Executive Magazine

Morning briefing: 18 Mar 2013

by Executive Staff March 18, 2013

written by Executive Staff

Economics and policy

Lebanon’s government and public sector unions may be moving closer towards a deal to end the two-week long strike in the country.

More from The Daily Star

Brent crude dropped more than $1 to below $109 a barrel on Monday in its steepest fall in nearly three weeks as the dollar strengthened after an unusual bailout proposal for Cyprus threatened to trigger fresh turmoil in the euro zone.

More from Reuters

Egypt and the International Monetary Fund made very good progress in talks on Sunday, an IMF official said, after meeting with government officials seeking a $4.8bn IMF loan to help relieve a currency and budget crisis.

More from Reuters

The leaders of Yemen's political, tribal and religious groups are set to begin six months of talks today aiming at healing a divided country and ensuring the survival of the republic's institutions.

More from The National

Business and companies

Lebanese bank employees kick-started protests over the weekend with a sit-in in Tripoli to demand the renewal of an expired collective labor agreement that for decades had governed work relations in Lebanon’s vital banking sector.

More from The Daily Star

Libya has halted a tender to manage the country’s monopoly telecoms operator, the chief executive of United Arab Emirates’ Etisalat said on Sunday.

More from Arabian Business

Saudi Arabia is facing a housing crisis and requires 350 million square meters of new accommodation to meet its burgeoning demand, an economic forum in Jeddah has been told.

More from Arabian Business

The National Bank of Abu Dhabi (NBAD) has retained its title as the safest bank in the Middle East, according to Global Finance magazine.

More from Arabian Business

March 18, 2013 0 comments

Real estate

World Bank to support Lebanese entrepreneurs…

by Executive Editors March 16, 2013

written by Executive Editors

To support Lebanon’s small and medium-sized enterprises (SMEs), the World Bank has extended a $30 million, 17-year soft loan to Kafalat, the government-sponsored loan guarantee company. With this loan, Kafalat will be responsible for setting up a fund to support financing of SMEs, as Khater Abi Habib, chairman of Kafalat, mentioned in an exclusive Q&A with Executive back in November. In addition to providing bank loan guarantees, Kafalat will now also be granting up to $25 million in equity capital to SMEs as well as up to $2.5 million for entrepreneurs working on new ideas. To qualify for financing from this fund, the entrepreneurs would need to have secured funding from a private sector investor such as angel investors or venture capital firms. The remaining $2.5 million are destined for management expenses as well as training and marketing activities.

…and the European Union too

Also looking to support the country’s SMEs and entrepreneurs is the Beirut and Mount Lebanon Chamber of Commerce, Industry and Agriculture with the launch of the FARO Lebanon fund. Initiated by the French government with an aim at increasing innovation and cooperation among entrepreneurs in the Mediterranean region, France established the first FARO fund in May 2010 with a budget of $1.3 million. Providing grants of up to $26,000 to finance the feasibility study of a project, the fund covers a maximum of 50 percent of the cost of the study. Lebanon’s FARO fund is based on the same principles. With a total budget of $500,000, which will be increased gradually, and with another $1.3 million pledged from the European Union for this year, the fund will grant up to $20,000 per project. To be eligible for financing, Lebanon’s entrepreneurs and SMEs must have an innovative product, service or business model, as well as a partner from a European or Mediterranean country.

1929 Palestinian banknote up for auction

A 1929 Palestine £100 banknote is estimated to collect between $110,000 and $160,000 at Spink’s World Banknotes auction, to be held in London on April 10 and 11. Founded in 1666, Spink is the world’s leading collectables auction house with a focus on stamps, coins, banknotes, medals, bonds and shares, autographs, books and fine wines. On the note there is the White Tower at Ramla, as well as signatures of several former members of the Palestine Currency Board: Sir Percy Ezechiel, Sir John Caulcutt and Roland Vanables. On its reverse, the note features the Tower of David and the Citadel of Jerusalem.

HSBC bans Syrian, Sudanese and Iranian accounts

British banking giant HSBC is closing accounts of clients from Syria, Sudan, Iran and other countries that faced significant European Union or American sanctions. The ban, due to take effect on March 20, was announced to clients at the beginning of February. While HSBC declined to specify which nationalities would be seeing their accounts closed down, it did state that nationals from countries in which the bank has branches are unaffected. Also, clients that have an “advance” account (minimum balance of $27,000) or “premium” account (minimum balance of $95,000) would not face a ban. According to a statement by HSBC, the ban is a result of the need to apply “enhanced oversight on any customer with connections to sanctioned countries.” The statement adds, “where we are unable to maintain sufficiently detailed information about such a customer through a relationship-managed account, we are having to discontinue that relationship.” HSBC, with operations in 14 countries in the Middle East and North Africa region, was compelled to pay a penalty of $1.92 billion in December 2012 to United States authorities to settle money-laundering charges.

Lebanese company awarded world’s best app

Lebanon-based Dermandar Panorama, founded by Elie-Grégoire Khoury and Elias Fadel Khoury, was awarded the best application at the United Nations’ World Summit Award for mobile content (WSA-mobile), held in Abu Dhabi last month. The Lebanese company, established in September 2010, developed an online platform allowing users to create 360-degree panoramic pictures taken through the application, available on mobile devices. It was considered the “easiest-to-use panoramic picture app” by the Wall Street Journal and featured in Executive’s list of top 20 entrepreneurs in November 2012. By February, the application was downloaded six million times. Berytech owns 35 percent of the company and Georges Harik, a former Google employee, owns another 5 percent. WSA-mobile is a global event held on a biennial basis, allowing mobile app producers from around the world to present their innovation to high-ranking industry leaders.

Nasdaq Dubai eyeing equity markets for SMEs

Nasdaq Dubai Stock Exchange, with $29 billion in market capitalization, is eyeing an equity market for small and medium size enterprises (SMEs) for this year, the first of its kind in the Middle East. After reducing the minimum market capitalization requirement from $50 million to $10 million in June 2012, the United Arab Emirates regulator has made it easier for SMEs to list on an exchange, and it would seem that Nasdaq Dubai is looking to build on that momentum. The exchange has established an advisory group of professionals with banking, accounting and legal backgrounds tasked with preparing a proposal for the establishment of an equity market for SMEs. According to Hamed Ali, the chief executive of Nasdaq Dubai, “high quality SMEs are vital to the expansion of the UAE’s economy, but many are starved of the capital they need to grow. An initial public offering on Nasdaq Dubai will enable them to raise the funds they need.” The exchange has estimated that more than 72,000 SMEs in Dubai contribute to more than 40 per cent of the emirate’s economy, a market it plans to attract for listings. The market will, however, also cater “for any company that does business in the region”, added Ali.

March 16, 2013 0 comments

Banking & Finance

Fetching less than $10 million, Lebanon sold at deep discount

by Executive Editors March 16, 2013

written by Executive Editors

Lebanon is now a fully operational resort, but it had to be sold at a 42 percent discount on the original land price — the island, that is, in the artificial “The World” archipelago off the coast of Dubai in the United Arab Emirates. As Arabian Business reported from land registry files, the sales transaction for the for the 39,000 square-meter creation was concluded for $9.5 million and the new landlord of Lebanon is Ravi Raman, an Abu Dhabi-based owner of a general contracting company. According to the publication, Raman last November bought Lebanon from Wakil Ahmed Azmi, a fellow Indian expatriate in the UAE. Lebanon is the only fully operational commercial development in The World. It opened last year as Royal Island Beach Club. Cape Reed, a construction company, said in a mid-February press statement that it completed the final works on the resort without specifying what those last works were. The World is one of the most troubled real estate developments in the Gulf region. Despite big sales announcements through 2008, the development sank in feasibility when the Dubai property bubble burst. Plans were canceled and prices of islands tanked badly in 2009-2010. Land values of the artificial islands have not recovered to date, and their master developer, Nakheel, was targeted by a number of lawsuits by investors and services operators. Among problems that the Royal Island Beach Club faced last year were exorbitant costs of fuel, water, sewage and transport owing to the fact that no other islands of The World were developed. Original owner Azmi was reported to have sunk more than $54.5 million in his five-year distressed proprietorship of Lebanon.

Saudi’s growing demand for real estate investment funds

Saudi Arabia’s Capital Market Authority (CMA) has encountered increasing demand from investment companies to team up with developers to create real estate investment funds, according to the CMA President Mohammed bin Abdulmalik al-Sheikh. In the program to develop Saudi Arabia’s property sector and mortgage market, CMA has “completed the issuance of most implementing regulations, including the regulation of real estate investment funds,” Sheikh said. Numerous financial analysts in the region consider Saudi Arabia to be a top growth market for real estate investment opportunities, due to the undersupply of residential buildings for average-income families and the institution of a new mortgage market on basis of a law passed last year. The number of public or private real estate investment funds in the kingdom has grown to 58, the CMA head announced at a Riyadh conference that was organized by the authority. His presentation, read by a member of the CMA Board according to a media statement, did not indicate the annual growth rate in the number of these funds or their average size.

Qatar talks money, money, money

Between its chosen obligations to develop the desert emirate into the venue of the 2022 World Cup and its need to deposit revenues from its exports of liquefied natural gas, the state of Qatar is solidifying its position as a top source of money news in the real estate sector. In an announcement on February 19, the Qatari unit of United Arab Emirates-based Drake & Scull International (DSI) trumpeted that it had won a $82.4 million contract for works on a mixed-use real estate project in Doha. The scope of the contract includes mechanical, engineering and plumbing aspects of a project described as entailing “three superblocks” with total 260,000 square meters in built-up area. DSI did not disclose the name of the project. On the same day, attendees at a Doha projects conference were told that the country will undertake $120 billion worth of mega-projects in advance of 2020, according to a press statement. And, within the same hour, Reuters reported that the state of Qatar will launch a new investment company via the Qatar Holding unit of its sovereign wealth fund. The new company will be publicly traded and powered up with $12 billion to invest in stuff, big time. What stuff? “You name it — shares, bonds, real estate, [and] private equity. We will look at every sector in every country around the world,” said Qatar Holding Vice-Chairman, Hussain al-Abdullah. The flurry of big announcements coincided with the Qatar Projects 2013 conference organized by information and events company MEED/Emap.

Flooring the public sector wage bill

Lebanon’s political theater in February extended its play, “The Mikati Floor,” also known as “How to create public revenue in a broken economy”. Mikati’s proposal offers owners of real estate projects the option to add built-up area (BUA) by paying extra fees. The exact terms of allowable extra floors in BUA and corresponding fees are still hazy. Daily media outlets reported on February 19 that a review of the proposal by the General Directorate for Urban Planning did not reach the ministerial committee on time. According to various media reports, the Directorate nevertheless was in favor. As Executive gauged from interviews with developers in the past two months, some are betting on the increasing land exploitation factors as means to increase their margins and profit potentials (see story page 110) while other developers, economic and urban planning stakeholders remain wary of the socioeconomic feasibility, fiscal efficacy and price impacts of legalizing higher exploitation. All this as public school teachers and civil servants blanketed the country with protests on February 19 and 20 to express their outrage that salary increases had not yet been implemented, with the unions threatening escalating labor action.

Jordan real estate stays level

There was little movement in the Jordanian property market in 2012, said regional property management company Asteco in February. Graphs displaying trends for residential and office properties in the company’s fourth quarter 2012 report on Jordan showed an upward trend in apartment sales toward the end of last year but a flat development of office sales and a nine-month downtrend in office rentals. Focusing on the real estate market in Amman, Asteco said unchanged rental rates for one and two-bedroom apartments were juxtaposed by increased demand for three-bedroom units in some areas of the capital. The report called the 4th Circle the most sought-after area in Amman, with annual rental rates of $23,300 for a three-bedroom unit. As Jordan’s government last year reviewed and cut numerous subsidies, Asteco noted that new governmental policies on energy sources including gas, solar, oil and electricity impacted developer costs and reported that asking prices in apartment sales went up 5 to 7 percent on average and as much as 10 to 11 percent in select areas. Residential unit sales prices in different areas of Amman ranged from $1,250 to $1,550 per square meter. Asteco attributed the declining prices for office rentals to a combination of increasing supply and low demand.

Dubeye over blue water

Call it wonderful. The world’s largest. Key tourism hub, etcetera. If this sounds vaguely familiar, one will not be surprised to learn that another Dubai development has been announced. February saw the announcement of Bluewaters, an oceanfront, mixed-use development by local developer Meraas Holding in the humble projected investment range of $1.63 billion. The project will get its own artificial island with all the trimmings off Dubai’s (once leisurely) JBR Walk area, but that is not the big item. What will be the “world’s largest” in this one? The correct Dubai trivia answer is a Ferris wheel, at a planned height of 210 meters. It will be constructed by Korea’s Hyundai Contracting and Dutch firm Starneth Engineering for about $270 million. For comparison, the current world record-holding Ferris wheel is the 165-meter Singapore Flyer. The London Eye, which inspired the race to supersize those rotating observation points, held the title for about six years with its 131-meter height and 120-meter wheel span. Talks of a big Ferris wheel in Dubai were first mooted in 2006 alongside the original Dubailand theme-park plan, according to the UAE-based Kipp Report. The real question today — more than those pesky peripheral concerns such as Bluewaters’ financial feasibility and funding, economic need and environmental value -— is, of course, if and for how long Dubai Eye will rule the record book. Starneth is also working on the New York Wheel, a Staten Island ride scheduled to start construction in early 2014 and whose project company trumpeted that it will be, yup, the world’s tallest.

March 16, 2013 0 comments

Economics & Policy

Birthing a giant

by Executive Editors March 16, 2013

written by Executive Editors

Even with a consenting and eager family backing the enterprise, the birth of a new real estate giant in Abu Dhabi has not been a simple procedure; however, the emergence of Aldar Sorouh Properties now appears nigh. The boards of real estate development companies Aldar Properties and Sorouh Properties announced in a joint statement on January 21 that the board of each company unanimously approved a planned merger which is to create a company with more than AED 47 billion ($12.8 billion) in assets and one of the region’s largest land banks. The new company will concentrate on real estate development in Abu Dhabi, where its two predecessors have been associated with a wide range of the emirate’s most ambitious property developments — including some severe loss-incurrence.

A happy home?Anywhere but Beirut

Beirut ranked as the 171st most desirable city in the world out of a total of 221 cities surveyed. The survey was conducted by the global consulting firm, Mercer Consulting, to help multinational companies assess international hardship allowances. The dismal ranking was also reflected in Beirut’s regional standing, having come in 16th throughout the Middle East and North Africa region. Within its economic bracket, Lebanon came 35th out of 42 upper-middle-income countries. The survey evaluates the cities on the basis of 39 key quality-of-life determining factors, which are grouped in 10 subcategories: political, economic, socio-cultural, health and sanitation, schools and education, public services and transportation, recreation, consumer goods, recreation, consumer goods, housing and natural environment. In a separate study by the same firm, Lebanon clocked in at 204th in a ranking of 224 countries with regards to its infrastructure. The index ranked the quality of each city’s infrastructure based on the electricity supply, water availability, telephone and mail services, public transportation, traffic congestion and the range of international flights from local airports [see page 128].

Closer still to offshore exploration

Lebanon officially launched the pre-qualification process for the first-tender round for companies who wish to explore for offshore oil and gas within Lebanon’s maritime waters [see page 74]. Prospective companies have until March 28 to submit their applications, and Minister of Energy and Water Gebran Bassil told a meeting of energy company representatives and diplomats that the Petroleum Administration would announce within three weeks the list of accepted companies. If everything goes to schedule, the bidding is expected to start in May, with pen being put to paper on the first exploration and production agreement in February 2014. Although prospective companies will have to submit their tenders in a joint venture of no less than three companies, they all have to proceed through the pre-qualification process individually. Earlier in the month, the cabinet approved new conditions for offshore oil and gas exploration tenders, and it is now no longer required that there be a Lebanese company in any prospective joint venture. There is optimism that Lebanon will have commercially viable reserves, considering promising seismic data and the successes of the Israelis and Cypriots in recent years.

Shuffling the mobile status quo

The Ministry of Telecommunications announced that the government will launch a tender to award management contracts of the two state-owned mobile phone networks Mobile Interim Company 1 (MIC 1) and Mobile Interim Company 2 (MIC 2), instead of renewing the existing contracts of the current managers. It said that the new contracts will run for a period of three to five years. Orascom Telecom has been managing MIC 1 since January 2008 and Zain has been running MIC 2 since June 2004. The two operators were receiving a total amount of $150 million per year in management fees but upon the contracts expiration at the end of January, the government extended the deals for one month. The income from the mobile networks is a major source of revenue for the government and in 2011, the collective income of the two operators was $1.6 billion, of which $1.4 billion went to the government’s coffers. In an interview with The National in January, the Minister of Telecommunications Nicolas Sehnaoui explained the ministry’s plan to allow three to five companies to offer services to the customers while the actual operators and infrastructure would remain in government hands.

Outside funds for development

The European Commission has allocated 32 million euros ($42.78 million) for the financing of three programs in Lebanon aiming to improve the quality of the public sector, develop vocational training and education, and promote social justice. The European Investment Bank (EIB) also signed a 50 million euro ($66.85 million) loan deal with the Council for Development and Reconstruction (CDR) to support private sector investments in energy efficiency and renewable energy within Lebanon. The EIB also signed off on a 75 million euro ($100.28 million) loan to the CDR to finance an upgrade on 10.3 kilometers of the coastal highway between Nahr El Kalb and Tabarja, just north of Beirut. The Ministry of Energy and Water also secured an $85 million soft loan from the Kuwaiti Fund for Arab Economic Development that will go some way toward covering the rehabilitation and upgrade of Zouk and Jiyyeh power plants. The soft loan is for 25 years, has a grace period of five years and carries an annual interest rate of 2 percent, in addition to a 0.5 percent administrative fee.

A roundabout way to civil marriage

Minister of Justice Shakib Qortbawi has urged his colleague the Minister of Interior Marwan Charbel to approve civil marriage in Lebanon. The statement comes after the issue has been thrown into the national spotlight by the marriage of Nidal Darwish and Kholoud Sukkariyeh: the first civil marriage in Lebanon. The findings of a justice ministry committee support the argument made by the couple that Lebanese who have struck their sect from their papers can have a civil marriage and, in the absence of a Lebanese civil law, apply a civil code from a foreign country. Minister Charbel had previously stated that the state could not recognize the marriage because of the lack of a Lebanese civil code. The loophole that Sukkariyeh and Darwish based their marriage on is found in decree No. 60 from 1936, which applied to marriages for those without a sect, namely foreign men marrying Lebanese women. The findings of the Higher Committee of Consultations within the Ministry of Justice are not binding and any further steps would be predicated on the approval of the Minister of Interior.

March 16, 2013 0 comments

Comment

The Detroit of the Middle East

by Zak Brophy March 15, 2013

written by Zak Brophy

Hearing people fall back on the refrain of labeling Beirut the “Paris of the Middle East” grates the nerves not only because it is a lazy cliché but also because it is patently so far from the truth. It may be true that lots of people, in certain quarters of the city, speak French, but that’s about as far as the similarities go.

The sepia-hued nostalgia for the Beirut of days gone by tends to embrace the memories of a thriving, cosmopolitan city with a sophisticated swagger, where there were thriving markets, palm-tree lined parks and public transport. The nation’s capital has, however, fallen far.

So far in fact that in the 2012 Mercer Quality of Living Worldwide City Rankings, Beirut placed a dismal 171 out of 221 cities. Money may still buy the luxuries of private beach clubs and 24-hour electricity for some, but none of us can escape the crippling traffic, the void of green spaces or lead-footed Internet. At both a local and a national level, planning and strategy-making have been hijacked by short-term political expediency and narrow vested interests. The victim has been society at large.

The physical transmogrification of the city is a daily source of sorrow. The overlapping roles and interests of the city’s real estate barons, political elites and banking financiers have given them an inordinate level of control over the planning and design of the city. The race for lucrative towers has consistently overridden priorities such as affordable housing, heritage protection, traffic control, public space or local amenities.

Major property developers told Executive that bribery at the top levels of the municipal council is commonplace and a senior member of staff at the Directorate of Urban Planning confided, “it is the major property developers in this city who write and amend the building code.” The consequence is a continually expanding potential exploitation factor, meaning more and more floor space can be built on increasingly scarce plots of land. While a glut of swanky towers choking the skyline benefits a handful of property speculators, it does little to sustain our community as a whole.

It is perhaps in the grinding traffic that our frustrations are most vexed. Lebanon had the most advanced transport system in the Middle East before the outbreak of civil war, including tram, bus and train networks. However, in the post-war era the emphasis has been purely on developing more roads, and Lebanon now has one of the highest per capita car ownership rates in the world. As Lebanon underwent its radical postwar development in the 1990s, old road plans from the 1960s and 1970s were dusted off and botched together. The result is a city overflowing with cars sporting engines fit for the Autobahn but crawling in smog at only a few kilometers an hour.

Choose any sector and you will find that there has been a similar failure to harness the great human potential of the Lebanese people and turn it into any semblance of progressive and sustainable policy or infrastructure development. Electricity, water, telecommunications and education, to name but a few, are all fundamentally flawed and stagnant, resulting in poor and overpriced end products. Little surprise then that Beirut also came 204th out of 224 countries in another survey by the same firm ranking city infrastructure.

“There is no place for people like me in Lebanon any more,” Chafic Abi Said told Executive. He is a retired mechanical engineer who spent the majority of his working life trying to help better Lebanon’s energy sector in different roles at Électricité du Liban and the Ministry of Energy and Water, but now laments from afar on what could have been.

The dismay and dejection he expressed is reflective of countless other technically proficient and smart Lebanese I have interviewed who have plans and dreams on how to drag Lebanon out of its quagmire. Yet alas, zero-sum politics consistently stumps the day. The voracious personal ambitions of the antiquated zuamaa (sectarian leaders) and their paranoid distrust of each other have precluded the development of an administration that can serve this deserving nation and its capital, Beirut.

Zak Brophy is Free Speech Radio News’ Lebanon correspondent and a freelance business journalist

March 15, 2013 0 comments

The Buzz

Morning briefing: 15 Mar 2013

by Executive Staff March 15, 2013

written by Executive Staff

Economics and policy

Libya's economy grew more than 100 percent in 2012 on the back of oil production which had come to a standstill during the country's 2011 revolution, the International Monetary Fund has said.

More from Reuters

The US war in Iraq has cost $1.7 trillion with an additional $490 billion in benefits owed to war veterans, expenses that could grow to more than $6 trillion over the next four decades counting interest, a new study released said.

More from Reuters

Lebanese civil servants and school teachers intend to stage a major rally close to Rafik Hariri International Airport Friday in another bid to compel the Cabinet to pass the controversial salary scale to Parliament.

More from The Daily Star

Kurdish political leaders may withdraw from Iraq's coalition government and become an opposition bloc, after parliamentary allies of Prime Minister Nouri al-Maliki secured the passage of the 2013 budget without the participation of Kurdish MPs.

More from Reuters

Business and companies

Thirty international, regional and local experts are gathering for a two-day networking event in Lebanon to highlight the importance of corporate social responsibility in addressing the challenges businesses face.

More from The Daily Star

Lebanon’s life insurance premiums in 2012 surged by 6 percent to reach $391.6 million compared to $369.8 million in 2011.

More from The Daily Star

March 15, 2013 0 comments

Society

Why Blackberry Z10 may struggle

by Yasser Akkaoui March 15, 2013

written by Yasser Akkaoui

Since Blackberry introduced their first phone to Lebanon in 2009, I have had one by my side as an indispensible business companion. It is a serious tool that offers pragmatic and secure solutions to my fast-paced business life. And yet, resisting the move over to the iPhone has not always been easy.

The Blackberry Messaging (BBM) service has always set this family of telephones apart from their competitors. In the past year, however, I have seen the number of my friends on BBM drop from 112 down to 86 as more and more people make the move to the — let’s admit it — sexier iPhone. Not me though. With the arrival of the new Blackberry Z10, I decided to make the upgrade and embrace what is clearly an attempt to fuse the brand’s solid functionality and sophistication with the aesthetics and versatility of the iPhone.

There is surely a lot to offer in the new package. The touch screen dramatically changes the ergonomics and opens up the interactivity of the device, and the 8 mega-pixel camera with 5x zoom and 1080p HD video recording represent major steps forward. Under the surface, the device has an impressive dual core 1.5GHz processor and 2 GB RAM with 16 GB flash hot-swappable microSD slot.

Excited by the offerings of the Z10, I headed to Class in downtown Beirut to make the upgrade. However, half way through transferring my contacts, I found out the Z10 didn’t support WhatsApp or Spotify. In an instant, my flirtation with the Z10 was over. With the number of my friends, family and colleagues on BBM ebbing away, WhatsApp has become an essential communication tool. I have 1774 contacts on WhatsApp, including my children, yet only 86 on BBM. It would seem my BBM contacts almost exactly reflect the 3.5 percent market share that Blackberry enjoys.

And so it is that, despite the great advancements of this new generation Blackberry device, I will stick with my trusty Blackberry 9790 until the Z10 app developers catch-up and provide me with WhatsApp, an essential communication tool, and Spotify for my music. Then I will definitely take part in this new step in Blackberry’s mobile computing revolution.

March 15, 2013 1 comment

The Buzz

Morning briefing: 14 Mar 2013

by Executive Staff March 14, 2013

written by Executive Staff

Economics and policy

Brent futures slipped further below $109 a barrel on Thursday on a revival of concern over demand growth in top two oil consumers China and the United States, while a strengthening dollar added pressure on prices.

More from Reuters

Bahrain's central bank expects economic growth of around 4 percent in 2013, little changed from last year, while inflationary pressures are currently not a concern, its Governor Rasheed al-Maraj said on Wednesday.

More from Reuters

Lebanese civil servants are expected to spearhead the Union Coordination Committee protests, vowing to bring the already strike-crippled public sector to a complete halt ahead of a key Cabinet meeting scheduled for next week.

More from The Daily Star

Thousands of South Asian labourers working on the expansion of Muscat airport resumed work on Wednesday after authorities agreed to improve safety conditions at the site, workers said.

More from Reuters

US President Barack Obama has nominated a veteran US Middle East diplomat as ambassador to Libya, filling a post that has been vacant since Ambassador Christopher Stevens was killed in an attack in Benghazi in September.

More from Reuters

Companies and business

Saudi Arabian miner Maaden has awarded an SAR1bn ($260m) contract to Azmeel Contracting & Construction Company to build a new housing project to accommodate its employees.

More from Arabian Business

Greek energy company J&P Avax has been awarded the contract for building a gas-operated power plant in the Deir Ammar facility in Lebanon.

Big bets on Smallville

by Thomas Schellen March 14, 2013

written by Thomas Schellen

When Lebanese businessman Nadim Fakhry drives from the offices of his family-owned real estate, construction and hospitality group in the UNESCO area of Beirut to his latest hospitality venture, he traverses a main business district on the rim of the Lebanese capital along the Corniche Mazraa artery. He passes outlets of every major bank, hundreds of retailers and dozens of restaurants. What he won’t see on his trip in the bustling Cola, Barbir and Mathaf neighborhoods is anything similar to the venture he will open this summer at his destination in the Badaro district: a modern mid-market hotel.

The Smallville — playing on the appeal of the wildly successful TV-series on the adventures of young Superman — is a project with 146 guest rooms and suites, with the possibility to reconfigure it into up to 180 accommodation units. Realized by Fakhry’s company Beam Developers and to be operated by his Beirut Homes hospitality company, the hotel is a counterpoint in a gloomy time when Lebanon’s tourist count and hospitality malaise have filled the news with hotel closures, not openings.

And the project is no small fry by local standards. It will be one of the biggest hotels in Beirut and if he were to buy the land and start developing it today, “it would cost $50 million,” Fakhry claims. Think of doing that at a time when the head of the Lebanese Hotel Owners Association, Pierre Achkar, seems to have more inquiries from journalists asking about the country’s horrifically low occupancy rates than inquiries from foreign tour operators. Last month, Achkar was quoted giving estimates of 10 percent occupancy for hotels outside of Beirut. He put the occupancy rates in Beirut during the latest Lebanon promotion campaign in January and February at an estimated 45 percent. Or listen to Garrick Aird, a Beirut-based veteran consultant on tourism development, who tells Executive, “I wouldn’t advise anyone to open a hotel in Lebanon in 2013.”

Fakhry too, who is founder, chairman and chief executive of the family group — which has been active in construction for 45 years and operating serviced apartments since 2002 — sees the current timing as decidedly inopportune for opening his largest hospitality venture ever. “Two years ago the situation in Lebanon was ‘whoa’, this year it is below normal,” he says. “People say that a hotel today is a bad investment but we have to finish it, we have no choice.”

The company committed to the hotel project initially in 2006 when it acquired the plot in the Badaro district, considered an up-and-coming area of Beirut. Fakhry says he bought the plot for less than $5 million; the same space today would be priced at $17 million.

After spending a couple of years on the process of obtaining the required licenses and permits, Fakhry started construction in 2009 with a planned completion date for 2012, but extended the construction phase when tourism in Lebanon got hit by regional instability.

Coming across as a levelheaded businessman who is not in the habit of projecting marketing allures, Fakhry describes his attitude in face of the latest vagary of enterprise in this country. “One day in Lebanon the situation is normal and the next day it collapses, as Lebanese we are used to this system,” he says. In business terms, that means Beirut Homes is prepared to swing more into offering long-term stays at the Smallville to customers in this market segment as long as the more profitable short-term tourism market is in the doldrums.

A summer start

The property is scheduled to open early this summer, with basic construction already complete and fit-out and hiring/training phases for employees expected to require five months. Although Beirut Homes already operates three smaller serviced apartment projects in the Hamra and Ashrafieh districts of the capital, embarking on the Smallville operation will require some serious stepping up of hospitality capabilities. For this, the company will rely on expert consultants and create a new company that is intended to expand over time into the business of services and hotel operations, adding new hotel operations in Lebanon and possibly outside of the country.

As the family group involved private investment partners in the hotel project and on top of the portfolio of residential developments it has in its books, including a 36-story residential complex with 150 small and mid-sized apartments in Ashrafieh, the Smallville is not a single card on which Fakhry has bet.

Additional factors that work in favor of the project’s feasibility are the high value gain of the land, and the cost reduction and project value optimization opportunities. The benefits Fakhry acquired were on one hand tapping into government-subsidized loans for about $10 million, a major part of construction cost, and the chance to double the land exploitation factor for a relatively moderate fee under a now expired law supporting hotel projects.

The market demands

While Aird, the consultant and head of an offshore company that has developed a computerized solution to assess a hotel’s feasibility and cash flow requirements, is unenthusiastic about hotel openings this year and sees better opportunities for (presumably risk friendly) investors buying distressed hotel properties, he is adamant that the market for hotel developments in Lebanon is anything but glum in fundamental terms.

Based on the sufficiency of supply at the top, Aird sees no need for new luxury hotels but in the more affordable price categories, he perceives much untapped potential. “There is huge demand for good functional hotels in the two, three and four-star category and we are probably at around 15 percent of what it should be,” he tells Executive.

The business of running hotels is often misjudged in the sense that occupancy rates are not the only and often not even the most important figure for operational performance. “Who cares if occupancy is down to 40 percent? That is only one figure. What really matters is how much it cost you to build it, how it is financed, what repayments you have and what your revenue generation rate is,” he says. It should in no way be considered a coincidence that Aird’s company, XiCorp, has just developed a software solution facilitating hotel feasibility and cash flow projections.

In one investment view, a hotel may represent income-generating real estate but, according to Aird, it is far more appropriate to view a hotel “as a factory. In a pure real estate project, you only get benefit for the economy during the period of construction with a lot of leakage in terms of materials and whatever. All hotels are labor intensive… A major property of 300 to 400 rooms could not only have a direct employment of 500 to 1000 people, but knock-on benefits could easily be three or four times that for the economy.”

Recent closures of hotels that might have once been favored by beach-and-bar visitor groups bear witness to the fact that Lebanon’s hotels are caught in a maelstrom of regional risk, which impacts mostly, but not only, relaxation seekers from the Gulf region.

The Smallville in this context could be a litmus test for a price-combative four-star hotel in the vicinity of universities, hospitals, religious institutions, the French embassy, government offices and the National Museum. But can it meet its cash flow needs from a broad market that primarily is not the one of luxury or leisure?

“Given the situation, we cannot target only specific groups. Our sales office targets everybody: tourists, business travelers and companies. And our rates are very competitive,” says Fakhry.

On a national level, the country has committed one central error in Aird’s view. “One thing that Lebanon is guilty of is complacency. You [should]spread the risk and don’t put all your eggs in the Gulf basket and just sit there hammering at the same market after they put travel restrictions where none of their citizens will travel to Lebanon,” he says, adding that Lebanon should wake up to the idea that there are many other markets and many other ways of promoting.

When Lebanon’s public sector deciders are tempted to grab their next seasonal hospitality promotion strategy from the recycling bin, this sounds like a perspective to keep in mind.

March 14, 2013 0 comments

Economics & Policy

Lebanon’s underage drinking problem

by Zak Brophy March 14, 2013

written by Zak Brophy

Younger and younger people are courting Lebanon’s hedonistic bent as they turn to the bottle for a good time. The lack of a coherent alcohol harm reduction policy means Lebanon’s youth are oftentimes ill-informed, exposed to ubiquitous alcohol advertising and able to access an abundant supply of cheap booze.

Between 2005 and 2011 the number of alcohol drinkers between the ages of 13 and 15 in Lebanon rose almost 40 percent according to the Global School Health Study, a collaborative effort between national governments, the World Health Organisation and the Center for Disease Control in the United States of America. Now just under 30 percent of children between these ages are alcohol drinkers, the study found. The likelihood of students in this age range having been drunk increased one and a half times over the same period.

“National alcohol harm reduction efforts are poorly defined and in almost all cases weakly implemented,” said Dr. Lilian Ghandour, Assistant Professor of Epidemiology and Biostatistics at the American University of Beirut. Based on her research regarding the rising risk of alcohol abuse among young people from her own data, and that of the Global School Health Study, Ghandour has secured a three-year $260,000 grant from the International Development Research Center to identify a specific national alcohol control and harm reduction policy package.

“The data is showing us that not only is the frequency and quantity of alcohol use increasing but also that it is among such young people. We are talking about age groups that are not even meant to have access to alcohol,” said Ghandour. Initial data suggests that 25 percent of underage drinkers are getting their alcohol from stores while nearly half obtain it from the family home.

The existing legislation in Lebanon relating to alcohol control policies date back to law 625 from 1985, and is only partially implemented in any case. “The laws are outdated,” said Ghandour, “a bar will get fined just $4 to $10 for serving an underage customer. That will normally be cheaper than the drink itself. It can hardly be considered a deterrent.”

The main pillars of alcohol harm reduction policies are normally taxation; marketing restrictions on advertising and sponsorship; education; drunk driving laws and minimum drinking age regulations — in Lebanon all are notably lax.

Excise taxes on alcohol are negligible, ranging from $0.04 per liter of beer to $0.15 per liter of spirits, with the law last updated in 2000. Sales permit fees are also low, ranging from $18 per brand per annum for points of sale to $600 per brand per annum for big distributors.

Lebanon integrated health into its curriculum in 1997 and the formal Lebanese Integrated Health Curriculum includes a discussion on alcohol and its effects in the ninth grade. However, only 36 percent of ninth graders confirmed having been taught in school about the dangers of alcohol and other drug use, according to the 2005 Global School-Based Health Survey in Lebanon. “There is nothing from the government — no campaigns or anything,” said Zeina Gebran, vice president of Kunhadi, a non-governmental organization working on drunk driving and alcohol awareness.

While education fails to engage Lebanese youth on alcohol safety, advertising targeting the young audience is highly prevalent. Warnings that drinks are “not for under age 18” or to “drink responsibly” are largely ineffective. “Through our daily contact with youth through our prevention activities, we can say that these commercials are very appealing and youths aged 11 to 14 have clearly expressed to us their eagerness to try out these drinks. This is why advertising alcoholic beverages to youth should be heavily regulated and should be re-enforced,” said Ghace Khawam-Sarrouh, senior program officer in the prevention department at Oum el Nour – a rehabilitation and drink and drug prevention organization.

With regard to drunk driving, there are no reliable statistics for the simple reason that there are few checks. “Even when there are accidents they will record if there has been dangerous driving or speeding but not drink driving. There is almost zero implementation of this law,” complained Gebran. According to the Youth Association for Social Awareness (YASA), whose aim is to raise awareness about road safety, more than 700 people die in car crashes every year in Lebanon, of which they estimate around 200 are due to drunk driving.

The AUB project aims to provide an evidence based alcohol control policy package. It will then take civil society, academia, government staff and society at large to ensure that the theory gets implemented in practice and the health and wellbeing of Lebanon’s youth is protected.

March 14, 2013 0 comments