $153 billion in 2009 — a low caused by the global financial crisis — to $212 billion in 2012. Bain expects 4 to 5 percent global growth in 2013, meaning that luxury will exceed $220 billion this year. The further forecast is for the luxury goods industry to turn over $240 billion to $250 billion in 2015, with a compounded annual growth rate of 5 to 6 percent in the next two years.
The mystery of luxury
If this data on overall size and concentration of regional luxury markets is to be trusted, the Lebanese market for goods of splendor in 2012 must be measured not in billions of dollars, but in tens or hundreds of millions. The actual annual value and growth of Lebanon’s luxury retail is a mystery, and information on specific sub-segments such as hard luxury or fashion seems to be a function of marketing more than transparency, judging from always-upbeat but also uncomfortably vague remarks by market players whose voluntary declarations on business performance appear to be focused on saving face.
An alternative means to assess the health of luxury markets is to pore over through the plethora of wealth research reports, which discuss the evolution in the numbers of high net-worth individuals (HNWIs) and families and their behavior. Providing similar entertainment values to watching royals and celebrities, wealth reports additionally provide some insight to behavioral economics and business relevance for investment advisors and anybody targeting HNWIs, from charities to retailers.
The profile of the global HNWI population is changing in ways that have implications for the business of luxury, says the most recent edition of Barclays Wealth Insights, which the London-based banking multinational published this summer based on research conducted in the first half of 2013.
Central aspects to the change in the HNWI population according to Barclays are the shifts from developed to emerging markets, a trend that has been receiving a lot of attention, as well as a perhaps less conspicuous shift from inherited to acquired riches. Surveying HNWIs from countries representing five world regions on the sources of their wealth, Barclays found that only 26 percent named inheritance as the main source and compared that with 25 years ago when 79 percent of the rich in the United Kingdom were heirs.
Thirty-eight percent of Middle Eastern survey respondents — nota bene all from the GCC as per the report’s maps — identified inheritance as the source of their wealth, the highest rate in the world. Leading answers for the sources of wealth in the multi-option survey were savings from earnings and personal investments, each named by over half the global respondents, followed by profits from operations or sale of businesses and profits from property. In the Middle East, 41 percent of respondents said a main source of their wealth was gained from sale or operations of a business but, as Barclays noted, technology was not the fast route to the billionaires’ club in the region that it was elsewhere.
Behavioral implications of self-acquired wealth are more focused on control or hands-on engagement, greater familiarity with risk and on qualitative issues in the approaches to succession planning and to the sharing of wealth. At the same time, providers of luxury experiences and goods will be satisfied to learn that the HNWIs in the Barclays study named expenditures on lifestyle and experiences as a top use of their money — across all age groups.
The findings that various global wealth reports provide on the Middle East indicate that the region, along with other emerging markets, has seen an increase in its population of billionaires and millionaires. The latter group, the much larger of the two, is commonly understood as representing greater economic importance to luxury retailers because demand for most luxury goods categories is driven by the aspirations of rising wealth earners and recent HNWIs.
Opening the gates
Located on the doorstep of Asia’s emerging wealth and a traditional recreation ground of wealthy Arabs, Lebanon is in a favorable position to be a luxury retail market. However, the picture is ambiguous.
An important driver of luxury spending in the region is tourism. Even as hotels and travel are not included in the conventional definition of luxury goods, tourism, according to Bain, is a key driver of luxury markets in the period through 2015. Strong inbound tourism to Dubai by-and-large explains the city’s rise to become the regional hub for jewelry among its many other hub functions.
The centrality of tourism to luxury applies profoundly to Lebanon, a country whose domestic buying power is codependent on receipts from foreign visitors and from remittances — but the current implication appears to be negative. Revenues of high-end Lebanese retailers and commercial real estate operators in 2013 leave no doubt that receding trends in demand for high-price goods and services in places like downtown Beirut are correlated with the plunging number high net-worth visitors from the Gulf countries.
Given Lebanon’s twinned reliance and vulnerability vis-à-vis extraneous factors, it seems not unreasonable to expect that development of its luxury markets will be decoupled from up-trends in either global or GCC luxury markets as long as detrimental security risks are buffeting the country. Investments in luxury goods, plus cars, pleasure craft and real estate on the other hand have potential to grow irrespective of global economic environments, once the pressures have been lifted. For the moment, outbound tourism and escaping the dread of local realities seem to be prominent drivers for Lebanese luxury consumption in a time of ongoing conflict.
A boss can silently let his fellow colleagues know how he gets business done. A bespoke suit along with a crisp dress shirt and pure silk tie is for those businessmen that run the company in a classic manner. The specific cut of their suit parallels the defined lines of the corporate structure.
“Around 75 to 80 percent [of customers] prefer suits,” says Ali Nasser, manager at luxury menswear store, Pal Zileri based in downtown Beirut. “For the classic look, there are three types: classic, sport-chic, and casual.”
In the classic category, you’ll find single and double-breasted suits, along with dress shirts and ties. Globally, the double-breasted suit, popular in the 1980s, is back in fashion and was spotted on the runaways of Milan during the Fall 2013 Fashion Week. In Lebanon, explains Nasser, the style is viewed as outdated and a man in a double-breasted suit is viewed as unfashionable, when in reality he is in keeping with the latest global trends.
In every businessman’s closet you are likely to find the classic, standard, solid colored suits, alongside suits with a bit more flair. “The customers take a black, blue, and gray suit for the whole year,” says Nasser. These solid color suits can have different looks by switching out the shirt and ties for $450 and $250, respectively.
Aside from solid colored suits, a businessman can show off his own personal style by choosing plaid printed blazers and colors and patterns that match. “Italian style [is mixing] gray, with brown, navy and blue. People with this style usually buy suits more often,” explains Nasser, because people in the office might notice if the same ensemble was worn over and over again.
Along with its ready-to-wear collection, Pal Zileri also provides top-notch services in customized tailoring. “We have a tailor that comes from Italy twice a year and he takes the sizes of all our clients. Then he goes back to Italy and he makes the suits,” he says. “It takes two months to make them.” However, this service is exclusive to a select few, “about 15 customers” states Nasser, and with reason, as prices range from $4,000 to $10,000 for one suit. “The customers take about five to six suits every six months. So each customer’s bill amounts to $45,000 to $50,000.”
In addition to handmade Italian suits, an affluent Lebanese businessman’s outfit is completed with top-of-the-line accessories such as Hermès silk ties and Berluti leather shoes.
Casual, but always chic
Yet, not all wealthy men always want to dress formally, and, high-end fashion also includes casual wear. “The remaining 25 percent [of customers] are divided between casual and sportswear,” Nasser says. “It becomes a question of how you will relax.”
According to Janis Sarraf Tabet, brand manager and buyer for Malia Moda, member of Malia Group, businessmen go to Paul & Shark, another retailer of high-end menswear, for items to wear during the weekends and at laid back outings as the brand’s products are casual, but carry gravitas.
The casual-chic look has the advantage of combining the formal feel of a traditional suit with a more casual and comfortable twist. “This is the sport chic: blazer, pants, and a shirt. It’s still classic, but without the tie,” states Nasser. Tabet says Paul & Shark shirts are their best seller, along with pants and jeans. But “not jeans with washes, never. Just simple blue jeans with…very small logos or stripes.” Shirts and polos cost from $200 and $250. To complete the look, you can add a sports blazer from Pal Zileri for $700.
Other brands also realize the importance of casual clothing that still meets the high quality found in luxury brands. Italian brand Hogan is currently launching its latest campaign, titled “Casual Business”. The shoes in the line go for around $370. Businessmen not just in the Middle East but all over the world are slowly transitioning to a more relaxed look that maintains a chic and serious form.
With all the possibilities, it is up to the boss to decide which look he will advocate. The look should not define who he is, but complement his characteristics and his personality. After all, those who truly appreciate fashion do so for the quality it offers and understand the value that it holds beyond its name.
Abdallah Absi has been creating start-up enterprises since he was 17, an age at which, he points out, he wasn’t even legally allowed to own a company. Four years and half a dozen (largely unsuccessful) business ventures later, he has combined his knowledge of the pitfalls of new enterprises with his impressive contact list of potential investors to found Zoomaal; a pan-Arab crowdfunding platform launched last month.
Zoomaal allows users to acquire funding for their venture by securing multiple, small donations from the public in exchange for a range of rewards. It is a slick, local variant on the booming Kickstarter brand; the US-based funding platform which has raised $714 million and counting for more than 45,000 creative projects since its launch in 2009. Like Kickstarter, Zoomaal is purely project based; all campaigns have clear end dates and equity stakes are never on offer: “The projects we work with are generally still at seed stage. Equity-based crowdfunding would only work later on, when you have a proven model and are looking to grow your business,” Absi explains. It also follows the “all or nothing” funding model. If a project fails to reach the target figure it set for itself, the money pledged is returned to the donor. Zoomaal only takes a 5 percent commission on successful campaigns.
The difficulty of transferring money online is perhaps the principle reason why Lebanon has so far not embraced the crowdfunding model. Zoomaal’s solution stems from dogged determination rather than any particularly novel solution. It supports all the largest regional payment gateways, and has circumvented the difficulty of returning non-credit card payments by creating online accounts for contributors; if the project you choose to fund is unsuccessful, the money is added to your account balance and can be reallocated later on.
Abdallah Absi started his first company aged just 17
It is a clever solution to ensure the circulation of capital, but it has its limitations. Non-credit card investors will be frustrated not to get their money back, especially users interested only in a particular project.
Local issues have also been leapfrogged by registering abroad. Absi says the Lebanese banking sector was concerned with the potential abuses of crowdfunding, such as channelling donations to banned organizations, so the company is legally registered in the United States, where there is more familiarity with the set-up and the safeguards it provides. Despite this, it exclusively promotes projects from the Arab region.
That there is a demand for crowdfunding initiatives in Lebanon is hard to deny. “Angel investors don’t exist in the region unless you have family who can fund you,” says Absi. “Bumping into a stranger who falls in love with your idea and decides to fund it? That doesn’t happen.”
Absi says the difficulty of securing funds elsewhere is the main reason most of the 300 plus projects so far submitted have turned to Zoomaal for consideration. But some of the first few projects on the website based their decision to use Zoomal on other factors, and are particularly ambitious. Lebanese local Leen Sadder hasn’t lacked potential investors for “THIS Toothbrush”, a prototype which packages the ancient tooth cleaning stick, the Miswak, in a hygienic tube with a cutter attached. But she chose to go the crowdfunding route to try and raise her $18,000 investment, a figure which far surpasses the $5,000 Absi says projects should have to retain a clear focus and manageable budget. Sadder has had several meetings with both venture capital financiers and representatives of the dental industry, but preferred to stick with Zoomaal. Finding investors “would be the next step, but right now we’re not ready to make that commitment.”
Crowdfunding also makes sense for Sadder because she sees it as a logical continuation of her product’s growth so far. THIS Toothbrush found fame in cyberspace when New York-based design magazine Core77 spotted the prototype, which had been created as university coursework and largely forgotten about, on her website portfolio. Their article prompted others, and the Miswak found itself at the heart of unexpected online hype. “We wanted to make it an organic product, and we felt that we could use the support we already had to make that happen,” Sadder says.
Sadder’s $18,000 target may seem ambitious, but it pales in comparison to Zoomaal’s biggest venture: Mashrou3 Leila. The popular Lebanese band is looking to secure $66,000 — of which Zoomaal would receive $3,300 if the venture is successful — to launch their new album “Raasuk”. Like Sadder, they were not short of alternative options. “In the past two years we’ve created enough buzz to get major industry talking to us, but every time it’s the same,” says band member Firas Abu-Fakhr. “They’re interested but want to change some things to release commercially.”
To ensure that their Arabic-language pop isn’t swamped by auto-tune and belly dancers, they turned to crowdfunding. Presenting the campaign as a broader fight on behalf of artistic integrity, they are appealing to their fans to fund them in exchange for a sliding scale of pre-release musical perks. Abu-Fakhr says the band was ‘seduced’ by Zoomaal’s exclusive focus on Arab content, and by the prospect of launching their campaign in conjunction with the website itself. Of course, they accept it’s not a long term solution. The hope is that if they can create enough impact with the launch, international independent labels will start to take an interest, or local labels might perhaps rethink their demands.
Averaging roughly one donation per 30 viewers of the project online at the halfway point in their 38 day funding window, it seems likely that Mashrou3 Leila will reach its target and the commission taken from that success could allow Zoomaal to expand beyond its current ‘bootstrapping’ team of two. The buzz around the band, as well as Sadder’s project, has also boosted Zoomal’s early social media presence. With a vibrant cultural scene and widespread interest in supporting the arts, there is no doubt that both supply and demand for the crowdfunding model are plentiful in Lebanon.
Economics and Policy
Brent crude eased toward $110 a barrel on Wednesday after reports that some Libyan oil exports might soon resume.
Egypt's interim prime minister Dr Hazem Al Beblawi has met in Cairo with a UAE delegation led by Minister of State Sultan Ahmed Al Jaber.
A leading Syrian opposition figure said on Wednesday 1,300 people had been killed in attacks using chemical weapons by President Bashar al-Assad's forces around Damascus.
Companies and Business
Dubai-based Arabtec Holdings is considering a merger with the largest contractors in Saudi Arabia and Kuwait to create a pan-Gulf construction firm, the company’s chief executive said.
Bahraini carrier Gulf Air said that it has not been awarded a licence to operate domestic air services in Saudi Arabia, contrary to an announcement made by the kingdom’s aviation regulator more than six months ago.
A group of Lebanese franchise operators have joined other private sector bodies in sounding the alarm over slowing business activity due to political and security turmoil
Lebanese democracy, which the international media had long lauded as a rarity in the Middle East, is now being mourned in the aftermath of the decision to extend the Parliament’s mandate last month.
With an already five point decline in our ranking on the Democracy Index and a regression in our score on freedom in the Freedom in the World index over the past year, this comes as yet another blow that foretells more backsliding in international indices, and this will carry ramifications for economic growth.
This article does not aim to dwell on any of the political calculations that led to this decision. However, what should make us stop and think is whether the implications of such a decision for our country’s already poor image and reputation could have been better mitigated had political leaders invested more effort into proper communication. Although this may remain debatable, it is certain that better communication could have at least ensured a more favorable public opinion at home with the Lebanese.
When it comes to government or political communication in our part of the world, there is nothing new under the sun. Regardless of the weight increasingly given to this discipline and the proliferation of studies and conferences addressing its acute importance for sound governance and healthy democracy, it has yet to figure on politicians’ radar screens.
If the region’s historically autocratic landscape had been notorious for its ill-managed and one-sided communication with constituencies, recent events have offered several examples of further breakdowns in political communication. We can use them to draw some lessons about effective strategic communication.
Honesty is best policy
Communicating transparently and honestly is crucial in helping achieve the desired impact. No matter how compelling the message is, it will fall flat when the audience questions the integrity of the persons delivering it.
In the United Kingdom, a recent survey revealed that four in five voters believe politicians place their own interest before others. In Lebanon, levels of cynicism toward politicians are even more pronounced.
In our example, it seemed that after months upon months of political disagreements, 97 out of 128 legislators agreed on extending their term in Parliament. This only succeeded in fueling perceptions of back room dealing.
Being open, honest and transparent about the process that led up to the decision would have gone a long way in allaying these suspicions.
Deliver it with a punch
No matter how carefully crafted a message may be, the “how, who and when” of its delivery can play a critical role. Choosing the right format, channel and spokesperson can either engage the audience or undermine the message’s impact.
If the intended message was that constantly bickering political parties came together on this decision to ensure national interest superseded all other considerations or disagreements, its delivery only served to undercut it.
A message of such national resonance requiring a unified decision should have at least warranted a delivery platform that reflects the gravity of the situation. A joint press conference bringing together spokespeople across political lines to discuss the decision would have served to reinforce the message of national interest and would have certainly rendered it more credible.
Rally support around it
In reaction to the extension of the Parliament’s term, the United States’ State Department said the US “strongly rejects” the decision, and the United Nations said the decision was regrettable. Lobbying the international community for their support could have improved the situation on two levels. Internally, a message has far greater impact if it is endorsed by parties other than those who stand to benefit the most from it. On the external front, garnering the support of the international community would have helped in mitigating the decision’s eventual negative impact on image and economic outlook.
Some would disagree that the Lebanese political class do not give any importance to communication. After all, the last election season saw many politicians employing the latest techniques in communication skills and body language. Sadly, very little thought or effort is being put into actually reaching the Lebanese people, to address their concerns and relieve their fears, and maybe, just maybe, shine some light on the ever darkening image we have abroad.
Economics and Policy
The Union of Truck Owners at Beirut Port has suspended its strike as members await the outcome of meetings with officials to meet their seaport work demands.
Qatar says it has sent the second shipment of natural gas to Egypt despite the turmoil engulfing the North African country and the woes of Qatar's Islamist allies there.
Turkey’s central bank has raised its overnight lending rate for a second straight month in a bid to prevent a slide in the lira.
Companies and Business
In Dubai, where almost half of the offices sit empty, the head of a state-owned business zone says there’s room to build the world’s tallest office tower.
The United Arab Emirates is positioning itself as China’s gateway to the Middle East and Africa (MEA). The action is focused on Dubai, where there are an estimated 200,000 Chinese residents.
The Dubai International Finance Center (DIFC) has been trying to market itself as a hub for Chinese corporations — public and private alike — to base their MEA headquarters in the emirate, and it has had moderate success. “Dubai is two-thirds of the way to Africa from China, so given Dubai’s stability and that many Chinese firms’ international expansion is in its early days, it makes sense for most Chinese banks to bank for Africa out of Dubai,” said Ben Simpfendorfer, managing director of Hong Kong-based consultancy firm Silk Road Associates.
The DIFC has attracted a handful of financial institutions — ICBC, Bank of China, Agricultural Bank of China and the China Construction Bank — that essentially operate as trade facilitators. The DIFC is however working to address this shortcoming through its “New Silk Road” conferences, held since 2010, aimed at bolstering investment and financial ties between the two regions. But there is a long way to go.
“Talking to people at DIFC, that area remains weak, as it is confined to state-related entities. An area with potential growth there,” said Ghanem Nuseibeh, founder of Cornerstone Global Associates. “Chinese banks’ presence is growing, and certainly from what I hear with those dealing with the banks, the staff and operations are growing, but primarily servicing Chinese firms.”
Related articles: China still easing into Middle Eastern investments
China and America compete for military dominance
Chart: Where does China invest in the region?
Lebanon still lacking in Chinese investors
Away from finance, Chinese are flocking to Dubai. The year 2012 saw a 28 percent increase in tourists, and retail outlets hired Mandarin speakers to tap into demand for luxury products that are more expensive in mainland China. “The number of Chinese flying through Dubai is growing. It is a popular place for a vacation, and up to a third of the sales staff at Dubai International Airport are Chinese speakers,” said Simpfendorfer.
China’s mercantile side is largely confined to Dragon Mart, the largest concentration of retailers of Chinese products outside of China with just under 1,200 stores. The mall, with has an exterior shaped like a Chinese dragon, is considered a model of sorts that could be replicated elsewhere as an outlet for Chinese goods and traders. However, while the management claims up to 99 percent of retail is space is Chinese, a $272 million expansion currently under way that will double the mall’s size to 335,000 square meters is to be evenly split between international and Chinese retailers. And curiously, it is not a Chinese state linked firm behind Dragon Mart but Nakheel Properties, and the contractors — Kele and United Engineering Construction — are all Emirates based.
Economics and Policy
Saudi Foreign Minister Prince Saud al-Faisal has pledged to fill any financial gaps left by Western countries withdrawing aid from Egypt over an army crackdown on Muslim Brotherhood protesters that has left hundreds dead.
Elsewhere in Egypt, authorities escalated their crackdown on deposed President Mohamed Morsi’s Muslim Brotherhood by arresting the Islamist organization’s top leader.
Brent crude oil strengthened above $110 a barrel Monday as the loss of Libyan oil exports tightened supply and unrest in Egypt stoked fears of lower supply.
Representatives of Lebanon’s private sector and government officials met Monday to discuss measures to prop up the country’s ailing economy against the backdrop of a political impasse and a deteriorating security situation.
Qatar’s government spending rose 2.2 per cent to a record QAR178.2 billion ($48.9 billion) in its last fiscal year, slowing sharply from double-digit increases seen in the previous decade, official data showed.
Business and Companies
Up to 32 per cent of companies in the UAE are ‘definitely hiring’ in the next three months while 69 per cent of these firms expect to fill up to 10 positions, a new survey has revealed.
Authorities in Saudi Arabia have signed $1bn worth of contracts as part of a plan to build 40,000 new homes and alleviate the kingdom’s housing shortage.
Lebanon officially recorded two percent inflation from July 2012 to July 2013, new figures from the official Central Administration of Statistics (CAS) have shown. The numbers are a steep decline from the last year in which inflation has been between eight and 10 percent.
The reason for the decline is one of methodology, not actual prices. For the past year, official inflation has been artificially exaggerated. From August 2009 through June 2012 — a period of three years — CAS did not survey the housing sector. When it did in July 2012, prices had jumped 44 percent from the previous survey.
Related article: How bad data distorted Lebanon’s inflation statistics
The effect on the overall consumer price index (CPI) was drastic. Since inflation is calculated using the previous year’s index as a baseline, each month following the housing survey falsely recorded skyrocketing inflation, ranging from 8.8 to 11.1 percent.
While price data was not collected from January to May 2013, official figures for these months would almost certainly remain in the same band due to the housing survey’s effect.
July 2013 is the first month that takes last year’s housing survey as a baseline, returning top-line numbers to normality.
While July’s overall inflation was two percent over a year prior, prices of clothing and footwear dropped 4.2 percent over the previous month, putting year-on-year inflation for the sector at -6.7 percent.
Energy and water prices increased 0.9 percent over June — reflecting a typical mid-summer price increase — and 2.4 percent over the previous year. And despite the ongoing effects of the Syrian conflict, hotels and restaurants registered a 5.2 percent increase year-on-year.
As the latest report makes clear, though, no new housing survey has been carried out since July 2012. That means the new inflation figures do not take housing price changes over the past year into account — let the price-watcher beware.
