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Comment

Yemen: A country of halves

by Farea al-Muslimi December 6, 2012
written by Farea al-Muslimi

Yemen has always been a country of halves,and 2012 was no different. Half dictatorship, half elections, half reform and some even claim merely a half a revolution, given that past injustices have yet to be righted. 

For starters, after more than three decades of dictatorship under Ali Abdullah Saleh, Yemenis held their first free and fair election for a president in February, though it was more of a referendum really, given that there was only one name on the ballot. Needless to say, Abdu Rabu Mansour Hadi won handily.  

Hadi’s rise — or rather, Saleh’s undoing — had began a year earlier, when angry, frustrated youth began protesting. Saleh’s bloody attempts at repression only galvanized wider public support against him, spurring a general uprising. Life-long Saleh allies switched sides, skewing the character of the protest movement but also opening the door to foreign political intervention when Yemen appeared on the brink of civil war. The international community and Gulf Cooperation Council initiative, known simply as ‘the GCC deal’, led to Saleh being granted immunity for stepping down and a managed transition away from his rule. 

The implementation of that deal, with all its complex details, has dominated Yemen’s political headlines for the last year. 

The youth who began the protests in 2011 had six main demands for the revolution: overthrowing the regime, building a civic state with a separation of powers, the creation of a free education system, building a strong national economy, assuring an independent judiciary and the reconstruction of the military. 

Looking at those demands provides an opportunity to assess how far the country has come and how far it still has to travel. 

Saleh is — at least technically — out of power, and while many of his strongest allies and relatives have also been pushed out of military and civic agencies, some have managed to retain powerful positions in the armed forces. The process of reconstructing the military has begun, but too slowly for many. Further concerns remain over segments of the military that joined the revolution, as they are now actually impeding the reconstruction. 

The economy, meanwhile, remains devastated. It is not just that millions of Yemenis face an ongoing hunger crisis, but that the traditional elite who maintain a stranglehold on the economy have not had their interests challenged. The National Dialogue Conference — once slated for the end of 2012 but now postponed — is meant to bring together all the country’s stakeholder groups and is the optimists’ strategy for solving Yemen’s woes. However, it faces many obstacles, the most pressing of which is southern separatists threatening a boycott. Thus, the dialogue’s legitimacy is already under scrutiny. 

It is perhaps no exaggeration to say that the only two parts of the GCC deal that have been fully achieved are granting Saleh immunity and Hadi assuming his place, though with limited authority. Everything else is either in transition, or waiting for the national dialogue. Solutions for dealing with political problems — such as southern secessionists, the rebellious northern Saada region and the continued lack of youth inclusion in the process — remain vague. Despite attempts by the United Nations to reach a national consensus, such an agreement is difficult to foresee. 

Political issues are further complicated by the fact that they are interrelated to economic problems, so unless economic fundamentals are dealt with, little political progress can be achieved. Sadly there is currently not much Yemen can do by itself economically. Until it rediscovers its economic capacity — replaced during 33 years of corrupt dictatorship with a semi-feudal system — international help is needed. The world has started to realize this and the recent international ‘Friends of Yemen’ conference led to pledges totaling $8 billion in aid and loans. How and when these funds will be spent, or even if they will materialize at all, is unclear.  

Despite the dramatic events of the last two years, Yemen remains unable to end its cycle of tragedies alone. The first few months of 2013 are crucial. If the National Dialogue Conference fails, the country will go from being a weak state to a failing one.  This could exacerbate emerging sectarian and tribal tensions, while the youth contingent who saw their protests fail may not be so peaceful next time. The nightmare scenario is a civil war. Now, as never before, Yemen is at the crossroads between becoming the new Egypt, where a fledgling democracy is gradually taking hold, or a collapsed state like Somalia. The outcome of the national dialogue and the international community’s actions will be crucial in deciding Yemen’s fate.

Farea al-Muslimi is a Yemeni activist and commentator

 

December 6, 2012 0 comments
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Finance

Interest rates on the rise

by Marwan Mikhael December 6, 2012
written by Marwan Mikhael

The Lebanese banking sector has been tested against internal and external shocks many times through recent decades, and it has been tested yet again this year. The sector still enjoys high liquidity ratios, enabling the banks to weather economic turmoil, while the sector as a whole has also been steadily reducing its heavy government exposure — a positive trend amid the numerous challenges Lebanon’s commercial banks have faced in 2012.

The sector remains the main source of financing for the Lebanese government but its exposure to the highly indebted sovereign has been on a declining trend since 2006. Banks’ claims on the public sector constituted 21 percent of their total assets at the end of 2011, down from 28 percent at the end of 2006. Banks hold around $29 billion, or close to 54 percent of the gross public debt, which stood at $54 billion at the end of 2011.

The weight of public debt in the economy, however, whilst still high, has witnessed a large decline since 2005. The ratio of public debt to gross domestic product dropped from 182 percent in 2006 to 135 percent in 2011. This decline was led by high economic growth rates from 2007 through 2010, as well as a lower growth rate for public debt, with the government registering large primary surpluses during the same period. 

Moreover, the relative importance of bank claims on the public sector declined when compared to bank credit to the private sector. While the banking sector continued to lend to the government from 2007-2010, their claims on the private sector increased at a much faster rate, skyrocketing 222 percent from $15.5 billion in 2007 to $34.5 billion in 2010.

Funding the public and private sectors

This economic boom took place in an environment of low interest rates on government debt and helped the banks lower their exposure to the sovereign. When such interest rates are low, banks prefer to lend to the private sector, as the rates charged are higher than the yields banks generate from their government securities portfolio. This is compounded by interest rates on deposits declining less than global interest rates, which has put pressure on banks’ profit margins. Hence banks are turning more and more toward the private sector in order to improve their profitability.

Lowering banks’ exposure to the sovereign reduced the ‘crowding out’ effect, which happens when the government has large financing needs and the available resources are limited — namely, when there is not enough increase in deposits to finance both public and private sectors without enduring an increase in lending rates. In the case of Lebanon, there is a certain growth rate of deposits that has been sufficient to finance government deficit without crowding out the private sector. Total lending needs of the economy including both public and private sectors stands at between $5 billion and $7 billion per year, which means that deposits must grow by 6 to 7 percent in order not to induce an increase in interest rates and consequently a crowding-out effect. Since 2006, there have been enough capital inflows into the country to cater to both the private and public sectors.

A bleak outlook

Growth in bank deposits for 2012 stood at 5.2 percent as of the end of September — similar to 2011 but much lower than previous years, and just enough to provide the necessary financing needs for both the private and public sectors. Going forward, any further reduction in bank deposit growth would mean interest rates would have to increase, with competition between the public and private sectors over the available funds intensifying. Consequently, the cost of servicing the public debt will increase for the government and the cost of new investments will also go up for the private sector; an unwelcome possible scenario for 2013.

December 6, 2012 0 comments
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Business

Fall of the factories

by Zak Brophy December 6, 2012
written by Zak Brophy

Lebanon’s economy is dominated by banking, services, tourism and real estate, but there are scores of firms working in the productive sectors that are fighting to hold their own in circumstances that can at best be described as challenging. High operating costs, decrepit infrastructure and a dysfunctional body politic are assured burdens for Lebanon’s captains of industry.

While the enterprising and tenacious producers and traders within Lebanon are well attuned to this ramshackle playing field, 2012 has thrown some hefty additional spanners in the works. “We have reached an economic situation where we are stranded in the middle of a tunnel and there is no end in sight,” warns Mohammad Choucair, president of the Lebanese Chamber of Commerce, Industry and Agriculture. “We are seeing bankruptcies and lots of companies closing down.”

At the dawn of the new-year the International Monetary Fund (IMF) was predicting 1.5 percent growth for Lebanon’s economy during 2012. The reality is that it will be lucky to have flat-lined at 0 percent, with all indicators suggesting that the country slipped into negative growth in the final quarter. This deterioration was compounded by the political establishment’s sadly predictable degeneration into gridlock, which has only served to strip the economy of leadership and amplify the sense of insecurity in the country.

While discussing with Executive the dire straits into which the economy has fallen, the Minister of Industry, Vrej Sbounjian, stated, “We don’t have to make money every year; there are many nice things to be done in the country.” This frank admission perhaps best illustrates how rudderless the government is when it comes to offering meaningful succor to the nation’s business community.

And surely they need it. The World Bank and International Finance Corporation “Doing Business 2013” report ranked Lebanon 115th among 185 countries and 11th among 19 Arab countries in terms of ease of doing business. In almost every category, including starting a business, getting electricity, protecting investors and paying taxes, Lebanon slipped down the rankings from last year’s position. In such a climate, Charles Arbid, president of the Lebanese Franchisers Association, says, “Us Lebanese are used to being crisis managers but today we have to reconsider our way as a nation.”

Golden days past

Lebanon’s industrialists enjoyed a boom from 2005 to 2010, but those days are now a distant memory. Industrial exports nearly doubled in value from $2.17 billion in 2006 to $4.06 billion in 2010 but, “in 2011 it was not a slowdown in growth but a complete stop, and it was the second half of the year that did all the damage,” according to Neemat Frem, president of the Association of Lebanese Industrialists.

The standstill in late 2011 has gone into full-scale retreat in 2012 with figures released by the Ministry of Industry showing that industrial exports totaled $1.9 billion in the first eight months of 2012, constituting a decrease of 12.2 percent from the same period the previous year.

The reasons for this downturn are numerous, including a slump in tourism, which hit demand for agricultural and industrial products, a fall in exports through Syria due to the ongoing violence there and a drop in foreign investment on account of the precarious security and political situation in Lebanon. Furthermore, the already prohibitively high operating costs for Lebanon’s producers were pronounced in 2012 by an escalation in the energy crisis within the country and the implementation of new minimum wage legislation. 

“I can’t stress enough the fact that our economy is inversely correlated to the price of a barrel of oil, as we have no other form of energy other than liquid oil: no gas, coal [or] nuclear,” gripes Frem. “Électricité du Liban (EDL) does not provide any buffer zone like other countries for surges in energy costs, and industrialists are running on their own generators.”

EDL was engulfed in a highly politicized internal labor dispute for much of the summer and the decaying energy infrastructure only deteriorated further, resulting in a ratcheting up of power rationing, with some parts of the country stranded without electricity for up to 22 hours a day.

With industrialists increasingly relying on generators, the global rise in fuel prices was acutely felt on the balance sheet. “Operating costs are so high in Lebanon. Businesses can’t even forecast a budget for the year because the international price of diesel fluctuates so much. It jumped by around a third [in 2012],” explains Nassib Ghobril, head of  economic research at Byblos Bank.

 

The labor costs incurred in Lebanon are also high in comparison to regional competitors, and when the government bungled its way through the implementation of new minimum wage legislation the private sector cried foul. “The increase in salaries has affected us,” says Daniel Abboud, general manager of Carosserie Abillama, which has a staff of 300 to manufacture trailers and other automotive add-ons that are exported to some 27 countries. “Our products are customized and cannot be mechanized so we rely on labor. Our prices are up 6 percent, so it’s significant.”

As of February 1, “the minimum monthly wage will be fixed at LL675,000 ($450) and the minimum daily wage will be set at LL30,000 ($20), as per articles 1 and 2 of law No. 36/37 issued 15/05/1967,” stipulated the decree published in the government’s Official Gazette. Effectively, employees received a monthly increase ranging from LL175,000 ($116.67) for those earning the minimum wage, up to LL299,000 ($199.33) for those on salaries above LL1.5 million ($1,000).

With Lebanon’s living costs spiraling, reforming the minimum wage was necessary. However, the manner in which it was implemented whiffed of more than a hint of populism, with criticisms from numerous fronts that the proposed legislation would further fuel inflation. Unaccompanied by progressive reforms to taxation and service provision, it is likely the wage shift will do little to really improve the living standards of those on the bottom rungs of the economy, while it will certainly increase the operating costs of employers.

Left out to dry

Lebanon’s private sector is used to operating amid political crisis and under weak governments. However, the elected leaders of the country could easily throw them a few bones to help them get on with keeping the nation in business. There are several key pieces of legislation that would go a long way to energize Lebanon’s business environment, but they are gathering dust in drawers or are lost in the labyrinth of commissions at Parliament.
“We are trying to see that most of the economic decisions are taken in a sane logic and create a more business-friendly environment, and to enhance SME’s [small and medium-sized enterprises] in Lebanon,” says Nicolas Nahas, minister of economy and trade. However, in reality the Lebanese business environment is stacked in favor of a minority of players dominating the markets.
A 2003 report commissioned by the Ministry of Economy of Trade revealed that half the products sold in the Lebanese market come from sectors where there is an oligopoly, under which more than 40 percent of the market is owned by four companies or less. In plain English this is called a cartel. According to the study, three companies own 65 percent of the cement market, 69 percent of the soft drinks market, 77 percent of soap sales, 79 percent of elevator repairs and 85 percent of insulated wires and cables.

Just as Lebanon’s political elite is dominated by a small clique of men, so too is its business arena; the boundaries between the two domains are oftentimes blurred. The prevalence of cartels is damaging to the consumer who suffers from less choice and higher prices while it also hinders competition. It certainly is no friend to the SMEs.

A major step to challenge these oligopolies would be the adoption of anti-trust and competition laws. Such legislation does exist but it has been comfortably squirreled away and virtually never enters the political discourse. Minister Nahas claims the law is in stasis because there is a “constitutional debate” over the legitimacy of any legislation that was introduced during the term of Prime Minister Fouad Siniora (2005-2009).

While technically plausible, this logic is not particularly convincing. Even it were true, the fact that some politicians would hold back important legislation because it was inked from their opponent’s pen is repugnant. The more plausible and distasteful reality is that politicians who have vested interests in the survival of the cartels would rather these laws never see the light of day.
Other vital laws have also been drafted but are held up in the opaque quagmire of Lebanese politics. Perhaps most notable among these are new investment, e-commerce, trade and intellectual property rights bills. With the politicians engaged in a ruinous faceoff over who gets to hold court, they are likely to stay in the dark for some time yet. Indeed, Nahas concedes that none of this legislation will pass as long as the political impasse prevails.

And so it is that 2012 ends on a sour note for Lebanon’s private sector. For those that have persevered through the year’s economic and political crises the closing chapter brings little reason to believe things will get better in 2013. Businesses are going to have to hunker down and hope that at the very least security is maintained so they can stand fast until brighter days return.

December 6, 2012 0 comments
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The Buzz

Morning briefing: 6 Dec 2012

by Executive Staff December 6, 2012
written by Executive Staff

Economics and politics

A draft of changes to United Arab Emirates bankruptcy law aimed at simplifying the process and letting failing companies restructure is taking longer than expected and may not be ready until the end of 2013.

More from Gulf Business

 

Lebanon’s borrowing costs tumbled more than its Middle East peers last month, giving the nation a window to extend maturities on $1.53 billion of bonds even as a civil war in neighboring Syria crimps growth and tourism.

More from Bloomberg

 

Lebanon ranks as one of the 50 most corrupt nations worldwide, coming 128th out of 174 countries surveyed for perceptions of transparency, a report released Wednesday by an international watchdog showed.

More from The Daily Star

 

Egypt plunged into a new period of violence last night as riot police were deployed to stop street battles between supporters and opponents of the president, Mohammed Morsi. Three people have died in the clashes.

More from The National

 

Companies

Bank of America Merrill Lynch has hired Arshad Ghafur, previously with Nomura Holdings, as the country executive for its Middle East and North Africa unit, the US bank said in a statement on Thursday.

More from Gulf Business

 

A U.S. investigation into whether Barclays Plc paid bribes to win a banking license in Saudi Arabia has spread to other banks that operate in the region, according to a person familiar with the matter.

More from Gulf Business

December 6, 2012 0 comments
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Society

Syrians seek God’s shelter

by Preethi Nallu December 5, 2012
written by Preethi Nallu
The Esmael al-Hojairi mosque in Arsal, a town in eastern Lebanon near the Syrian border, has become a temporary shelter for dozens of families who have fled the intense fighting [Photo: Executive/Preethi Nallu]
Named after a Lebanese man who died fighting in Iraq, the mosque currently houses between 75 and 100 refugees [Photo: Executive/Preethi Nallu]
A few families are sleeping on the upper level of the mosque, but many are in makeshift shelters in the grounds. With the winter fast approaching, they are in dire need of warm clothing, additional blankets and kerosene for heaters [Photo: Executive/Preethi Nallu]
A young boy looks down as his siblings climb up the stairs. With the start of a new school year, the children are short of many basic school supplies [Photo: Executive/Preethi Nallu]
A Lebanese Imam, who has become the community's spiritual leader, is followed by one of the older female refugees to the upper level of the mosque [Photo: Executive/Preethi Nallu]
Sadly, the residents are all too used to death. Here men gather for the funeral of a rebel fighter who was killed inside Syria but whose body was smuggled across the border for burial [Photo: Executive/Preethi Nallu]
The men line up for funeral prayers led by the Imam. Arsal has experienced regular cross-border incursions and shelling by the Syrian army in the past month [Photo: Executive/Preethi Nallu]
Later the man is buried facing towards Mecca, with marble slabs placed over the body. The funeral is followed by a three-day mourning period [Photo: Executive/Preethi Nallu]
Men from the community attend the funeral and burial, while the women usually gather to mourn at the home of the deceased [Photo: Executive/Preethi Nallu]
A farmer breaks down as he talks of bodies that have arrived from the battlefield and the emotional toll it has taken on families stranded indefinitely at the mosque [Photo: Executive/Preethi Nallu]
With the violence inside Syria intensifying, the chances of the refugees leaving the mosque to return home are slim [Photo: Executive/Preethi Nallu]
December 5, 2012 0 comments
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Economics & Policy

Q&A: Nicolas Nahas

by Zak Brophy December 5, 2012
written by Zak Brophy

Buffeted by crises at home and abroad, the Lebanese economy stuttered in 2012 and closed the year unsteadily. Many laws currently stuck in the processes of  government could possibly bolster the country’s business environment and right the ship, but problems abound in passing them through Parliament, let alone their implementation. Executive met with Minister of Economy and Trade, Nicolas Nahas to talk about how he assesses the impasse.

Lebanon has a very high prevalence of market-distorting oligopolies. Why have you not enacted the anti-trust legislation and competition laws?

This law has been drafted and sent to the Parliament. Unfortunately the competition law is one of the 69 laws around which there is a kind of political debate. They were made during Siniora’s term. Now there is a constitutional debate about how to enact these laws and I hope that can be resolved soon.

These laws will challenge a lot of vested interests among the political and business elite. Is this not the real reason they are not progressing? 

You are insinuating there is some lobbying against these laws but I don’t think that is the case here. The law has been drafted and it is on the way. The delay is because of a constitutional debate.

I don’t see how there is a problem with the constitution…

Mr. Siniora’s term has been challenged as unconstitutional by some political parties. Anything that came out of that government is in limbo.

His opponents are in government now. Surely you can push them forward and get them enacted?

This is about a debate among all the different political parties but I think we have reached a kind of agreement on that.

Why aren’t Lebanon’s intellectual property laws properly implemented?

I don’t think they are weakly implemented. I think we are implementing them to the extent of the law.

Many reports and studies including the World Economic Forum’s Global Competitiveness Index suggest otherwise…

It is not just about implementation, but the law itself needs to be revisited and updated. This is going to happen but it is stuck on the same track as the competition laws. There are four laws, which by the World Trade Organization’s (WTO) standards we have to adopt and they are on the same track I mentioned.

It seems Lebanon is just paying lip service to the idea of ascension to the WTO…

Lebanon is committed and we have perhaps finished 90 percent of what is needed but we need to complete these four laws and then we can apply to the WTO.

How much have you been able to achieve in empowering the insurance sector and has it been enough?

It is never enough. We have a very challenging time with the insurance sector and we are trying to bring rules and regulations that vitalize the sector and upgrade the kind of service this industry is giving. This sector is very solid and has huge potential for growth. We hope by next year we can have discussions on a new law that will give more power and capacity to the body that regulates this sector.

The new traffic safety law mandates obligatory third party liability insurance for material damage, but is not able to override the archaic insurance law. Could this be an incentive to finally update the law?

I think they are separate issues. I think the new law under preparation for the insurance sector will take into consideration what has been provided in the traffic law. This law is blocked like the others.

So you’re saying as long as Lebanon is stuck in this political impasse none of these laws will be passed?

Yes, unfortunately so.

You were on the committee that brokered the food safety law. There is an overlap of prerogatives between the Ministry of Agriculture, your ministry and the Ministry of Health, so what actual power will the new food safety authority have?

There is a lack of regulation and law in the food safety sector. There has been a draft law in the parliament for the past four years and in this law the authorities and responsibilities are very mixed. This government has taken back this law and redrafted it. In this new version we are trying to delineate the responsibility of each ministry and each administration. The way the farming is done is under the Ministry of Agriculture, the processing under the Ministry of Industry and the food service and food access to market will be under the new authority.

Considering the budget was stripped of any meaningful reform or progressive measures and is now stuck in the parliament, can its passing be considered any kind of success?

It is not a matter of success, it is a matter of duty. It is something we have to do and we have, and now it is at the parliament.

Isn’t the most important thing that the slate is swept clean from previous spending so we know at least what basis we are starting at?

These are not related. You make a budget and send it to Parliament and then sort out the backlog of the past. We have sent, I think, most of the accounts from 2007 to 2010 to the legal authorities to have a say and then send it back to the parliament. We can’t stop the government because of the backlog of the past.

High operating costs are one of the biggest burdens on Lebanese producers. How do you react to critical sectors, such as electricity, being kicked around like a political football and so irresponsibly handled?

Irresponsibly?

Is it being responsibly handled?

Yes, we have endorsed the vision and the plan of the past government so as to not waste time on arguing on different options. It is under implementation and is the only government that has gone to implementation. Is it my best option? No, but rather than arguing, we acknowledge implementation is the most important step.

Reliable data on Lebanon’s economy are scarce and insufficient. What is being done to address this?

We need a master plan and we need the national accounts on regular terms and clear terms so we can assess our economy on reliable figures, trends and criteria. This is an important place where real change needs to happen.

Lebanon is way behind its potential for e-commerce. What is the situation with the long-awaited e-commerce laws?

These have been drafted and finished and have been agreed on by the Council of Ministers and now are on the way to Parliament. They will be on their desk very soon.

What can you cite as your main achievements while in office?

We are trying to see that most of the economic decisions are taken in a sane logic and create a more business-friendly environment, and to enhance [small and medium-sized enterprises] in Lebanon. We are working on multiple issues regarding basic laws such as food safety, e-commerce and commercial law. We want to bring strategic thinking toward the 20-20 vision, but time has not been enough for us to build this so far. Finally, we are launching web services for the customer. Now the trademark will be online and this is the first step in bringing most of the [Internet protocols] into a direct web service for the customer and the client and will [add to] the kind of service we are giving to the citizen. 

December 5, 2012 0 comments
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Entrepreneurship

Emerging talents

by Maya Sioufi December 5, 2012
written by Maya Sioufi

 

It can be daunting to be an entrepreneur in Lebanon. A lack of solid infrastructure, slow Internet and a lack of proper legal structures put significant pressure on the already stressful event of launching a business. Add to that kidnappings by men in balaclavas, a tragic bomb in the heart of Beirut, travel warnings from regional countries drying up the tourism season and little prospect for economic growth, and the enthusiasm it takes to launch one’s own business might become hard to find.

However, a support system is growing, with an aim of helping entrepreneurs overcome these nerve-wracking challenges. A new incubator launched in 2012, a Beirut-based accelerator began investing in startups, and a handful of venture capital (VC) funds deployed a total of $14 million in equity capital into seven Lebanese startups (as of end of November 2012). 

Happening hubs

In the summer of 2012, AltCity, a space for entrepreneurs to work out of and receive mentorship, set up shop in Hamra. With several activities organized in the past couple of months from entrepreneurs’ breakfast get-togethers  to creative evening workshops, AltCity has been making noise in the entrepreneurial world. 

Just a few blocks from AltCity, another hive of entrepreneurial activity can be found at the offices of accelerator Seeqnce. Founded in 2010, Seeqnce made a lot of noise in 2012, and even featured in an Economist article, when it adopted the model of United States accelerators Y Combinator and TechStars — which landed success stories such as DropBox and AirBnB — and launched an “American Idol” type competition, which ended with the selection of eight startups, each receiving $76,500 in investment; half in cash, and the other half in the form of Seeqnce services, such as a six-month space rental, mentorship and workshops (as described in Executive’s October issue). In exchange for the capital deployment, the eight startups each gave up a hefty 30 percent stake in their newly formed venture. 

Lebanon’s largest real estate developer, Solidere, also jumped on the accelerator/incubator bandwagon, launching a space dubbed “Cloud 5” for entrepreneurs to work out of in November 2012. 

For more established entrepreneurs, Endeavor, a non-profit organization supporting entrepreneurs in emerging markets, increased its support to Lebanese entrepreneurs in 2012. Three companies were added to its network: Mosaic Marble, ElementN and At7addak. Established in Lebanon in 2011, Endeavor had already selected four companies in its first year of operation, and so now counts seven Lebanese companies in its network. These members benefit from Endeavor’s support, including access to a worldwide network of companies in emerging markets, investors,  business leaders and trainees from Ivy league universities. 

Another Lebanese company may be added by the end of 2012, when the Endeavor team in Lebanon fly off to Miami in December to face the international selection panel. Looking forward to 2013, Endeavor says it plans on adding another four to five Lebanese entrepreneurs.  

There have been public sector attempts to support entrepreneurs as well, mainly through the central bank. An online platform for entrepreneurs was launched in 2011 by the central bank aiming at bringing together the different players of the entrepreneurial ecosystem, but it has thus far failed to gain traction in the buzzy entrepreneurial world. “It is not really gaining momentum,” says Saad Andary, the vice governor of Banque du Liban, Lebanon’s central bank, who is behind this initiative. On the website, there is a listing of various entrepreneurial opportunities for investors, funding options for entrepreneurs as well as investors’ information. The platform also offers a list of mentoring and training options for entrepreneurs in Lebanon. 

Financing the idea

Family, friends and fools remain the main source of funding for entrepreneurs in Lebanon. “There are a lot of angel investors in Lebanon and it is hard to quantify them,” says Tarek Sadi, Endeavor’s country manager in Lebanon. 

The Lebanese Business Angels (LBA), part of the Bader organization — a platform launched in 2008 aiming at bringing investors and entrepreneurs closer together — only managed to complete one deal prior to 2012 by helping Ovis Casing, a provider of natural casing for sausages, raise $100,000. 

In 2012, LBA managed to help two companies raise funds: $42,000 for Fresh Natural Products (FNP), a producer of Labneh and Kaak (which featured in Executive’s top 20 entrepreneurs report in November) and $20,000 for an undisclosed mobile gaming company. 

For startups looking for a loan, Kafalat — the government sponsored institution that guarantees private sector loans to small and medium enterprises (SMEs) — remains the main access to external debt, with $109 million deployed into Lebanese SMEs in the first nine months of 2012. Around 15 to 20 percent of these loans are provided to innovative startups according to Khater Abi Habib, chairman of Kafalat. Seven of the entrepreneurs featured in Executive’s ‘Top 20 Entrepreneurs’ received Kafalat loans, two of them in 2012: FNP secured a loan of $133,000 and East Line Marketing of $240,000. As for providing entrepreneurs with further support, Abi Habib told Executive in October that “it is a matter of demand; we are there for them and we have capacity to do it. Let them come”. 

Kafalat is looking to move into equity, and is in advanced talks with the World Bank and the Lebanese government to launch a $30 million equity fund investing in Lebanese startups and complementing the debt support it already provides. The proposal is awaiting approval in Parliament and the fund should be up and running within a couple of months of that approval, according
to Andary. 

 

The World Bank will be providing the capital in the form of a loan, which a holding company under Kafalat will be responsible for deploying in Lebanese startups, with a maximum ticket of $500,000. “We think it is original and exciting and if we succeed, it could be replicated in the region,” adds Andary.

VC firms have also been more active in the past couple of years with 2012 seeing a small number of deals completed despite the dire economic conditions. 

The $6 million Berytech fund — which in 2008 was the first VC fund to dip its toes in the Lebanese startup market — has extended by a year its four-year mandate to complete investments and plans to deploy the remaining 30 percent of the fund by the first quarter of 2013. With an average ticket size of $700,000, Berytech completed three investments in 2012: PayPlug, a mobile payment application based in France and launched by Lebanese Camille Tyan; Probueno, a crowd-sourcing platform based in the US with Lebanese Michel Rbeiz responsible of product and business development, and Lebanon-based Wixel Studios, a provider of mobile games for the Arab market, in which they co-invested along with Middle East Venture Partners (MEVP), a Lebanon-based VC run by Walid Hanna. 

Berytech is in the process of raising capital for a second larger fund between $20 million and $30 million, which it expects to be up and running by the second quarter of 2013, and which will also be investing in the information and communication technology (ICT) sector “as well as creative companies” says Sami Beydoun, managing partner of Berytech. 

Another Lebanese VC which sealed deals in 2012 was MEVP, with a total of nine rounds of investments throughout the year, of which five were for Lebanese entrepreneurs: Anghami, a provider of online music streaming for the Arab World; Box & Automation Solutions, a cash management, audit and treasury solutions provider; Falafel Games, a producer of online games for the Middle East; PinPay, a mobile banking services provider; Wixel Studios (co-invested with Berytech), and finally Shahiya, a website providing user-generated Arab food recipes. The average ticket per investment stood at $600,000. 

Not all Lebanon-based VCs have been successful in securing deals. With an average ticket size of $500,000 — close to MEVP’s target profile — Cedrus Ventures’ $5 million fund launched in 2011 by Michel Nehme has not been successful. Nehme told Executive in October that he is struggling to find investment opportunities, with his chief concern being the caliber of the people he’s working with, as he is looking for “complete teams ready from the get-go”.

For larger-ticket investments, Riyada Enterprise Development (RED), part of Abraaj Capital, the largest private equity firm in the Middle East, has invested in two companies in Lebanon so far. After deploying approximately $3 million in Nymgo, a telecom provider of international voice-over-IP in August 2011, RED recently completed a second investment in Lebanon through its $50 million Lebanon Capital Growth Fund launched in 2011 in partnership with Cisco and the European Investment Bank. While refusing to disclose the name and size of the second deal, Elie Habib, RED’s Lebanon country manager, stated that it is in the hospitality business with operations in Lebanon and abroad and its size is “significantly larger” than the investment in Nymgo. 

Finally, the fifth VC fund investing in Lebanese as well as MENA startups is Wamda Capital, led by Habib Haddad. Launched in 2011, the fund’s size remains undisclosed as “we are still raising capital” says Habib. With an average ticket size of $300,000, the fund completed 10 investments in 2012 of which two were for Lebanese entrepreneurs: Elie Khoury, founder of San Francisco-based Woopra, a provider of real-time customer analytics and Roy Zakka, founder of Dublin-based Ubanquity, a provider of banking and payment eChannels.

Schools are slacking

On the academic side, many say not enough is being done. “Universities started tinkering a little but it is more show and no go,” says Kafalat’s Abi Habib. 

The American University of Beirut set up the Darwazah Center for Innovation Management and Entrepreneurship in 2010; Balamand University launched its second Youth Entrepreneurship competition in 2012; in 2011, Saint-Joseph University (USJ) teamed up with Berytech to launch the annual regional edition of the Global Social Venture Competition — an international competition in business planning that is partnered with France-based ESSEC Business School. 

While this is a start, universities can do more. Labib Shalak, chief executive officer of Mobinets, a provider of software for telecom operators based in Tripoli, says he believes universities need to teach students more about entrepreneurship and innovation and become less service-oriented. “We have a big resource pool [of graduates in Lebanon] yet at Mobinets we hit a brick wall as we have to invest in [them] for a year,” says Labib. 

More players are venturing into the entrepreneurial space looking to support and monetize Lebanese talent. While lots of activities are taking place and entrepreneurs are feeling the buzz, the space still lacks organization and the ongoing efforts, while encouraging, need to be better channeled and engage more players, from universities to banks to the public sector. For instance, local universities could increase their offering of courses helping would-be entrepreneurs develop business plans and providing startups with a hireable pool of graduates. The public sector has a big role to play by providing the appropriate infrastructure supporting entrepreneurship.

The Lebanese diaspora could also be encouraged to play a bigger role in supporting and financing local talent. For example, in 2011, Lebanese expat and former Google employee George Harik invested $250,000 in a 5 percent stake in Lebanese startup Dermandar. 

As support continues to gain momentum locally and slowly starts attracting attention internationally, a better organizational framework to funnel this support and energy will need to coalesce, and thus allow Lebanese ideas better access to the tools they need to be realized.  

December 5, 2012 1 comment
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The Buzz

Morning briefing: 5 Dec 2012

by Executive Staff December 5, 2012
written by Executive Staff

Brent crude was steady around $110 a barrel on Wednesday, nursing losses from the previous two sessions, as investors fretted over prospects for the US fiscal crisis to hurt oil demand, despite supply fears fanned by Middle East tension.

More from Reuters

 

Egypt has slid in a global league table of perceived official corruption in the past year, and the "Arab Spring" revolutions have yet to produce serious anti-graft action across the region, Transparency International said on Wednesday.

More from Arabian Business

 

OPEC will probably keep its output quota unchanged for a second successive meeting next week as members judge prices high enough to cover their spending needs, according to a Bloomberg survey.

More from Bloomberg

 

Lebanon needs to proceed with plans for liquefied natural gas import terminals despite high offshore natural gas prospects, said experts at the conclusion of the Lebanon International Oil and Gas Summit Tuesday.

More from The Daily Star

 

Turkey does not expect tighter United States sanctions to apply to its natural gas imports from Iran, its energy minister has said, which would mean Tehran will continue to supply and get paid by its biggest gas customer.

More from Reuters

 

Companies

Akbar Al Baker, CEO of Qatar Airways, believes that the Doha International Airport will not be significantly delayed, despite the new facility missing its anticipated opening date this month.

More from Arabian Business

December 5, 2012 0 comments
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The Buzz

Morning briefing: 4 Dec 2012

by Executive Staff December 4, 2012
written by Executive Staff

Brent crude slipped toward $110 per barrel on Tuesday as demand concerns moved into focus after weak manufacturing data from the United States, the world's top oil consumer, while its uncertain fiscal deficit negotiations also kept investors on the edge.

More from Reuters

 

Gold edged lower on Tuesday as the uncertainty about the US budget talks kept investors on the edge, offsetting positive news from debt-laden Europe that helped keep the euro steady near its highest level in more than one month.

More from Reuters

 

Iraq's oil exports fell to 2.62 million barrels per day (bpd) in November from 2.622 million bpd the previous month, the oil ministry said on Tuesday.

More from The Daily Star

 

Saudi Arabia will need to invest over 500 billion riyals ($133 billion) over the next 10 years to meet rapidly rising power demand, Saudi Water and Electricity Minister Abdullah al-Hussayen said late on Sunday.

More from Gulf Business

 

Politics

Kuwait’s ruler accepted the government’s resignation on Monday, the state news agency KUNA said, a step designed to make way for a new cabinet in the Gulf Arab state after parliamentary elections boycotted by the opposition.

More from Gulf Business

Israel says it will not give in to international pressure to halt plans for 3,000 new illegal settler homes in East Jerusalem and the West Bank.

More from the BBC

 

Companies

Dana Gas has received $48 million in overdue payments for fuel supplied in Kurdistan, the United Arab Emirates based company said on Tuesday.

More from The Daily Star

 

Goldman Sachs Inc has hired Omar Mohammady to run its Saudi Arabian investment banking business, a key role for global banks operating in the Gulf Arab region, three banking sources said.

More from Gulf Business

December 4, 2012 0 comments
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Real Estate

Q&A: Makram Zard

by Thomas Schellen December 4, 2012
written by Thomas Schellen

With the latest cycle of real estate activity, a new generation of developers has sprung up. Some of them have come to the excavation sites with approaches that could be refreshing for the whole sector. Zardman is a young company that leapt straight into ambitious projects in the urban core, surrounding communities and outside of Lebanon. Executive quizzed general manager Makram Zard about the company’s performance and the force of experience that stands behind it.   

What are your main lines of activity at Zardman?

We have two sides to the business, addressing the middle class in the Metn region and the higher-end market in Ashrafieh. As a third section we are now increasingly stepping into leisure with Nikki Beach [resort development in Damour] and a project in Faraya that is in the pipeline.

Between your projects in Metn and in Ashrafieh, and in the leisure developments, how much does each segment contribute to your business?

In the Metn region we have the bigger volumes in square meters [sqm] and in Ashrafieh we have the higher values. The Mondrian [building in Ashrafieh] alone is 27 floors at [an average sqm price of] around $4,500, so it can go up to $80 million in sales whereas our Bkheir project, which is our largest project in the Metn region, is $35 million. If we compare it in dollar terms, they are approximately equal. The leisure projects are just coming up in the pipeline so in terms of construction and sales costs, the leisure projects should reach about 20 percent of our portfolio; we are talking about 20 percent for leisure and 40 and 40.

How do land prices in the Metn region compare with Ashrafieh today?

Metn is still undervalued. If you ask me about buying a property to resell, not to rent, the Metn is the region to be today. The thing about the Metn region is that you have beautiful plots but they are not very accessible.

When comparing luxury and mid-market projects, where are the highest margins for developers in Lebanon today?

Margins are better at the high end but in terms of cash flow, easiness of the project [and] in terms of sales, the middle class is much easier, so it compensates.

How is the situation if you think beyond the middle class and high end, looking at the need for low-end housing where nobody seems to develop projects?

Actually we would love to do a project such as low-income housing and we tried to do a project. The only thing was that the land sale didn’t come through. As for construction it is totally feasible and very profitable. The margins are lower but you are doing many more apartments.

How big was this project that you were thinking of?

Our project was for around 140 sqm to sell for around $200,000 per unit, so it is very accessible to lots of Lebanese with the bank financing and home loan schemes that we have. Low-income projects require more from the developer because it needs 100 to 200 apartments to be feasible. Today as Zardman we are looking for that plot.

Does Zardman have a land bank of owned plots that you can develop at will?

No, we are not structured this way. My father, Georges Zard Abou Jaoude, is the backbone of the company. He of course is a big landowner in Lebanon. We as Zardman are only into developing projects.

You are a young executive. In Lebanon there is a perception that this can only happen in a family-owned company. Are meritocracy and family business mutually exclusive?

They do not exclude each other and if you look at our business cards we do not put titles. You always encounter this perception of being young as negative, especially in Lebanon where it is very rare that a young entrepreneur without the backing of a family will succeed. It is a shame for the country because if these young people go to the United States and London, they are really getting ahead.

What can you tell us about the projects portfolio of Zardman?

In talking about construction costs, our portfolio of projects under development comes to around $200 million, including Aura Erbil, a 200,000 sqm mixed-use project in Erbil, which accounts for a large chunk of this.

So you have $200 million in total construction cost, including Kurdistan, on your books?

About $200 million including Kurdistan but not including land cost and fees and without our latest leisure project in Faraya, which is another big project with 120 chalets of around 150 sqm each. It will represent around $20 million in construction cost.

How much of that $220 million total is in early stage, how much is ongoing and how much completed?

At the end of [2012], we will have 10 percent completed, 70 percent ongoing and 20 percent in early stage.

So you went from a single project worth perhaps a few million dollars to a construction cost portfolio of over $150 million in ongoing projects in how many years?

We started in 2008 and will celebrate our fifth anniversary in 2013.

Looking at your equity, do you have investors?

We have mostly family-owned projects. We have a few projects where we have investors coming in. We do not usually get investors to come in because we do not need that cash for the equity. The reason why we go with investors is for potential other business partnerships, [or] for marketing and public relations purposes. Our view for the future is to have larger projects with investors coming in for equity.

Will the geographic scope of these future activities be in the Levant or beyond?

I think that Africa would be a region with great potential to visit. Especially Nigeria is growing at remarkable speed. In Lagos you have the Eko Atlantic Project, which is as big as Manhattan. It is one of the biggest projects in the world and there are lots of opportunities there. We are looking to establish in Erbil and grow more there.

You seem to be eager to grow and not only in Lebanon…

That is exactly correct but as we are a young company, we think we have time. We are very hungry to find the market but we are trying today to establish our name in the best possible way. We want to finish all our projects in the best quality and delivery dates so that whenever we go to another market we have the portfolio needed to enter a market strongly.

What have you achieved so far in total sales?

We today have around $180 million in sales, cumulative. Our sales versus construction costs are quite high so on that front we are safe and sleeping well.

What growth rates did you achieve on the sales side and how strong an increase do you project for 2013?

From 2010-11 we had about 15 percent sales increase but from 2009-10 we had around 40-45 percent. In 2012 we did not have many new projects coming to sales other than the second phase in Bkheir. In 2013 we will have Nikki Beach, Faraya and the third phase in Bkheir, and the Mondrian. I think sales in Erbil will grow tremendously because we are doing the whole marketing and sales launch right now. With all these projects we should reach 60 or 65 percent sales growth next year.

How much is your father’s vision driving the company, or how much is it a vision being developed now?

It is more supervision than vision itself. At first we were following his advice, which was more of saying to us what to do. It is becoming more of discussion and more give and take and I think in the following years it will be even less. Today, even if we think that we did a great job, we should say that it was mostly because he was behind us. I want to emphasize mostly [because otherwise] we wouldn’t have been able to grow that fast. We might have been able to grow and become an established name but not in this manner [as we did].

December 4, 2012 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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