Executive Magazine

Banking for the common person

by Thomas Schellen September 28, 2022

written by Thomas Schellen

“You can take it to the bank,” is an idiomatic expression commonly uttered by someone – usually a politician or manly man with business power – to express a very high degree of confidence that their latest assertion or promise, such as winning an impending election, is going to be fulfilled. It is an example for how deeply and easily our minds can correlate the notion of trust with the concept of banking.

The exact opposite association has been building up in Lebanon, where banking is being demonized. The animosity against banks has been festering in an environment of supercharged activism, to a point where an assault on a bank branch ignores the possibility of traumatizing customers and employees for the sake of raking in an emblematic amount of cash under a claim of “one’s right to one’s money.”

Taken in this context of a lost societal glue, the investigation of the three-plus years-long banking crisis of Lebanon (the exact moment of its start in 2019 is arguable and can be posited a few months before the overwhelming evidence of the troubles appeared at the end of October) is much more than research into accounting for losses, attribution of blame, and attempts at however partial short-term restitution of their rightful belongings to the depositors. It is an exercise that turns into an arduous and sometimes agonizing journey of the mind. Reflecting on what is gone amiss in Lebanon with the shock of the abrupt shuttering of many banking services, the use of which previously had been almost self-evident and certainly indispensable part of daily life, requires a conscious effort that also might serve as a reminder of the importance of recovering the principle of trust that underlies finance, money, and the entire economy.

The current status quo

[inlinetweet prefix=”” tweeter=”” suffix=””]It is frequently overlooked that Lebanese banks have suffered along with their depositors. [/inlinetweet]The latest news is that the suffering of banks, in a manner of speaking, has eased. According to numbers cited in Bank Audi’s Lebanon Weekly Monitor (LWM) publication, the contraction of customer deposits in the banking sector has slowed when comparing the first seven months of 2022 to the same period in the previous year. Deposits are said to stand at $127.8 billion at the end of July.

Amounting to $1.7 billion for the period, the contraction in deposits looks almost benign when compared to the rates of stricture, which stood from January 1 to July 31, respectively, at $5.89 billion and $15.57 billion in 2021 and 2020. Unsurprisingly, LBP deposits grew in 2022 while FX deposits contracted. This brought the deposit dollarization ratio down by almost three percentage points. An estimated $2 billion in dollar deposits are “fresh.”

The slowing in contraction of deposits is a dangerously double-edged phenomenon as banks are still illicitly holding these deposits, which are their liabilities, back from the people to whom they belong. On the other hand, one can interpret the narrowing in the rate of deposit contractions as a relative indication that the overall financial situation, albeit in the perverse manner of a bank run that is frozen in time, has moved from extreme convulsions towards a glimmer of financial health.

On the side of assets, banks’ loan portfolios contracted by $4.45 billion over the reporting period to reach $23.3 billion. This compares with contractions of $4.75 billion and $9.5 billion in the first seven months of the previous two years. Shareholder equity stood at $16.9 billion in July 2022, a reduction of $0.9 billion from December 2021, a weakening which the publication attributed to losses related to FX costs, operating expenses, inflation, and needed provisioning.

“The banks’ Eurobond portfolio contracted from $4.4 billion in December 2021 to $3.9 billion in July 2022, a contraction of $0.5 billion. The contraction in this year’s Eurobond portfolio is mainly the result of the provisioning requirements imposed by the Central Bank of Lebanon,” Bank Audi said. In terms of net foreign assets at the central bank, the contraction, attributed primarily to currency interventions, was reported as $3 billion.

Another noteworthy set of data was related to the number and concentration of existing bank accounts. Citing the 2021 Annual Report of Association of Banks in Lebanon – which Executive did not see – the LWM noted that the banking sector’s resident depositor base at the end of last year was 2.35 million account holders, of whom more than 56 percent held deposits of less than LBP 5 million (LBP values calculated at the rate of LBP 1.507 to the dollar).

Interestingly, the majority of these banking clients own a dismal 0.7 percent of total deposits, or LBP 1.3 trillion out of LBP 188.6 trillion at the aforementioned “official” rate of LBP/USD conversion. The holdings of depositors overwhelmingly do not exceed LBP 300 million per account, with 29 percent of cumulative deposits’ value held by 95.2 percent of depositors, whose account balances at the end of 2021 were below that threshold. According to ABL’s disclosures, some 114,000 account holders – the remaining 4.8 percent of the depositor base – call 71 percent of total deposits their own, in the nominal value of LBP 134 trillion.

As extreme as this concentration of wealth in the hands of approximately 2 percent of Lebanese citizenry and the top 5 percent of bank account holders is, and as much as it sends strong signals for policy making in favor of better tax collection, a redistributive tax system, and perhaps even an annual wealth tax (as banker Riad Obegi proposed when talking to Executive), the reported concentration is somewhat less severe than has been rumored by some activists and in social media posts.

Yet, the veracity of the above numbers is not easy to ascertain in an atmosphere where some bankers have been evading accountability. Moreover, reliance of data is marred by well-founded skepticism if any data on the banking sector is actually relevant in any way, given that banks have been holding depositors’ hostage for three years.

This notwithstanding, it is a continuing reality that banks in Lebanon, despite selling international units, closing departments, downsizing branch networks, overworking tellers and reducing headcounts, have remained operational and in some counter-intuitive manner, shown resilience. In legal language, both the largest commercial banks and the sector at large are not formally bankrupt – even though insiders of the industry occasionally, and publicly, declare that they consider all of the 14 largest lenders in the country, to be de-facto bankrupt.

This contradiction in itself makes Lebanese banking an intriguing object of study; inviting a deep dive into the situation of banks, the impact of their behavior over the past three years on society, and the changed realities of the sector in banking players’ own perception, beyond their slightly improved annual numbers (in comparison with the two previous years). Additionally, it constitutes the minimum of diligence to inquire about the longer-term outlook of Lebanese banking, and to evaluate from a wider social and economic perspective, but also considering banking sector financial signals; trends of high relevance in the economy and society that have emerged over the past three years.

Sampling new realities and inflection points

So, what has changed in the experience of finance at banks, from a public observation point of view, and for banks in their own perspective? The second part of the question cannot be answered comprehensively for all banks. Too many chief executives and board chairmen are covering behind veils of determined, counterproductive, and one assumes, either helpless or desperate silence. However, a sample of creative perspectives from the sector can be obtained by listening to a minority of bankers who are confident enough to talk.

One new reality is a departure from banks’ past group behavior, which until 2019 conveyed the impression of a well-controlled and mutually intertwined collective identity among all lenders. “I think that for the first time in the past 30 years, the outlook and behavior of banks is taking different routes. A bank like [AM Bank], which is a medium sized bank that has handled the crisis more efficiently than some other banks, does not see itself as necessarily aligned [with] a much larger bank that did not handle the crisis properly and is now hated by most of its clients,” Marwan Kheireddine, chairman of AM Bank, tells Executive.

Although he describes banks as having different opinions in response to the economic crisis, he says that they are still behaving mostly as one group. “This is because no bank has gone bankrupt and the central bank has made it clear that it does not wish to bankrupt banks. Also, we are in this wait-and-see game to see what laws the government is going to enact, so that we can devise our strategies accordingly,” Kheireddine continues.

“But for sure, you have today some banks that have a much higher exposure to government risk than others, and therefore the objectives [of banks] have to differ from one another. There is far more in common between medium and small banks than with larger banks. This does not mean that banks will fight against each other but it means that depending on government policy, some banks might establish different strategies from other banks,” he elaborates.

Economist Jean Tawile is a board member of the Rassemblement des Dirigeants et Chefs d’entreprise Libanais (RDCL), an association of business leaders, who has in recent months authored papers discussing crony capitalism, as well as good bank, bad bank solutions for restructuring the financial sector. In his analysis, many banks are too weak to transform themselves, while others are not ready to accept that their equity will fall to zero and need to be rebuilt, while a third group have accepted the need to reset equity to the zero point and rebuild.

“Under a good bank, bad bank model, you are structuring a banking sector on the size of the commercial portfolio of loans. There are banks that hold no commercial loan assets, so they would be completely under the bad bank side of the structure,” he says. This third group is willing to embark on ways of addressing the solvency problem over time and operating as a legitimate bank by obtaining some fresh dollar inflows, while in the meantime tackling the liquidity problem in collaboration with international financial institutions (IFIs) by way of giving loans through the banking channel.

For Riad Obegi, chairman and CEO of Banque BEMO, the situation of banks has become comparable to a person who is kept every day in uncertainty over whether they might be executed the next day. [inlinetweet prefix=”” tweeter=”” suffix=””]“The decision makers are showing very little respect for the people and they are also showing very little understanding,” [/inlinetweet]he says, in reference to not only the government of Lebanon, but also foreign governments and IFIs. “The problem is to bring back trust, and you will not bring back trust by talking every day that you will take someone’s head off.”

In searching for exit routes from the endless anticipation of what laws may be adopted, and ways to end the paralysis of banking, his thoughts do not stop at the idea of shaking the defining institutions of money and banking in Lebanon. “Society wants full dollarization – so why would you fight society?” He argues that there is no need to hold on to Banque du Liban (BDL) as the central bank for the purpose of issuing currency. In his reckoning, the central bank has not succeeded in its core functions of managing a monetary policy, supervising the banks, and printing money responsibly. He goes on to compare BDL with a railway company; keeping a nonfunctioning railroad operator may be inexpensive and worthwhile in the longer run, but the maintenance of a central bank is very dear.

“[inlinetweet prefix=”” tweeter=”” suffix=””]The central bank has not fulfilled its role, and it costs a lot.[/inlinetweet] Is there a chance that it will do its job in the future, [with regard to] one, the currency, two, the monetary policy, and three, the integrity of banks?” he asks rhetorically. Positing that a return of reserves to commercial lenders and the handover of gold would enable banks to restart lending – providing they succeed in deferring to honor their depositors’ withdrawal demands under a clear time schedule of several years – he presents the dissolution of BDL as a step that would help banks return to a path of orderly business in service to the economy.

Proposed taxation somersaults and debt aerobics

As well as improving state revenues towards fiscal balances, Obegi envisions an annual wealth tax as the best method. “Taxes on profits are regressive, unprogressive and in my opinion immoral. I personally believe that tax on profit is bad but tax on wealth is good.” he say, before continuing: “If the aim of the state is to create more solidarity among people, and have taxation that creates growth and does not destroy growth, taxes should not be on revenues but on wealth.” He believes that a combination of a 10 percent value-added tax as the conduit to steer consumption, in combination with a one-percent annual wealth, could replace other taxes as a flat but continual wealth tax could bring in the equivalent of more than 10 percent of GDP per year.

The assumption of the state’s responsibility for paying its debts is crucial for a solution. Obegi emphasizes that banks must be accountable for the mistakes they made. But he contends that analyses of the risk exposure accepted by banks are incomplete, without taking into account that banks had to operate under the law and in a small country with a highly interconnected set of economic behaviors. He refers to the zero-coupon bonds through which banks were obliged to channel funding to government needs for a limited time in the early 2000s, as an example of this. “Banks could not not abide by that,” he says, delivering a model sentence of double negation, before asserting that he also sees it as a non-negotiable red line that banks have to abide vis-à-vis to their customers. “Before the depositor gets a haircut, the bank needs to go bankrupt.”

“I think banks have to assume a level of responsibility [for the crisis] that is commensurate with the risk that each one of them has taken, as recorded on their balance sheet,” Kheireddine says. According to him, the central bank will have to bear some responsibility when it comes to providing the government with US dollars versus receiving Lebanese pounds, though he concedes: “But it was an open market at the time, and in my opinion the central bank had no choice. But the elephant in the room is the Lebanese government. Our government has run budget deficits every single year for the past 30 years,” Kheireddine says.

Dangerous intersections

It is a common perception that Lebanon has slid into an intersection where one road leads deeper into the abyss and the other offers uncertain and difficult improvements of the economy. While deeply political in terms of requiring a clear presidential election and a political will for reforms and sacrifices that many bankers and economists do not see as forthcoming, the intersection can be seen as also including economic and financial inflection points.

Inflection point: dollarization

In early discussions of the unhinged Lebanese pound back in 2020 and also in 2021, it appeared pertinent to assess the pros and cons of two opposing currency regimes – free float versus hard peg. Deliberations at roundtables and in expert papers more closely explored currency regime variants, such as full dollarization and currency board solutions on the hard-peg side, an intermediate model such as a crawling peg and currency basket, and options such as a radical free float or managed float.

Currency regime choices, even in theory, were not many in the spring and summer of 2020, but the number of solutions with reasonable prospects for popular acceptance, seems to have further evaporated during this year.

The rational choice for most people is dollarization. BEMO’s Obegi compares it to a fever that helps a body recover its health. On one hand, he says “society is doing this dollarization to fight corruption: the corruption of decision makers.” Yet on the other hand, “people are moving toward dollarization because it is the way in which they can go on living.” Spinning the metaphor further, he adds that fighting against society’s choice of dollarization at the current time would be like fighting the healing process, and result in no cure for the country’s ills, except for the most radical cure: cutting off your head. “Dollarization is good. Fighting this would be fighting the healing process.”

The diagnosis, but not the treatment angle is shared by economist Tawile. “The economy is being dollarized and the local currency is only for the public sector,” he says. An ancillary journalist’s look at the dollarization phenomena on a street level of people’s economic choices – which are rational by their respective experiences – provides ample anecdotal evidence of growth in practical dollarization.

Some local restaurants, tired of having to adjust Lebanese pound prices all the time, changed their prices this year to dollars. George T., a neighborhood hairdresser who has worked for 25 years in the same spot in Achrafieh, put up a sign pricing his standard haircut at “$10 (Sayrafa)” in June, switching a sign that had successively read “50,000”; “75,000”; “100,000” and “LL150,000” over the previous 24 months. Across the street, a chocolatier called Roger calculates his margins in the US currency before telling his clients a Lebanese pound price. He explains that he charges 20 percent less on a dollar basis when compared with 2018, despite sharp rises in the cost of imported materials and local electricity supply. Wherever one looks, [inlinetweet prefix=”” tweeter=”” suffix=””]society has been adopting the dollar not only for communicating prices of imported goods but also for pricing local services.[/inlinetweet]

Inflection point: The over-boarding informality of networks and activities

In Tawile’s analysis, the divisive economic reality is also manifesting as further escalation of an already high level of informality that has roared beyond 50 percent. “We have [a] two-speed society, one [part of which is equipped] with dollars, and all the others. Dollarization is based entirely on cash and today, the parallel economy for me is much bigger than the formal economy. This is the biggest problem in Lebanon,” he says. Operating solely on the basis of the formal economy, and dependent on fiscal management for its compliance with taxes and standards set by the government, any current budgetary planning will be handicapped by the fact that the formal half of the economy will be bearing the cost of the entire economy, he adds.

Correlated to dollarization, economic informality, and distrust in banks is the entrenchment of unconventional financial networks that are at play; from family-level support between expatriates and their loved ones in Lebanon, to disbursements of cash support from international NGOs to needy persons in the country. Although, previously regarded as fragile and possibly temporary, in light of research of soaring inbound cash transfers directly after the Beirut Port explosion of August 4, 2020, this segment of the financial industry has been stable and growing in user numbers up to the middle of this year. This is according to data announced at the beginning of this month by BDL, and information from inbound market leader, OMT. Together with another local partner company of global money transfer operator, Western Union, OMT dominates this particular business, which on a micro-level contributes to cash in the pockets of beneficiaries, and on the macro-scale helps a bit with the current account balance.

According to BDL data cited in the Lebanon This Week (LTW) publication of Byblos Bank, inflows of remittances stood at $6.4 billion for the full year of 2021 – a decrease of 3.6 percent from $6.63 billion in 2020. However, net remittance inflows were $4.3 billion for last year, 16.6 percent more than in 2020, an increase which LTW attributed to a significant drop in remittance outflows between 2020 and 2021.

Although the money transfer segment of the local financial industry has to contend with numerous logistical issues and market complexity according to OMT, which can act as barriers to competitors, some new entrants say they are seeking to establish franchises with stronger digital aspects, besides promising to lower cost and work for financial inclusion. “By launching our services in Lebanon in 2021, we opened the doors for people all around the world to contribute and be more involved in the Middle East market through sending remittances and supporting those economies,” Imane Charioui, the director of francophone Africa and Middle East at money transfer Fintech WorldRemit, tells Executive.

Taking all inflection factors and distortions into account, the picture of the Lebanese economy looks an increasingly fragmented system operating not just with two speeds, but which is subject to many centrifugal forces compelling its pieces further apart from one another and from the state as the organizational center; because of the formal and informal, dollarized and lira-based contours of pieces in the economy that comprise differing inflationary pressures and, in some cases, experience deflationary moments. And as the formal financial market, historically controlled by banking and not well-balanced between equity and debt markets, is caught in a stupor of political and banking confusion, the untenable lives of the common person, become more untenable even in the time it takes to produce a single analytical banking story.

A visit to conduct a routine cashless transaction at a bank branch located barely a kilometer from the location of a branch assault on September 14, 2022, took five times as long as one month ago and included an hour’s wait on a stair in front of branch doors that admitted persons on individual basis, since they were not allowed to enter the branch freely, resulting from measures in place since a wave in anti-bank activism. In the following days, banks declared a three-day closure following an alarming same-day surge of hold-ups by armed depositors at banks across Lebanon, and subsequent announcements by the Depositors’ Outcry Association to conduct more heists.

Aware of the fact that the state in Lebanon has been taken to the verge of total failure, or “hell,” the people of Lebanon have been suffering from deprivation of more than their meager financial assets. But vigilantism will not open ways to solve the financial and economic dysfunctionality that underlies the state’s failings, because of the dictum that a functional and legitimate state is dependent on its monopoly over coercive capacities. Further, at a time when vigilantism and escalations are perceived by many as alternative to investing into a viable state, the need to rebuild banking as a key to better economic performance, and thereby provision of fiscal revenue, converges with the urgency of building a stronger state. A system in which reform mandates also enforce law and justice against the powerful, who might consider themselves too rich to be held accountable. In this context, banking becomes a vital channel for the return to societal hope as it is for the economy.

September 28, 2022 0 comments

Banking & Finance Leaders

Banks are in the firing line

by Executive Editors September 28, 2022

written by Executive Editors

One banker, interviewed for this issue, said it: “Bankers feel threatened, bullied, and feel that they are [made to bear] responsibility for something that they did not do.” The stewards of the former Switzerland of the Middle East, the bright stars who transported our expertise across the world for decades, have been forced to cringe under their desks. Their error? Trusting the government. The mistake has placed them in the firing line of an angry and increasingly impoverished nation, who have a waning desire to be reasoned with. From voicing anger online, the attacks on banks have boiled over into more tangible and dangerous incidents in recent months; armed depositors storming banks merely to access their money has become one of the more upsetting and surreal features of Lebanon’s relentless crisis.

Today the financial sector, once the economy’s crown jewel, is up to its neck in a homegrown calamity which has left a horizon of haze hovering over its future. The beleaguered sector, perhaps the final one to have its spoils plundered by the political class, is now at the mercy of a people trapped in a noisy room of confusion, finger pointing, anger and impunity. [inlinetweet prefix=”” tweeter=”” suffix=””]Impunity, state-level impunity specifically, and its prevalence has effectively bankrupted Lebanon.[/inlinetweet] For decades, the government borrowed and borrowed from domestic and international markets and from the central bank, and under its “unconventional finance” methods resorted to borrowing from commercial banks. Their actions piled up debt and drained the state, and the government’s failure to honor that commitment is at the heart of the country’s pitiful present state. The depth of the crisis and its decades in the making has called into question the legal aspects of the banks, the central bank, and the government’s behavior, and the story of the debt buildup at the root of it all.

A Financial Overhaul

Executive’s summer special report 2022, on banking and finance, attempts to get to the bottom of the financial crisis and the government’s actions over the years, while offering promising components that will shape the sector’s next chapter. A proposed stabilization scenario for the currency comprising a future without the Lebanese pound is explored here. On the other side of the coin, digital currency is offering investors a future absent of any fiat-based system. Although not new to the global market, cryptocurrencies, or virtual assets such as non-fungible tokens, and their innovations are beginning to make waves in Lebanon. The government’s damage to the financial sector, now etched into the minds of depositors, is sending some to seek alternative financing methods away from traditional banking. Yet without sound investment and regulation, Lebanon’s digital infrastructure will be its Achilles heel, while also placing business and individuals vulnerable to cyber- attacks.

As the political class twiddle their thumbs and scratch their heads, and policy makers remain ever absent, the need for an International Monetary Fund agreement to encourage an economic rebound grows more urgent, as financial experts and think tanks call for the radical transformation of the industry. Indeed, a deep transformation is needed; ranging from retail and consumer banking all the way to investment banking and the vestiges of central banking. The country needs banks; a credible, transparent and ethical financial sector gives a nation the legs to stand on and the lungs to breathe.

These are global challenges, which the Lebanese financial sector will have to succeed in, as well as passing the test of rebuilding from the national crisis of everything. This avalanche of challenges is also an opportunity. At a time when the numbers of refugees, the mountains of private and public debt, and the concerns over the Sustainable Development Goals’ achievements since the start of this millennium are racing from peak to peak, it behooves anyone with the least emotional or intellectual stake in the future of the world as we know it to consider the future of banking and finance from priority aspects of sustainability, inclusion and responsibility.

September 28, 2022 0 comments

Banking & Finance Leaders

A deliberate mistake?

by Thomas Schellen September 28, 2022

written by Thomas Schellen

For one thing, human constants have to be considered. When Walter Bagehot, the founding editor of The Economist, reflected on the role of the “English Political Economy” shortly before his untimely passing in 1877, he emphasized first how this economic philosophy had brought unprecedented benefits to the people, writing: “The life of almost everyone in England – perhaps of everyone – is different and better in consequence of it.” His second comment, however, was that this English Political Economy was – in his day and age – an insular science, one that was neither greatly appreciated elsewhere, nor one that was broadly applied.

What Bagehot called the English Political Economy entailed a novel theory of free trade, which he classified as “more opposed to the action of government in all ways than most such theories,” and prone to not find favor among pro-state zealots (or our latter day populists). This was because, as the sharp-eyed editor observed dryly: “All governments like to interfere; it elevates their position to make out that they can cure the evils of mankind. And all zealots wish that they should interfere, for such zealots think that they can and may convert the rulers and manipulate the State control.”

The fact that financial zealotry, or in present journalese populism, has had a detrimental impact on public discourse in Lebanon over the past three years, cannot be denied. But it is more than detrimental to see that a destructive populist rant has invaded a publication affiliated with the World Bank Group.

An op-ed in the Lebanon Public Finance Review of August 2022, posing as a “Message to the Lebanese People” stood out from the remainder of the publication in terms of writing style and content. At a prominent place in the document and text, the op-ed posited deliberation, specifically meaning malicious intent, as something that existed from the roots of the crisis and something that is “important for them to know.”

A STRIKING WORD COMBINATION

Apart from the sloppy editing and unclear colloquial usage of the word “them” in the first paragraph of the “message” – a pattern that one often encounters when interviewing local intellectuals – a quick word use analysis shows that the word “deliberate” or “deliberately” was inserted eight times in the “message.” This is 40 percent of a total of 19 mentions in the approximately 110-page body text of the Lebanon Public Finance Review (not counting summary pages in Arabic and French where the word is cited once). In the first three analytical chapters of the body text (pages 28 to 63), the word deliberate is used once, however, with a positive connotation and not in conjunction with the term depression.

The word combination of deliberate and depression, which is used three times in the op-ed, reappears on page 65 of the Finance Review as a reference term to a Lebanon Economic Monitor issue that was published in 2020. The same usage of deliberate as reference to the earlier publication accounts for all but two appearances of the word deliberate. In these two mentions, it is argued that failures in services delivery by the Lebanese government was intentional under a corrupt scheme to benefit private interests.

ANONYMOUS AUTHORS

One can indeed argue that many actions of state players in Lebanon over the years have been corrupt, it is not a revelation. One can also sympathize with the view, expressed in the Lebanese Economic Monitor of Fall 2020, that in the preceding months, “Lebanese authorities countered the assailment of compounded crises with deliberately inadequate policy responses.” However, when anonymous writers offer zero evidence for their claim of deliberation, by which they imply malicious intent of some actors from the very roots of post-conflict debt accumulation by various Lebanese Councils of Ministers, there is only spin doctoring and populist opinion mongering present.

The term deliberate appears in high frequency on a single op-ed page that differs sharply in style and content from the analytical focus and dispassionate language of the rest of the Lebanon Public Finance Review. The fact that “Message to the Lebanese People” is an op-ed that is not signed by any name, although clearly written from an angle of ideological proselytization, in addition to the usage of the imprecise and illogical term “Ponzi finance,” and a cover design that reminds this European of destructive ideological pamphlets of the 1920s and 30s, compounds into the impression of a (hopefully non-deliberate on the part of the World Bank) disgrace.

September 28, 2022 0 comments

Editorial

Actions matter

by Thomas Schellen September 27, 2022

written by Thomas Schellen

The dispatch from the general assembly of the United Nations (UN) was official. The officially hyphenated Secretary-General Antonio Guterres met with Mohammad Najib Azmi Mikati, President of the Council of Ministers of the Republic of Lebanon: “They discussed the situation in Lebanon, with the Secretary-General emphasizing the continued commitment of the United Nations to support the Lebanese people.”

Why would it matter if the top representative of the world’s top transnational body talks about the problems of a failed state with the nominal caretaker head of that state’s cabinet? Why would the people of Lebanon care if the UN praise the Lebanese people for their outstanding generosity in welcoming refugees ten years ago? Why would it help that the UNIFIL mandate is still around at a time when order and security disintegrate alongside the destruction of the economic and social fabric?

Some, usually from the safety of academic research labs and think tanks in developed countries, say that a failed state is either a state whose government has lost its legitimacy, is no longer in control of the territory, and can no longer deliver basic services.

And so, when did Lebanon become one? Was it back in the 1990s, when one militia was not disarmed? Was it back in the 2000s, when governmental positions were determined in foreign capital cities as Lebanon was shaken by serial political assassinations? Was it in the 2010s, when the legitimacy of highest elected bodies was hollowed out? Was it when basic services failed during the garbage, electricity, water crises, and the multiple crises from 2020 onward? Was it in 2021, when the poverty rate shot up as the currency lost so much value? Or was it in recent weeks, when the state still did not deliver any progress on any reforms?

From within Lebanon today, my diagnosis of a failed state would be of a state that cannot protect its citizens from violence and cannot protect its economy from those, who with impunity, take what they have no right to claim. The responsibility to wield the monopoly of violence comes with the dual obligation to protect the integrity of the state, while standing up for those who are too weak to ascertain their own rights. Yet, this coercive authority of the state must never succumb to the interests of either the oligarchs or the self-appointed liberators of the people’s cash.

It does not concern me that the international jargon of sociological correctness talks no longer about failed, but about fragile states. It does not matter to me that politicians on the global stage utter polite words at the UN General Assembly. What matters to me, is that Lebanon is a state deeply in need of determined actions that do not harm those on whose behalf we claim to act; whether as activists, journalists, academics, or elected representatives and appointed authorities. Everywhere.

September 27, 2022 0 comments

Leaders

The ambiguity of being wanted

by Executive Editors August 29, 2022

written by Executive Editors

Journalists can tell you a thing or three about what it can mean to be wanted – most of them either unpleasant or seriously dangerous.

The first common experience of being a wanted, or in-demand journalist is that of being a “useful idiot”. Almost everyone who signals their desire to talk to the media simply wants to sell something. It might be a “scientific” opinion, an individual political image, a panacea for assorted social ills, or perhaps an ideology and entire political system. If general interest media are the seller’s target, it is not an idea that is being peddled. It might be an (overblown) success story, a brand, or a “unique” and “unmissable” (neither term being quite logical) vehicle, fashion item, food concept, travel destination, smoke, drink, bargain, free lunch, or other con.

The second, rarer but still all too common, experience of being a wanted journalist is that of being a species at risk of extinction. Working journalists are murdered in embassies, shot on streets and in jungles, taken from airplanes, detained from street side cafes, exposed to duplicitous litigation, kidnapped, forced to recant articles, and tortured. Every exposure of a journalist to such violence is a horror story of being hunted for doing their job.

As a media organization operating in one of the world’s most conflicted regions, Executive is aware that the ability to report, conduct and publish journalistic work is being tested. Yet not by the unstable political and economic climate, but by its ramifications – inadequate industry standards, protection or regulation.

Executive’s Business Development Special Report on the media industry published in this issue has been designed and compiled with this in mind; as a call to action for the corporate transformation of Lebanese media enterprises. Businesses need to build strategic models and attract investment; embark on innovative technological solutions, adopt codes of conduct and advisory boards, and ensure transparent behaviors.

We may be journalists, but we need to think like business people; retain business models that can grow value and ensure the future and integrity of press freedom. Lebanon used to lay the path for media outlets in the Arab world. Today, the industry is flagging; bogged down by politically aligned news companies, absent business strategy and weak regulation, against a backdrop of unprecedented developments in global media.

Without sustainable business models, the safety and security of journalism and journalists cannot be guaranteed, and ethical practices risk falling by the wayside. Executive editors use the issuance of our report to voice solidarity with journalists working in 28 countries who suffer “very bad” press freedom environments, according to the 2022 World Press Freedom Index by press freedom advocacy group Reporters Sans Frontiers (RSF).

The Index, informed by the opinions of scholars, activists and journalists, sees Lebanon as one of more than 40 countries with a “difficult” environment. Seventy countries, or nearly 40 percent of the 180 nations covered, are flagged as having very bad or difficult working environments for the media.

We demand that governments in the Middle East and North Africa (MENA) – almost all are seriously or very seriously lacking in matters of freedom of expression – upgrade the legal protections of journalists and their working environments so that the dangers of information wars, antagonistic partisanship, and detrimental social media can be mitigated.

This magazine reiterates its commitment to stand up for press freedom in Lebanon and the Arab world by promoting the advancing, governance and professionalism of media enterprises. Not wanting to be satisfied with raising our voice in advocacy of press freedom, however, Executive advocates a third way in which fighters for press freedom, that is professional, fact-based journalism as personified by individuals and media enterprises in the MENA region, are “wanted.”

This is to say, quality journalism made in Beirut is wanted and needed for social and economic development, and this constitutes the internal driving force behind the media enterprise development project featured in this issue. In 2022, as in the previous two years, political disruptions, including escalations of autocratic rule, have been proliferating in MENA and appear to roll back developments of popular sovereignty. Economies are tumbling from one crisis to the next, not only in Lebanon.

The positive correlation between freedom of expression, rights of the individual, and economic equity may be not as strong as journalists love to think. But unless media enterprises are built on foundations of economic growth and value, their viability and development will remain limited.

It has been demonstrated time and again that a diverse, well informed society with a base of mutual obligations and agreed tenets of moral behavior, is better positioned for development than a society that is steeped in fear and unfreedom. Likewise, with the same attitude, media businesses bolstered by quality skills and resources will invite journalistic and economic success.

August 29, 2022 0 comments

Business

How to create sustainable marketing: from strategy to marketing mix

by Adeline Ochs August 18, 2022

written by Adeline Ochs

Over the past years, sustainability has become increasingly central to all stages of marketing, from strategy, designing to implementing. But how can we ensure that marketing further evolves to effectively integrate the challenges of the ecological and social transition?

Moving from traditional marketing practices to sustainable ones means using both power and influence to develop and promote production and consumption models that are compatible with the limits of our planet and the social issues attached to it. It is therefore a question of integrating the environmental and social impacts into the heart of the marketing strategy and the brand’s mission, which can then be applied to all the dimensions of the marketing mix (or the four Ps of marketing – product, price, place, and promotion).

From a strategic perspective, sustainable marketing translates into a brand’s commitment to society, notably through the development of a relevant, meaningful, and credible raison d’être, but also through the definition of objectives and KPIs, which are consistent with the brand’s environmental and social challenges.

Product

Within the marketing mix, the sustainable nature of the product offer is paramount and central. This implies eliminating offers with high environmental and social impacts and developing and promoting sustainable ones. This development is part of an ecological and social approach, notably through product lifecycle thinking. Lifecycle analysis considers the social and/or environmental impacts of all the stages in the life of a product, from the extraction of raw materials to the end of its life.

For example, the lifecycle analysis of a smartphone shows that its primary environmental impact occurs in the extraction and use of raw materials phase. Marketing should focus on bringing solutions to this problem. A good example is Fairphone, a Dutch company that designs and produces smartphones with the goal of having a lower environmental footprint and better social impact than is common in the industry. They also sell spare parts for their products, which means that the lifespan of their phones can easily be extended.

Price

Developing a fair pricing policy is necessary for a coherent global sustainable approach and to ensure that the products sell. What is a fair price? A “fair” pricing policy includes two important aspects:
– upstream price justice, i.e., fair pay for people involved in the value chain and the financial compensation for hidden ecological costs.
– downstream price justice (as perceived by consumers). In the eyes of consumers, does the price of the product reflect its fair value? Transparency and honesty are one of the levers. For example, the American fashion brand Everlane breaks down all its costs on its website to provide total transparency to consumers.

Place

The place where the product is sold, and, the way it is delivered, is another variable of the marketing mix. Distribution holds a crucial role for moving towards greater sustainability as distributors are at the interface between producers and consumers. Again, we see two aspects to this:
– upstream of the value chain, through discussion channels (short vs. long circuits), selection and relations with suppliers (product sourcing, negotiations, support, partnerships, etc.), logistical transport (supply, consumer routes, product returns, etc.)
– downstream of the value chain, at the heart of the (virtual or real) purchasing points: through the assortment of sustainable offers and the location in the (e-)shop, communication at the point of sale, the policy of reducing waste (e.g., bulk, deposits, etc.).Sometimes, companies might opt for choice editing, which consists in eliminating a range or category of products deemed to be unsustainable. For example, the French company Botanic, a specialist in garden and household-related products, has removed all chemical pesticides and fertilisers from its shelves.

Promotion

The final element of the mix is the promotion of the product or service. And to do so, effective, and responsible communication is essential if we want to go beyond greenwashing and promote a new image for sustainable products.

To avoid greenwashing, brands must respect the rules defined by national advertising authorities. But they can go further by promoting new ideas, concepts and images helping to convey new ideals and lifestyles. Why not promote sharing, soft mobility (cycling, walking, etc.), or inclusion? A good example is the leading outdoor clothing company Patagonia who famously ran an ad in The New York Times on Black Friday telling people, “Don’t Buy This Jacket” to address the issue of consumerism and to it head on.

However, this does not guarantee the effectiveness of responsible communication. The question of the credibility of the message is central. Some messages can give rise to scepticism, so it is paramount that it should have provability, transparency, humility, and credibility.Finally, let’s not forget the eco-design of digital marketing campaigns, and crucially the reduction of their environmental impact and footprint.

The road to sustainable marketing is not easy: it requires brands to make profound changes to their business models, and to help consumers change their consumption practices. Nevertheless, marketing is in an ideal position to participate in the promotion of a more sustainable world. And the power it enjoys can be used to encourage a positive impact on society and the environment.

August 18, 2022 0 comments

Business Q&A

Drifting into a smoke-free future

by Yasser Akkaoui August 18, 2022

written by Yasser Akkaoui

Decades of selling cigarettes has led Philip Morris International (PMI) to become one of the world’s largest corporations. Today, the company’s “smoke-free” alternatives, such as IQOS, have successfully lured smokers away from cigarettes to less harmful alternatives. But it was no mean feat, as Tommaso Di Giovanni, Vice President Market Activation & Support, tells Executive. It took years of trial and error before the company landed on the model we know today. Despite IQOS global presence, the cigarette business remains primary for PMI in some countries, Di Giovanni says, which brings business stability and wards off competitors.

Philip Morris International has embarked on a strategy that has now gone global; embracing innovation, design thinking, and an intuitive approach to problem solving. Can you explain to me this repurposing exercise that started before we saw the first IQOS in 2014? For example, what was this exercise anchored in? What was the by-in of the board of directors? How is the responsibility spread within the company in terms of governance?

Let me start from the easy question: the board. There’s a few people actually in this company who are really behind the change, and they were really the driving forces of change. One of them and probably the most important one is André Calantzopoulos, who at the time when we announced we would go smoke free in 2016, was our CEO. He’s now the chairman of the board and I can tell you he is totally behind this change. I would say the board is not only fully on board, [but] the chairman of the board is [actually] the driving force behind the change, the visionary mind behind the change. When we tested the previous [IQOS] prototypes, people didn’t like them. And if people don’t like them, you can keep it in a drawer where it doesn’t really help. It started in 2007-2008, exactly under Andre’s leadership, we decided we were getting closer to having a product that delivers on the risk reduction, but also delivers on the adoption for smokers.

I saw some of the prototypes; they weren’t there. For instance, we tested the heat bar in 2008 I think, and it didn’t deliver, people didn’t like it. But by 2014, we thought we had something like IQOS that was really worth putting on the market. So that’s how it all started. The reason why it started is because, and you’re totally right – we are a company, we do want to make profits and we have shareholders to whom we need to deliver profits, absolutely. There’s nothing to say about that and it’s true, but addressing a key concern of society with regards to our product, actually, does help the company be more sustainable, more stable and having less tension with society than if we sell cigarettes. So, it actually makes full business sense and it’s a win-win. If you manage to respond to public health concerns, and at the same time [you are] being more profitable, well you do bingo. If on top of that, you’re growing capabilities in areas that then can help you go beyond the nicotine health care and wellness because now you have scientists, you have scientific facilities like this one, you’re even expanding your footprint eventually. So it’s really a place where it’s courageous, it’s brave because cigarettes, let’s face it, were a business going really well.

My next question is regarding Environmental, Social, Governance (ESG). I read your sustainability report and I did not see any reference to the board of directors, and yet the three letters of ESG are environmental, social and governance.

When it comes to governance, I think you touched on a good point because it’s a complex transition. On one hand, we do have a cigarette business, and that cigarette business is still primary in many countries, and it’s what if you will, fuels our ability to do smoke free which is very resource consuming, because it needs a lot of investment. In some countries actually we can’t transition because “smoke-free” [products] are prohibited. So of course, the cigarette business remains important. At the same time, we needed new capabilities and new expertise which is sometimes different than the one used for cigarettes.

A little example: with cigarettes, you don’t need engineers who can design technology and electronics. Here [with IQOS] you do. With cigarettes, you don’t need after sales support, here you do need it. The way you sell cigarettes is very different than the way you sell IQOS. Cigarettes in a shop, it’s 30 seconds. Here, you actually need to convince the consumer, you need to explain what are the hurdles you need to accompany [them] during the beginning of the journey when usually they go back to cigarettes because they don’t know how to charge the product, they need to clean it, they don’t know how it works. It’s all the hiccups of electronics that they face. So, governing this complex machine of course, it’s much more difficult than what used to be with cigarettes.

Now not only we are a much more complex organization, but we need to govern (to your point) to realities that are sometimes almost opposing each other. They have different logics and different businesses and you need to make sure that both coexist until one disappears and the other one takes fully over, and on top of that we’re building the business beyond nicotine. So, you really have three souls of the company at the moment and keeping them together is what the governance is primarily looking at the moment. We had numerous discussions on how to govern and organize all this, ultimately, the way it’s working today seems to be delivering. So that’s where we stand today, but it’s much more complex.

How do you integrate your reporting on the new smoke free business? It’s PMI that is doing these activities and you need new reporting to integrate your full activity. So, how do you communicate and reconcile PMI’s original business alongside the smoke-free movement launched in 2014/15?

Well, there’s a difference in both. One is a business that’s historic, [and] there to stay to a certain extent, but slowly will disappear into the other one. So of course, we focus our communications on the new business because that’s what really drives the change of the company, the transformation is the new business. But at the same time, we can’t be disparaging or forget that a) our success was with cigarettes, b) cigarettes will be there for a long time and they will fuel the success of the transformation until they disappear, and c) the fact that we cannot compete solely based on reduced risk products [so] we do need to compete on cigarettes because otherwise we would simply leave room to our competitors. I think this is where the challenge resides, but I think in our communications, especially with the financial communities, we’re very direct on those, and I think that’s the way to be. By the way, the financial community actually looks at the cigarette business as part of what actually drives the solidity of the company because it’s a stable business. So, it’s exactly the balance between the two, on one hand, they look at the future that we’re building, which is promising – that’s why our share went up after the latest acquisitions, if you noticed. On the other hand, they also want to be reassured that the basis is solid. And that’s exactly what drives our communication to the financial community.

August 18, 2022 0 comments

Business Q&A

Big Tobacco takes responsibility

by Yasser Akkaoui August 17, 2022

written by Yasser Akkaoui

As the global spotlight turns to expose the social and ethical behavior of business in an increasingly challenging market, the pressure is on for companies to revise models and check social responsibility. For a multinational corporation like Philip Morris International (PMI), one of the world’s largest tobacco firms, the question of ESG is at the core of their future integrity and market success. Their recent policy, “Delivering a smoke-free future” seems to contradict the product that brought them so much success. So how can a “Big Tobacco” show the world a true transformation is underway? Executive sat down with Gregoire Verdeaux, Senior Vice President of External Affairs at Philip Morris International, to find out just how the company plans to move away from the cigarettes that have been firing the business since 1847.

What exactly does Philip Morris International mean when it says it wants governments to adopt smoking policies with a more balanced approach? And what would be the role of Philip Morris International in that regard, where does it fit into Philip Morris’s strategy?

It is at the absolute center core of our strategy. Our business drive transformation is driven by the fact that we can provide smokers who cannot quit, with better alternatives. What do we mean by the balance? Well, what we’re talking about is the traditional policies of tobacco control. Prevention, telling people that they should not start smoking. Cessation, once we have started telling them that they should stop, then taxing the product to make it more expensive and therefore, potentially on paper, getting people to stop smoking. All of that has proved over time, that it’s not really working.

In 2000, 22 years ago, 35.8 percent of the adult population in Lebanon smoked. Today, it is 34 percent, it dropped by 1.8 percent. Japan has reduced the number of its smokers by 44 percent in five years. Norway by 50 percent; the UK by 28 percent. They [the countries] opened up to something else, which does not mean that they stop having prevention and cessation in taxation, but they also try something else – that’s what we mean by balance.

In an extractive economic model like Lebanon, a lot of government revenue comes from tobacco products. Is there a leverage here that can be played?

I think that first of all, in the case of Lebanon, the current situation with hyperinflation is putting all ideas of extracting government revenue in perspective… So, I think what we need to do is not to look at this from a sort of immediate response, but more like a long-term plan. If Lebanon wanted to really change the structure of its smoking prevalence, in that the numbers collapse, like it has happened in other places, what should be done? And what can be done that is also leveraging tax revenue? If you want a new product to compete with cigarettes, there needs to be an incentive. Otherwise, it’s very difficult to get the consumer to do a switch.

In terms of advocacy, would you consider partnering with civil society players, international NGOs or local players, as pressure groups?

To be clear, we as a company do not have a policy to pressure governments, that’s not our role; we’re not activists. What we like to see ourselves is that we are proposing, I mean, we’re contributing to an improvement of the situation on tobacco control. A number of places, consumer organizations, do like to exchange with us to also understand, for example, results of our consumer research or to make suggestions about a regulatory framework precisely.

How would you define PMI’s definition of Environment, Social and Governance (ESG) integration?

I think that our ESG approach is really part and parcel of the business transformation of the company. Through the business transformation, we are trained to improve the impact we have on society and make it gradually more and more positive. Our ESG approach is coming from the exact same call in a different way, with a different avenue but which is really to look comprehensively at our operating model at various frameworks that are in place by financial markets and multilateral organizations, society, and try to answer point by point on how we improve gradually our footprint and our impact.

There is a bit of a dichotomy because just as much as your attempts to promote a smoke free environment have been achieving great results, at least in my family (I can vouch for that at least), you are still dragging behind very heavy luggage. To what extent is your reporting mechanism at PMI able to identify or qualify the damage that the old habits of PMI are still causing? How is this raised on a board level?

Well, I don’t want to make the board speak on this issue. What I can say for myself on behalf of the company is that you need to take into account that the journey didn’t start 20 years ago, it started six years ago. Things take time to shape up. Gradually, with the expansion of smoke-free products, the experience that you yourself have will spread into society, inevitably. We see this happening already in places where the penetration, the share nicotine has on the market or smoke free products, are in the double digit (at the moment not the case of Lebanon).

When we look at a dilemma like that, one that has been really haunting humanity for the last 100 years, we have to look at all the stakeholders. Everybody has a big burden because governments have allowed this to happen, and they have to have the proper policies to take responsibility. It has to be an integrated approach to solve this problem, including tobacco companies and the consumer, most probably. Also, civil society, I think they have a big role to play.

You’re right. Civil society, government and industry. Industry needs to be the zone of comfort with visibility and predictability to invest because if you want to scale this up, you’re talking about big amounts including on the affordability price point (Lebanon’s obvious question). Then you need civil society, NGO, consumer association people, that are able to be there as a sounding board, and that is fundamentally how you do market design.

Phillip Morris seems to be a leader in innovation and puts out product offerings that are able to move forward alongside competition. But to what extent will competition be hindered to progress in that direction? Or will they find it as an opportunity, to fill a void that maybe is created for them to grow their market?

You know, you have three categories of smoke free products, you have heated tobacco products, electronic cigarettes and nicotine pouches. So, all three categories in different markets are subject to competition, more or less. We just observe that we are not the only one planning about the growth of this market. We are the one that says the end game of this market, the design of this market should lead to the elimination of cigarettes. That is true, it’s PMI only.

Do you see future competition with you on that movement?

If I take this from a sort of economic theory standpoint, proposing the least performing product, (cigarettes) to the most vulnerable class of citizens, [which is] the case today, [as] people in low-income brackets smoke more. This is the definition of a market failure – if a market doesn’t lead naturally to the optimum distribution of resources. This is why I completely support the project of the company to lead the market to the end of cigarettes because this idea that “ah, there still will be cigarettes out there” – that’s really a suboptimal market structurally.

August 17, 2022 0 comments

Leaders

The vanishing space of political economy…

by Executive Editors August 2, 2022

written by Executive Editors

All individual and group-based economic activity – simply, all human economic activity – inextricably relates to the community or society that the individual or economic group is embedded in. This is the fundamental economic truth of every business entity; from the single tradesman, craftswoman and creative entrepreneur to the largest company, enterprise, or corporation.

This fundamental economic truth is anchored in the human condition of being that old ζῷον πολιτικόν – a social and political animal. Secondly, it is a function of the microeconomic give-and-take by which humans sustain their material needs.

In the latter sense of a multi-tiered give-and-take process of production and exchange, all economic activity therefore involves not just conceptual antipodes of private property and public interests, but competing interests of interdependent stakeholders.

What do the Lebanese people receive in return for tax? Inadequate state services, creaking infrastructure, and the same old faces.

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One, in modern times very popular, method of harnessing economic energy is the state-owned enterprise (SOE). Unlike any intellectual musing about the correlation or juxtaposition of public and private in the economy, the SOE is a concrete, measurable expression of state involvement in economic activity.

Constructed to function with political public good mandates in accordance with market rules, the SOE nonetheless ignites eternal questions over the just and productive design of the economy.

As they appear in front of a polity, SOEs are corporate entities that are entrusted with providing services and goods in natural resources, or in provision of communication, information, electricity, transportation, finance and banking. These are sectors of vital importance in all countries, but particularly for Lebanon, where initiation of higher productivity is a matter of survival.

Not only this, but good and affordable public services, like water, electricity, and infrastructure, are an indicator of economic prowess; placing a nation in a position of comparative advantage. Whereas on an individual level, consumers with extra disposable income boost the economy and help society function. Value and productivity are improved, and the cycle goes on.

A worldwide model?

The global trajectory of SOEs as enterprise models seems at first glance straightforward. The numbers point up ever since the days when the tides of monetarism, Reaganomics, Thatcherism, and the economic opening of China under Deng Xiaoping began to rise. As a 2020 research paper by the International Monetary Fund (IMF) notes, SOEs in the early 1980s accounted for 15 percent and 8 percent of economic output, in developing and advanced economies, respectively.

By the mid-2010s, the rise of SOEs was reflected in dazzling numbers. The share of corporatized SOEs, or state-owned enterprises managed according to corporate principles and aligned with profit motive, was expressed by SOEs holding $45 trillion in assets (equivalent to 50 percent of global GDP). Among the world’s 2,000 largest firms, SOE assets reached 20 percent.

According to the findings of IMF researchers, very large SOEs have morphed into multinational enterprises, which control assets of entities in other countries. They often have mixed ownership and their multinational expansions can be driven by economic, and more divisively, political motives. Multinational SOEs have been popping up in China and other powerful developed and emerging countries, among them Saudi Arabia and the United Arab Emirates.

However, the SOE equation is not as simple as the numbers suggest. It is clear that government moves toward mixed-economy models, characterized by public-private partnerships (PPPs) alongside the corporatization of SOEs, were received favorably by populaces at first, especially when compared with counter trends of socialization on the left, and full privatization on the right.

But the mixed-economy way of PPP and corporatized SOEs has not been confirmed as the golden path. Over the past few years, the election choices of populaces and the economic programs of leaders on the right and left in both small and large emerging countries in Latin America, Africa, the Middle East and Asia, have shown this. Even the PPP track records in developed Europe cannot be called impeccable.

As the IMF acknowledges, there is actually no clear and commonly accepted delineation of the SOE in the political economy. The hybrid beasts and public-private crossbreeds of SOEs and PPPs can – and in the ideal case will – combine public and private genes; like the publicly minded desire to deliver public goods and the business mind’s habit of optimizing efficiency.

Or on the contrary, they can be deeply flawed and corrupted beasts which merge the destructive genes of political power-seeking with the hyper-aggression found in the most despicable private-economy predator. Moreover, in the context of recent geopolitics, the practical contradiction of SOEs unfolds in the fact that the SOE has become the pawn in a game of increasingly powerful national and border-transcending activities.

Poor management

The political economy, in the meaning of the state acting as economic power, has no prospect of disappearing. For the economic-collapse-and-aspiration-of-recovery setting Lebanon, the derivative question is if the country’s political economy can be restituted with the SOE as the winning model, or if the space for Lebanese political economy has disintegrated altogether.

This is a result not only of the economic and monetary collapse which has wiped out, for the next few years at least, the possibility of selling SOEs for a fair price via any form of PPP or privatization. But also, the extinction-like event of Lebanon’s political economy has transpired in the populace’s total distrust in the state; its hitherto practiced bad and partisan management of SOEs, the exploitation of profitable sectors for fiscal gains (telecoms), and its failure to perform as a steward of anything involving money and mutual obligations.

Practical solutions for managing Lebanon’s economic challenges are available; namely the strategic advantages of SOEs or PPPs, such as efficiency or competitiveness on a corporate and local level. But as long as there exists a mutual cycle of division their implementation will remain merely an ideal, while the smartest and most knowledgeable, who advocate for Lebanon’s rescue, remain adamant to assert that they do not see the issues as their opponents do, never mind the rationality of their position.

August 2, 2022 0 comments

Editorial

Finality

by Yasser Akkaoui August 1, 2022

written by Yasser Akkaoui

The Lebanese political class looks vulgarly conniving when it collectively promotes an International Monetary Fund (IMF) deal as a finality while their real intentions lay against it. What is even more bewildering is how contagious this fake stance is. It has infected every speech or media appearance among even the most reformist Lebanese economists, analysts and journalists.

For more than twenty years, this magazine has been advocating tirelessly for similar reforms as the IMF and the international community. As Lebanon’s best global advisors have been saying on many occasions, like during the CEDRE conference in April 2018, we also consider that institutional, judicial, fiscal and monetary reforms are useless unless coupled with an ambitious strategy that put our assets to good use. A strategy that could provide public services; creating and growing value in an inclusive, responsible and transparent manner.

Gullible is whoever thinks that this mob ruling the country has any intention to embark on any type of reforms. Their performance since the beginning of the crisis and the masquerades we have been witnessing at parliament since the election, says it all. Correspondingly, the lack of leadership, purpose or vision from successive governments is proof that we had cabinets that are incapable of presenting a serious strategy. One that promises to institute a governance program which would allow state owned enterprises to devise and adopt stratagems capable of delivering basic services, which the citizen desperately needs.

Our dysfunctional state-owned enterprises are precious to our politicians. It is where they have been employing their cronies and nourishing their captive electorates with a license to steal, reinforced by a disgusting sense of religious and sectarian self-entitlement and impunity. The lack of basic public services allows the parallel economy to flourish; depriving the citizen of any reliable facilities and exposing them to prohibitive costs. No wonder reforms are dismissed, rejected and made unattainable.

The good news is that in Lebanon socioeconomic conditions are stimulated by private sector adaptability and performance rather than by the public sector. Public policies have always had a downward pressure on social factors, while the private sector has an agility and readiness to embark on corporate transformation and embrace innovative solutions to retain value and pursue strategies which can sustain healthy earnings.

The Lebanese media – the most vulnerable – industry has expressed its need to embark on corporate transformation and will to challenge the local conditions that work against its own vocation and purpose. Executive Magazine captured their needs and requests, while documenting the gaps which need to be addressed in a report published in this issue.

It is crucial that independent media companies are able to continue to defend freedom and democracy by providing independent unbiased content which upholds accountability, not impunity and manipulation.

Now that is a finality worth fighting for.

August 1, 2022 0 comments