Economics & PolicyEntrepreneurs

The top 20 Lebanese entrepreneurs

by Maya Sioufi
written by Maya Sioufi

Lebanese with entrepreneurial spirit and a business idea are no longer left to their own devices. Locally, they can find an incubator willing to provide a place to work from and assist them through mentorship and support. Alternatively, they might choose an accelerator eager to speed up their idea is solid enough, entrepreneurs might even win a prize or two from one of the various entrepreneurial awards being offered in Lebanon. And for financing, the main option a few years ago was to beg for dough from family and friends, whereas now entrepreneurs are increasingly likely to be granted a loan, or even equity from a number of venture capitalists that have set up shop in Lebanon.

Granted, the obstacles to reaching success are numerous – from the lack of a solid information technology infrastructure to political instability made worse by last month’s bombing in the heart of Beirut – but with talent and ambition, entrepreneurs are increasingly able to overcome obstacles like these and thrive. Executive picks the top 20 Lebanese entrepreneurs that look to have what it takes to make it, and marks its favorite five with our exclusive stamp of approval.

AdTech  

Entrepreneur: Joseph Massih
Age: 28
Industry: Technology
Established in: 2011
Number of employees: 4
Revenues: $30,000 in 2011 (the company started operations in August of that year); in the first three quarters of 2012, the company generated around $180,000 in revenue and expects to reach $200,000 by the end of the year. Revenues are expected to reach $400,000 in 2013 after the start of the E-scrap management program.

The offering: AdTech started out importing high quality used electronics (i.e. laptops, desktops, monitors and accessories) from the United States and selling them to several resellers in Lebanon. Having identified an arising issue related to the disposal of electronic waste, the company decided to expand by developing a management program for retired IT assets. This program consists of a set of services that will assist corporates and individuals in disposing of their old electronic devices. Through this IT-Scrap Management Program, Adtech will be acquiring retired IT electronics from consumers and corporates in Lebanon in order to either resell them or dismantle them and use them again. The obsolete and non-usable parts will be sent to specific local and foreign recycling companies for material recovery.

Achievements: Sold approximately 2,200 units, with revenues exceeding $200,000, in a year. Winner of the 2012 “Grow My Business” competition ($33,000 grant), a joint initiative between Beirut Traders Association, MIT Enterprise Forum for the Pan Arab Region and Bank Audi.

Financing so far: Mainly self-funded.

Capital raising: Looking to raise $300,000 by the first quarter of 2013 from experienced investors in the electronic scrap business.

Strategy going forward: 1) Deploy the E-Scrap Management Program; 2) Develop an effective marketing campaign to promote the program; 3) Increase work force and capacities.

Where do you see yourself in five years?  “Building on the business model of our partners in the US that provide responsible recycling for IT scrap in addition to management of retired IT assets, our goal is to be pioneers in implementing such a management process in Lebanon, and hopefully in the Arab states and MENA region in the longer term,” says Joseph.

 

 

 

 

 

 

Anghami

Entrepreneurs: Elie Habib & Eddy Maroun
Age: Elie 39, Eddy 37
Industry: Internet
Established in: 2012
Number of employees: 10
Revenues: $0 in 2012 and $1.5 million expected in 2013

The offering:  Anghami is an application that provides unlimited Arabic & internationally licensed music to stream and download. Launched on the iTunes store last month, it will be available for free for the first three months. The company expects at least 250,000 subscribers across the MENA region by the end of 2012. Anghami will allow users to stream millions of tracks from major Arabic labels such as Rotana, Melody, Mazzika, Platinum and others as well as international labels such as Sony, EMI, Universal and Warner for a monthly subscription fee, unlike the iTunes store which charges $0.99 per song and is not available in the region. It will be available on Android and Blackberry by the end of October and on Nokia by mid-November. A Windows Phone version is planned but the release date is not available yet.

Achievements:  Awarded Red Herring Asia Top100 Finalists award in 2012.

Financing so far: Raised $1 million in equity from Beirut-based venture capital Middle East Venture Partners for an undisclosed stake.

Capital raising: Not for now.

Strategy going forward:  1) Provide all new, old and classical Arabic and international artists to Anghami subscribers; 2) Allow subscribers to share and discover music through a smart-recommendation engine and from friends’ playlists.

Where do you see yourself in five years?  “We want to be in every device that plays music. We want Anghami to become synonymous with music listening, discovering and sharing,” says Elie.


At7addak.com

Entrepreneur: Brahms Chouity
Age: 34
Industry: Mobile gaming
Established in: 2011
Number of employees: 11
Revenues: Generated more than $700,000 in the first three quarters of the year and expects to generate $3 million in 2013. With no subscription fees, the company generates revenues through sponsorship of its tournaments. Its client-base is made up of high profile names: American video game developer Electronic Arts, Swiss provider of PC accessories Logitech, American semiconductor company Advanced Micro Devices (AMD) and video console provider PlayStation ME.

The offering: At7addak.com is an Arabic gaming website allowing users to challenge each other on their favorite video games for cash and prizes. Using their existing gaming platforms (such as consoles, PCs, mobile devices etc.), gamers can compete head-to-head or in teams. The site also boasts exclusive content including news and game reviews, both in English and Arabic (see more in Executive’s September issue).

Achievements: 80,000 registered users as of August. 5 million page views on their website per month and 250,000 fans on their Facebook page, the second highest number of fans of any website in the Middle East. Winner of the the Wamda Award for Best Startup (2011). Selected by Endeavor, a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets.

Financing so far: Self-funded.

Capital raising: No intention to raise capital at least for the next year or two. Looking to sell the business at its peak.

Strategy going forward:  1) Perfect the concept through At7addak.com version 2.0 (coming in three months); 2) increase the website traffic; 3) increase the online advertising revenue.

Where do you see yourself in five years?  “I would like to find a successful and rewarding exit out of At7addak.com. In five years, I will probably be doing what I’ve wanted to do all my life: running my own venture capital firm with my best friends. One non-stop party,” says Brahms.
 


Box Automation Services

Entrepreneur: Anis Rahal        
Age: 38
Industry: Mobile payments
Established in: 2007
Number of employees: 10
Revenues:  $1 million in 2011 and expects to generate $1 million as well this year, which was dedicated to investments with the opening of an office in Beirut and New York, along with the sponsoring of events (see below). BAS expects to generate $2 million in 2013.

The offering:  BAS is specialized in cash management, audit and treasury solutions which enable full control and visibility over cash positions to manage domestic or cross border payment processes. It offers three main products: 1) C2Box, a solution for reporting and cash control; 2) C2Pay for the management of payment processes; 3) C2S to convert payment files to messages accepted by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Achievements: Clients include Orange, CGG Veritas and Ipsos in Paris, Accelya in Barcelona and Majid Al Futtaim in Dubai. Strategic partnership with SWIFT. Sponsored major conferences in 2012 such as the Association of Corporate Treasurers in Paris (AFTE), Dubai (ACT) and the Association of Financial Professionals (AFP) in Miami.

Financing so far:  Raised a first round of equity capital from Sigma Gestion, a French small and mid-sized enterprise fund, in 2009 for an undisclosed amount and a second round of financing from Middle East Venture Partners and Sigma in 2012, also for an undisclosed amount.

Capital raising: Not looking to raise further capital.

Strategy going forward:  1) Invest in research and development; 2) Continued participation in events such as AFTE, ACT and AFP; 3) further develop the sales team with salespeople already present in Europe, the Middle East, Africa and the US.

Where do you see yourself in five years? “We aim to become the leader in the GCC and the US market,” says Anis.
 

BSynchro
Entrepreneur: Michel Chammas
Age: 41
Industry: Computer Software
Established in: 2005
Number of employees: 50
Revenues: $1.2 million in 2011 and expects revenues to reach $1.7 million in 2012 and $2.5 million in 2013
 

The offering:  BSynchro (Business Synchronization) is a Business & Information Technology service firm, which provides design, development and deployment of a range of software solutions in order for customers to enhance the user experience, improve process efficiency and increase profitability. The company offers a range of professional high-end software solutions responding to financial, marketing, sales, communication, customer experience and decision-making enhancement purposes.

Achievements: More than 50 customers in more than 10 countries. Applications used by more than 100,000 people.

Financing so far: Raised $600,000 in equity capital from Berytech Fund in August 2011 for a 35 percent stake valuing the company at $1.7 million.

Capital raising: Looking to raise $1 million next year to enhance the company’s presence in the Middle East, with a preference for strategic business partners

Strategy going forward: 1) Enhance the development of cloud-based products; 2) Develop regional presence starting with Saudi Arabia and the UAE by the middle of next year.

Where do you see yourself in five years? BSynchro used the Berytech investment to develop one innovative software that is currently being finalized and prepared for sales. In five years, the aim is to “provide innovative IT products software that are competitive on the international markets,” says Michel.

 

 

Butterfleye

Entrepreneur: Hind Hobeika    
Age: 24
Industry: Sports technology
Established in: September 2011
Number of employees: 5
Revenues: None for 2011 and 2012; cannot disclose expectations for 2013

The offering: Butterfleye is a hardware design startup specializing in the field of sports technology. The first product is a patent-pending digital monitor in the form of goggles for swimmers due to be released in early 2013, which tracks the heart rate of an athlete as well as laps, calories and flip turns and gives a real-time visual feedback. A tiny bulb at the top of the lens goes green if the swimmer is in his target zone, yellow if he needs to speed up and red if he needs to slow down. The products will be sold online at a price of $150 per pair. The aim of Butterfleye is to eventually develop a product portfolio that includes technological sports equipment, such as an MP3 player, lap counter, stop watch and distance counter.

Achievements: First prize MIT Enterprise Forum Pan-Arab Business Plan Competition 2012. Third prize Stars of Science in 2010, a Pan-Arab reality-TV program initiated by Qatar Foundation. Featured in the TED2013 Auditions

Financing so far: $100,000 equity financing from Berytech Fund in 2011 for an undisclosed stake.

Capital raising: Looking to raise $600,000 in equity funding before the end of the year from both individuals and venture capitalists.

Strategy going forward: 1) In early 2013, start the sale of the product online; 2) Later in 2013, release the second version of the product; 3) In 2014, expand the technology platform to other sports activities.

Where do you see yourself in five years? “A high tech hardware design company that produces tools for athletes and for people with diseases that need constant tracking,” says Hind.
 

Cinemoz

Entrepreneur: Karim Safieddine
Age: 28
Industry: Media
Established in: August 2011
Number of employees: 11
Revenues: First dollar generated in May 2012 and more than $200,000 in Ad Sales bookings were made in the following six months. Cinemoz expects to cross $1 million in advertising revenues by the end of next year.  

The offering: Cinemoz is an online video-on-demand platform for and from the Arab world. Free of charge, it provides access to a library of premium Arab films, TV shows, documentaries and live events. It has recently launched applications for iPhone and Android devices providing mobile access to their content.

Achievements: More than 1 million unique monthly viewers as of August 2012.

Financing: Established with a $200,000 Kafalat Innovation Loan in August 2011. One year later, it received $3 million for a $10 million valuation (investor to be announced in December 2013). In the first phase, $1 million was deployed with the remaining $2 million to be invested progressively over a year.

Partnerships: Strategic Technology Partnership with Brightcove, a leading provider of online video platforms (clients include Showtime, Virgin Media, New York Times, National Geographic and Al Jazeera). Content Partnership with ART (Arab Radio and TV networks), the largest library of Arabic content, with more than 3,000 titles licensed to Cinemoz throughout the next three years. Facebook Partnership, allowing the Cinemoz development and marketing teams to work in tight collaboration with the Facebook development teams. Partnership with LG to release the Cinemoz Smart TV app by fall 2012.

Capital raising: A second round of investment is expected in July 2013, most likely to be more than $2.5 million from a strategic investor.

Strategy going forward: 1) Build new partnerships with regional broadcasting networks such as Abu Dhabi TV, Rotana, Fatafeat and LBC; 2) deliver the most efficient and targeted digital ads in the region; 3) develop and release globally innovative video viewing and sharing features; 4) launch a data analytics program as Cinemoz aims to be the first platform to gather and monitor data from its users and analyze online user behavior in the Arab world in order to provide marketers, agencies and other industry players with detailed regional and local analytics services on consumption of Arab media; 5) develop their first own original series productions.

Where do you see yourself in five years? “The big dream is to disrupt the state of things across industries and be part of the founding fathers who built the ecosystem we still lack in the region while giving back to that ecosystem,” says Karim.
 

Dermandar

Entrepreneur: Elie-Grégoire Khoury
Age: 40
Industry: Internet
Established in: September 2010
Number of employees: 5
Revenues: Undisclosed but company was valued at $5 million in 2011 following the acquisition of a 5 percent stake for $250,000 by Georges Harik, a former Google employee who was director of Googlettes, Google’s in-house incubator.

The offering: Dermandar is an online platform allowing users to create 360 degree panoramic pictures taken through the application available on mobile devices. By rotating the phone when taking a picture, the Dermandar application creates the panoramic picture. The application is available on the iPhone and Android devices. On the iTunes store, the app is sold at $1.99 and is free on Android devices.

Achievements: The Dermandar mobile application was downloaded 4.5 million times in the past 14 months and has 50,000 daily active users. It has been described by the Wall Street Journal “as the easiest-to-use panoramic picture app on the iPhone.”

Financing so far: $460,000 raised in equity: $250,000 from Harik last year for a 5 percent stake and $210,000 from Lebanon-based incubator Berytech in 2010 for a 35 percent stake.  

Capital raising: Looking to raise more capital but details are confidential.

Strategy going forward: 1) Become the leader in panoramic photo creation and sharing with an expectation of reaching 30 million downloads next year; 2) provide more image processing apps.

Where do you see yourself in five years? “A very profitable company or maybe even an acquisition by a big Internet player,” says Elie.

 


East & East

Entrepreneur: Nada Debs
Age: 51
Industry: Interior Design
Established in: 2005
Number of employees: 44
Revenues: Around $3 million

The offering: East and East designs, manufactures and retails furniture and home accessories. The company has three retail outlets in Beirut and is represented globally in New York, Paris, Dubai, Geneva, Toronto, Cairo and Amman.  Other sources of income include interior projects, corporate gift orders and exhibitions.

Achievements: Sold to more than 3,000 clients with such VIP Clients as the Modern Arab Museum of Qatar, the Ministry of Foreign Affairs in Abu Dhabi and the Royal family of Jordan. Selected by Endeavor, a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets.

Financing so far: Self-funded.

Capital raising: Not at this point.

Strategy going forward: Focus on international growth especially in the Middle East and the US with a goal to be represented in major cities worldwide, either though agents or through retail outlets.  

Where do you see yourself in five years? “[We plan to] improve the furniture & craft industry in the country which we aim to do by bringing international expertise to help us create a streamlined assembly factory,” says Nada.
 

 

 

 

 

 

 

Eastline Marketing

Entrepreneurs: Marc Dfouni & Nemr Nicolas Badine
Age: Marc 35, Nemr 35
Industry: Online marketing
Established in: 2006
Number of employees: 15
Revenues: $800,000 in 2011 and expect to reach $1.2 million in 2012 and $2 million in 2013.

The offering: Eastline Marketing creates and executes online marketing strategies for their customers across the digital landscape. Their services cover social media marketing, search engine optimization, paid search marketing, online advertising and online public relations. ELM also developed its own proprietary technology to create market-leading social media campaigns on social networks for brands looking to grow and strengthen their client base.  

Achievements: Developed campaigns for Kimberly-Clark, Toyota, Majid Al Futaim, DHL, FXCM as well as local banks Audi and Fransabank. Selected in 2011 by Endeavor, a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets. Two Webby Awards (annual international award given by the International Academy of Digital Arts and Sciences for excellence in Internet) in 2010 for their online marketing of website “Love Letters to the Future.” Gemini Award given by the Academy of Canadian Cinema & Television in 2010 for “Love Letters to the Future”.

Financing so far: Received two Kafalat loans: one in 2009 for $90,000 and one this year for $240,000

Capital raising: Looking to raise $2 million to $3 million from strategic investors by 2013.

Strategy going forward: 1) Offer 360 degrees digital marketing services (social media marketing, search engine marketing, display advertising, mobile marketing); 2) Expand the social media marketing software platform.

Where do you see yourself in five years? “A leading digital marketing player in the Middle East region with the aim to become a business worth more than $20 million by 2016,” say Marc and Nemr.

 

ElementN Holding

Entrepreneur: Rabih Nassar    
Age: 41
Industry: Technology
Established in: 2003
Number of employees: 60
Revenues: $2 million in 2011, expected to grow by 75 percent in 2012 to reach $3.5 million and $5 million in 2013

The offering: ElementN Holding is a group of companies based out of Beirut and New York that provide a number of technological products and solutions. ElementN Technologies offers mobile operators a number of solutions to enhance the customer experience using the web, mobile and call center channels. CADstrata is a software that provides a comprehensive standardization and collaboration solution for architects and building design professionals who use Autodesk, Adobe and Microsoft products. Apstrata is a leading mobile back-end-as-a-service, meaning it takes care of the back end code of an application and allows developers to focus on the front-end code. This service helps mobile developers cut their costs and accelerate the development time. (See more in Executive’s September issue).

Achievements:  Selected among the top five fast growing Lebanese startups in 2010 by AllWorld Network, a non-governmental organization. Selected by Endeavor in 2012, a non-profit non-governmental organization that supports high-impact entrepreneurs in emerging markets.

Financing so far: Initially self-funded then raised $1.2 million in equity financing from Berytech Fund in 2010.

Capital raising: Currently in the process of raising $7 million in equity in a second round of investing.

Strategy going forward: Establish Apstrata as the leading global back-end-as-a-service used by application developers and mobile operators.

Where do you see yourself in five years? “A recognized leading global technology provider operating from Lebanon, offering continuous thought leadership and innovation for cloud-based application development,” says Rabih.

 

Fresh Natural Products (FNP)

Entrepreneur: Ramzi Jalbout        
Age: 30
Industry: Consumer goods
Established in: 2008
Number of employees: 6
Revenues: $60,000 for 2011; 2012 was dedicated to investments as the products were not available for sale from March of this year, with a repackaged product due for launching in November. For 2013, FNP expects to generate $420,000 in revenues.

The offering: Under the brand name Krock’s, FNP produces and packs Labneh (strained yogurt), and Kaak (sesame covered breadsticks), for the Lebanese market. The products are sold to supermarkets such as TSC, petrol stations such as Medco and to all schools, universities and hospitals catered by Universal Services and Maintenance Catering, a Lebanese company specialized in food services. Through intellectual property firm Saba IP, FNP registered in 2008 a patent with the Ministry of Industry covering the packaging for 25 years; three years later it registered a copyright for life through Saba IP to protect the different flavors in 121 countries. FNP is currently working on a repackaged offering with the products due to be launched in November.

Achievements: Second prize ($75,000) in Future TV program Dragons’ Den awarding entrepreneurs in 2007. First prize for LBC’s product of the year competition in 2011 granting FNP $75,000 worth of media exposure on LBCI which will kick off in November . Products sold to 130 clients including retailers, schools and universities.

Financing so far: Combination of debt and equity: Secured two Kafalat loans for $133,000, one in 2008 and another one in 2012; $40,000 in equity investment from Angel One Holding in 2011 for a 34 percent stake. Angel One Holding was established by Blom Bank’s chairman Saad Azhari, Middle East Venture Partners’ managing partner Walid Hanna and Ramzi el-Hafez, general manager of Lebanon-based publishing and business research company InfoPro.

Capital raising: No more investment needed.

Strategy going forward: 1) Develop a marketing plan for the new pack; 2) Standardize the production and the supply chain; 3) Expand beyond Lebanon by starting off with Turkey, Saudi Arabia, Egypt and the UAE.

Where do you see yourself in five years? “Easily with eight flavors, five different products and 25 different franchises in the world,” says Ramzi.
 

M District. (Milia M)

Entrepreneur: Maroun Milia
Age: 41
Industry: Fashion
Established in: 2000
Number of employees: 11
Revenues: Roughly $500,000

The offering: Milia M is a fashion brand that has a retail store in Beirut and sells in 13 countries: France, Spain,  the UK, the US, Malaysia, South Korea, Taiwan, Venezuela, Australia, UAE, Jordan, Kuwait and Senegal. The brand combines a couture flair with modern trends. It has produced 22 collections.

Achievements: Exhibited in the major fashion design “salons” in Paris, Milan, Japan and Abu Dhabi. Designs featured at prominent international events such as the International Design Biennale at Saint Etienne, the Sawaya-Moroni event “Switch on Lebanese Design” show (2004), and the Boghossian Foundation Exhibition at the Villa Empain (March 2012) in Brussels.

Financing so far: Self-funded until September this year when M District raised $1.3 million through Med Securities for an undisclosed stake.

Capital raising: Just raised capital.

Strategy going forward: 1) Boost international expansion by increasing its wholesale through higher exposure, PR actions and fashion shows; 2) opening flagship stores in Europe.

Where do you see yourself in five years? “A true powerhouse in the global ready-to-wear market,” says Milia.

MobiNetS Off Shore S.A.L

Entrepreneur: Labib Shalak
Age: 39
Industry: Software technology
Established in: 2003
Number of employees: 94
Revenues: Refused to disclose revenues.

The offering: Mobinets’ solutions assist network operators in managing their mobile networks by providing them with operating support systems providing improved visibility and control over the networks. Mobinets’ fully automated platform eliminates the need for multiple databases and spreadsheets to manage network inventory and helps operators improve operational efficiencies and reduce costs while enabling rapid new product/service roll out.

Achievements: Solutions used by 18 clients across the EMEA region. Selected in 2011 by Endeavor, a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets.

Financing so far: Raised $2 million in equity capital from the International Financial Corporation, a division of the World Bank.

Capital raising: In advanced communication to raise $5 million from a local investment bank.

Strategy going forward: 1) Solidify position of mobile operators in the service fulfillment, the supply chain activities which provide services to subscribers, and service assurance which guarantees a predefined quality of service; 2) Continue on growing within Europe and abroad.

Where do you see yourself in five years? “We see ourselves as a major player in the service fulfillment and service assurance [sector]”, says Labib.
 

Mosaic Marble

Entrepreneur: Taline Assi        
Age: 34
Industry: Retail
Established in: 2003
Number of employees: 14
Revenues: $1.5 million in 2011
The offering: Mosaic Marble offers more than 5,000 mosaic designs as well as custom made orders sold through their website, eBay, a showroom in Lebanon and several resellers scattered worldwide. Their main market is the US, accounting for 60 percent of their orders and their main customers are retail clients.

Achievements: Custom orders from Oprah Winfrey, the municipality of Rome, Queen Elizabeth Theatre in London and a landmark project in New York. Products sold to more than 7,000 retail clients. Website available in 13 different languages. Selected by Endeavor, a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets.

Financing so far: Received a Kafalat loan for $450,000 and other credit facilities; received $100,000 equity capital injection from a new partner.

Capital raising: Looking to raise $1 million next year in a first phase of financing from a strategic investor in order to set up a showroom in California in 2014, hire a salesperson to target professional clients in the Middle East and for other expenses.

Strategy going forward: 1) Cater more to professional clients such as architects and construction companies; 2) Target markets in the Middle East — such as Saudi Arabia, Qatar and Kuwait — but also beyond the region, more specifically Japan, Russia and Australia; 3) Move production from Syria (where currently 70 percent of production takes place) to Lebanon.

Where do you see yourself in five years? “Being the worldwide leader in hand cut marble mosaics”, says Taline.

 


Shahiya

Entrepreneur: Hala Labaki
Age: 36
Industry: Internet
Established in: 2010
Number of employees: 8
Revenues: Refused to disclose revenues. They are generated mainly through advertising on the site.   
The offering: Shahiya.com is a website in Arabic specialized in recipes, cooking tips and giving advice on diet. Its members, Arab home cooks, add recipes to the site. Carole Hani, a US-based registered dietician who trained at the Harvard Massachusetts General Hospital, supervises all the diet content on the site and offers healthy and diet recipes as well as the nutritional facts of each recipe. In July 2011, the company launched an iPhone application for Lebanese cuisine available for free. In July this year, it launched another iPhone app followed by an Android app in August that are a full version of the website, also available for free.

Achievements: 50,000 registered members added more than 6,000 recipes since the launch. 30,000 daily visitors to the site from the MENA region. Applications downloaded more than 600,000 times.

Financing so far: Shahiya received a Kafalat loan in 2011 for an undisclosed amount. It closed in September this year a first round of equity financing from Lebanese venture capital fund Middle East Venture Partners for an undisclosed amount.

Capital raising: Not at this point as just closed a round of financing.  

Strategy going forward: Continue on investing in services offered both on the web and mobile.

Where do you see yourself in five years? “Our big dream is to become the ultimate source of information about food in Arabic. Reaching 5 millions unique users per month is one of our milestones, becoming profitable is another one that we hope to reach soon,” says Hala.
 


O’BOX

Entrepreneur: Myriam Hoballah
Age: 42
Industry: Consumer goods
Established in: 2011
Number of employees: 5
Revenues: $120,000 expected in 2012 and $300,000 in 2013
The offering: O’Box is an organic, ready-made food retailer catering to individuals who wish to eat healthily. It is certified by the Mediterranean Institute of Certification (IMC) in Italy and accredited by the European Union. It started selling its products at TSC Signature Store in Beirut Souks in December 2011.

Achievements: Listed in IMC’s “Know your meal” guide and received three cockerels (IMC awards) for the quality level of its products, as well as three green leaves for the O’Box food supply system’s environmental performance. Member of the Lebanese Franchise Association, a non-profit organization promoting Lebanon’s franchising sector.

Financing so far: $85,000 Kafalat loan in 2011.

Capital raising: Looking to raise $200,000 in equity capital in the first quarter of 2013 for an undefined stake in order to open a new outlet outside TSC Signature Store next year.

Strategy going forward:  1) Take key locations in Beirut (not secured yet); 2) expand to the regional markets starting with Dubai, Kuwait, and then expand in Europe and the US through franchising.

Where do you see yourself in five years? “As the main organic ready made food brand strategically present in key markets covering the US, Europe, Middle East and Africa, and Asia” says Myriam.


Olive Trade

Entrepreneur: Youssef Fares
Age: 33
Industry: Consumer goods
Established in: 2004
Number of employees: 10
Revenues: $350,000 in 2011 and expect a 20 percent annual increase in the next two years

The offering: Olive Trade produces and sells products derived from olives in Lebanon. The company is involved in the entire process chain from production, for which it engages local farmers, to putting the products on the shelves. Under the brand name Zejd, meaning oil in the ancient Phoenician language, its products are sold in Lebanon to gourmet and organic retail shops such as Live Organic and Aziz, to hotels such as Le Grey, to caterers such as Nicolas Audi catering and to restaurants such as Basilico and Talleyrand. The products are also exported on demand and they have been sold in Japan, the United States, Nigeria, France, Switzerland and Saudi Arabia. The range of products includes extra virgin and aromatized olive oil, pickled and stuffed olives, tapenades and olive oil soaps.

Achievements: First prize of “The Maurice Fadel Prize” for the best business plan in the north of Lebanon in 2012. Second prize of “Grow My Business” in 2012 ($13,000 grant) and 3rd prize of the same competition in 2011. Bronze medal at the Los Angeles International Olive Oil competition in 2012.

Financing so far: Received a $200,000 Kafalat loan in 2004, paid back in full.

Capital raising: No plan for capital raising at the moment.

Strategy going forward: 1) Developing export markets; 2) Launching a specialized olive derivative shop called “House of Zejd” in Ashrafieh; 3) Opening a second outlet within a year; 4) Developing a franchise system and selling the franchise to independent entrepreneurs.

Where do you see yourself in five years? Youssef expects at least three “House of Zejd” shops in Lebanon in the next five years.

Print Works

Entrepreneur: Jad Khoury
Age: 46
Industry: Media
Established in: 1999
Number of employees: 275
Revenues: Around $15 million
The offering: With offices in Beirut and Dubai, Print Works offers printing and fabrication solutions, often incorporating a variety of mediums in addition to distribution and installation. Print Works’ services cover printing and production for traditional large-scale advertising (billboards, branding on vehicles), promotional events (product launches, sponsorship events), and longer-term brand experiences (podiums in malls, point of sale display stands).

Achievements: Sold printing and fabrication solutions to around 3,000 clients including Yves Saint Laurent, Louis Vuitton, Channel, Cartier, British American Tobacco, JWT and Leo Burnett. Selected in 2012 by Endeavor, a non-profit nongovernmental organization that supports high-impact entrepreneurs in emerging markets. Selected in 2010 to be part of the Arabia 500 by AllWorld Network which provides ranking for the fastest growing private companies in different regions in the world. Selected also in 2010 to be part of AllWorld’s Lebanon 25 ranking.

Financing so far: Self-funded with facilities from local banks.

Capital raising: Not looking to raise capital.  

Strategy going forward: Plan to open an office in Riyadh in the middle of 2013 followed by an office in Erbil, Iraq.

Where do you see yourself in five years? “The leading full service provider in the printing and production space in the region,” says Jad.

Wixel Studios Offshore

Entrepreneur: Ziad Feghali, Karim Abi Saleh and Reine Abbas
Age: 35, 29, 34
Industry: Internet
Established in: July 2012
Number of employees: 7
Revenues: $150,000 in 2012 and expects over $400,000 in 2013

The offering: Wixel Studios creates games on Apple and Android operating systems for the Middle East and North Africa region. Previously, Wixel used to create online games on their website and developed five online flash games localized for the Arab audience in addition to many advergames, with Almaza and Master Chips among their clients, and edugames for the Lebanese Civil Defense and the European Union, among others. They have stopped developing such games and are now focused solely on developing games available on mobile devices. They will be releasing their first mobile game Abou Ahmad El Arabi (AAA) in November on both the app store and the android market, with expectations for 500,000 downloads over a 12-month period and another game before the end of the year. The price of AAA will be between $0.99 and $1.99 depending on the version. The game will require the user to play extensively and frequently to compete or use shortcuts using cash (i.e. pay to upgrade the car and weapons). For now they have developed a game entitled  “My Balls” available for free on the app store and the Android market and downloaded 3,000 times.

Achievements: Third place on the 2012 MIT Grow My Business competition ($6,600 grant).

Financing so far: Raised equity funds from Middle East Venture Partners and Berytech in June 2012 for an undisclosed amount.

Capital raising: No plans for one-and-a-half years.

Strategy going forward: 1) Create internationally recognized and successful games for the Arab audience; 2) grow the team to 15 employees in the coming one and a half years; 3) open offices in different Arab countries.

Where do you see yourself in five years? “One of the top mobile games publishers in the Arab world,” says Ziad.

0 comments
0 FacebookTwitterPinterestEmail
AutomobilesEconomics & Policy

A potentially disastrous diesel plan

by Paul Cochrane
written by Paul Cochrane

 

In March this year the government drafted a law for the importation and use of cars that run on ultralow-sulfur diesel, also known as “green” diesel, in compliance with the European Union’s Euro 5 emissions standards. Though the law is still awaiting ratification, dealerships are up in arms about the plan, describing it as “stupid,” “nonsensical,” “not feasible” and “only in the personal interest of politicians.”

The rationale behind the law is that, in the words of the Ministry of Justice, it “will contribute to preserving the environment as green diesel is free of sulfur and the percentage of tar is 50 percent less than [in] the diesel that is currently       being used.”

While importing cleaner diesel would be far better than the currently used Euro 3 diesel, with 350 parts per million (PPM) of sulfur, or the red diesel with 5,000 PPM, Euro 5 diesel is not sulfur free – it has 10 PPM. What is more, the draft law comes at a time when Europe is mulling banning diesel vehicles outright in cities due to its health risks. In June the World Health Organization decreed that inhaling diesel fumes can cause lung cancer, adding diesel fumes to its list of Group 1 Carcinogens alongside arsenic, strontium-90 and neutron radiation. 

While dealers are concerned about the environmental consequences if diesel cars are allowed, they are wary of a repeat of 2001, when law 341 amended a 1995 law that restricted the use of diesel to trucks and busses by banning vehicles with engines smaller than 3,500cc from running on diesel. As a result dealers and drivers had to convert engines, at an estimated cost of $6,000 for a mini van. 

If the law is passed, dealers are worried that it may be overturned just years later, which would have a negative effect on inventory and after-sales, as well as cause expenses due to the importation of specialized equipment needed to service diesel cars. Furthermore, certain manufacturers are planning to stop producing diesel vehicles altogether, including Ford, BMW and Nissan, to focus on hybrid and electric cars instead.

“I don’t understand the objective of the government — to reduce fuel costs or save the environment? Diesel may be cheaper but if it is taxed like petrol it is the same price, especially ‘green’ diesel, and the cars are more expensive,” said Cesar Aoun, general manager of Gargour & Fils, distributor of Mercedes. “And will we reach the Euro 5 level? Come on. We need to stop the import of cars older than five years.”

Old cars emit more pollution than newer models and their prevalence on Lebanon’s roads is an environmental problem. Some 52.5 percent of registered cars currently on the roads are older than 15 years, and 29 percent between nine and 15 years old, according to the Automobile Importers Association (AIA). A further argument against importing green diesel cars is the price of high-level filters that limit nitrogen oxide (NOX) particles from entering the air, at between $1,300 to $2,600. As the Ministry of Environment has noted, cars that run on Euro 5 diesel “are equipped with a special filter that is installed in the car exhaust, and this filter should be maintained, cleaned and emptied regularly.” The big question here is whether there would be actual checking of filters by the authorities, as well as proper storage of Euro 5 diesel at gas stations.

After all, enforcement is not a strong attribute of the state when it comes to vehicles, as some statistics show. According to the AIA, out of the 1.3 million cars registered in the country, approximately half a million did not go for the annual “mechanique” road test last year, and some 30,000 cars are illegally running on natural gas. There are some 33,000 registered red license plate taxis whereas 55,000 are actually plying the roads; 4,000 red plate mini-buses registered but more than 6,000 in operation; and 2,000 red plate buses while 6,500 are on the roads. At the gas station level, out of 3,250 in the country only 1,450 are actually licensed by the government, according to the Ministry of Energy and Water.

Marwan Naffi, general manager of Gabriel Abou Adal and Partners, distributor of Volvo, believes a solution would be taxing vehicles that have higher carbon dioxide emissions and giving tax breaks for vehicles with lower emissions instead of introducing “green” diesel. 

“Today you can’t sell a car because of its lower emissions whereas elsewhere you get tax incentives,” said Naffi. “If you look at our Volvo T4 with 180 horsepower (HP) and the T5 with 250 HP, they would be the same price in Lebanon whereas the T5 in Europe is more expensive. We will not import the T4 for the Lebanese market as there is no incentive to do so.”

0 comments
0 FacebookTwitterPinterestEmail
AutomobilesEconomics & Policy

Big sales for small cars

by Paul Cochrane
written by Paul Cochrane

If you go by the headlines in financial reports, the car market is doing surprisingly well given the staid economic climate;  growth of 7.6 percent was registered in the first eight months of the year, relative to 2011, and up 2.1 percent on the same period in 2010. But delve further into the Automobile Importers Association (AIA) monthly reports and all is not well, certainly for most dealerships, with just three brands accounting for 61.37 percent of sales this year.

“The market is very bad. People feel all is well as volumes are up but turnover is much lower than last year,” said Samir Homsi, president of the AIA. “Only baby cars are selling, in the $10,000 to $12,000 range. The situation is very lousy and profit margins are down.”

Brands which have had strong sales this year all have compact models in the A, B and C categories, which have steadily grown in recent years, with low horsepower vehicles currently accounting for an estimated 80 to 90 percent of sales. For Rymco, dealer of Nissan, the A category (think of the Micra) has gone from 18 percent of sales in 2010 to 21 percent this year, and the B category (the Sunny) from 15 percent to 20 percent, while other categories have contracted by 10 percent.

“We are seeing a trend where nearly every household has a small car now; it is a must,” said Farid Homsi, general manager of IMPEX, distributor for GM, Chevrolet, Cadillac, Hummer and Isuzu. “The Chevrolet Spark is by far our number one seller, by a big, big margin.”

Kia, Hyundai and Nissan are the top three sellers, with the next leading four brands — Toyota, Chevrolet, Renault and Volkswagen — accounting for 15.21 percent. Out of some 70 car brands available in the market, these seven account for 76.58 percent of sales.

“It is amazing if you look at the sales results that three brands control around 60 percent of the market and all the others share the rest. There is something wrong. Consumers are being followers rather than choice makers,” said Nabil Bazerji, managing director of G.A Bazerji and Sons, distributor of Suzuki, Lancia and Maserati.

The shift toward smaller vehicles is driven primarily by rising fuel costs, the lack of public transport and financial constraints. “People don’t have the budget anymore, fighting to get $4,000 for a down payment, and some distributors are even selling without a down payment,” said Samir Homsi. “People are only buying because there is a need, not to put a key holder on the table to say I own X or Y. It is for commuting, so they want a small, economical car.”

With dealerships offering warranties and free servicing deals for up to five years, and banks aggressively financing loans, this has helped drive the surge in sales of lower-end models. For market leader Kia for instance, 60 percent of sales are through financing. 

On the positive side, demand for more fuel efficient vehicles has resulted in a drop in sales of used cars — in addition to individuals banned from importing second-hand cars — which plunged 28.89 percent last year on 2010, and year-to-date down 17 percent on 2011, from 25,281 cars to 21,424 in 2012.

Asian invasion

The biggest gainers from the shift to smaller cars and new vehicles, over buying that long popular second-hand choice of a Mercedes or BMW, are the Korean brands, which have a staggering 44.81 percent of the market — Kia with 26.88 percent and Hyundai with 17.92 percent. Cheap Chinese brands have also made gains this year, up 85 percent, albeit only selling 308 cars and accounting for just 1.18 percent of the market, indicative of how price sensitive consumers are. 

Kia has been number one for three consecutive years since knocking Nissan from the top spot, and sales are up 13 percent this year. “Lebanon is the only country in the world where Kia is number one, everywhere else it’s Hyundai,” said Dayala Dagher Hayeck, general manager of NATCO, distributor of Kia. “We’ll be number one again next year and in the coming years. The challenge is to remain there. As long as there’s no public transport it’s good for sales.” 

 

Korean cars have been popular in the Lebanese market before, when in 1995 five brands were available (including the now defunct Daewoo, which was absorbed by Hyundai) with 43 percent of the market share. The share steadily dropped to 18 percent in 1999, to 7 percent in 2003, and then started to steadily rise from 2008 with a 19.3 percent share until the current new peak. The rise in Korean sales correlates to an exchange rate change in the Japanese yen to the dollar, from over 100 yen to the dollar for a decade until late 2008, when the yen’s value rose. As of the end of October, the exchange rate was around 80 yen to the dollar, and sales of Japanese cars were down 1.8 percent on last year.

Bazerji argues that the exchange rate has made Japanese cars uncompetitive versus Korean brands, as Japanese vehicles would be on par price-wise if not actually cheaper. “Japanese cars are cheaper than Korean cars. If you take for example a Toyota Rav 4, Honda CRV or Suzuki Grand Vitara versus the Kia Sportage, with the exchange rate at 78 yen it is $34,000, whereas at 110 yen it is $24,400,” said Bazerji. “Koreans are taking advantage of the yen’s appreciation to sell cars for more than they should be, but the consumer is not looking at this; they should bargain for Korean products and not accept the prices.”

If the yen managed to trade at over 100 to the dollar again — and there is a lot of pressure on Tokyo to do so to bolster exports — Japanese brands might regain some of the ground lost to the Koreans. “From my experience automotive sales are cyclical. Nobody stays at the top,” said Bazerji. “Till 2009 the Japanese were market leaders then they lost ground. But if the yen improves they [the Koreans] will be killed in the market as they were unable to sell in 2008 when the yen was at 110.”

Manufacturers, however, are not banking on a weaker yen. “It would be fantastic as it is a head wound at 79 yen to the dollar, but you can’t run a company on hope,” said Trevor Mann, senior vice president of Nissan, at the launch of the new Altima in Beirut. 

What may impact on Korean brands’ competitive pricing is the recent decision by Hyundai and Kia to scrap overnight shifts at manufacturing facilities, replacing two 10-hour shifts with an eight to nine hour workday, while wages have also been increased.

But it is not just pricing that has made Korean brands cars of choice in the Lebanese market. The improvements in Korean car quality, design and re-salability over the past decade have made it harder for Japanese, as well as European and American brands, to tout their advantages of heritage, safety, reliability and so on. In global brand recognition for instance, Koreans are on the up. Interbrand’s survey of brand values for 2012 showed Hyundai and Kia’s respective brand worth improve 24.4 percent and 50 percent, respectively, with Kia in the survey’s top 100 for the first time, ranked 87th. Among automotive brands, Toyota remained on top (ranked number 10 among all brands), followed by Mercedes in 11th place, BMW (12), Honda (21), Volkswagen (39), Ford (45), Hyundai (53), Audi (55), Porsche (72), Nissan (73), and Ferrari (99).

The Koreans are equally upping their game, bringing out hybrids, and Kia is soon launching a new sedan, the Quoris. “In 2013 we’ll launch a new model that’ll compete with BMW and Mercedes, a high class luxury sedan to attract a new category. This will be a big challenge to make people buy Kia at a high price,” said Dagher Hayeck. 

Middling along

The bulk of automotive sales, some 65 percent, used to be in the $22,000 to $90,000 price bracket, but with an increasingly financially squeezed middle class, brands selling in that range are having to go the extra mile to generate sales. Extended warranties and competitive pricing are major tactics, with a shift over the past year toward advertising the cost, which used to be primarily in the lower price segment. “You used to advertise to emphasize the brand image. Now it is what GM calls ‘bretail’ — a focus on retail with some branding,” said Farid Homsi.

Price wars between dealers are also generating sales, enabling certain luxury European and American brands to have had a relatively good year. As of the end of September, BMW has sold 524 units compared to 396 in the same period last year, while for Audi it was 422 compared to 462 last year, and Mercedes 514 compared to 616 units.

“Everyone says business is bad but when I see the figures it is not too bad, and there’s been growth. It is a bit weird,” said Cesar Aoun, general manager at Gargour & Fils, dealership of Mercedes, Smart, Jeep, Chrysler and Dodge. “In general, consumers are getting good deals due to price wars          between dealers.”

 

Gargour arranged with Mercedes-Benz to only buy cars in dollars to avoid price fluctuations in the euro and remain competitive, as the brand can oly offer incentives by way of free optional extras; price discounts are only allowed for year-end specials. Instead, Gargour is planning to introduce securitization to self-finance sales, working on improved customer service and building a new showroom in Doura. 

Volvo is also banking on financing to bolster sales. “We want to double sales in the next few years through financing, to 200 to 300 cars a year,” said Marwan Naffi, general manager of Gabriel Abou Adal and Partners, distributor of Volvo. 

Building new showrooms is a recent strategy among dealers. Volvo plans to build a flagship showroom in Ashrafieh, while Mazda and Nissan look to new showrooms on the coastal road north of Beirut. Impex plans to build a new one in Beirut, and dealerships are going more regional in outlets rather than being focused on the capital. 

While such a move is considered necessary to bolster sales and retain customers in the lucrative after-sales market, some dealerships are not happy about it due to the current tight margins, as the new spaces are being forced on them by regional headquarters in the Gulf. 

“We wouldn’t have invested now due to the situation, but regional management is based in Dubai where it is stable and there is the mood for branding. If the region were broken down, to Syria, Lebanon and Jordan, they wouldn’t have asked for expansion but we’re included in their Middle East plans,” said one dealer.

Optional extras

With the market extremely competitive, as it is around the world with car sales projected to grow by just 5 percent this year, from 75.69 million cars in 2011 to 79.70 million, it is optional extras and new technologies that are setting brands apart in the higher end categories. Volvo is to introduce its Polestar technology — similar to Mercedes’ AMG — which is a chip that boosts engine power by up to a fifth, and next year will launch the V40, which will have a pedestrian airbag, a global first as part of its 2020 strategy to have no mortalities connected with a Volvo, whether inside or outside the vehicle. 

sMeanwhile Cadillac is to launch a new compact luxury model, the ATS, to tap into the trend for smaller vehicles, and in other models introducing its CUE technology, a combination of intuitive control, like smart phones and tablets within the car, with the US brand having patented the technology for two years. 

Such extras are expected to bolster sales in what has been a poor year for sales of luxury and premium vehicles. No Ferraris, Lamorghinis, Rolls Royce or Maybach have been sold so far, and just two Aston Martins and eight Bentleys, whereas by the same time last year 10 Aston Martins, nine Bentleys, and one Lamborghini were sold. Maserati, however, is up by two units on last year to 17.

As we move into the last two months of the year, dealers are hoping that the government does not decide to reintroduce diesel for passenger cars or increase value added tax from the current 10 percent. “It would be stupid to raise VAT as it would kill the market completely, which is already going through a very severe crisis,” said Samir Homsi.

0 comments
0 FacebookTwitterPinterestEmail
The Buzz

Morning briefing: 2 Nov 2012

by Executive Staff
written by Executive Staff

Economics

Brent crude slipped below $108 a barrel on Friday as investors look ahead to key jobs data from the United States for more signs of economic recovery, which would boost fuel demand.

More from Arabian Business

 

Intensifying political turmoil in Kuwait, where police used teargas to disperse protesters a day earlier, triggered another sell-off on the country's main index on Thursday, dragging it down to its lowest level since August 2004.

More from Arabian Business

 

The Lebanese Energy Ministry said on Thursday the fair price of electricity provided by private generators in November is LL410 for every hour of power supply for customers who receive 5 amperes and LL820 for those who receive 10 amperes.

More from The Daily Star

 

Iraq opened on Thursday its biggest trade fair in more than 20 years in the latest step to rebuild an economy battered by decades of conflict and sanctions.

More than 1,500 companies from Iraq and 21 other countries are taking part in the Baghdad International Fair.

More from The Daily Star

 

Almost three quarters of a million commuters in the UAE travelled for free on the Metro, buses and water taxis to mark Public Transport Day on Thursday. The Roads and Transport Authority (RTA) estimates that 739,000 passengers took advantage of the waived fees, an increase of more than 42,000 from last year.

More from The National

 

Companies

UAE-based Dana Gas failed to repay a $920m Islamic bond on maturity, prompting a source close to holders of the bond to say they will stake claim to the natural gas producer's extensive Egyptian assets.

More from Arabian Business

 

More than 60 percent of internet users in the GCC are unable of recognizing a basic phishing message or forged website, a new survey has found.

More from AME Info

 

The world's most expensive real estate development – part owned by Qatar's Prime Minister – has completed sales worth £1.7bn ($2.7bn), it has been announced.

More from Arabian Business

 

 

0 comments
0 FacebookTwitterPinterestEmail
Society

Dealing with trauma and depression

by Nabila Rahhal
written by Nabila Rahhal

Life in Lebanon means regularly dealing with the unexpected, and often the unpleasant. From the civil war in 1975 and moving to the consistent bouts of armed conflict that strike the country every now and then, the Lebanese have become accustomed to living with the unacceptable. Less dramatic, though also stress-inducing, are how simple acts such as trying to turn on the lights, taking a shower or even driving your car to work can have uncertain outcomes in this country. With all this stress surrounding us on a daily basis, one has to wonder: are the Lebanese still sane? What do the experts, and the numbers, have to say about the mental health of the Lebanese population?

Between 2002 and 2003, the Institute for Development, Research, Advocacy and Applied Care (IDRAAC) embarked on the first nationwide survey on mental disorders in Lebanon (the Lebanese Evaluation of the Burden of Ailments and Needs Of the Nation – ‘LEBANON’). The sample — 2,857 people over eighteen years old selected from the five different regions in the country — was subjected to extensive one-to-one household interviews based on the World Mental Health Composite International Diagnostic Interview. The participants were also asked about their level of exposure to the civil war. 

Results showed the majority of mental disorders prevalent in Lebanon fall under the broad category of anxiety disorders, such as post-traumatic stress disorder (PTSD) and generalized anxiety disorder, and are followed by mood disorders such as chronic depression and bipolar disorder. According to the survey, 25.8 percent had at least one mental disorder, a percentage similar to that in Western Europe. 

The survey’s findings are in line with the figures from the Lebanese Syndicate of Pharmacies, which show the largest number of mental health medications sold in 2011 were tranquilizers, or anti-anxiety pills, of which just under one million were bought. This was followed by 642,000 boxes of antidepressants sold last year. According to a representative from the syndicate, these numbers are expected to rise by 15 percent this year. 

‘There’s a pill for that’

Doctor Antoine Harb, head of the Ministry of Public Health’s chronic medication distribution center in Karantina, explains that, in the area of mental health, the ministry provides medication for chronic or manic depression and for psychotic disorders, such as schizophrenia. Anti-anxiety medications are not covered by the ministry due to the high prevalence of such disorders, and also because they are cheap and easily available. “Approximately 22 percent of the patients who visit the center come for psychiatric medication. In fact, the majority of patients seeking medication from us are either cancer patients or mental health ones,” says Harb. He adds that since the year 2005, they have been seeing a yearly increase of around 15 percent in mental health patients seeking medication. 

 

“The most prevalent mental health issue we have witnessed in the areas we have previously served, and are serving in Lebanon, is chronic depression. This is actually a global problem and the proof is that the theme for this year’s Mental Health Day revolves around it,” says Hala Yahfoufi, the psychologist advisor for Médecins Sans Frontières (MSF), a nonprofit organization providing, among other services, free mental health awareness and treatment in underserved communities around the world.

The Society psyche

In trying to explain the causes of these mental health problems, doctors interviewed agreed that susceptibility to mental disorders is equally due to the person’s genetic makeup and to his or her innate level of resiliency. “Two brothers, raised in the same manner and exposed to the same environment, can have different psychological responses to the same triggers,” explains Yahfoufi. She is reluctant to attribute Lebanon’s mental health problems solely to the war, saying that there are other every day triggers we are struggling with which also account for these problems. According to her, one of the main triggers for mental health issues in Lebanon, though not necessarily ones leading to psychiatric visits, is repression brought on by societal pressures and traditions. 

Harb says that they see a lot of PTSD in the center, and that this is caused by exposure to war traumas. The LEBANON study revealed that almost half the sample interviewed was exposed to war-related events, such as being a civilian in a war zone or being a refugee. According to the study, this exposure increases the risk of developing a mental disorder for the first time. 

Doctor Elias Karam, psychiatrist and member of IDRAAC, explains that globally and in Lebanon, it is the younger generation which is suffering more from mental illnesses, which cannot be attributed to the civil war as those most exposed to it are adults by now. Referring to IDRAAC’s studies, Karam attributes the prevalence of mental health problems in youth to various conjectural factors, including different and faster paced lifestyles than their predecessors that include more competition and less social cohesiveness. “With the advances in technology, and the extreme mobility taking place all over, the youth have lost access to a real and comforting social network, and this causes feelings of stress and loneliness,” says Karam. 

Though mental health problems are prevalent in Lebanon, only 10 percent of those with moderate to severe mental illnesses are treated, according to Karam. “This may be due to a lack of knowledge on the patient’s part, or because they don’t realize they have an illness and think they can overcome their emotions by themselves,” explains Karam. In contrast to chronic depression, according to Karam, 50 percent of those who suffer from panic disorders do receive some sort of treatment — though maybe not from a trained mental health professional — and this is because symptoms of such disorders are physical and difficult to ignore. If there are no physical symptoms, however, mental disorders seem to be considered part of daily life.

Improving Mental awareness

This is an issue that MSF is earnestly working at through raising awareness about mental disorders in Lebanon. “After three years of working in the Burj Al Brajneh refugee community, people were more comfortable with visiting psychologists and would voluntarily seek sessions with our mental health professionals. This was achieved through a strong awareness campaign which even targeted people’s homes,” says Yahfoufi, who says she hopes to achieve the same level of awareness in Tripoli through the work they are currently doing with the government hospital there.  

Though the National Social Security Fund does cover psychiatric medications, only three or four private insurances cover such medications at the moment, according to Karam. Yahfoufi believes that while it is easier for public hospitals to consider taking psychiatrists, physicians that specialize in mental health, on board as part of their medical team, psychologists are still not as readily accepted in public hospitals. Given the pervasiveness of mental health problems in the country, and the ongoing stress we are subjected to on a daily basis, we look forward to the day when mental health intervention and awareness are taken more seriously. 

0 comments
0 FacebookTwitterPinterestEmail
Companies & Strategies

Fortune in the tube

by Thomas Schellen
written by Thomas Schellen

 

Most manufacturers of widely used products vie for the attention of the masses, doing everything they can to promote their products and identities into the center of public awareness. Some other businesses fly under the public radar, whether by desire or because their products just don’t engender affection. For some of these manufacturers and the entrepreneurs running them, their media exposure is as low as their business growth is high. 

One such company is Future Pipe Industries, built and run by Lebanese businessman Fouad Makhzoumi. The company grew from a $100-million-a-year business around the turn of the century into a billion-dollar conglomerate with global reach in the course of the past 10 years.

“We represent 16 percent of the world market for fiberglass pipes and are the largest manufacturer; the world market for these pipes is $117 billion annually,” says Makhzoumi.

Future Pipe Industries (FPI) is the centerpiece of Future Group, a family holding that also includes an investment arm, ventures in real estate, engineering and business development as well as an organization dedicated to philanthropy. While the group is headquartered in Dubai and the philanthropic Makhzoumi Foundation is focused on Lebanon, FPI has operating manufacturing plants in seven countries, which distribute their goods across the globe.

In terms of economic contribution, FPI accounts for about 80 percent of Future Group’s activities. The corporate story entails several narratives of the self-made Arab man: A family-rooted individual, who had the fortune of seeing an opportunity and the flexibility to respond to it, plus the passion and power to capitalize on the initial fortune and expand it over decades. 

Fortune’s seeds of chance

As he recalls his entry into pipe making in conversation with Executive, Makhzoumi says he was a hot-headed 20-something who decided to drop the pursuit of a PhD at the Massachusetts Institute of Technology in 1974 when his doctoral advisor insinuated that his Lebanese homeland might no longer be around as a country by the time the young man received the degree. 

The young Arab took his Masters degree in chemical engineering and in 1975 moved to Saudi Arabia, where a chance encounter at a future inlaw’s house led to a job offer by Amiantit, a pipe making company that was at the time linked to the Swiss cement dynasty, the Schmidheiny family, and is still a major Saudi manufacturer today. To Makhzoumi’s question as to why he, a chemical engineer, should be interested in such things as asbestos cement pipes, the answer was “Try it for a month”.

Jump forward through about seven years of laboring for the Amiantit Company and Makhzoumi put together an investment offer to acquire the non-Saudi pipe making ventures in the region from Schmidheiny Group. “With Stefan Schmidheiny not too keen to stay in the business after his father’s death, I was able to obtain a syndicated loan and buy all the business in the Middle East outside Saudi Arabia, except for Lebanon, which in 1984 was very difficult to access.” FPI was born, the manufacturing process was altered to use fiberglass instead of the perilous asbestos and the company grew into a Middle Eastern fiberglass pipe manufacturer of note.

 

Playing back to Lebanon

The story could settle here into a routine tale of industrial growth in the 90s, were it not for some interesting decisions and Makhzoumi’s knack of seeing economic pictures in wider terms, a geostrategic gene that he may have in common with other billionaires with Lebanese DNA. In one interesting decision, Makhzoumi moved back to Lebanon in 1992 and in 1993 established one of his FPI plants in Akkar, the country’s deprived northern region. “Akkar was an ideal place,” he says. “Lebanon’s majority of export business is construction materials and food, which require road transportation. In the north, you are very close to the Syrian border which means you can export your products.”

Although he built the plant near the [dormant] regional airport, then touted loudly as investment project by the government’s IDAL agency, he never got a power line from the electricity grid or even a landline phone until he closed the plant 17 years later, Makhzoumi says. 

The plant’s 2010 shuttering was not because of missing national demand for pipes — public water infrastructure projects could have taken around two years worth of output, according to the entrepreneur — nor the deficient physical infrastructure, although he laments, “If you look at Lebanon anywhere north of Tripoli, it is like Somalia. There is nothing being done there.” 

What he says made the plant economically unfeasible was that Lebanese politicians made every effort to put obstacles in the company’s way, such as blocking the sale of pipes made by FPI in Akkar to national infrastructure projects. The exercise deeply expanded Makhzoumi’s knowledge of the Lebanese political approach to industrial needs. “By default, if you disagree with a [Lebanese] politician, he will give instructions to the government to fight local industry,” he claims. 

Instead of waiting any longer for answers from Lebanese political players, Future Group pulled the plug on the Akkar plant and is currently expanding in Spain, buying factories in the country seen widely as being one of Europe’s embattled economies. Makhzoumi’s rationale for the anti-cyclical step is that he anticipates a new trend for 2013 that will bring new opportunities. “For me, market collapse is an opportunity. I don’t look at it as a disaster as long as you have managed your core business in such a way that you can sustain and bridge the cycles,” he says. 

Under the public radar

Neither he nor FPI are very visible in international or regional media. Even though the company was valued at $1.6 billion when it was preparing for an initial public offering on Nasdaq Dubai in 2008, and his personal net worth must be assumed to be considerably above that mark today, Makhzoumi has never appeared in the Forbes’ list of billionaires. In international media, he was dragged into British headlines in connection with a scandal over a former United Kingdom minister, Jonathan Aitken, but vigorously rebutted the allegations that he himself was implicated in any wrong conduct. 

Makhzoumi has a bone to pick with local media in Lebanon, accusing them of not covering his philanthropy and the work of the Makhzoumi Foundation, because these media are affiliated with political camps that dislike him. His rare mentions in media notwithstanding, Makhzoumi appears as a skilled manipulator and someone who communicates with a keen sense of effect. When he lambasts what he sees as the failings of the Lebanese political class, he does not seem prone to thoughtless outbreaks of criticism, but rather as someone who uses candor with a great sense of impact and otherwise always says the right things with natural conviction, such as explaining his drive for business success with his passion. “You should enjoy what you are doing. If you enjoy what you are doing you can be innovative all of the time. If you think it is a job, you get bored.” 

One suspects that it is easy to be bored with pipe making. Pipes and pipe systems are an ancient technology that has been upgraded tremendously through modern engineering and manufacturing processes. They come in a surprising variety of metal, cement and plastic pipes for an extensive range of uses from the kitchen to intercontinental transport. Various lobby groups and industry associations promote the advantages of the respective materials and numerous companies claim to be world leaders in producing basic types and sub-categories. 

Pipes and geopolitics

Makhzoumi sees pipes with different eyes and listening to him, the humble pipe takes on strategy dimensions in regional and global security-economic contexts. In the Far East, for example, he says specialty pipes in marine applications will be needed for enabling the navies of Korea and Japan to build vessels that can counterbalance the expansionary naval presence of China. Developing a joint venture with Korea’s SK Chemicals, Future Group will play a part in delivering pipes for use in naval vessels.

A broad geostrategic aspect of piping is the transport and distribution of vital materials, control of which Makhzoumi sees as today being more important than their production. Oil and gas pipelines that traverse the Middle East or link Asian producers to Europe are well-known for their strategic importance, but China also provides a hot current example. 

According to Chinese state television reports, the country last month started construction of its third pipeline in an extensive internal gas transportation network. China’s latest West-East pipeline construction project is projected to cost $19.9 billion and cover a distance of 7,300 kilometers, the state media said, adding that the first two pipelines of the West-East network were realized between 2002 and this year with an investment of $46 billion. 

Pipelines of intercontinental length already are tools of geopolitics and will assume increasing importance in the competition of nations for economic leadership. No wonder then that the FPI founder regards business leadership as inseparable from engaging in politics. “You cannot be a global player by trying to be only a businessman,” he says. “I play regional power and politics to try to understand the trends that are arising and this is how you position your business in order to be part of the change.” 

The pipe maker also sets his sights on countries where he anticipates broad-based infrastructure development needs to meet high population pressure and social development demand. Indonesia, for example, will need to start spending on amenities for its citizens and invest in infrastructure such as pipe-based utilities. “We believe Indonesia is moving. It is becoming one of the largest Muslim countries. They have to start spending in order to avoid falling into the Arab Spring,” Makhzoumi says. 

And there will be no end to piping needs. Global demand will burgeon because higher population densities and scarcer resources will mandate development of pipelines. For every person born on earth, two meters of pipe are needed, he cites. 

The Syria-Russia puzzle through pipes

Even the puzzle of why Russia is not joining the rush to change the regime in Syria can, from the geopolitical entrepreneur’s perspective, be understood by examining the angle of gas transportation. Russian self-interest is to keep control over the price of gas deliveries to Europe via the pipelines that allowed it to develop this crucial revenue stream after the end of the Cold War and the breakup of the Soviet empire. If gas from exploitation of newly discovered finds in the Eastern Mediterranean were to be delivered to Europe at reduced prices, when compared with Russia’s, it would break Russia’s back, Makhzoumi reasons. “That is why Russia invested billions of dollars over the past seven, eight years in Cyprus, against which they have the right to set up their LNG (Liquefied Natural Gas) plant,” he says. “If they control it, they will make sure that this gas will not be delivered to Europe at a lower price than what they are delivering. To be able to do that, you need the LNG plant and you need the military base, which is what Syria has.” 

Makhzoumi’s socio-political power base in Lebanon includes his philanthropic foundation and a political party, both of which he says are wholly self-funded and do not expose him to the levers of influence and the strings that other political players are pulled by. He claims he is a player in Lebanese politics “because this is my country and I am not happy about the way that our people are living”, and when asked if he wants to be prime minister, answers “Yes, why not.” 

Looking East

In the meanwhile, he is positioning FPI for greater global reach. The company, according to Makhzoumi, today has a built-in production capacity of some $4.5 billion, of which the Middle East represents about 60 percent. Besides developing the group’s engineering and procurement capacities, entering Spain as springboard for dealing with Latin America, investing in the marine pipe venture in South Korea and a deep-well equipment venture in Indonesia, the Future Group is also building a $100 million facility in Myanmar. Three to five years from today, the IPO that was first planned for 2008 will likely be on the books again, with a valuation of the company that Makhzoumi expects to be between $4 billion and $5 billion. As to the location of the primary listing, he says, “my feeling is Singapore because the market is moving this way.”   

1 comment
0 FacebookTwitterPinterestEmail
Comment

Tweeted into shame

by Paul Cochrane
written by Paul Cochrane

Social media’s role in bringing about progressive change is a hot topic in the Middle East as much as, if not more than, elsewhere given the ongoing debate about its use in the Arab uprisings. On a collective level it is hard to gauge due to the multitude of factors that contribute to people taking to the streets —  mass demonstrations can and of course have happened without any social media — but when it comes to smaller, localized events social media’s power is clear. The online exposure last month of a Middle East Airlines (MEA) employee’s racist remarks toward Asian passengers is a clear case, and one that other companies should take heed of if they don’t want their name or brand dragged through the mud. 

In early October, passengers were waiting in Rafiq Hariri International Airport at a departure gate for a flight to Dubai, including a group of Nepalese women, when a MEA employee got on the public announcement system and said, “Filipino people, stop talking.” The woman told the “Filipinos” to stop talking twice more, giggling as she did so and goaded on by a male colleague. 

The incident outraged fellow passenger Abed Shaheen, who tried unsuccessfully to make a complaint. In the past Shaheen might have told just family, friends and colleagues about the incident, and his complaints would have had minimal if any effect. In our new world of social media, Shaheen wrote about the experience on Facebook and Twitter. The story was quickly shared and within three days 1,600 people had signed a petition on change.org, calling for “MEA to apologize publicly for their staff’s behavior.” 

The media promptly picked up the story as well, initially in Lebanon and then abroad. Under fire, MEA eventually came out to say they had launched an investigation, and the employee was first “disciplined,” then reportedly fired.

While justice has arguably been done, and a strong message sent to MEA staff to think before they speak, MEA’s reputation has been negatively impacted. A scroll through the 200 plus comments following the airline’s apology on its Facebook page shows a great deal of animosity toward MEA: “service sucks,”  “airline crew impolite” and, more worryingly for the carrier in these difficult financial times, is the number of people that wrote they would “vote with their feet” by no longer flying with MEA. Judging from the comments, many Lebanese opt for MEA out of solidarity with the nation’s carrier, despite its invariably higher ticket price. But patriotism only goes so far, and this incident will no doubt lose the airline old as well as potentially new passengers. 

MEA, and subsidiary MEAG that runs the airport, say they have gone beyond “damage control” mode and made effective changes that can be immediately seen; this includes mandating that staff be trained to treat everyone equally and respectfully, as paying customers. Numerous times on flights to the Gulf and East Africa, acquaintances and I have seen African and Asian passengers seated together at the back of the plane away from passengers despite numerous seats being available. This happens too often to be coincidence and the check-in staff, by designating seats in this way, creates segregation. Such a policy is racist, and even more insulting when it occurs on the national airline of the segregated passengers, such as Ethiopian Airlines. This has to change.

Then there is the small boxy room that domestic workers are forced to wait in upon arrival at Beirut airport until their new employers come to collect them, rather than being met like everybody else in the arrivals lounge. It is reminiscent of a prison with inmates awaiting bail. For many of these women, it is the first time out of their country; they are unsure, scared perhaps about what’s next, and they should be treated in a more dignified manner. Both MEA and the airport are, after all, people’s first impressions of the country, no matter where a passenger is from, and customer service should reflect that. 

Ultimately, MEA has now put itself under the spotlight of social media, and activists will be on the lookout for further misdemeanors. It is a useful lesson for MEA to change its policies and better manage employee behavior, as well as for other companies to realize the power of social media to hold them to account.

 

 

Paul Cochrane is the Middle East correspondent for International News Services

 

 

 

0 comments
0 FacebookTwitterPinterestEmail
Comment

An offer they can’t refuse

by Farea al-Muslimi
written by Farea al-Muslimi

 

In gangster movies, a classic scene is for a mafia boss to greet someone warmly with his right hand, then wink to one of his bodyguards on the side and say “kill him”. Minus the cinematography, this is how many Yemenis perceive the international community’s role in the transition of their country today. 

Earlier this year, Yemenis generally welcomed the role of the international community — via the Gulf Cooperation Council (GCC) sponsored deal that saw former President Ali Abdullah Saleh exit power and thereby avert an imminent civil war — because they thought it paralleled their national interest. Since then, however, the realization has come for many that the international community’s commitment to Yemen’s interests, unity, democratic development and prosperity does not extend beyond press releases; rather, foreign powers now seem to be paralyzing progress and hijacking Yemen’s nation building. 

Publicly, Western countries, the GCC and others have voiced much hope — as have Yemenis — in the country’s National Dialogue conference, which is meant to bring together representatives from all of Yemen’s various groups and factions to come up with a road map for the country’s future. To this end the international community has provided political and technical support, mainly through United Nations agencies, to prepare for the conference (previously scheduled for mid-November, but now postponed to a later date). However, other actions (and inactions) by foreign powers are at the same time sabotaging this attempt at national reconciliation.  

Powerful local stakeholders — including former President Saleh himself, the influential Ahmar tribe, and others — remain able to hinder the country’s transition in order to preserve their own power, and while the United Nations Security Council (UNSC) has threatened them with sanctions, none have been forthcoming. In fact, member countries of the UNSC continue to actively deal with these sorts of local players. The GCC-sponsored agreement this year also succeeded, in large part, because it went out of its way to address the concerns of powerful local players, rather than the concerns of average Yemenis; this had the effect of empowering these divisive groups with local clout that they will be able to exercise at the upcoming national dialogue. 

One of the Yemeni revolution’s core goals was the restructuring of the military, which became a key article in the GCC deal. The United States has taken a lead role in this task, but in such a way that the Yemeni military is looking more like an extension of the US army in Yemen. This is both because of an intense American public relations campaign, as well as the Yemeni military’s facilitation of un-manned American drone strikes and US and British special operations in parts of Yemen under the guise of ‘counter-terrorism’. 

Whatever the military justification, American drone strikes have killed hundreds of civilians and injured many more. Yemen’s new president, Abdu Rabbu Mansour Hadi, rather than condemn the strikes has in fact endorsed them, marring his legitimacy amongst Yemenis and making him look like an American puppet. That he reports to the ‘international community’ that brought him to power, rather than his citizenry, is a definite problem. Hadi remains, however, generally favored among the population relative to possible alternatives; his presidency, along with the appointment of Morocco’s Jamal Benomar, a former human rights campaigner, as UN envoy to Yemen, constitute the most positive initiatives of the international community to date.  

US support for the “Public Committees”, or civilian militias, in South Yemen, is also dangerously shortsighted. While America’s aim is to enlist local help in the battle against Al Qaeda in the Arabian Peninsula, supporting powerful non-state actors and armies implicitly undermines the state, especially in South Yemen where there is a fervent secessionist movement that will turn that same support against the central government. 

South Yemen is also now a battleground in a wider geopolitical struggle. The frequency of sectarian clashes — mainly between Houthi groups and the Islah (or Muslim Brotherhood) — have been on the upswing as Iran and Saudi Arabia escalate their proxy war through local tribal and political groups, each offering cash, support and media backing.

With all this foreign money flowing in, one has to wonder why humanitarian aid organizations in Yemen are still suffering a funding crisis, reporting that cumulatively they have less than 50 percent of the cash they need to run their operations; this leaves, among other things, 10 million Yemenis going to bed hungry every night.

There is little wonder why then, when the international community comes with its hand extended, Yemen braces for the wink. 

 

Farea al-Muslimi is a Yemeni activist and writer for Almasdar

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Everyone’s watching the dollar

by Natacha Tannous
written by Natacha Tannous

 

United States currency policy concerns almost everyone: the Chinese, who hold some $876 billion in US treasury bills; the Middle East and North Africa, where nearly every nation’s currency is pegged to the dollar; and financial markets the world over. But only one of these concerned parties from around the globe is actually responsible for setting US currency policy: The US Federal Reserve (Fed).

Lately there has been speculation in global markets that a hike in the Fed funds rate is imminent — talk from which the Fed itself is remaining aloof. 

“The Federal Reserve Bank extended the low borrowing costs period after looking at the state of the economy and the [9.7 percent] unemployment rate,” said the chairman of the Federal Reserve Bank of Chicago, Charles Evans, to Executive at the 2010 Summit on Financial Literacy & Education in Chicago, Illinois, hosted by Visa.

Fed funds rate and inflation

Given the prevailing winds the economy is weathering, rates are likely to remain in the zero to 0.25 percent range — a world of zero interest-rate policy or “ZIRP” in Fed-speak — which the US has been in since December 2008.

Inflation, an appealing tool but no solution
Because it would lead to a higher nominal GDP while keeping the same level of debt, inflation can actually help temper the urgency of America’s debt-to-GDP ratio, likely to “balloon to more than 100 percent of GDP” by the end of 2020, as Fed chief Ben Bernanke told the US Congress’ Joint Economic Committee. But even if it were desirable to inflate in the short-term, such a policy would also harm the economy down the road. After monetizing the debt, returning to an acceptable level of inflation is not easy and might initiate a problematic economic spiral with downside risks of escalating the debt when the central bank raises interest rates (increasing debt interest payments), while slowing GDP growth.

“There isn’t much inflationary pressure [with inflation at 2.3 percent], hence we can afford that monetary policy,” indicated Evans. “However, if economic conditions change quickly, we will respond appropriately.”

The last time inflation was a major concern to the US economy was in the early 1980s; the Keynesian model, which predicted alarming inflation resulting from such a low Fed funds rate, is not in use today because demand has not yet rebounded, as the US moved from a consumer society to a savings one after the global economic crisis.

“Although the Fed added $1.5 trillion…to the economy by freeing up some money to the banks or through large-scale asset purchases, it did not trigger inflation, just as Chairman Ben Bernanke expected, because real estate prices went down, along with the stock market,” explained Yervant Demirjian, managing director and board member of Interaudi Bank in New York.

Inflation therefore remained contained as a result of a fall in prices, low consumption levels and limited economic growth. Nevertheless, markets currently expect an increase in inflationary pressure by September, along with a change in the state of the economy.

Backing the Benjamins 

In the 1980s, the dollar only regained its strength when inflation declined. But today, although it’s a ZIRP world, we have not attained the kind of inflationary pressure that could be bearish for the dollar.

Bearish euro
Various factors weigh on the euro, which reached a one-year low of 1.32 against the dollar on April 23. In addition to a restrictive European fiscal policy, the Greek debacle and its contagion effect on other European countries are also having an adverse effect on the euro. Greece asked the European Central Bank, the European Union and the International Monetary Fund to activate a bail-out as the five-year Greek credit-default swap spread reached a record high of 650 basis points on April 22, increasing borrowing costs and working against Greece’s efforts to reduce its budget deficit. Hence, the euro will probably not gain momentum in the short-term. According to Makram Abboud, managing director at Nomura Holdings in London, the euro even “appears overvalued… considering the macroeconomic situation of some EU members, or to a smaller extent, the European air travel disruption following Iceland’s volcano eruption… the airlines will possibly need a bail-out at a moment where governments are already over-leveraged.” This is in line with Morgan Stanley Research’s estimate of the euro dropping to 1.24 by year’s end, a lower forecast compared to other brokers.

First, the relative strengthening of the dollar stems from the diverse roles of the currency. It is not only a medium of exchange but, most importantly, a reserve currency, a safe haven through US Treasuries, a unit of account for commodities and trades, an anchor for pegging currencies and a carry trade currency (previously limited to the yen), given its low interest rates.

Secondly, economies in 2008 did not want to increase their US dollar exposure, placing a stronger interest in the euro and the British pound as oil prices and commodity prices were peaking. But this tend reversed at the end of 2009, when portfolios had to re-align their investment strategy and currency positions due to lower commodity prices and a more complex correlation between the dollar and oil prices (as opposed to a purely negative correlation). Finally, the US labor market is showing relative growth prospects and improving productivity, thus the overall market sentiment is positive toward the dollar.

GCC rides greenback

From a pure trading perspective within the Gulf Cooperation Council’s dollar-pegged economies, goods imported in currencies other than dollars became more expensive as the dollar weakened in the last five years.

But today, the relatively resurgent greenback – with a 5 percent to 6 percent increase year-to-date against the euro and British pound – translates positively because imports of, for example, European goods and services, as well as workforces, become cheaper. Meanwhile the main GCC exports, oil and gas, are denominated in dollars the world over (except for Iran,) meaning that despite the fact that they will be more expensive for consumers, they will be more expensive everywhere they shop, so there is no loss of competitive advantage.

Where things are not so rosy is in areas with an increasingly diversified economy that have exports paid in a cheaper currency, or non-oil economies such as Dubai. The Emirate will see a decrease in both real estate buyers and tourists whose home currency is not dollars and a stronger dollar will reduce competitiveness.

 Economically, the GCC was growing so fast in 2007 and 2008 that the double-digit growth, along with the increase in commodity prices and the cheap dollar, fueled an “oil bubble” and created uncomfortable levels of inflation. Qatar and the United Arab Emirates even reached consumer price index inflation levels of 15 percent and 12.3 percent respectively in 2008.

“Problems started to occur because the GCC was compelled to follow relatively low Fed funds rates while meanwhile, inflation was skyrocketing,” said Florence Eid, founder and chief executive officer of Arabia Monitor research and advisory firm. “Whereas in 2009, the Gulf entered a deflationary period, today the dollar peg — coupled with current low interest rates — is no longer a drawback for the GCC economy.”

These things are all cyclical of course, and they will change again,” she added. 

However, the relative strengthening of the dollar against the euro has two major economic advantages. It is, first, an effective tool for inflation stabilization in the Gulf area, which, as mentioned above, is extremely important for the state of the economy. Furthermore, it eliminated concerns surrounding the dollar peg.

“GCC countries, with 95 percent of assets in dollars, would have suffered from de-pegging from a weak dollar, running high risks of weakening their own currencies even further,” said Makram Abboud, managing director at Nomura Holdings in London. “Now with a stronger dollar that discussion [of de-pegging] has gone away.”

On the monetary front, the peg to the dollar “implies that, by design, the GCC interbank rates should not diverge,” as stated by an IMF paper on regional financial integration. Consequently, the region responded fast to Fed discount rate cuts as GCC central banks also reduced their borrowing rates, with cuts of 250 basis points in Bahrain and 175 basis points in Saudi Arabia. Such monetary policy is a useful tool to push demand, along with pumping money into local banks, encouraging citizens to borrow again, while governments continued to spend in key areas such as infrastructure.

In Saudi Arabia, the 2010 budget will likely reach $144 billion, and “even though main growth drivers in the Gulf are government expenditures [highly related to the level of oil prices], all things being equal, an appreciation of the US currency will tend to improve local purchasing power, fueling consumer demand and investment with a positive impact on growth” said Michel Cordahi, head of Capital Markets at Gazprombank Invest (MENA).

JP Morgan effective exchange rate indices

Thus, a stronger dollar will, overall, improve economic conditions already facilitated by monetary policies and will directly lead to a rebound in consumption, fostering a positive economic spiral. Such assumptions led the International Monetary Fund to forecast a real gross domestic product growth of 4.5 percent in the MENA region for 2010, doubling 2009 growth.

Some warning signs

However dollar bullish one may be in the short-to-medium term, the situation is perhaps less that of a stronger dollar than a cheaper Euro, all the more since the dollar has weakened against most emerging market currencies in the last six months. Moreover, “with a US deficit worsened by the healthcare bill, a high level of federal debt and a renminbi [yuan] revaluation likely to redirect capital inflows to Asia and cause sells on the USD, the dollar might lose its temporary bullish tone,” forecasts Stefan Teufer, coverage director at Deutsche Bank.

True, Bernanke’s Fed has saved the US economy from a depression, sparing a global financial Armageddon in the world’s interconnected economies, but the GCC should neither be blinded by what may be a short-term resurgence in the greenback, nor neglect monitoring closely their inflationary pressure.

Even if they are committed to the dollar peg, central banks should be cautious when aligning their monetary policies to future Fed hikes, especially for countries that have not reached their desired inflation rates, or if an interest rate hike would risk a relapse into a credit crunch. In the short term, it may be a wise idea to count their lucky stars — or dollars.

 

0 comments
0 FacebookTwitterPinterestEmail
The Buzz

Morning briefing: 1 Nov 2012

by Executive Staff
written by Executive Staff

Oil and gold

Gold traded flat on Thursday, shrugging off data showing China's economy was perking up, as investors waited on the sidelines of the market for US employment data due on Friday.

More from Arabian Business

 

Brent crude edged down toward US$108 a barrel on Thursday as investors focused on concerns that storm Sandy's rampage across the US East Coast could reduce fuel demand and shrugged off data pointing to a recovery in China.

More from Arabian Business

 

Economics

The European Investment Bank and the French Development Agency are interested in funding natural gas pipelines in Lebanon, Finance Minister Mohammad Safadi said on Wednesday following a meeting with European officials.

More from The Daily Star

 

Iranians can no longer export gold without approval by the central bank, an official was quoted as saying on Wednesday, in a new effort by the government to restrict outflows of wealth.

More from Arabian Business

 

Companies

Dana Gas shares jumped 4.8 per cent as markets began trading after the company said it had missed a payment deadline for a $920m bond.

The sukuk matured at midnight on Tuesday, but Dana Gas remains in negotiations with creditors.

More from The National

 

Qatar-based Al Ijarah Holding Co has become the second private company in the country to operate taxis, after Al Million launched its first fleet of 300 taxis earlier in July.

More from AME Info

 

US-based Emerson has announced it is investing $33m to expand its Middle East and Africa headquarters campus in the Jebel Ali Free Zone in Dubai.

More from Arabian Business

0 comments
0 FacebookTwitterPinterestEmail