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Finance

Colony Capital

by Maya Sioufi August 13, 2013
written by Maya Sioufi

Roughly $8 billion have been transferred from the Middle East and North Africa into the care of Tom Barrack, the founder and chief executive of real estate private equity firm Colony Capital. Grandson of Lebanese immigrants to Los Angeles, Barrack founded the company in the City of Angels in 1991 and now manages $25 billion of assets. Colony is the fourth-largest real estate private equity (PE) firm in the world. 

To lure investors’ capital, 25 percent of which comes from the MENA region, Colony is diversifying its investment strategy as it adds distressed debt and media investments to its abundance of real estate projects. 

Since 2008, Colony has been acquiring distressed loans from, among others, the United States’ Federal Deposit Insurance Corporation, which has been buying out failed banks and selling their assets. Colony holds about $7.5 billion in distressed debt.

Another $5 billion are deployed in hospitality projects and $2.5 billion are in the residential real estate sector. The remaining assets are spread between investments in offices, industrial and retail projects such as French hypermarket Carrefour and media ­— most prominently, the film    distributor Miramax.

Barrack’s affiliation to Lebanon has not only led him to sit on the advisory board of the non-profit organization LIFE (Lebanese International Finance Executives), which aims to channel the influence of Lebanese financial executives for the benefit of the country, but also to choose Beirut as the regional headquarters for the firm’s Middle East operations. With Barrack’s old friend Sylvio Tabet heading a team of four, Colony’s Beirut offices, which opened in 2004, cater to a variety of clients in the region from sovereign wealth funds (SWFs) to pension funds to endowment funds to ultra-high-net-worth individuals to institutional clients such as Lebanon’s  Optimum Invest. 

A darling of gulf funds

Regional sovereign wealth funds (SWFs) feature as partners in Colony’s most prominent deals. Qatar’s wealth funds, in particular, have proven to be steadfast partners of Colony and to serve as reliable exit options for the firm.

The Fairmont Raffles Hotel Chain, for instance, is currently owned by a consortium that includes Colony Capital and Qatari Diar, a SWF. Qatari Diar, a 35 percent stakeholder in the chain, is reportedly in talks to acquire Colony’s stake of 20 percent. 

Colony’s MENA regional manager Sylvio Tabet

 

When Colony sold its controlling share in football club Paris Saint-Germain in 2011, it picked SWF Qatar Investment Authority (QIA). Last year, Colony sold its 100 percent stake in Sardinia’s Smeralda Holding, owner of luxury hotel resorts on the Italian island, for an undisclosed amount to Qatar Holding, a QIA subsidiary. 

And when Colony started venturing into media, it yet again turned to QIA along with California-based Tutor Saliba Corporation, a contracting and engineering group co-founded by Nassib Saliba, also of Lebanese origin, to acquire film distributor Miramax from Disney in 2010, giving it access to 700 film titles.

While media accounts for just 5 percent of Colony’s assets, Tabet, Colony’s regional manager, believes it is a sector worth betting on. He credits major upheavals in the industry for “creating a lot of unique opportunities for equity investors.” Digital media is disrupting traditional media, media conglomerates are divesting their non-core assets and banks are withdrawing from non-core lending, he says.

M.E.N.A. money, foreign investments

“Given the overall uncertainties and changes in Lebanon and the region, investors… have been looking for overseas opportunities and have shown a growing interest in the US market,” says Tabet.

While Arab investors feature among Colony’s roster of clients, the region does not appear on its investment list — 90 percent of its capital is deployed in the US.

Tabet stresses that Colony is open to making investments in the region, but the firm has so far completed just one: it acquired in 2007 a 55 percent stake in Turkey’s Mars Entertainment Group, an entertainment, cinema and sports chain, which it exited three years later generating an internal rate of return of 26 percent. The only other regional investment that Colony came close to sealing was a $2 billion contract for the development of a tourism project in Morocco. The project fell through, however, and as talks over legal repercussions are still ongoing, Tabet could not comment on this issue. 

While Tabet sees investment opportunities in Turkey, Colony’s eyes are fixed on the West, and the US in particular, where they foresee lucrative returns. To realize them, they will continue to venture hand in hand with their Middle Eastern partners. 

August 13, 2013 0 comments
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Economics & Policy

A response in crisis

by Joe Dyke & Tamara Rasamny August 13, 2013
written by Joe Dyke & Tamara Rasamny

Everyone is overwhelmed. United Nations bodies are desperately trying to raise funds, the Lebanese government is seeking to maintain control and local and international charities are providing care to the refugees across the country, all seemingly unable to cope with the sheer scale of the crisis.

A country that is home to little more than 4 million people, Lebanon currently hosts 600,000 Syrians who are registered or awaiting registration with the UN, and the total number is estimated to be much higher. Among the refugee community needs are increasing, as those with savings run dry, while within the Lebanese population many previously poor people are increasingly destitute as cheap Syrian labor pushes down wages. Dealing with this is an unenviable task.

Related articles: Does Lebanon need refugee camps?

Interactive map of Syrian refugees in Lebanon

But while the scale of the crisis and its devastating impact on Lebanon has been so vast no single organizational structure could have dealt with it in its entirety, serious questions are being raised about the way in which all bodies have responded to the crisis. The impression insiders give is that much of the response has been inadequate, myopic and badly coordinated.

A delayed reaction

Perhaps the worst case of inertia has come from the government itself. When the Syrian crisis started in early 2011, the government’s position was to remain neutral because of its close relationship with President Bashar al-Assad. There was little discussion of the crisis continuing for more than the immediate months, partly because many expected the Syrian conflict to end quickly as other uprisings in the region had. It was not until 15 months into the crisis that the Lebanese government produced its first crisis-management plan.

Even government officials say the response has not been ideal. Makram Malaeb, program manager at the Ministry of Social Affairs, admits “there was a period of time when there was a denial,” while Ramzi Naaman, lead coordinator of Lebanon’s Syria response plan, believes that the government has failed to understand how fundamentally the crisis is changing the country. As such, he says, their response has been piecemeal, with no medium-term planning. “They are not scared enough,” he told Executive.

The health sector epitomizes many of the concerns. A recent paper in the UK-based health journal The Lancet found that “pressure on domestic health systems is immense,” with hospitals struggling to cope with a sharply increased workload, even though capacity has not increased. Among the concerns are new diseases, such as the skin disease leishmaniasis — which is common in northern Syria but not in Lebanon — brought to the country by Syrian refugees, as well as a dwindling number of available beds.

Fouad Fouad, member of the Faculty of Health Sciences at the American University of Beirut and co-author of the Lancet report, believes medium-term planning could have allowed the government to use the crisis as an opportunity to invest in much-needed infrastructure. “My feeling is that with this long-term crisis, the only way to face [this] issue is to adapt the system to absorb more, or to be the kind of system that deals with such an unexpected crisis.” Instead, he says, the government has hoped the current infrastructure will be able to cope.

Fouad was in fact tasked with drawing up part of the government’s strategic planning document for dealing with the Syria crisis. Shuffling through the files in his third-floor office he produces the document, which calls for major investment in hospitals as a way to help benefit the local population as well as aid refugees. The plan, he says, was delivered at the end of 2012 but was never published. “Can you believe that this is the only copy? Well maybe they [the government] have another copy,” he says. “It’s just all papers, and documents, there’s no action plan.”

Syrians using Lebanon’s hospitals have put a strain on the country’s infrastructure

Critics of the government argue the Syria file has not been taken seriously enough. Syria has been dealt with primarily as a humanitarian crisis and thus has fallen under the remit of the Ministry of Social Affairs (MoSA) — one of the smaller ministries with historically little sway — while the Ministries of Health, Education and Interior have played smaller roles. 

There have been numerous calls for a new strategy recognizing the scale of the crisis. Ziad Sayegh, a former advisor to the Ministry of Labor, is among the leading voices for such a framework. Speaking to Executive in late June, he called for either an independent but powerful body of around a dozen expert technocrats to coordinate the government’s response to the crisis or, more radically still, an independent ministry within the government dedicated to dealing with the crisis. “We have an executive opportunity, now this is the right time,” he says. “The new prime minister along with the president should have a serious look at this proposal without going into political agendas.”

 

Sayegh is, of course, referring to Tammam Salam — Lebanon’s prime minister-designate. Since former Prime Minister Najib Mikati resigned his government in April, Salam has been trying to form a new government — a process unlikely to end soon. With Parliament’s term ‘temporarily’ extended by 17 months due to the deadlock over elections, the office of President Michel Sleiman is now the only fully functional part of government.

Antoine Haddad, secretary-general of the Democratic Renewal Movement, organized one of the first major conferences on the impact of the crisis on Lebanon. Haddad, who is close to the president, thinks a prolonged period without a government could force Sleiman to take matters into his own hands and reshape the response to the crisis. “The [prime minister] is more fit to [deal with] this, but I suppose that there is a possibility that we live without a government for a long period. So what shall we do? I think in this case the presidency shall have to deal with the issue.”

A shifted burden

Without a coherent political response, much of the burden for responding to the crisis has fallen on the international community. UNHCR, the UN’s refugee body, has led the response to the crisis, simultaneously coordinating the operations, implementing them and partnering with NGOs to deliver assistance. They have launched five, six-month long Regional Response Plans (RRP) in which they have appealed for funding. But they have found the sheer scale of the crisis difficult to cope with.

Syrian women receive aid packages from one of many NGOs working on the situation

In January this year, they launched RRP4 based on an estimated 300,000 refugees coming by the end of June. By mid-February that number had been surpassed, but they had only raised 48 percent of the desired funding. As such, many assistance programs had to be scaled back dramatically. “We have to make difficult choices every day in terms of who we assist and how much assistance we can give,” Joelle Eid, information officer at UNHCR, says.

While the funding crisis is acute, questions have also been raised about UNHCR’s role. Historically, the body was not as heavily involved in Lebanon as the Palestinian relief agency UNRWA. UNHCR has thus grown rapidly, from just 50 staff in 2011 to 400 currently, and questions are being raised about its capacity.

Olivier Beucher, head of the Danish Refugee Council in Lebanon and the chair of the body that represents the top international NGOs in the country, believes the UN agency is overloaded. “Too much is demanded or required from UNHCR… Now with the size of the crisis in Lebanon, the caseload is so high that they can’t do this,” he says. Beucher suggested that there are a range of other ways in which the system could be organized, including a cluster-style system where different agencies take on different key sector coordination roles, working in closer conjunction with the government and NGOs.

Making difficult choices for the future

As it becomes increasingly clear that the crisis will continue to affect Lebanon for years to come, those in the field are concluding that a medium-term plan is necessary. The principle of aid targeting perhaps provides an example of how a lack of strategic planning early in the process can encumber the response later on.

In theory, targeting aid is the right thing to do. With a refugee crisis of this severity and funding shortages, it is not possible to provide quality care to everyone. As such, aid agencies should provide support to the most vulnerable. “Either you reduce the assistance, or you don’t deliver assistance to everybody. And we do believe that the combination of both is and was needed a long time ago,” Beucher says.

The current plan is to target aid in three particular areas: food vouchers, hygiene kits, and baby kits, starting in September. The aim is to reduce the amount of people receiving these services in order to support the most needy. But Beucher believes that poor planning has made it difficult to differentiate those who are more in need than others. 

Normally, in order to make needs-based assessments, he says, aid agencies would visit “every set of families [that register] to make sure that people are not lying [about their needs].” This is most easily done when families first register, but the UN has merely recorded the “bio data” — basic information about the families.

As such, Beucher says, there is little chance that the targeting can now be accurate. “Our worry is that the UNHCR will do the targeting on its own based on the criteria that they gathered, but this will have a big error in the selection… [then] they will ask the NGOs to verify that these people are vulnerable, and we know we will find a lot of people that are not as vulnerable as they mention, and they will need to be excluded from the assistance. And this is where you have conflict with the refugee families,” he says. 

Beucher believes this could endanger his field workers as they will be forced to tell refugees they are no longer entitled to, for example, food vouchers. A key way to avoid this is a major communication push to let refugees know. For a program due to launch in September, the UN is perhaps running a little late. UNHCR’s Eid told Executive in mid-July that the “criteria [for who is eligible for targeted assistance] has not yet been set”, but that they hoped to finalize the terms of targeting by the beginning of August. This will leave the body with a month to communicate the new policy to the huge refugee community.

Eid admits problems in the past with communication but says they are being resolved. “This time we are devising a strategy whereby we would communicate to refugees the changes that are expected to happen,” she said.

Better communication

If the UN has struggled to communicate with the refugees, then coordination with the government and NGOs is also sub-optimal. Insiders talk of communication breaking down between different bodies, meaning they are often duplicating work or failing to share information. UNHCR’s Eid denied these claims, saying, “I have not heard of these rumors.”

“Unfortunately the coordination is [poor] on many levels. You need to have a strong strategy for collaboration. I know that several UN agencies working here, but there’s no one plan for all. And many big international organizations don’t talk to UN agencies,” AUB’s Fouad says.

In recent months, however, there have been a few positive signs that the entities are starting to work together better. In June the UN launched its fifth RRP calling for funding from international donors. For the first time, the government was a partner in the bid, with $450 million of the $1.7 billion appeal aimed to support government projects. This, Eid says, was a major step toward improving the response plan.

Similarly, in recent weeks the government established a trust fund with the World Bank. While the size of the fund is still being confirmed, Naaman said the basic plan is that it “is under the government’s responsibility, along with an international partner that is concerned in the issue, so they will be doing a sort of supervision so that everything is [transparent].” In June the acting government released a new plan for dealing with the crisis. Despite the lack of details, it promises that they are tackling the matter in a more serious manner.

Related articles: Does Lebanon need refugee camps?

Interactive map of Syrian refugees in Lebanon

However, unless there is a new government, there is little hope that the response to the crisis will markedly improve. Without a carefully orchestrated national strategy, the refugee crisis is likely to remain in the hands of the overstretched UNHCR — making essential medium-term planning less likely.

Note: This article originally said Beucher proposed a cluster system

August 13, 2013 0 comments
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The Buzz

Business briefing: 13 Aug 2013

by Executive Staff August 13, 2013
written by Executive Staff

Economics and Policy

A group representing tourism-related businesses in Lebanon has called on the government to take swift steps to remedy the problems facing the sector.

More from The Daily Star

 
 
The call comes after industry experts estimated that the kidnapping of two Turkish pilots in Beirut is likely to further disrupt Lebanon's faltering tourism industry.
 
More from The Daily Star

 

The UAE's central bank is under pressure to break the regulatory impasse in its negotiations with the financial industry after eight months with little to show for its latest efforts.

More from The National

 

Sudan has postponed its deadline for the closure of the economically vital pipeline network carrying South Sudanese oil until next month.

More from AFP

 

Companies and Business
 
Lenders including Deutsche Bank, HSBC and China Development Bank are resisting calls by Saudi Telecom (STC) to restructure a loan that could potentially leave them with losses of up to $600 million.
 
More from Reuters
 
 

India’s Hindustan Petroleum will resume buying Iranian crude if the government unveils an adequate backup plan for local insurers to provide cover for its refineries.

More from Reuters

 

August 13, 2013 0 comments
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Economics & Policy

Increasingly destitute

by Sam Tarling August 12, 2013
written by Sam Tarling
There are over 600,000 Syrian refugees registered in Lebanon, with thousands based in the sparse Bekaa district [Photo: Sam Tarling/Executive]
Conditions in the region are deteriorating, with the United Nations struggling to provide support [Photo: Sam Tarling/Executive]
There is not enough work for the refugees, with many poor Lebanese being angered by Syrians accepting lower wages [Photo: Sam Tarling/Executive]
A refugee fixes a waterproof layer to the outside of his tent [Photo: Sam Tarling/Executive]
Refugees from Homs prepare the ground to pitch another makeshift tent in the Bekaa [Photo: Sam Tarling/Executive]
Many children have fled the war-torn country without their families [Photo: Sam Tarling/Executive]
Lebanon has so far decided against formal refugee camps but as the country struggles to cope there are increasing pressures to do so [Photo: Sam Tarling/Executive]
August 12, 2013 0 comments
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The Buzz

Business briefing: 12 Aug 2013

by Executive Staff August 12, 2013
written by Executive Staff

Economics and Policy

Bijan Namdar Zanganeh, a former Iranian oil minister who has been nominated by President Hassan Rouhani to take over the ministry again, pledged to boost Iran’s oil output should he be approved by the parliament.

More from Reuters

The abduction of two Turkish Airlines pilots could deal the last blow to Lebanon’s ailing tourism sector, caretaker Tourism Minister Fadi Abboud warned over the weekend.

More from The Daily Star

 

The unemployment rate in Bahrain rose nearly 17 percent in the second quarter of 2013, compared to the first quarter of the year, government officials said.

More from Arabian Business

 

Companies and Business

National Bank of Ras al-Khaimah (RAK Bank) has appointed Peter England, previously a senior banker at Malaysia’s CIMB Group, as its new chief executive.

More from Reuters

 

Tata Steel Europe has won an order to manufacture 60,000 tonnes of high-quality rail for a new high-speed line linking the two holy cities of Makkah and Madinah in Saudi Arabia.

More from Arabian Business

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Economics & Policy

Time for camps

by Joe Dyke August 11, 2013
written by Joe Dyke

“If I want to go to prison I will go back to Bashar al-Assad. He is pretty good at it,” Abou Ibrahim jokes when asked about whether he would move to a refugee camp. The father of six fled Syria two years ago and has made the town of Saadnayel in Lebanon’s western Bekaa his temporary home. He rents the land on which his homemade wooden flat is built for $200 a month, which he pays for through sporadic manual work and, in bad months, selling his family’s United Nations food vouchers for cash. But he says he would rather continue to do so than move to a refugee camp, particularly if he were not allowed free movement in and out.

Since the Syrian crisis began in early 2011, policy makers, politicians and UN representatives in Lebanon have tried to avoid talking about camps. The term conjures up imagery of hovels, destitution and, in Lebanon, violence. But increasingly these same figures are coming to the conclusion, more through force than reason, that camps in some form or another are inevitable in Lebanon.

Related article: Interactive map of Syrians in Lebanon

Lebanon’s Syria response in crisis

Currently, there are over 650,000 Syrians either registered or awaiting registration with the United Nations in Lebanon, while the government estimates another 500,000 are in the country unregistered. This equates to over 20 percent of Lebanon’s official population, the largest refugee crisis per population size in the world. Until now, no formal camps have been opened; refugees are housed within the Lebanese system. Around 80 percent live in rented accommodation, while thousands of others are staying with friends or in abandoned buildings.

But since the start of the year, the rate of refugees has expanded so rapidly — in December 2012 there were just 129,000 registered — that the system is increasingly unable to cope. Across the country, around 280 informal camps, consisting of 20-50 tents in small areas, have popped up, often with little or no sanitation or protection against the brutal summer heat and bitterly cold winters. The shelter crisis is forcing many to rethink.

The chief convert so far is the UN itself. Joelle Eid, public information associate at the body’s refugee agency UNHCR, explains that while they still believe camps to be the “least feasible option” for housing Syrian refugees, the point has been reached when Lebanon can no longer assimilate them.

“At the beginning of the crisis, we were not advocating for camps [as they are] very expensive to uphold and maintain. We would rather see refugees live in as normal a setting as possible and we would rather invest money into local public services and schools to benefit generations to come,” she told Executive. “But as the crisis progresses and…rents are on the rise, refugees are at risk of being thrown out of their homes. We see the sprouting of these informal tented settlements,” she adds.

“So today, taking into consideration all [this], there should be another option on the table, including these other solutions”, i.e. camps.

Olivier Beuchard, country director of the Danish Refugee Council (DRC) in Lebanon and chair of the Lebanese Humanitarian Forum INGO which seeks to lobby the UN and the government, is also convinced of the need for camps. Crucially, he believes the crisis will continue to worsen and thus the camps are necessary for medium-term planning.

Informal camps have sprung up across the Bekaa without official UN support

 

“We, as the INGO forum, do not believe that we are at the peak of the crisis [yet] … If tomorrow in Syria the regime falls, or the opposite, that the regime takes over the country like before, you might have a big wave of displacements,” he said. “And if you have a massive influx of 50,000 people coming in one or two days, then we are not ready to absorb them, accommodate them, and assist them in any manner. So then you need camps and transit sites.”

Camps are not merely the least worst option – there are some potential benefits. Currently, registration of refugees takes around three months in Lebanon, but for those in official refugee camps such as Zaatari in Jordan – which houses over 200,000 refugees and has thus become the country’s fourth largest city — the process takes only days, and subsequently support can be given almost immediately.

Similarly, Beuchard and other charity leaders Executive spoke with said it also made providing care easier as the refugees stay in one place. As such, for planning education, health, food distribution and other key services, camps can help get more for their money. Indeed in June, UNHCR launched a proposal calling for NGOs to submit bids for camp establishment and management. The results have not yet been released, but it is understood that a number of charities submitted plans.

Not so simple

But while the UN and international NGOs may be increasingly in favor of camps, it is not their decision to make: any final ruling would be made by the Lebanese government. This poses an obvious problem. Since the government of Najib Mikati fell in March, the new Prime Minister-designate Tammam Salam has been unable to form a new cabinet. The former ministers remain in their posts in a temporary capacity, but whether they have the authority to introduce camps is unclear.

Moreover, the signals coming from the government are mixed. The Ministry of Social Affairs, under whose remit the refugee crisis has fallen, has been publicly supportive of camps but other parties in the government — most notably Hezbollah and the Free Patriotic Movement — have remained opposed. 

One of the main hesitations, both for Lebanese and Syrians, is over security. Every Syrian Executive asked in the Bekaa stressed that they would not live in a camp if they did not have freedom to come and go as they liked. Forty-three-year-old Khaled highlighted the experiences of Zaatari camp in Jordan. Syrians are unable to leave the camp without permission, with protests about their conditions common. “I want freedom, not prison,” Khaled said. “The Syrians in Zaatari are treated like dirt.”

While for Syrians the experience of Zaatari serves as a warning about the lack of freedom, the Lebanese government takes a different kind of warning. There have been increasing reports of violence in the camp, with anti-Assad fighters rumored to be using the camp as a safe base, while prostitution and abuse are also on the rise. Ramzi Naaman, the lead coordinator of Lebanon’s Syria response plan, is among the key figures advising politicians on the crisis. He stresses that the security concerns over the Jordanian camp play a key role in the government’s hesitancy.

A refugee in Lebanon’s Bekaa region hangs out her family’s washing

“They [camps] can unfold into something very dangerous if not closely controlled,” Naaman told Executive. “The biggest indicator is Zaatari which is out of control, probably the most highly-populated spot in the world [and] extremely dangerous. I mean after 8:00 pm no one can move in the camp, no woman can go to the bathroom because she risks being raped,” he said.

Naaman’s comments, though perhaps exaggerating the reality, are indicative of the mentality of many government officials on the issue. Underlying this is the Lebanese experience with Palestinian camps, many of which remained populated with the families of refugees since they were expelled from their homeland in 1948. As there has been little meaningful progress for Palestinians in the intermittent years, the result has been that ‘temporary’ camps have remained for decades, with their semi-autonomous status making them hugely controversial with the Lebanese. Violence in the camps is common, and the Lebanese army fought a major war with alleged Islamist militants in the Palestinian camp of Nahr al-Bared in 2007.

DRC’s Beucher says that in negotiations with the government, the Palestinian camps have never been far from the table. “The government thinks that the camps will stay if they are put up tomorrow,” he says. “Something very temporary [such as] a shelter box is too luxurious for the government…so it’s very fine for the refugees, but it’s too fine [for the government] in terms of appearance, unfortunately,” he adds. “This is coming from the Palestinian precedent.”

A question of form

The Lebanese have long feared camps, but as they become increasingly unavoidable, the debate is turning to what form they should take, rather than whether they should exist at all. The first question is of size. Makram Malaeb, program manager at the Ministry of Social Affairs, calls for camps that “don’t exceed a capacity of 20,000 to 30,000 each.” This is largely echoed by DRC’s Beuchard — who thinks numerous camps of between 10,000 and 15,000 would be more suitable than the larger Zaatari model.

Then, there is the debate about location. All actors Executive spoke to agreed that the vast Bekaa region was the most likely to be chosen to host camps, but the specific locations will be controversial in a religiously diverse part of the country.

But perhaps the most contentious issue is around security and monitoring of the camps. Ziad Sayegh, an advisor to the Ministry of Labor, worked on the Palestinian file from 2005 to 2010. Speaking to Executive in late June, he stressed that in order to avoid a similar hostility with the Lebanese population, any Syrian refugee camps must be under the full control of the Lebanese government — with the army carrying out regular patrols unlike in the Palestinian camps. “[Do you think we] will have armed camps? How? The Lebanese army will supervise these camps. These camps [will be] protected by the Lebanese army and the internal security forces.”

Sayegh’s optimism in the capacity of the Lebanese army and the ISF to control the camps is perhaps misplaced. Both bodies are highly stretched trying to maintain control over numerous increasingly dangerous regions in the country, including the porous border with Syria. They are sometimes doing this without sufficient resources, with internal documents disclosed to Executive last year showing that the army is underfunded to the tune of $1.3 billion. The extent to which the Syrian refugee community will welcome these patrols is also disputed. The refugees Executive spoke to said they were concerned that the army was hostile toward them, with rumors of mistreatment common. Despite this, Malaeb agrees with Naaman that for the Lebanese to accept camps, security and movement controls will have to be implemented. “We have called for camps…with quite a bit of control mechanism within them,” he said. “[This would include] the influential presence of the security forces inside the camps, with the camp perimeter secured by the army and general security, and humanitarian relief coordinated by the ministry with the UNHCR, and other actors.” 

These stringent controls of movement that Malaeb appears to hint at may be the most logical way for Lebanon to avoid losing control of camps, but for many Syrians they would be anathematic. Trying to satisfy the refugees’ basic desires for dignity with the Lebanese hostility towards camps will be a tough ask. 

Since the beginning of the Syrian crisis, the idea of refugee camps has been something of an elephant in the room. No longer can Lebanon continue to put off these tough decisions.

August 11, 2013 0 comments
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Society

Sweet success

by Nathalie Rosa Bucher August 8, 2013
written by Nathalie Rosa Bucher

Social media was abuzz last month when two billboards popped up on the highway outside of Jounieh. The first, an advertisement for Tripoli-based Abdul Rahman Hallab 1881, a stalwart of Lebanon’s sweets industry, read: “It’s in Jounieh? Sweet…”, which prompted Douaihy Lebanese Pastries, firmly established in the area for 15 years, to retort via another giant billboard: “You’ve arrived late to Jounieh, sweetie”.  

“This is democracy! It was fun,” said Gaby Douaihy, manager and co-owner of Douaihy, summing up the ‘sweets-off’. 

Although it has survived many turbulent periods, providing much-loved high-quality products to local and foreign customers for decades and employment for thousands of individuals, Lebanon’s sweets industry rarely features in the news.

The season of Ramadan — perhaps what pushed the battle of the billboards into the media spotlight — is the busiest period of the year for most Lebanese sweet-makers, and their approaches to product range and marketing strategies vary. 

 “In the last few years, [when] Ramadan has been coming during the summer season, people are more into the cold products than the fried ones, like kellaj,” says Amani al-Baba, executive secretary of Saida-based Al Baba Sweets. “Previously, kellaj was our Ramadan number one seller, but recently people prefer to have fresh dairy products or even ice cream.” Al Baba Sweets focuses its labor on qashta or cheese Ramadan products. Douaihy also sees demand for qashta products rise during the holy month. 

Al Baba Sweets has special leather and velvet packaging boxes and silver trays available on their website’s “gift items” page. The company refrains from special offers but presents its products in new packaging. “The carton box is see-through, which makes for a nice box to present as a gift during Ramadan,” Amani al-Baba says. 

Abdul Rahman Hallab is all about selling tradition. “We don’t try to modernize products during Ramadan. Even with regards to decoration, we believe it’s not the correct season to do something modern,” Ziad Jebara, marketing and advertising manager at AR Hallab explains. “We rather stick to what’s authentic.” Jebara goes on to say that AR Hellab does not do specials or offers, as their products are already an integral part of the holy month. “We are a ‘must-have’ and we don’t encourage people in that way with special items. Our packaging also stays the same,” he says. 

Rafaat Hallab 1881, also based in Tripoli, started preparing three months in advance of Ramadan, one of the best months of the year, according to Omar M. Hallab, chairman and chief executive. “This year, we’ve introduced a point system. Through our magnetic strip card, customers will be given big benefits.”

Honeyed histories

The origins of Lebanon’s sweets empires are humble. They began as small shops in Saida, Ehden, and the souks of Tripoli. An abundance of sugar and milk in Tripoli and the influences of the Ottoman Empire encouraged confectioners to craft some divine sweets, which one Mohammad Hallab — hallab means milkman — came to master over a century ago. 

In the hands of the third, fourth or fifth generation, these family businesses have expanded and diversified. These tiny confectioneries have morphed into large companies that have several branches within, and even beyond, Lebanon (see chart). 

Catering has also become standard business practice among sweet-makers. Among other high-profile customers AR Hallab caters, to the Baabda Palace; Rafaat has expanded its catering services online.  

“We registered hallab.com in 2000 and started our e-business then. [We] were surprised by the results,” Hallab says. The company’s website refresh, launched in July 2013, integrates a social media team that answers clients’ questions.

Al Baba Sweets also sells to online clients. “Our e-shop right now is around 5 percent of our sales turnover,” Amani al-Baba states. “We started 10 years ago but we had a problem with the [credit card] system, which was very complicated and was not secure.” After losing somewhere between $40,000 and $45,000, the company switched to Crédit Libanais.

“Our local sales still are the best,” Amani says. “Some products are in huge demand, especially Arabic sweets. Baklava is our customers’ first choice.”

For all tastes

As palate preferences  change with time, sweet manufacturers often fuse modern and traditional flavors. Al Baba boldly mixes authentic recipes with contemporary, French pastry creations, such as tart dough with qashta and pumpkin, and carries “baklava pine fingers dipped in chocolate.” They even have diet sweets on offer.

“There are different tastes today. The younger generation prefer more dry, less syrupy sweets,” says Chief Executive Aouni al-Baba. The original ones, though, still sell best. 

“The old generation wants the old sweet, the new generation new things, so we fuse and cater for both,” says Rafaat’s Hallab, adding, “The challenge is to make those products with the same taste as the regular ones. Among our new products is a malfoufe, which won an award at Horeca 2013, made of qashta, chocolate and sugar syrup.”

Presentation has also become an important selling point. Al Baba Sweets realized seven years ago that presenting their sweets in new packaging boosted sales as well as product and brand perception. “Especially in the Gulf this has helped us, and it gave us the idea to develop our product presentation,” Amani al-Baba recalls. There are some packages for which customers pay; for others, the company cuts a small percentage of its profit to give packaging for free in the hope of selling more and offsetting the expense. 

“The authentic products back in the day were bought to have at home, or when you visit someone at hospital. Now that we have innovated the product and the perception of the product, people buy them for all occasions, and that’s where presentation plays a huge role. This is a novel trend that started in the last 10 to 15 years.” 

In order to re-brand itself as more than a sweets maker, Douaihy opened Beit Misk along the Zalka West Highway in 2007. “We wanted to attract younger customers and target a new, young generation who thought that Douaihy was only about Lebanese sweets,” Douaihy explains. Offering French pastries, salads and snacks 24 hours a day, all year round, Misk is Douaihy’s biggest branch, and the concept has paid off. A younger and more diverse clientele now frequents Douaihy shops.

Innovation in some areas notwithstanding, production has remained close to the traditional, artisanal mode of making sweets. Al Baba Sweets, like all other sweets manufacturers, have machines, but 80 percent of Al Baba’s local production is still hand made. For ingredients, however, sweet-makers import at a hefty price to get the best quality.

 “Our ingredients are not cheap and have to be imported. Only water, pine nuts, and labor are locally sourced. Not even the flour is made in Lebanon these days,” Aouni al-Baba explains. 

Al Baba Sweets sources pistachios from Iran and Afghanistan at $25 per kilogram. Butter and butter ghee are imported from Europe, and the price depends on the euro. “Generally speaking, over the last month, all the dairy products have gone up 20 percent,” Baba says. 

Aouni al-Baba says the price of baklava hasn’t risen in accord with the cost of ingredients because that would make it too expensive for many Lebanese. He says a fair price would be between LL40,000 ($27) and LL60,000 ($40) per kg. “One kilo of chocolate years back was LL25,000 [$17] and baklava was LL15,000 [$10]. Now good chocolate costs LL75,000 [$50] but baklava can’t go up from LL35,000 [$23], although chocolate is much cheaper to manufacture!”

“We are faced with sales decreasing and raw material prices going up,” Hallab says. “We cannot increase prices as consumers’ purchase powers are low. So the best solution is to resist increases and find some ways to introduce new products and promote these.” 

A sticky time

Times are not always sweet for Lebanon’s confectioners, especially this past year. According to Rafaat’s Hallab, the last twelve months in Tripoli had a dramatic impact. “We’ve seen a tremendous decrease in our businesses. We are used to and have experienced these fluctuations before, but the past four months [March through June 2013] have been particularly hard and it’s all due to the security situation. We hope that this will pass and that we can resist,” Hallab explains.  

“Two years back, tourists would frequent [AR] Hallab every day. They’d come to Hallab for sweets and for the Palace [Kasr el Helou] and go back to Beirut. We have lost those,” Jebara laments. 

The losses AR Hallab has sustained over the last year have eaten up 30 percent of its profit. “Since we do not want to lay off any employees, our expansion strategy is what we chose to do in order to cover our costs and create job opportunities,” says Jebara. They expect to open their newest branch in Kuwait City this fall. 

Likewise, Al Baba Sweets faces turbulence at home as well. “The recent events in Saida have resulted in a 25 percent downfall in sales turnover. The only solution is to cut from our profits to cover our overheads,” Amani al-Baba says.

Al Baba Sweets has opened new shops, the latest being Dar El Baba on Emaar Boulevard in Dubai in July. 

Despite the dire situation in Tripoli, Rafaat is focused on expansion. “We’re opening three major projects, including restructuring the company’s catering division, which will include international cuisine and a franchising concept,” Hallab says. His company is also running a pilot for franchising. 

The effects of the situation in Syria have delayed some of Al Baba’s projects. “We’re waiting for change… but we may also just do it anyways,” Aouni al-Baba says about opening four new shops in Tyre, Chtoura, Khaldé and Byblos.

While the security situation and economic downturn has left a bittersweet taste in the mouths of many, Lebanese sweet-makers are finding ways to keep churning out those delicious confections that one can take comfort in. 

August 8, 2013 0 comments
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The Buzz

Business briefing: 8 Aug 2013

by Executive Staff August 8, 2013
written by Executive Staff

Economics and Policy

Egypt’s urban consumer inflation quickened to its fastest in two years last month, the central bank has said, driven by higher food prices and a sliding currency.

More from Reuters

 
 
Yemen's government thwarted an audacious terrorist plot to kidnap foreign workers and take control of the country's oil facilities.
 
More from The National
 
 

The Turkish operator of two barges hired by Lebanon to supply electricity has said the second powership is due to arrive on August 14 or 15.

More from The Daily Star

 

Iraq’s Kurdistan region is exporting crude oil by truck to an Iranian port for shipping to Asia, using a trade route that is likely to anger both Baghdad and Washington.

More from Reuters

 
Companies and Business
 

UAE real estate giant Aldar Properties has unveiled a 200 per cent increase in second quarter net profits.

More from The National

 

Etihad Airways has outlined a range of major changes to its Australian operations, including new aircraft, new routes, additional flights and new airport facilities.

More from Arabian Business

 

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The Buzz

Business briefing: 7 Aug 2013

by Executive Staff August 7, 2013
written by Executive Staff

Economics and Policy

Security concerns and travel restrictions from Gulf Arab states have driven Lebanese tourist arrivals down by 27 percent during the small Mediterranean state’s peak season, Lebanon’s caretaker tourism minister said.

More from Reuters

 

Elsewhere in Lebanon, declining consumer and business confidence will negatively impact the profitability of the country's banks in the second half of 2013.

More from The Daily Star

 

Iran has taken delivery of several new oil tankers in recent weeks as it relies more on its own fleet capacity to help sustain crude export shipments in the face of western sanctions.

More from Reuters

 

The US is planning $2.7 billion in new sales to Iraq of air defense and communications systems.

More from AFP

 

Companies and Strategies

Standard Chartered's net profits fell during the first half of the year as it wrote down its South Korea unit by US$1 billion, but income jumped at its UAE business as bad debts eased and the local economy recovered.

More from The National

 

Dubai Airport Freezone Authority has announced a 44 per cent growth in demand for space for the first half of the year, when compared to H1 2012.

More from Gulf Business

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Real Estate

‘I am tired of Solidere’s critics’

by Thomas Schellen August 7, 2013
written by Thomas Schellen

The Beirut Central District is advancing but the company in charge of its development is suffering under the economy and under verbal abuse. Solidere’s general manager Mounir Douaidy talks about the state of affairs after the precipitous drop in sales and profits. 

 

Solidere has been in a down cycle on land sales and in a three-year slide of its share price. When would you expect the next cycle of upward development to kick in?

This is asking to look into a crystal ball. All I can say is that we will continue finishing the projects that we think we should finish. We have a mission, we have a mandate. We continue to do what we have to do and hope that external factors do not negatively impact all our effort.  

 

The company’s performance numbers for 2012 are down 90 percent on net profit and the share price recently retreated to the $11 range in June. Is this an eight-year low for the stock?

An eight-year low? No… I can’t remember. 

 

Is there still a need to find a bottom?

The share price going down to $11, and I don’t know if we bottomed out, is all subject to the political environment and whether we are going to see better days here or not. 

 

You have foreign shareholders. Did the warnings that deterred Gulf citizens from coming to Lebanon also impact your shareholder behavior? 

No, it didn’t impact our shareholder behavior. The result of [the travel bans] was that we lost on investors. [Last year] we were still seeing interest until all these bans came out and then all these potential investors that could have come from the [Gulf Cooperation Council] or the surrounding countries in the region, they disappeared. There was interest, and today there is no interest. Today there is nobody to generate that interest. 

 

What do you feel most passionate about?

What I am passionate about is really this involvement in making part of the history of this country, at least through the rehabilitation and regeneration of the city center of the capital, trying to reposition it on the international map even as there is a lot of difficulty – it is not a hike, it is mountain climbing. It is fascinating on one hand but demoralizing on the other hand.

 

Do you feel drained at this stage?

Of course. There are moments when you feel desperate and tired and exhausted because [the opposition to Solidere] unfortunately doesn’t stop, but still I think we are doing the right thing. I think this project is that advanced that no matter how much opposition there is, it will not stop. Future generations will reap the benefits of what is being done today. 

 

Among the more recent accusations against the company there was one that you muscled your way into hospitality operations and forced restaurateurs into contract. One local newspaper called this extortion. Would you not take someone to court who accuses you of extortion?

We won’t sue anybody for [saying] that. We created a hospitality unit not for a long-term business but as a tool. It is not part of the company’s objectives. The things that we went into were things that we thought no one else can do, and also these were concepts that were different from what existed. We did [concepts such as] S.T.A.Y. and Momo’s and Relay de Foche. If [the accusation of] extortion is related to Relay de Foche, okay, it is one little thing. Where is the trend? We are not creating [food & beverage] chains here trying to [dominate] the market. We are doing something very targeted for supporting our real estate activity, to create value over time and create activity. 

 

How many people have you laid off recently by economic necessity and what is the ratio between average pay and C-Suite pay?

We are not laying people off. The definition of laying people off is when [institutions like] Bank of America, Citi, and HSBC lay off 30,000 people. We are not laying people off and what has been happening are cases which are very regular. 

 

There has been no restructuring of your head count?

There has been a drop but not a big drop. 

 

Can you name a percentage?

I don’t have the percentage. We have 1,000 employees when everybody is included. If you have like 15 people leaving for different reasons, what are we talking about? Nothing. 

 

Can you tell us what the ratio of CEO salary to average salary is at Solidere?

I don’t have these figures. We never went into such benchmarking or statistics. But I can tell you something: it is again a misconception and fallacy that everyone thinks Solidere has very high salary levels. It is not true. We are either average or less than average in pay. 

 

That applies to you too? Are you underpaid?

Yes, of course.

August 7, 2013 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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