Executive Magazine

The survivors

by Nabila Rahhal May 8, 2013

written by Nabila Rahhal

There was Horse Shoe, most notable for being Ghassan Tueni, Raymond Edde and Charles Helou’s favorite watering hole in Hamra. And Dolce Vita, the sidewalk brasserie that was the hangout for exiled political figures from Iraq and Syria. And Bliss Street’s Faysal’s, the restaurant where the leftists — many of whom became ministers in their countries — used to meet. Today, however, they have been replaced by a Costa Coffee, a Pizza Hut and an anonymous apartment building, remaining only in memory.

Though these places had their fair share of the limelight and stayed in operation for more than 20 years, many other food and beverage venues rise to fame only to shut down some years later. Over time, this scenario has intensified, and lifespans have shortened as Lebanon trundles through its various political situations. Every time the country stabilizes for a couple of years and the tourists roll in, hopeful young entrepreneurs pool their resources to open a bar. A few years later, the situation deteriorates, the tourists leave and the bars shut down.

Despite this dismal picture, some bars in Beirut have persevered through the political crises, reaching and surpassing a decade on the scene. The question is: what makes these bars special? What has led them to remain in operation while around them new and more exciting places are opening? Executive analyzed a selection of 10 bars and nightclubs that have been in operation in Beirut for more than 10 years to find out what keeps them in business.

Serving 30 or 300

Brewing the right formula for success depends on the size of the bar. The smaller venues all have a couple of points in common. Their overhead costs are less than the bigger establishments, and they have no marketing or events budget to speak of.

They do, however, enjoy strong customer loyalty, as evidenced by the number of patrons who have been visiting them ever since they were old enough to drink. Nostalgia mixed with a sense of belonging is a strong motivator, and there is something touching about knowing that these little pubs will always remain the same and everyone there knows who you are. Loyal customers don’t have to come every night, but their loyalty is enough to keep these bars afloat. Naturally, good quality, friendly service and nice music have to be maintained. Loyalty can only take you so far.

The larger establishments profiled in the selection have each managed to carve a niche for themselves that has remained unchallenged — pioneers of entertainment. Each venture is built around the type of music they play or the bands they host. Others have attempted to copy their concepts but customer loyalty, added to their years of expertise, makes it hard for newcomers to grab a seat at the table.

Both the large and small venues have been touched by Lebanon’s harsh conditions and all have seen their business fluctuate, with some having more bad days than good. But the fact they have remained on the scene is a testament to their resilience. In these profiles, listed alphabetically, each bar’s owner offers advice for those thinking of following in their footsteps and establishing their own venues.

1. 37 Degrees

Location: Monot Street, Ashrafieh

Customer profile: Laid back, loyal customers who enjoy cozy and comfortable setting

Capacity: 70

Drink of choice: 37's Heat, a whiskey-based drink ($8.50)

Owner's advice: “Have a strong concept; choose a good location and good elements to manage it. Only then might you have a chance of succeeding as the market is not as easy as before"

Opened in June 2001, 37 Degrees was among the first bars to open in Ashrafieh’s Monot area. Ideally located in a then-deserted alleyway, 37 Degrees had a wide outdoor terrace where drinks could be enjoyed al fresco.

The street on which 37 Degrees is located was the Hamra or Mar Mikhael of its time in the early 2000s, but it is much calmer these days. Few bars have survived to tell the tale, and others sporadically opened only to close soon after.

37 Degrees is one of those surviving bars and retains the warm and friendly spirit it’s had since it first opened. Its claim to fame, according to the main partner Toni Rizk, is that it introduced the well known Lebanese shot, the “dodo” — named after the barmaid Dana — to the public. The shot was adopted from the “Mexican hootch” shot which 37 Degrees served with some adaptation, such as the olive, and vodka instead of tequila. Not knowing what to call it, people referred to it simply as the dodo shot.

2. Barometre

Location: Abd al Aziz Street, Hamra

Customer profile: Foreigners seeking an 'authentic' Lebanese experience, fans of the leftist movement or belly dancers

Capacity: 75

Drink of choice: A tall glass of Arak ($6)

Owner's advice: “Don’t go into the bars business unless you really love it. Otherwise, it’s difficult and it’s just not worth it”

With Ziad el-Rahbani songs playing in the background, and posters of Mahmoud el-Darwish and Samih el-Kassem — both nationalist Palestinian poets — on display, Barometre clearly capitalizes on the image of leftist Lebanon in the 1980s, even though it opened in 1998.

Owner Rabih el-Zahr is a self-proclaimed nationalist and proudly recounts how, during the 2006 war with Israel, foreign journalists would keep their equipment in Barometre and regroup there while he played the news in the background and served free shots every time Hezbollah hit an Israeli target.

Barometre’s concept has been replicated by several recently established bars in Hamra, but while they may have reproduced the image and music, they have yet to recreate the same delicious nibbles available at Barometre, which are family recipes passed down from Zahr’s mother.

More than 10 years since it opened, Barometre still manages to pack in a full house during the weekends, although it has had to introduce theme nights such as a “contemporary Arabic music dance night” to attract more customers.

3. Blue Note

Location: Makhoul Street, Hamra

Customer profile: Blues and jazz lovers

Capacity: 75

Drink of choice: Vodka or whiskey ($40-$55 charge including a la carte food and band)

Owner's advice: “Study the market and then carve a niche for your bar; be different and needed”

Established in 1987, Blue Note was Lebanon’s first jazz and live music club. Despite opening during the civil war there were already some interesting pubs in operation in the area, and Blue Note was a welcome addition to the mix. Years later, Blue Note is the only surviving bar from that period in the area.

Open all day, Blue Note offers a mixed menu of international and local cuisine. But it is not the rather average food that brings people to Blue Note, it is the jazz talent — sometimes international but mostly local — that regularly perform in the venue. Blue Note’s Khaled Nazha also proudly plays the role of cultural ambassador by promoting the international blues players he brings to play at Blue Note around the country. Though he would like to get more international players, their budget and the country’s situation does not always allow for that.

Blue Note launched Charbel Rouhana and Toufic Fadoul to relative fame and recently got Ziad el-Rahbani to play there for 11 consecutive nights. Understandably, the bar charges a cover fee for the music.

4. B018

Location: Karantina

Customer profile: 18-25 year-old fans of house and alternative music.

Capacity: 600-800

Drink of choice: Naji's Mood, a vodka-based drink ($13)

Owner's advice: “Don’t think that this is a fast cash business, and only enter it if you have experience in the business or study it well beforehand”

B018 was borne out of Naji Gebrane’s dream to change the music in Lebanon and move it away from the typical disco tunes that were available back in 1995. During the civil war years, Gebrane would play his favorite music to whoever happened to be in his chalet — number B018 — and by the end of the war he was inspired to start his own club. B018 continues to be a pioneer in electronic music 18 years later, attracting DJs from around the globe. With the party only really starting well after midnight and ending with the rising sun, B018 is not for the faint of heart.

In 2005, Gebrane attempted to attract his older customer base to a new club, B018 Classic, on Old Damascus Road, Ashrafieh, which played the classics of the 1980s. It only operated for three years, before protests in the area in 2008 forced it to shut down. Gebrane’s older clientele now gets one night a week when B018 opens early and plays 80s hits.

5. Captain’s Cabin

Location: Hamra

Customer profile: Foreign expats looking for cheap drinks and a game of pool or darts in a place that reminds them of their little neighborhood bar back home.

Capacity: 50

Drink of choice: A bottle of beer ($3)

Owner's advice: “Don’t go into this business if you have no experience in it; reading about it and having a business degree are not enough because you need to live it”

Established in 1964 by a group of pilots looking for a place to play cards and drink gin while away from home, the Cabin’s glory days were in the pre-civil war period. It became a destination for international pilots, American University of Beirut professors and the occasional spy.

Today the bar has a more shabby and neglected feel, with the leather on its bar stools torn in places and writing scrawled on the walls. The owner, Andre, prefers to call it an “easygoing place” and says that when a bar stool is broken, he won’t necessarily fix it rapidly.

Captain’s Cabin has very few overhead expenses: it doesn’t provide food and the drinks do not contain anything perishable. Also, Andre serves the patrons himself and has no employees. Although in Hamra, considered a prime location, the owner pays on the old rent scale and admits that the bar generates enough income for him to live modestly and no more.

6. Centrale

Location: Saifi area

Customer profile: People in their 30s or 40s who want to enjoy a well-mixed cocktail in a pleasant atmosphere

Capacity: 60

Drink of choice: Mona Lisa Smile, vodka-based ($12).

Owner's advice: “During difficult times and the low season, don’t sacrifice quality to save on costs as you will build a bad reputation that people won’t forget when the times improve”

Centrale was the first bar to open in the Gemmayze area, back in 2002, long before the neighborhood became the magnet for restaurateurs it is today. “We felt that Monot was out and that this was going to be the next happening area,” explains Talal Chehab, the main owner.

Intended to be a quality restaurant with an accompanying bar, the owners were surprised to see that people were more interested in the cylindrical bar area — along with its roof, which opens to reveal the star-filled night sky — than they were in the restaurant. Though the restaurant still operates on the first floor of Centrale, the bar on the second floor remains the main attraction.

Centrale is proud that they have had the same team since they first opened. Indeed, Michel Mhanna, the barman, has his own loyal patrons who come to Centrale especially for his freshly mixed drinks and innovative cocktails, served with a welcoming smile.

7. Hole in the wall

Location: Monot Street

Customer profile: International and local rock music lovers of different ages who enjoy a vibrant atmosphere where not a lot of talking is done.

Capacity: 50 (seated) 100 if standing

Drink of choice: Guinness beer ($8)

Owner's advice: "If they haven't worked in this business and know all its details, or if they haven't hired a professional to get things done for them, it is going to be tough"

Tucked in the narrow alleyway off Monot Street, Hole in the Wall is as its name suggests. Upon opening an unassuming door, one enters a lively bar with classic rock blasting through the stereo and high tables packed close to each other near the bar.

Hole in the Wall has been in operation since 1999 but Ziad Kordahi, its current owner, bought it in 2003. He already owned another venue, Rai, on the same street. It is still packed on most days, especially with the recent introduction of live bands and new talents.

8. MusicHall

Location: Starco Center,
off Downtown

Customer profile: International music lovers of all ages and nationalities.

Capacity: 500

Drink of choice: If at a table, MusicHall follows a formula of $60 per person, including the show and drinks within that amount.

Owner's advice: “Someone who starts a new business is usually called an entrepreneur; those who are starting their own bars/nightclubs in Beirut at the moment should be called gamblers. But maybe the world is nothing but a big casino, as the Italians say."

Following his success with the “Amor E Libertad” nightclub in Kaslik in 1998, Michel Elefteriades decided to bring the same concept of live musical shows to Beirut in 2003, and MusicHall was born. Originally an old cinema theater, the Starco venue was ideal for live music on stage and Elefteriades easily transformed it into a club with state-of-the-art lighting and sound system.

Ten years into its existence, MusicHall has launched such renowned musicians as the Chehadeh Brothers and has become instrumental in introducing tourists to the more diverse music culture in Lebanon. It is full on the weekend and requires booking in advance during the peak summer season and holidays. MusicHall recently opened to much success in Dubai, and there are plans to open an outdoor venue in Beirut by this summer.

9. Regusto

Location: Hamra Street

Customer profile: Loyal patrons of Chez Andre and those who have heard about it from their parents (who may be few and far between by now).

Capacity: 60 people

Drink of choice: Vodka orange ($6.5)

Owner's advice: “Be correct with your patrons and always think long term”

Regusto’s history is interlinked with that of Chez Andre, the famed Hamra pub of the 1960s, which was owned by the uncle of Regusto’s owner — Arthur Chirvanian — who took over management in 1992. When Chez Andre had to close down in 2003 due to rent issues, Chirvanian decided to move the same concept into Regusto, which was being run as a nargileh place at the time.

Regusto’s location in Hamra Square means it avoids the neighbors and their noise, but it also sets it apart from the area’s other pubs, which tends to make people forget about it. The place is somewhat dark and dingy, though the music is good, if a bit outdated. Regusto, however, capitalizes on Chez Andre’s fame and its walls are covered with newspaper clippings of famous political and cultural figures who used to party at Chez Andre, which makes for interesting conversation.

Regusto’s owner has recently opened Belleneves, a small live-band concept bar, in one of the alleyways off Hamra’s main street.

10. Zinc

Location: Sodeco, Ashrafieh

Customer profile: Loyal customers, between the ages of 30 to 40, who grew up with Zinc and still love it.

Capacity: 100 people

Drink of choice: Margarita ($12)

Owner's advice: “The bar business is a very detail oriented one that you should be constantly working on”

When Fadi Saba first decided to open Zinc in 1997, the bar culture in Beirut was wanting. Saba’s inspiration was the nights spent at home with friends enjoying a few drinks and music while waiting for the clubs to open; hours that can these days be better spent in one of Beirut’s many bars.

Despite its age, Zinc manages to maintain a trendy feel and stays loyal to the elements that creates a bar’s atmosphere, such as the vibrant mood, the soft lighting and innovative music.

Probably due to the prevalence of rooftop bars, Zinc has shut down during the summer for the past four years.

“Zinc’s image used to suffer in the summer when our customers went to rooftops. Though financially it is still the same for me when I close in the summer, my customers miss us and we miss them,” says Saba.

May 8, 2013 0 comments

Business

More than just your mailman

by Maya Sioufi May 8, 2013

written by Maya Sioufi

Where else can I renew my Lebanese passport, pay my cellphone bills, pay that parking ticket from the time I was late to a meeting, and send my brother in London the pair of shoes he left at home? LibanPost, Lebanon’s postal service operator, does more than just drop letters in mailboxes.

With 82 post offices throughout the country — with plans to reach 100 by the end of the year — and 950 employees, LibanPost has been diversifying its services since 2002.

That year, after attempting to run the postal service company for four years following its privatization in 1998, the Canadian postal operators and several Canadian investors threw in the towel. Due to the Lebanese Civil War, Lebanon had been without postal services for 20 years, leaving a whole generation accustomed to living without them, so a change of culture was critical to revive the use of postal services. The Lebanese government had promised the Canadian operators that they would provide them with all the support they needed, from delivering municipality bills to telephone and electricity bills. It was a series of promises that it failed to deliver on.

“We were promised more or less the same support as the Canadians, but, being Lebanese, our expectations were lower,” says Khalil Daoud, LibanPost’s chief executive since 2002, the year it was taken over by a consortium of Lebanese investors including the Mikati family, Bank Audi and affiliates of Bank Audi. In 2011, Bank Audi and its affiliates left their place to the Saradar group which now shares the ownership of the postal operator with the Mikatis’ M1 Capital.
From the onset of Daoud’s helm at LibanPost, he initiated a more commercial-oriented direction for the postal operator, realizing that the company would not be financially viable if it relied on the government as a client or failed to diversify its services.

Khalil Daoud has been chief executive of LibanPost since 2002

From government-related services such as renewing passports and facilitating papers of foreign workers, to vehicle services such as checking the amount due on a car’s annual motor inspection, to financial services such as paying phone bills, depositing money at certain banks and settling parking fines, LibanPost is continuously adding services. Today, 55 percent of their revenues come from non-postal related services. As for the government, it contributes to just 5 percent of revenues.

While Daoud refused to disclose the total revenues of the company, he revealed that the country’s postal operator has been averaging 13 to 14 percent annual growth in revenues since 2002 and started generating profits in 2006. With a lot of debt that piled up during its earlier years, LibanPost still has cumulative losses, but Daoud says “they are declining as we grow and we hope to be [phasing] those out and making a few bucks,” before their contract with the government expires in 2016. “We still have a few years,” he says.

As for the impact of the ongoing turmoil in neighboring Syria on the company’s performance, distribution and delivery of mail between the two countries was only stopped in March of this year. The suspension was without precedent. Even during the 2006 war with Israel, services, which were suspended for just 48 hours, transited through Syria for international mail, and domestic mail was still being dispatched. The Universal Postal Union, a United Nations agency, sets postal rules and instructions for its member nations and, according to Daoud, “It asked us to stop sending mail to Syria until a practical solution is identified. Things are getting more difficult now.”

Getting the right directions

Another difficulty that the company faces is homegrown and simple: addresses. “Close to the hospital”, “after the school”, “the building of the supermarket”, “take a left after the petrol station”, and other inexact directions are often used to locate an address in Lebanon. To complete their deliveries, LibanPost places its postmen to service the neighborhoods they are from. “Is it scientific? No. Is it reliable? To a certain extent. Is it legal? No … It could be a divorce case or a lawsuit and we can’t play with people’s lives like that,” Daoud says.

Having worked with public committees for over 10 years trying to establish an address system in Lebanon, Daoud finally gave up. “The problem is that within the municipality council, they fight to name the street after their late father or late uncle. In New York, streets are given numbers. What is wrong in giving numbers to our streets?” says Daoud.

But Daoud points to another solution. Google, using its global positioning system, can translate an exact location into a 36 to 38-sequenced number. Working with a Canadian company, LibanPost is developing an algorithm that transforms this sequence number into a more manageable 8 to 10 character code and plans to offer the application for free to the public by the end of the year. “At a later stage, we will see if the government wants to adopt it,” says Daoud.

With the Saradar group on board and following their acquisition of a majority stake in the Swiss-owned Near East Commercial Bank at the beginning of the year, is LibanPost going to start offering banking products similar to its French counterpart, La Banque Postale? “Why not?” says Daoud as he explains that most of the growth in the future is likely to come from basic banking products catered to low- to mid-income citizens. “If a taxi driver needs $1,000 for his engine, there is no possibility for this support,” he says and this is an opportunity that the postal operator eventually strives to tap into.

LibanPost has come a long way since its reestablishment in 1998, and it has big plans ahead. Its diversified and efficient services are realizing many benefits for citizens. It serves as an example to the government of how putting public companies in the right hands within the private sector could reduce debts, increase efficiency and, most importantly, help facilitate some of its citizens’ cumbersome chores.

May 8, 2013 0 comments

The Buzz

Morning briefing: 8 May 2013

by Executive Staff May 8, 2013

written by Executive Staff

Economics and Policy

Saudi Arabia should cut energy subsidies that are burdening public finances, the economy minister and the head of the state-run utility said, a move that would also tackle the issue of erosion of crude exports.

More from Reuters

OPEC has appointed a Saudi Arabian candidate as its head of research over an Iranian, OPEC delegates told Reuters on Tuesday following a meeting at the organization’s headquarters in Vienna.

More from Reuters

Internet connections between Syria and the outside world were cut off on Tuesday, according to data from Google Inc and other global internet companies.

More from Reuters

Companies and Business

Saudi Basic Industries Corp (SABIC), the world's biggest petrochemicals group, will issue a sukuk late this year or next year to fund coming projects, a senior company official said on Tuesday.

More from Reuters

Two Omani electricity generating companies plan initial public offers of their shares around June next year, the companies said in statements on Tuesday.

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Dow Chemical Co has received $2.2bn in damages from Kuwait's state chemicals company, bringing an end to a more than four-year dispute over a scrapped plastics joint venture.

More from Reuters

May 8, 2013 0 comments

The Buzz

Morning briefing: 7 May 2013

by Executive Staff May 7, 2013

written by Executive Staff

Economics and Policy

Kuwait's inflation rate fell to a three-and-a-half year low in March, with drops in housing costs and utilities driving the decline, KFH-Research has said in a new report.

More from Reuters

May 7, 2013 0 comments

Economics & Policy

Clever planning keeps airports aloft

by Fadi Majdalani, Fadi Majdalani & Fadi Majdalani May 7, 2013

written by Fadi Majdalani, Fadi Majdalani & Fadi Majdalani

Unexpected disruptions are a regular ocurrence for air travelers across the globe, including in the Middle East. Bad weather, civil unrest, industrial action or even a volcanic eruption in Iceland can be the culprit. While the impact on travel is considerable, the potential damage to airports’ reputations and long-term business can be even worse. It can result in travelers avoiding certain airports or regulators pushing for costly controls and financial penalties. Ultimately, such disruptions have detrimental consequences for the Gulf Cooperation Council’s thriving aviation industry, which plays an important role in the region’s economic diversification.

Disruptions can severely affect the main priority of an airport: to maximize revenues by having as many passengers board planes as safely as possible. Airports achieve this goal through sophisticated and complex procedures that, if disrupted, limit valuable capacity and the number of flights they can operate.

Airports that lack the ability to handle these disruptions can face severe repercussions. Major and even minor operational disruptions can lead to significant revenue losses, incur massive response costs and cause broader economic losses at the local, regional and national levels. Disruptions from the 2010 spread of Icelandic volcanic ash over European airspace had a $253 million net impact on the aviation sector in the Middle East and Africa, according to Oxford Economics, a United Kingdom-based forecasting and analysis firm.

The disruption resulted in roughly $11 million in lost business each day for Emirates Airlines, whose European routes make up a third of the carrier’s operations.

In addition to facing knock-on effects from other regions, GCC airports experience local disruptions such as those that stem from fog, which annually causes disruptions of more than 200 flights, affecting 30,000 passengers in the United Arab Emirates alone.

Airport disruptions are typically caused by one of three types of factors: circumstantial, structural or administrative. Circumstantial factors, such as political instability or natural disasters, can have low to high impact on airports and are nearly impossible to control. Structural factors are those that involve infrastructure and facilities, regulatory constraints and operational complexities, which can have low to medium impact on airports. Airports have a low to medium degree of control over these factors.

Lastly, there are administrative factors that can be fully managed, but will have considerable impact on airports if ignored. These problems stem from a lack of collaborative planning, command and control, use of information and technology or dedication of resources, or from the failure to make continuous improvement to airport operations.

While some disruptions caused by circumstantial and structural factors are clearly unavoidable, others can be eliminated or reduced by administrative improvements. But all potential disruptions, whether avoidable or inevitable, must be addressed, meaning that operational resilience should be a strategic priority for every airport in the Middle East.

Operational resilience

With the region’s airports becoming increasingly important global hubs, operational resilience should be considered crucial for the future economy of the entire GCC. One regional hub, Dubai Airport, has become the world’s second-busiest airport for international traffic, accommodating 57 million passengers in 2012, compared to 10 million in 1998. Similarly, Jeddah Airport served 19 million passengers in 2010, up from 10 million in 1998. Additionally, regional air traffic is set to rise further due to investment in airport infrastructure in places such as Qatar, Oman, Kuwait and Bahrain.

So far information on the number and type of disruptions at regional airports has largely remained anecdotal and exact numbers on administrative disruptions are not available for analysis. If anything, this highlights even more the urgency for regional airports to deal with not only resolvable but also circumstantial and structural factors by achieving and maintaining operational resilience.

Attaining operational resilience requires airports to plan for the foreseeable and prepare for the unexpected. A resilient airport should be able to prevent or manage and recover from a disruptive event. In essence, airport managers have to proactively get on top of manageable resilience issues, such as clear command and control structures and well-coordinated management of passenger welfare. By improving operational resilience airports can mitigate the impact of disruptions, maximize their capacity and continue to maintain their high standards.

Moreover, operational resilience can enhance an airport’s overall performance, not just during disruptions. For this reason, efforts to improve operational resilience should be implemented in line with a coherent strategy that addresses the short and long-term priorities of the airport as a business and the interests of the entire community of airport stakeholders.

Operational resilience involves focusing on 10 key areas. Successfully focusing on these will likely require substantial and often transformational changes to airports and their management, but all will make them better businesses.

The first is ensuring that resilience is a strategic priority for the airport. This is best done by making operational resilience a key part of the chief executive’s agenda and securing support from senior executives who can champion it constantly.

The second area involves taking additional steps to maintain solid relationships among key stakeholders, including base carriers and providers of priority services such as air traffic control and emergency response. Airports can achieve this by conducting regular meetings with stakeholder representatives so that resilience plans can be shared and coordinated, ensuring synchronized readiness among stakeholders when a disruption occurs.

Enabling proactive ways to respond and manage disruptions is the third area of focus. Airports can do this by increasing their capabilities, setting up early warning indicators that are monitored and acted upon and establishing an airport operating plan so that decisions are made in the interest of the entire airport.

The fourth area involves leveraging information such as historical and real-time information and making it available to all stakeholders. Airport executives will likely find that using information platforms and databases are helpful and can provide analysis on everything from operational performance to forecasts and threats.

The fifth area involves uantitatively measuring performance and impact to better understand an airport’s strengths and areas for improvement. Airports should aim to capture a complete view of the situation, which they can do by employing a response scorecard that assesses key performance indicators, and by taking into account media coverage and financial impact.

Sixth, coordination among command and control centers is key. Airport executives must ensure these centers operate in close coordination, and that roles and responsibilities are well defined so crisis responses are quickly implemented.

New and innovative technologies are the seventh area of focus for airport executives. Airports should employ closed circuit television with automatic incident detection and airside and landside vehicle tracking to enhance operational resilience.

The eighth area revolves around preparedness. Airports and stakeholders need to exceed regulatory requirements with additional scenario planning, training and testing based on potential disruptions common to the airport.

The ninth focus involves remembering that passengers are the airport’s number one priority. One way to achieve this is by developing a cohesive and effective airport passenger welfare plan in coordination with the airlines.

The 10th and final area is continuous improvement. Airports have to review and refine contingency plans every year and examine the previous year’s disruptions. The aim is to ensure that sub-par responses are not repeated and that positive aspects are praised.

By coping with disruptive events through operational resilience, Middle East airports can maintain their capacity and value, and they will be able to contribute to the growth of the global aviation sector. Most importantly, they can improve their operations year-round and consistently offer passengers a first-rate experience.

Fadi Majdalani and Alessandro Borgogna are partners, and Marwan Bejjani is a senior associate at Booz & Company

May 7, 2013 0 comments

Finance

A breakthrough for Middle Eastern mergers? Don’t be so sure

by Thomas Schellen May 7, 2013

written by Thomas Schellen

When news broke late last month that the total value of mergers and acquisitions (M&A) in the Middle East and North Africa had doubled in the first quarter of 2013, many saw it as a sign that the region’s markets were maturing. Based on data released by consultancy Ernst & Young, (EY), M&A activity in the region reached $14.6 billion, up from $7.3 billion in the same quarter a year ago. Nice numbers on the surface, but when compared to global M&A trends and even more so when put in the regional context, MENA mergers once again look feeble.

Still small fish

On the global scale, M&A values in the Middle East in the first quarter of 2013 were (as usual) outclassed by deals in the United States and elsewhere, which totaled $479 billion according to Ernst & Young. The announced buyout of Dell, the American Airlines/US Airways merger, and the takeover of H.J. Heinz by Warren Buffett and friends were collectively assessed at $63 billion, boosting M&A activity in the US to $219 billion in the first six weeks of the year.

And last week the long-awaited completion of the world’s biggest mining merger, the creation of Glencore-Xstrata, caused a price spike of 4.5 percent on the new combined stock’s first day of trade. The finalization of the deal was made possible in April by getting the blessings of China, the new don of global commodities, and the UK courts, guardian of the formalities of listing the new Glencore-Xstrata.

In a different bracket of M&A processes, the first quarter witnessed the closure of the $55 billion acquisition of Russian oil producer TNK-BP by Rosneft — also Russian — that created the new world leader in oil production by output.

In this context of major deals, the Middle East's share of global M&A has yet to grow beyond the lower single digits and Q1 2013 reinforces the view that the region is still a very minor sideshow of the global circus.

Misleading giants

Furthermore, in the Middle East the regional tally is distorted by two outsized transactions – the Aldar-Sorouh real estate merger in Abu Dhabi that was approved by shareholders in March and the ongoing acquisition bid for Egypt’s Orascom Telecom Holding (OTH). The fact that these two deals accounted for more than two thirds of total deal values in the first quarter casts doubt on hopes for a new trend in the region.

The $2 billion Aldar and Sorouh deal in Abu Dhabi was the largest domestic M&A transaction in the region in the first quarter. Given their shareholding structures and alignment of the two companies with the emirate’s state-driven development strategies, non-market factors cannot be neglected as the deal’s driving forces. Therefore the lack of market forces at play suggests the deal is perhaps unlikely to trigger others or lead to a greater consolidation of the real estate sector in the UAE and the wider region.

Even more important is the latest transformation in regional telecoms ownership represented by the quarter’s biggest transaction by far, the bid for full acquisition of OTH by a Cypriot unit of Alfa Group – a Russian investment group. Ernst & Young’s valuation of this acquisition ($6.4 billion) accounts for the entire increase in regional M&A in Q1 2013 vis-à-vis the same quarter in 2012.

The big share of this one transaction again suggests that this is not a new dawn for regional markets. Telecoms mergers have in the past caused upward spiking of regional M&A statistics as operators were an exceptionally attractive set of takeover targets, where other sectors in the MENA were not so. Previous telecoms acquisitions thus made waves in the region but did not mark sea changes.

Another interesting facet of the offer to buy out the minority shareholders in OTH — which was viewed by a Reuters analyst as undervaluing the stock — is that this acquisition of a Middle Eastern asset is indirectly correlated to the large Rosneft takeover of TNK-BP. Russian billionaire Mikhail Fridman, who cashed in $7 billion in divesting from TNK-BP, has reportedly allocated $1.8 billion of that new liquidity to taking full ownership of OTH — of which he already controls a majority stake.

In that sense, the currently largest merger in the MENA and most significant inbound investment into the region by a wide margin appears to be an outflow of global M&A streams and may indicate that some assets in the Arab world are looking attractive because they may be undervalued.

There are many reasons why M&A matters, not least because it is generally viewed as a sign of economic vibrancy, but also because companies see opportunities to expand geographically, consolidate and streamline co-operational synergies with industry peers, or buy market share in quest for greater dominance. With regard to the region as a whole, the baseline figures may be positive but closer analysis suggests there are few signs that Middle Eastern markets are about to boom.

May 7, 2013 0 comments

The Buzz

Morning briefing: 6 May 2013

by Executive Staff May 6, 2013

written by Executive Staff

Economics and Policy

Prime Minister Nouri al-Maliki's State of Law coalition won the most provincial council seats in seven of the 12 Iraqi provinces that voted, according to results.

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Turkish energy company Kartet has secured a deal to export electricity to northern Iraq and has applied for an export license. That development could add to tensions between Baghdad and Ankara.

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The Louvre Abu Dhabi on Saadiyat Island is a step closer to completion as builders have poured the first concrete into one of the four piers set to hold up the museum's massive dome.

Revisiting the Trans-Arabian Pipeline

by Maya Sioufi May 6, 2013

written by Maya Sioufi

In the midst of all the chatter around Lebanon’s new potential oil and gas reserves offshore, an art exhibition in Karantina’s Sfeir-Semler Gallery reminds us of an era when Lebanon was a major player in the region’s black gold. Titled “The Shortest Distance Between Two Points”, Lebanese artist Rayyane Tabet’s exhibition tells the history of Lebanon’s role in the transportation of oil. Starting in 1946 and continuing over the next three decades, oil traveled from Dhahran, Saudi Arabia, crossing Jordan and Syria to reach Zahrani in Lebanon. From there it was then exported, generating wealth for the country.

The Trans-Arabian Pipeline (TAPLine) Company, a joint venture between United States oil companies Caltex, Esso and Mobil, built and operated a 1,213 km pipeline until, amid increased regional political and military conflict — including Israel’s bombing of the Zahrani terminal in 1982— it abandoned the pipes underground in 1983, the same year Tabet was born. Oil has since traveled by ship, a longer route illustrated at the exhibition by two contrasting chalk lines: a straight line representing the shortest distance by land and a curved line passing through the waters.

Reimagining a line

Tabet first encountered the TAPLine in 2007 as he was heading to the beach in southern Lebanon, detouring around the highways that had been bombed during the 2006 war with Israel. As he reached the town of Saida, huge cylindrical shapes on a hill sparked his attention. They were the remains of TAPLine, and that’s where his investigation started.

It’s been six years since that day on the beach. With no information to be found in Lebanon’s public archives, Tabet researched the company in American university libraries and conducted extensive interviews with former employees and their relatives.

Tabet’s investigation eventually led him to the company’s headquarters in Beirut’s Hamra area, a property owned by Lebanon’s Arida family. When he asked the family for permission to search the premises, they told him, “It’s trash on the floor; take it, do whatever you want with it.” He was stunned to find that the offices were left completely untouched, and that is where he found two of the seven pieces of the exhibition: empty letterheads, withered with time, which were also featured at the Frieze Art Fair in London last year, and the five different color mail tags, representing the five cities in Saudi Arabia from where the oil was extracted.

With no roads connecting the cities to each other when the project was initiated, basic necessities — food, water, clothes, etcetera — were delivered to the workers daily by plane from the south of Lebanon, and the color-coded mail tags simplified the task of delivering the goods. Only 40 km of the pipeline ran through Lebanon, and for each kilometer Tabet reproduced a fraction of the pipe using the same metal and replicating the thickness of the original pipeline. These replicas were produced in a steel mill in Aleppo before it was bombed during the ongoing conflict.

The path of the pipeline is shown with folded rulers with different shades of yellow, each symbolizing a country under which the pipeline crossed. White folded rulers linked to Jordan’s borders represent where the pipeline was originally destined to end: Palestine. Following the United Nations partition of Palestine in 1947, the pipeline’s final destination was changed to Lebanon. “Just like I saw the remains of the company [in the summer of 2007] by accident, the company itself arrived to Lebanon by accident,” says Tabet.

With plans to develop further replicas of the pipeline — Saudi Arabia’s portion is currently being replicated in a German steel mill —Tabet’s ultimate project is to reproduce each country’s portion of the 1,213 km pipeline and eventually reunite the pieces in a future exhibition.

The underlying theme of the exhibition seems to be to remind the Arab world of a time when it was more united, more connected; a time when the different states along the pipeline route were somehow able to work together to share responsibility for a resource and create mutual prosperity. Tabet’s question to us, then: will this be possible again?

May 6, 2013 0 comments

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A border erased

by Nicholas Blanford May 6, 2013

written by Nicholas Blanford

The deterioration of security along Lebanon’s northern border from Arida on the Mediterranean to Masharih Al Qaa in the east presents the Lebanese army with an insurmountable challenge. The western half of the border, particularly a cluster of mainly Sunni villages between Abboudiyah and Dabbabiyah, has come under regular Syrian army shellfire since last summer. These villages are supportive of the Syrian opposition.

Some stretches of the border have become de facto safe havens for Syrian rebels who use the area to rest and to plan and launch infiltrations of Syrian territory. The Syrian army shelling, which occurs mostly at night, is intended to interdict infiltrating rebel forces as well as collectively punish the local Lebanese for supporting the opposition.

On the eastern half of the northern border, in the Shia areas running from the frontier village of Qasr to Hermel, 10 kilometers to the south, the local population has come under rocket fire from Syrian rebels. The rebel forces are incensed at the presence of Hezbollah combatants who are fighting alongside regular Syrian troops in a cluster of villages, many of them populated by Lebanese Shias, west and south of the rebel-held town of Qusayr. The Syrian rebels fired for the first time into Lebanese territory in mid-February when two rockets struck Qasr but failed to explode.

An intensification of fighting in the Qusayr pocket in April, however, led to repeated rocket attacks. On April 14, two people, one of them a teenager, were killed when rockets hit Qasr and nearby Hawsh Sayyed Ali. After that fatal incident, the Lebanese army said that units were “deployed widely across the area and took measures in the field necessary to protect people and to respond to the source of the attack as appropriate.”

If there was any deployment, it did not last long. A visit to the Hermel and Qasr area five days later revealed that not one on-duty soldier could be seen north of a temporary checkpoint set up beside the Assi river on the southern outskirts of Hermel, a full 10 kilometers south of the border. Even that checkpoint was only set up during a recent kidnapping crisis between members of the Jaafar clan and residents of Arsal.

It is unclear what “measures” the army could take to “protect people and respond to the source of the attack.” Even if the army had artillery positions in the area and counter-battery radar to determine the origin of rebel rocket fire, it would not have the political latitude to undertake offensive operations into Syrian soil. It could shell rebel rocket positions in the Qusayr pocket, but the army would be opening itself up to criticism for not taking the same action against Syrian army artillery batteries that shell northern Akkar.

However, the army has taken the initiative in Akkar of erecting several fortified observation towers. The towers, which have been constructed in Menjez, Chadra and Moqaible, are fitted with sophisticated monitoring devices, allowing the army to gaze deep into Syria. The purpose of the towers is a demonstration of the state’s presence in the troubled district and to allow for more accurate reporting of developments. But they have failed so far to stem the Syrian bombardments of Akkar. Furthermore, there is no intention to construct similar observation towers along the eastern half of the border in the northern Bekaa, which may be attributed to objections from Hezbollah, the dominant force in the area.

There is a certain inevitability about the worsening security situation along the northern border, exacerbated by the palpable sectarian dimensions of the conflict. Hezbollah increasingly appears to view the war in Syria as an existential battle and as such is committing ever more resources to ensure the survival of Bashar al-Assad’s regime, or at least the preservation of the pan-regional “axis of resistance”. By the same token, Levantine Sunnis stretching to Iraq are inspired by the notion of Damascus being wrested from the Alawites and dealing a blow to Iran and Hezbollah.

Therefore, it is hardly surprising that the Lebanese army — and by extension the Lebanese state — can do little but watch from the sidelines as the sectarian conflict in Syria gathers strength and seeps ever deeper into Lebanon.

Nicholas Blanford is the Beirut-based correspondent for The Christian Science Monitor and The Times of London

May 6, 2013 0 comments

The Buzz

Morning briefing: 3 May 2013

by Executive Staff May 3, 2013

written by Executive Staff

Economics and Policy

Lebanon’s budget deficit decreased to LL27 billion ($18 million) in January 2013 or 1.71 percent of expenditures compared to LL265 billion ($176 million) or 14.94 percent of expenditures during the same month last year.

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The JW Marriott Jeddah will open in 2016, Marriott International confirmed today.

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Real estate developer Deyaar Development on Thursday declared around 100 per cent increase in its net profit, citing the reason of improving market conditions in Dubai.