Executive Magazine

Battle of the Malls

by Nabila Rahhal March 13, 2013

written by Nabila Rahhal

ABC Dbayeh: The Veteran

Established back in 1979, ABC Dbayeh was one of Lebanon’s first department stores and is part of many a childhood memory — a fact that the ABC team proudly promotes. But, as any pioneer, ABC Dbayeh had to grow with the times and keep up with the competition or risk being left in the past.

Tania Ezzedine, head of retail and marketing at ABC, explains that, historically, the motivation to expand the aging department store was driven in part by ABC’s strong customer relations program, which allowed them to tap into shoppers’ concerns and desires. ABC Dbayeh had its first major renovation in 2006 with the construction of the 8,000 square meters (sqm) children’s floor at the basement level, which included a variety of kids fashion brands and a play area (recently expanded again). Renovations then moved up floor-by-floor, with little tweaks in each until the final remodelling in the summer of 2012: the addition of the food court terrace, the movie theater and other extended sections. Stores remained open throughout the renovation process, and work was done at night so as not to disturb shoppers.

Is it a, b or c?

Finally, what started as a 17,700 sqm department store grew into a 32,500 sqm hybrid store — the term the ABC team uses to describe the Dbayeh branch: “We do not consider ABC Dbayeh to be a department store because of its huge size and the presence of the newly launched movie theaters and renovated food court, which you don’t find usually in department stores,” explains Ezzedine, admitting however that in terms of fashion layout, at least, ABC Dbayeh is still considered a department store. Not quite a mall, and not a department store anymore, ABC Dbayeh seems to hover somewhere in between.

On top of the physical reconstruction, ABC stores also underwent an image revamping to portray a more modern and contemporary feel. The ABC colors changed from orange and blue to a more stylish silver and purple, and the ABC Dbayeh changed from a heavy structure to a brightly lit and futuristic one. “We chose our brands deliberately to move our positioning into a more fashionable and trendy one. We upgraded our (in-store) magazine and worked on our brands, to give them more of an accessible fashion mix,” says Ezzedine.

Though the ribbon-cutting for ABC Dbayeh’s latest renovation in May 2012 came at a tough economic time for the country, Ezzedine says footfall has increased significantly, peaking during the holiday season and is expected to reach around 5 million customers per year. At this rate, ABC Dbayeh is expected to return investment on the latest renovation in five to seven years.

As they stand today, ABC stores, and according to Ezzedine, target families with young parents between the ages of 35 and 45, and women shoppers of the medium to medium-high income level. This is evident from the choice of labels available in the store, including Sandro and Mage for women, Ralph Lauren and Tommy Hilfiger for men, and Tartine Au Chocolat and Kenzo for children. High budget shoppers told Executive that ABC is where they head when they want to buy quality brands.

At the operations level, ABC is both a retailer, having bought brands in several departments, and a landlord, leasing parts of the department store according to a percentage of sales or fixed monthly fee. “What matters to us most is the brand: if we can buy and operate it, then fine, and if not, then we lease it,” explains Ezzedine. ABC’s leasing prices are among the most expensive, but Ezzedine maintains they are in line with the footfall ABC provides and the profit its name generates.

At approximately the same time that ABC Dbayeh began external renovations, Le Mall was opening for business just a short walk away. In this situation, nerves on behalf of ABC Dbayeh would be understandable, yet management there insists that Le Mall, with its different brand mix and positioning, is complimentary to ABC Dbayeh and that, together, the two shopping outlets have created a badly needed hub in the region.

This love story is certainly true when it comes to fashion; shoppers Executive interviewed had a distinct preference for one of the two outlets and generally fell into the target groups set by the respective mall operators. Where the two stores get into a tiff is in the entertainment sector, as they both have premium quality movie theaters and the most competitive food and beverage outlets in the country.

What ABC Dbayeh has that Le Mall currently doesn’t is the loyalty card, which offers cardholder benefits relative to points collected from purchases at ABC. This may help encourage loyalty cardholders to watch a movie or eat at one of the ABC outlets instead of at Le Mall, where they will not be adding any points to their card. ABC currently has 120,000 loyalty cardholders.

While ABC is well established in Lebanon, Majd Al Futtaim Holding’s City Center is opening in Hazmieh in April and with competition stirring among other mall operators, ABC cannot rest on their laurels. This, perhaps, is the reasoning behind the $200 million plans to open a 170,000 sqm ABC mall in Verdun by 2017, a joint development with Verdun 1544 Holdings.

Whether any of the new kids on the block will play the role of usurper is still uncertain, one thing is for sure: the mall operations business is on the rise in the country and ABC is no longer the only player in the field.

Le Mall Dbayeh: The Upstart

When you have a company that owns many of the most successful fast-moving fashion outlets in the country, it is the logical next step to create venues in which to house them all. Acres Holdings, a retail real estate company established in 2006, is a subsidiary company of Azadea Group and is behind Le Mall, the most recent chain of malls to open in Lebanon.

Acres Holdings’ first project, in 2009, was to breathe new life into the then Habtoor Mall in Sin El Fil; they remodeled and rebranded it into the first Le Mall. Their second venture was Le Mall Saida in 2010, the city’s first mall. Finally, in a daring move, Le Mall opened in Dbayeh in the summer of 2012, a few meters away from ABC.

Georges Kamal, chief executive officer of Acres Holdings, is the first to admit that it seems odd for a mall to choose a venue at a walking distance from a big player in the area. There was also the risk of cannibalization, according to Kamal, as many Azadea brands have outlets in Kaslik, close to Dbayeh. However, he explains: “ABC Dbayeh today targets the A-class buyer, while City Mall targets the C-class. No mall in the area caters to the B-class consumer.”

He bases these statements on the research his company carried out in the region falling between the Antelias Bridge and the Zouk area, which shows that though the catchment area has a high population density, 80 percent of their purchasing power is considered to be of upper C level and B levels. The classes are based on spending power, with A being the most affluent and C the least.

Kamal explains there are two main considerations when choosing a location for a mall: the catchment area population density and the residents’ purchasing power, both of which were in line with the company’s vision for Le Mall Dbayeh.

Le Mall Dbayeh targets the B class consumer between the ages of 15 and 35, and is therefore — theoretically at least — not in direct competition with ABC, which targets an older, more affluent set. Indeed, a visit to Le Mall Dbayeh on a Friday afternoon feels like a walk in a high school playground and young shoppers Executive interviewed spoke enthusiastically of their favorite shops at Le Mall.

Kamal admits that the cinema theaters and the food court are the areas where ABC and Le Mall have similar offerings and so must be in competition. Yet, he plays the youth card again and says, “In our food courts, we created a very strong and consistent tenant mix targeting the C and B class consumers between the ages of 15 and 35. Our indoor outlets such as Classic Burger, Hot Dog and Beyond, Olio and Sotto prove that.”

Showtime sells

As for the cinemas, the numbers show both theaters are performing along the same lines (roughly 400,000 visitors per year). “It seems we are both creating a new market for movie goers as the numbers in other theaters in the area have not decreased but new people are coming to our venues, and so it seems malls are playing a social role in the area,” Kamal says.

Though Azadea is a sister company, Acres Holdings does not own any brands itself and acts solely as a mall owner and operator following a rent formula of either percentage on sales or rent, depending on which is higher. All leasable space in Le Mall Dbayeh is now taken, and Kamal says the waiting list is long. Kamal, describing the relationship between Azadea and Acres Holdings says: “For us, the synergy between the two companies is great because we open a mall with an already very high occupancy. Plus, Azadea has brands which create traffic in the mall, and increased traffic means increased sales, which is good for Azadea and for us because we take a percentage of sales.” Azadea occupies 20 to 40 percent of leasable space in Le Mall developments.

The biggest challenge for Le Mall Dbayeh, according to Kamal, is the parking situation; all their three parking lots fill to capacity on some weekends and holidays, with the valet service in full action mode. “The difference in traffic between weekends and weekdays is challenging by itself but you cannot create a parking lot solely for the extra weekend traffic,” says Kamal.

Though it is still too early to have any tangible figures on how well Le Mall Dbayeh is performing, Kamal uses the benchmark of other Azadea stores in the country to say that Le Mall Dbayeh outlets are performing as well as the best of those brands in major shopping areas in the city, such as Verdun and Beirut Souks. Le Mall is expected to reach the traffic flow of 5 to 6 million visitors per year and return its investment in five years.

Acres Holdings is brimming with plans for the future. Having the advantage of testing the market potential through its Azadea outlets, Acres Holdings has deemed the areas of North Lebanon and the airport road as lacking in quality malls and is planning to establish two more malls in Lebanon within eight years.

March 13, 2013 1 comment

The Buzz

Morning briefing:13 Mar 2013

by Executive Staff March 13, 2013

written by Executive Staff

Economics and policy

Lebanon’s Union Coordination Committee vowed to take protests to the Beirut airport and seaport Thursday and Friday as thousands rallied at the Education Ministry and across the country.

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Iraq's Oil Ministry has approved France's Total as one of seven international oil companies qualified to bid on a massive oil and refinery project licensing round to be held later this year.

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Companies and Business

A new index will track the number of women on the boards of publicly listed companies across the region.

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March 13, 2013 0 comments

Comment

Yemen on a knife edge

by Farea al-Muslimi March 13, 2013

written by Farea al-Muslimi

In a country where American drone strikes have killed hundreds of civilians and Al Qaeda in the Arabian Peninsula roams free in many parts, it is ironic that on a recent visit to the governate of Al Dhalea in Yemen's south that my American companion was often more welcome than I — for my own safety, I repeatedly had to hide the fact that I was from Yemen's north.

Al Dhalea can effectively be considered the capital of the southern secessionist movement, and last month there we heard of northerners being attacked and beaten, their stores being burned or forced to close and them fleeing for their lives. Blind hate for the north was a near-palpable, collective social psychosis.

Yemen's north and south have long held mutual animosities — helped in no small part by the 1994 civil war which the north won — but in recent months anti-northern sentiments in the south have soared. The catalyst for the recent flare in violence was government security forces opening fire on a protest in the southern city of Aden that had been organized as a counter-demonstration to a pro-government rally; dozens of southerners were killed or injured, public anger spread around the southern governates and the southern separatist movement called for civil disobedience, resulting in most public agencies and private business going on strike.

While the attacks against northerners were not systematically organized by the southern movement, it is precisely the uncontrollable, spontaneous nature of the violence and the common availability of weapons in Yemen which makes the incident frightening. More importantly, some actors allied with the southern movement spoke publicly about “the right of southerners to defend themselves” — a dangerous and irresponsible statement that was later condemned by the majority of the movement's leaders, but it is not at all clear how long these cooler heads will prevail.

In and around Al Dhalea people speak about their local geography in terms of areas that are “liberated” and “not yet liberated”, with the frequent military checkpoints and bases in southern governates only reinforcing the idea that the south is living under northern occupation. Armed clashes between southerners and the military are occurring with increasing frequency. Many areas are effectively independent, with local stakeholders reporting to southern leaders abroad — such as Ali Salem al-Beidh, the former vice president of South Yemen before the 1990 unification, currently living in exile in Beirut— on a daily basis, as if there were no central government in Sanaa. In these parts the upcoming National Dialogue conference, meant to lay the basis for national unity between Yemen's many stakeholder, is relevant to no one.

Happenings in the north are only exacerbating the problem. In the post civil war period a number of northern leaders blatantly exploited the south for land and resources while leaving the region impoverished. The re-emergence of these leaders to positions of prominence in the current central government is only heightening southern distrust — it is hard to convince southerners that things have changed when former President Ali Abdullah Saleh holds rallies in the capital as if he were a candidate in the coming election, rather than a disposed dictator.

Southerners largely do not see that the ambivalence and neglect shown to them by the central government has changed much under Saleh's successor. President Abd Rabbu Mansour Hadi's sudden visit to Aden on February 22 and his seeming concern for southern issues may have raised the hopes of some, but these were crushed under the security forces' continued use of excessive force and Hadi's failure to implement change on the ground.

The south has been Yemen’s biggest political problem for many years. Protest movements began here in 1994 when military and civic leaders who were sacked demanded their jobs back, which later developed into far broader, if unorganized, movements demanding independence from the north. Some segments of the south do, however, see some form of federalism as the answer and are willing to take part in the larger transition Yemen is undergoing. Supporters of even this train of thought see the precarious situation today as decisive for what will come next for the south, and what happens in the south will inevitably impact the stability of Yemen as a whole.

Farea al-Muslimi is Executive's Yemen correspondent

March 13, 2013 0 comments

Economics & Policy Lebanese in advertising

Grey’s Eric Haana on advertising in 2013

by Maya Sioufi March 12, 2013

written by Maya Sioufi

With more than a decade of experience at American advertising and marketing company Grey, owned by British-based multinational ad agency WPP Group, Eric Hanna was appointed over a year ago to head the company’s Middle East and North Africa region for Grey based in Dubai. Executive spoke to Hanna to understand the challenges he has faced since taking over as well as his thoughts on the current state of the advertising industry.

The top advertising agencies in the Middle East ranked

You have been heading Grey Group MENA for just over a year now. What are the key challenges you have faced since you took over?

I am very familiar with the agency as I spent 1999 to 2009 with Grey. Then I moved with WPP to MediaCom, to set it up in the region for about two years and then I came back to Grey. The challenges are mainly to create an edge for the agency across the region. The reality is that all top networks today are very competitive and invest heavily behind their brand, and today differentiation in terms of services is very minimal. What makes an agency different is its people, so choosing the right people is key. When we go to meetings, it is not only competencies that stand out, but there is also chemistry with whom we are working with. In the absence of any rational difference, chemistry becomes an important factor in the relationship or in starting one.

How would you define the past year with three adjectives?

Challenging, changing and creative.

What campaign are you proudest of so far?

Act for the Disappeared, [a 2012 campaign for the Lebanese association which aims to highlight the plight of thousands of missing Lebanese], an initiative driven by the team in Beirut. It was very much an integrated campaign including TV, outdoor and print but also activation online with Facebook as well as marches in [front of the] Parliament. It’s a cause that rings a bell with Lebanese in general, especially those who didn’t know about it, those who are young and were not exposed to the war.

What are your expectations for the performance of the advertising industry this year?

I am optimistic because there are big opportunities in the key driver markets: Saudi Arabia, the United Arab Emirates and Qatar. When it comes to the Levant, the situation in Syria does not help. We hope from a human point of view that it will settle as soon as possible in whichever form it takes, and then [we] will have better [expectations for] the Levant region. For the time being, because of what is happening in Syria, it is dampening the mood in the area.

Where do you expect most of the growth to come from in 2013?

Digital advertising is still small and the lack of research related to spending, efficiency and return on investment [for digital] is not helping. A lot of marketing directors from the client side are still relying on traditional media. There is a sense of pride that it is very visible in traditional media: ‘Have you seen my TV commercial?’ etcetera. From the client side, you don’t have that knowledge that you have back in the West, where a lot of brands have switched and rely more and more on digital. I think the ‘Arab Spring’ revealed that digital is a huge opportunity for people because a lot of young people are on the net. The challenge would be to find solutions and convince clients that this is one of the serious channels to consider going forward.

What would be your advice to young graduates looking to enter the advertising industry?

The first thing is: don’t look for a job, look for a career. It’s a very cutthroat industry. It doesn’t rely on longevity of service. It’s reliance on oneself. People are the asset of an agency. The better they can express themselves and show what they are made of, the faster they can grow. If they go in with the mentality to get a job, ultimately they will go nowhere.

March 12, 2013 0 comments

Economics & Policy Lebanese in advertising

Memac Ogilvy’s Edmond Mountran on Lebanese dominance

by Maya Sioufi March 12, 2013

written by Maya Sioufi

One of the pioneers of the advertising industry in the Middle East, Edmond Moutran — commonly referred to as ‘Eddie’ — kicked off his career in Bahrain in early 1973 by joining Beirut-based advertising agency Intermarkets. Eleven years later he set up his own agency, which eventually became part of the British-based multinational ad agency WPP group. Executive sat with Eddie, chairman and chief executive of Memac Ogilvy, in his Beirut office to understand why he refuses to be part of the MENA Cristal Festival, as well as to discuss his thoughts on the current state of advertising and why he believes Lebanese are dominant industry players in the region.

The top advertising agencies in the Middle East ranked

Why are you not participating in the MENA Cristal Festival?

I can’t see why a Frenchman who has nothing to do with the industry in this part of the world should come and tell us which one of our advertisements is better than the other. We should carry our own awards. I honestly believe that the affair of MENA Cristal in Lebanon is nothing but commercial with commercial benefits and dubious decisions. After several debates I had with people at Ogilvy, I was convinced that some award [ceremonies] are very honest and uplift the product to the benefit of the client. I wanted something of higher caliber so we participated in Dubai Lynx [International Festival of Creativity].

What is the biggest trend in the advertising industry going forward?

In the next few years, the trend is social media. An agency that does not master social media will be dead in a few years. It’s the name of the game. Social media today is what TV was when it started.

How do you expect the industry to perform in 2013?

I see it as a tough year. It started tough. I am aiming for 10 percent growth this year but I am scared. I’d be lying if I told you I’m not worried. I’m very worried. We will have to be clever and strong.

What plans do you have for growth this year?

I have no plans for geographical expansion, except for Baghdad at the moment and strengthening Erbil, but you never know. I am looking at one or two small agencies because we need the talent.

Why are the Lebanese predominant in the advertising industry in the region in your opinion?

As the Gulf people became educated, the government grabbed them to work, as they needed the workforce to build the infrastructure, and after the government, the big institutions from banks to insurance companies, people with more money than ad agencies, started grabbing young people. When it came to the agencies, we could not compete with the big boys because [our industry involves] hard work and little money. The Gulf people have a choice, either work for a bank and earn X or work for an agency, [put in] 12 to 16 hours a day and earn half of X. So there was no contest for the workforce. It was practically impossible to recruit locals. During the [civil] war in Lebanon, there were lots of young people coming out of universities. They were creative and advertising is a sexy business so they stayed close to it, and that’s where we are.

What would be your advice to young graduates looking to join the industry?

Take it easy. Learn faster than you earn. Kids are obsessed with salaries these days. They want fast salaries so they spend it fast. In my generation, we lived to work. Today’s generation, they work to live. When I started I was doing 16 hours a day. I didn’t get here because of my parents or good looks. I got here because of hard work. Today, young people can teach themselves the business; that’s the beauty of the web. You can become an expert because of the web. All you have to do is read. With knowledge comes experience, and experience is a slow cooked meal.

March 12, 2013 0 comments

Business

‘Not everybody can be an entrepreneur’

by Joe Dyke March 12, 2013

written by Joe Dyke

Omar Christidis is the founder and chief executive officer of ArabNet, the leading space for debating digital growth in the Middle East. The organization’s annual Beirut conference on 20-22 March is expected to be the largest gathering of digital professionals in the region, with over 1,200 expected attendees. Christidis spoke to Executive about Lebanon’s answer to Silicon Valley, Windows 8 and why there may be too many digital entrepreneurs.

What should we look out for at ArabNet 2013?

The event this year is more focused on the digital creative sectors and on Lebanon and the Levant more broadly as hubs for production in the digital sector. What I mean by production is development, design and creation — this is where we have a tremendous amount of talent and relatively affordable labor. [The Levant] is where we see a lot of companies are locating their production hub — whether it is advertising agencies, mobile development hubs, or even content portals that are targeting Saudi Arabia — they have their staff in Lebanon, Egypt or Jordan.

So we are focusing more on production of creative talent. We have held development days focused purely on technical workshops — this year we have expanded that. We are bringing in designers as well to do workshops focused on building better mobile products ranging from really specific design-focused workshops on branding and typography… to building computer games.

There seems to be a heavy focus on Windows 8 at the conference. What is your assessment of it and how might it change the market?

What we want to give people is both technical sessions about building better products and more functional sessions about user interface. When we were talking with Microsoft they wanted more of a technical session around building for their platform.

Right now this is a big problem for them. Today the main platforms that you see people building for are certainly [Apple’s[ i0S and [Google’s] Android. Windows, with Nokia, are trying to push their platform as a way to grab a bigger share of the market.

The end game is not clear yet. They are up against tough competition but they have done some interesting things with constituency across multiple screens and that is really important in terms of being able to develop. People today expect to be able to use their computer, their tablet and their phone and have seamless web experiences.

In the past two years we have seen really encouraging signs in the development of the digital sector in Lebanon, with the creation of the Beirut Digital District (BDD) and Cloud 5 providing space for developers. Are we beginning to see a ‘Lebanese Silicon Valley?’

I don’t like the phrase but certainly there is a boom and the boom is driven by the big players that are moving online and stimulating the growth of the digital sector. I think that both Cloud 5 and BDD moving into the sector aggressively is an indication of a commitment by big companies toward the sector. Also it gives options to entrepreneurs and options to companies and that is always good. So if we have two competing places that are looking to foster digital and providing infrastructure and giving good indications of growth then it is a strong sign for the sector in Lebanon.

The Minister of Telecommunications Nicolas Sehnaoui is seen to have helped push through some improvements in infrastructure in the past two years. What further steps are necessary for the development of the sector?

I am a big fan of Sehnaoui. I have to say that he has won over a lot of people in the digital sector and part of it is his personal commitment to actually engaging in grass roots events, which is something that you don’t often see from a minister… So from that respect I highly commend him.

What do we still need now? I think Lebanon’s problem has always been and will continue to be its stability. It is very difficult to build a hub of activity and be able to attract clients and investors to a market where there is instability.

Infrastructure is certainly still a problem. I pay an absurd amount of money for internet connectivity; I could hire a full-time staff member for the amount of money that I pay and I don’t even have great internet. We recently ran an event in Riyadh, we came back and wanted to upload our content. Some of our partners also shot videos and all of their content was up before we could even upload our first couple of videos! I appreciate efforts have been made but I think there is still a lot of room for improvement.

Also [I would like to see] tax breaks for entrepreneurs and for digital companies. This is something they have been cooking for a long time and I would like to see this happen. But I don’t think the biggest problems are policy-related.

You left Lebanon at 17 to go to America and returned a decade later. One of the biggest issues facing the sector is that many talented Lebanese in digital leave the country young. With the positive signs in the sector, can we keep people in Lebanon?

Everybody today wants to be an entrepreneur and nobody today wants to work for anybody. It is almost like we have created too much hype around entrepreneurship and maybe there is need for a bit of realism around what it takes to not just build a product but run a business. The kind of experience in hiring and firing and building organizational structure and selling to clients and developing your growth strategy — all of these things that are really challenging for someone with little experience to do. There needs to be a dose of realism.

A lot of Lebanese talents are not here — they are gone, they leave very quickly, and the ones that are here want to start their own gig after five or six years. The problem is hiring that middle management to be able to take your company and grow it.

I did a session with a bunch of established Lebanese [digital] entrepreneurs … and everyone was moaning about the fact that there are no developers. The first tranche of developers get sucked up by the Googles and the Microsofts of the world, the second tranche get sucked up by Murex and what’s left is slim pickings. I can say the same about business people – the first tranche are sucked up by Booz and Co. etcetera so as a company here you are not only competing for local talent, [but also] agencies in Dubai are coming to source talent here.

One of the unique features of Lebanon is as a talent hub. We are doing a lot of activities to try to promote Lebanese talent but it is a challenge as a lot of Lebanese talent is quickly whisked away by bigger companies offering Gulf wages; which are very difficult to compete with within the Lebanese framework. So you end up searching a lot, interviewing a lot of people, finding someone who is disillusioned with life in the Gulf or doesn’t want to leave here or working with fresh graduates.

With regards to Arabic language online, what are the trends and how fast is growth?

Good question. How do we even measure this 1 percent of Internet content that is in Arabic? There is huge variation between the numbers that people give out — no two statistics agree on anything — whether it is online ad spend in the MENA or the percentage of Arabic content online.

But it is not Lebanon or Dubai that is going to grow Arabic content online; it is going to be driven by countries like Egypt and Saudi Arabia. They have the biggest suppliers of Arabic content and demand for Arabic content.

What I see is a move to video. We are moving away from the text web to the picture and video web. One of the biggest media for online consumption in Saudi Arabia is video, that is the hot thing. It is among the top countries globally in terms of Youtube consumption per capita. You have these amazing comedy shows that are created by young Saudis. These guys are commenting on everything from arranged marriages to driving. They are young Saudi celebrities, they are huge media hits and their videos get over a million views.

March 12, 2013 0 comments

Finance

Lebanon’s banking sector still well-fueled

by Maya Sioufi March 12, 2013

written by Maya Sioufi

The country’s engine is still running. Despite all the pressures that the Lebanese banking sector faced last year, they still managed to grow their deposit and asset base and extend their lending arm to the country’s private and public sectors. Their profits are not as rosy though.

Lebanon’s domestic bank assets recorded annual growth of 8 percent last year to $152 billion, about three and a half times the size of the economy. The growth is slightly below the 9 percent registered in 2011 and falls short of the 14 percent average growth of the past five years, but given the issues that the sector is dealing with — upheaval in neighboring Syria, instability at home and increased international scrutiny, to name a few — this asset growth is welcome news. Deposits flowing into bank coffers also rose 8 percent — in line with the Central Bank Governor Riad Salameh’s expectations — to stand at $125 billion, 82 percent of the sector’s assets. This growth is commensurate with that of 2011 and down from a five-year average of 14 percent. “Banks are still attracting deposits because the interest rates offered are higher than the ones in Europe and the United States,” says Marwan Mikhael, head of research at Blom Bank. “The good thing is that this increase was enough for the banks to finance the government and the private sector at the same time without a crowding out [effect],” he adds.

More loans, less profits

Outpacing deposit growth was lending with a 10 percent increase; this is down from 13 percent in 2011 and the 18 percent average growth of the past five years. However, given the country’s dire economic conditions, this growth is still encouraging. The vast majority of these loans, 89 percent, went to the residents. “It was just more of the same: tepid deposit growth, margins stable, interest income growing [by] mid-single digits, fees flat to down and revenue generation offset by provisions,” says Nadim Kabbara, head of research at FFA Private Bank.

Pursuant to the conservative nature of the sector and to hedge against the adverse impact of instability at home and in neighboring countries, mainly Syria and Egypt, banks continued on taking provisions last year with the ratio of provisions to doubtful debt reaching 79 percent. “They have taken quite a bit of provisions for Syria and I don’t think it will be that material going forward. The fact that the language [of management at local banks] changed from ‘we don’t know what is happening in Syria’ to ‘we want to be ready for when Syria comes back’ is a bit more positive,” adds Kabbara. Another indication of the resistant quality of the sector’s balance sheet is the ratio of non-performing loans to total loans, which stood at 3.3 percent last year, down from 6.8 percent in 2011.

The less cheery picture comes from the profitability of the banks. While the consolidated figure of the total banking sector was not yet available as Executive went to print, the results of the five listed banks, including the country’s three largest banks, show a contraction in profits. Pressured by the regional and domestic instability, which compelled the sector to prudently take specific and general provisions, the consolidated profits at Lebanon’s five listed banks — Bank Audi, Blom Bank, Byblos Bank, Bank of Beirut and BEMO Bank — registered a 2 percent drop last year to stand at $966 million, down from a growth of 2 percent the previous year. These profits exclude the $44.5 million extraordinary gain that Bank Audi booked from selling 81 percent of LIA insurance; including the sale, net profits were up by 2.4 percent to $1 billion. Assuming these five banks reflect the performance of banking overall, 2012 would be the second year of contraction for profits of the banking sector. Net earnings dropped 5 percent in 2011, the first drop in nine years.

Future forecast

For 2013, Mikhael doesn’t expect provisions to hit profits, as “there are not much left to be taken,” he says. As regional instability persists and as the country’s economic growth remains subdued — with the International Monetary Fund expecting the economy to grow by 2.5 percent this year following a 2 percent growth last year — the banks are set for another challenging year. Crisis management seems to be the name of the game. “If you can try to forecast what provisions could look like, you can have an idea as to what profits should be. At the end of the day, banks don’t want to show declining profits; confidence in the banking sector is paramount,” says Kabbara.

“The main challenge for banks now is to continue on growing internally and to expand regionally by finding the main places where banks can diversify their sources of income,” adds Mikhael.

Be it Turkey, a country that Bank Audi and BankMed have taken a bet on; Australia where Bank of Beirut is venturing; Iraq where Byblos is advancing, or any other country with lucrative growth prospects, banks are going to have to act fast and diversify their sources of revenues in order to overcome what looks to be another testing year for the country’s economy.

March 12, 2013 0 comments

The Buzz

Morning briefing:12 Mar 2013

by Executive Staff March 12, 2013

written by Executive Staff

Economics and policy

Israeli restrictions and closures coupled with the worsening fiscal situation of the Palestinian Authority is causing "lasting damage" to the competitiveness of the Palestinian economy, the World Bank warned on Tuesday.

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Toppled president Hosni Mubarak, awaiting trial over his role in the deaths of protesters, believes Egyptians should rally around his Islamist successor and end violent protests, his lawyer said yesterday.

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For the first time since 2006, Lebanon recorded a primary deficit after the Cabinet of Prime Minister Najib Mikati raised the salaries of civil servants and military personnel at the beginning of 2012.

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Companies and business

The GCC banking sector continues to remain robust, with assets increasing by 11 per cent in 2012 to $1.47 trillion, according to a report.

Striving for real Middle Eastern journalism

by Philippe Skaff March 12, 2013

written by Philippe Skaff

It is no secret that newspapers and magazines are losing their economic viability. Advertising budgets have been slashed due to numerous factors, from consumer skepticism toward conventional advertising to the new and innovative, tech-oriented channels and the recent trend in experiential marketing where consumers interact with products. Traditional ink on paper is living its last days, and it is becoming increasingly difficult to maintain the large staff required for quality news gathering.

Part of the decline is due to the resistance of the modern consumer toward top-down messages. Eventually, newspapers and magazines will become elitist, intellectual tools for the select, information-rich few, leaving the masses and the middle class in front of their screens — mainly their television screens. This is where the values of democracy are most at risk: the more people watch TV and the more they become mass media-rich, the less information they actually get.

On the face of the matter, all TV models draw from the American model. Around the world, we see the same Hollywood (or Hollywood-style) films, the same soap operas, the same comedy shows, the same sexy announcers with emphasis on youth and beauty, the same sporting events, etcetera, and therefore we come under the illusion that globalization is at work, right down to the very core of journalism.

Western journalism is, and traditionally has been, at a distance from politics because it emanates from societies that fervently value the separation of journalism from political interests. While total independence is hardly ever achieved, the problem is significantly less acute than in the Arab world, where, behind every TV station, newspaper and magazine, there is a man of immense political and/or financial power and influence, or even a whole country with a heavy political agenda. In such climates there cannot be independent journalism. In most Arab countries, the typical citizen has gone straight from a lack of information (from state-generated and operated media) to what he or she now sees as freedom of information. In fact, what we are seeing is nothing more than diversity of manipulation.

Make news, not war

The presence of multiple agendas, even contradictory ones, is no guarantee of truth. They all serve to maintain an illusion of transparency and freedom of speech. In fact, TV stations have replaced the party system in the Arab world, and, to some extent, sects and religions as well. We are still waiting for real investigative journalism.

Traditionally, they say wars make TV stations: the Gulf War made CNN, the second invasion of Iraq made Al Jazeera. But look around: we have reached a stage where our stations are making the wars, not the other way around. And in today’s terms, that makes them a smiling, young, sexy Big Brother.

Things are a little different on the Internet, which has spawned a distinctive form of journalism, or rather anti-journalism, through the form of blogs. These do-it-yourself statements usually state unchecked facts that generate unfounded opinions, cluttering the air — and our minds — with rubbish. The Internet steadily undermines journalism and its values, encouraging the spreading of rumors without any investigation. It can at times serve as a voice of the people, but if people are already contaminated or even brainwashed by Big Brother in a society where journalism is still captive, corrupt and/or clouded by bias, it is merely a reflection of mediocrity.

If democracy is to put down lasting roots in our region, we have to start by separating political and confessional interests from journalism as much as we can. The job of the news media is to hold public figures to account, not to promote certain ones and/or tear down certain others. Real journalism cannot be part of either the government or the opposition; it has to be impartial and independent — or it ceases to be journalism. And without journalism, there can be no genuine democracy.

Philippe Skaff is the chief executive of OB-3 and former CEO of Grey Group MENA

March 12, 2013 0 comments

Economics & Policy Lebanese in advertising

Media International Service’s Marwan Kai

by Thomas Schellen March 11, 2013

written by Thomas Schellen

Established as an independent media agency in 1981 and preparing to celebrate its 20th anniversary of operating from Dubai this year, Media International Services (MIS) has cultivated market niches where it could sustain its stance in the face of bigger players sweeping the regional advertising game. Executive sat down with Marwan Kai, chief executive of MIS.

The top advertising agencies in the Middle East ranked

How do you evaluate 2012 and what do you expect from 2013?

The year 2013 looks to me quite similar to 2012 in terms of volumes and trends and the way the business is evolving. The industry continues to be affected by the political situation in the Arab world, and growth is becoming very challenging to achieve for everybody.

In terms of geography, where do you see things going?

Many people, including MIS, had a lot of hope in the Egyptian market, and that market has been badly affected. The Levant area is facing lots of uncertainties and the investment there has gone down rather than up. We are all aggressively searching for somewhere in the region where proper growth can happen.

That does not sound like a walk in the park for an independent media agency…

It is becoming more challenging year after year. Companies have to be quite focused on their offerings, and at the same time, diversify their offerings. More importantly, they need to offer clients and advertisers a properly integrated solution across different platforms. That is the way we are moving forward as far as MIS is concerned.

What were the most important contributions that you see yourself having made, as a Lebanese media player to regional advertising?

Of two important milestones that MIS has contributed to achieving in this business, the first is working for international media, and I was lucky to be one of the first players to enter that arena. We started representing CNN 14 years ago at a time when the level of business for international media was very small. We have put international media business very much on the map with clients and agencies and institutions here. The second milestone that MIS has contributed to was the growth of cinema advertising.

In this context of institutions and countries advertising in international media, how do you assess projects like Dubai’s campaign to win Expo 2020?

Expo 2020 is a very smart move and will contribute to further growth. International media like CNN can only stand to benefit from such initiatives coming out of this region. With European economies struggling as they are, it is only logical that places like Dubai and Abu Dhabi are able to attract events like the Expo and Formula One.

Events like Expo or the World Cup will require more than a run-of-the-mill advertising strategy. Will the regional media industry be up to the task?

These are very sophisticated global events and they require sophisticated media support. I think the business of publishing, of media and advertising, is evolving in the Gulf, and the gap that existed in the past is getting smaller and smaller. I have no doubt that the region will have the expertise to cope and manage these global events very well.

What do you expect will be the future of Lebanese advertising players in the regional industry?

We all recognize that international companies are today the ultimate decision makers, and so we all look at the future with a question mark of how large the role of the Lebanese will stay in this industry. Ad agencies have all been bought up by multinationals; on the media owners, media agencies and media reps side, we are still in a very strong position.

In your view, can Lebanon learn from the successes of the Lebanese players in the regional media?

The Lebanese government and Lebanese private sector have a lot to learn from what we can deliver because we have delivered outside of Lebanon. Our ultimate frustration as Lebanese expats living abroad is that we have contributed in building the whole Gulf Cooperation Council… but are not allowed to contribute and give back to our country to make it what it should be. I am obviously not saying that we are physically not allowed but the current political structure is put in a way where they do not want you to come back and contribute or do anything for the country. It is sad, very sad.

Do you see any chance to remedy that situation?

Not in the foreseeable future.

March 11, 2013 0 comments