Executive Magazine

Cairo’s new deal

by Ahmed Moor September 1, 2012

written by Ahmed Moor

The Egyptian-Palestinian relationship has been strained recently, but this trial by fire may forge stronger ties in the medium term.

On August 6 gunmen attacked an Egyptian army checkpoint on the Sinai Peninsula border with Israel, just south of Gaza. Sixteen soldiers and an unknown number of assailants died in the initial clash. The surviving assailants dashed across the border where they were promptly killed by the Israeli army. The brutality of the strike — the soldiers were preparing to break their day-long Ramadan fast when they were attacked — shocked both Egyptians and Palestinians.

Swift condemnations came from all sides as the search for additional assailants and their enablers began in the Sinai and among the Palestinians in Gaza. The Egyptians also sealed the Rafah border crossing with the Gaza Strip, casting a pall on previous optimistic signs from the new Egyptian leadership regarding their intention to ease the Gaza siege — yet that may still be in the cards. The Egyptian revolution resulted in the election of the country’s first overtly Islamic leader, Mohammed Morsi, a member of the Muslim Brotherhood. Before he was elected, the Supreme Council of the Armed Forces (SCAF), which had ruled since President Hosni Mubarak was deposed, stripped the role of the presidency of much of its power. The new president faced the choice of either accepting this truncated rule or pivoting to confront the country’s military. Another precarious relationship the new president had to maneuver was with the Palestinians in Gaza — long on the Muslim Brotherhood’s agenda. Under Mubarak, Egypt had actively maintained the siege of the distressed Strip, but Morsi signaled early on that he was prepared to work with the Hamas-led government — further straining his relationship with SCAF, the principal executors of the Mubarak-era policy.

Among Morsi’s motivating factors may have been the popularity of the Palestinian issue in Egypt. Average Egyptians may not have prescriptions for how to resolve the Palestinian-Israeli conflict, but the moral force of the Palestinians’ claim resonates with the overwhelming majority of Egyptians. While popular opinion was a negligible feature of Cairo’s political landscape pre-January 25, 2011, today it carries much more weight.

The Muslim Brotherhood also has deep institutional ties to Hamas, as Brotherhood members, including Sheikh Ahmad Yassin, founded Hamas. While operationally independent, the two organizations’ foundational affinity has remained. Morsi’s election was loudly celebrated in Gaza — not only because of the expectation that he would ease the siege, but his election was also taken as an affirmation of Hamas’ political legitimacy.

Egypt’s new president met with both Mahmoud Abbas — the head of Fatah and the Palestinian Authority — and Ismail Haniyeh, his Hamas rival. The meetings came after Morsi eased restrictions on travel to the Gaza Strip that have long been in place.

While it is unclear who perpetrated the attack in the Sinai, Palestinian concern was that the killings would end the relatively friendly treatment they had been receiving from the new government. The president would have to distance himself from any group or policy perceived to have been lenient on security in the enormous and largely vacant Sinai, and at least one figure in the Egyptian government claimed publicly that the assailants had received support from Gaza.

Initially it seemed that the Palestinians’ concerns were justified — the Egyptians closed the Rafah crossing despite comprehensive Hamas cooperation with the Egyptian security forces in the hunt for the groups behind the attacks. But developments quickly gained a new trajectory.

The president used the Sinai attack as a pretext for wresting control of the country from SCAF. He first sacked the chief of intelligence and head of police in Cairo; several days later the president retired both Field Marshall Tantawi, the head of SCAF, and one of his main subordinates from public life. This ouster coincided with the conditional reopening of the border with Gaza. It appears Morsi used the attacks to double down on his first policy instinct vis-à-vis the Palestinians: more cooperation and aid.

The election of a new president in Egypt meant a reconfiguration of the relationship with the Palestinians in Gaza. And when it appeared that Morsi’s agenda would be threatened by an Islamist attack, he recast the episode to yield an unambiguous victory for himself, his party, his agenda and ultimately the Palestinians.

AHMED MOOR is co-editor of “After Zionism: One State for Israel and Palestine” and a Masters in Public Policy candidate at Harvard University’s Kennedy School of Government

September 1, 2012 0 comments

Companies & Strategies

Behind the silver screen

by Nabila Rahhal September 1, 2012

written by Nabila Rahhal

“The movie business is a gambling business,” says Salim Ramia, chief executive of Grand Cinemas. “When you buy a movie for a million dollars before it is even filmed, isn’t that a gamble?”

Indeed, Ramia himself placed big bets by selling his successful company in the United Arab Emirates to start up the same business in Lebanon and the Levant. Yet, he has faith his lucky star will shine through.

Beirut to Dubai and back

Ramia is no stranger to the film business in Lebanon, he had a film distribution office called Phoenix Film Distribution in Hamra during the civil war back in the 1980s. “In 1986, the office was occupied by one of the warring political factions, and it was then that I took the decision to move back to Dubai, as Lebanon was in a state of war and there was no room for professional growth, ” says Ramia.

In 1989, Ramia and an Iranian partner established “Gulf Film” for film distribution. Three years later, they entered the theater operation business and established their first cinema in Dubai. He recalls “Unforgiven” was the first movie he brought to Dubai. “In Dubai back then, the film industry was dominated by Bollywood movies and my partner kept telling me that I was dreaming because I believed American movies could be a success in the UAE, but I wasn’t dreaming and they did succeed,” says Ramia.

Gulf Film’s venture into movie theaters kept expanding and they set up two cinemas in the Hyatt Regency in Dubai in 1994, as well as theaters in Sharjah. “The big boom was in 2000 when we established the first multiplex cinema Al Maria in Abu Dhabi,” says Ramia. “The year 2000 was also when we launched the brand name Grand Cinemas, inspired by the Grand Hyatt Hotel, which faced the Dubai Cineplex.”

“In 2005 we saw the most rapid growth for Grand Cinemas, as we expanded from having 38 screens to having 94 screens” he says. They acquired these screens by buying Century Cinemas in Dubai, an African-owned company that was closing down, and also buying Al Massa cinemas. “It is relatively easy to take over cinemas, as the theaters and employees are already there. You just have to trim the excess and reshape where needed,” explains Ramia. Finally, in 2007, Grand Cinemas opened their last multiplex in Dubai, called the Grand Festival Cineplex, to have a total of 106 screens in the UAE.

After having ventured into the Levant market in 2007, Ramia and his partner took the decision last year to sell the Grand Cinemas operations in the UAE and Qatar. “While the Grand Cinemas name is 100 percent the property of Salim Ramia and Sons, I sold Gulf Films Distribution and all the Grand Cinemas theaters already in operation in the UAE [which were owned by Gulf Films]. I also sold the rights of operation in Qatar, so as not to create any competition with the new owners for whom we are still consultants,” says Ramia. In explaining his decision, Ramia says he has reached his peak in the business, a good time to bank in on his success and relax. “It was easy to sell because of our successful name and also because the cinema business is a lucrative business where you can begin cashing in the next day after operation,” explains Ramia.

Building the family business

“My business in Lebanon is different because it is a family one. My wife and my children work with me here and I will never sell it.” Ramia’s wife is the general manager during his absence on travels, and his daughter Carly is the marketing manager.

Relaxing, however, does not seem to be in Ramia’s cards: “I have built a successful business in the UAE, and I will do it again here,” he says.

Grand Cinemas’ expansion to Lebanon began in 2007 with a phone call from mall operator ABC Ashrafieh’s management team. They wanted Grand Cinemas to manage their cineplex, which at that time was run by Circuit Empire, so Ramia came to Beirut and “closed the deal”. That year, Ramia and a Lebanese partner of his also bought Concorde Cinema in Verdun and Las Salinas Cinema in Anfeh, North Lebanon. In 2007 Ramia also expanded into Jordan with cinemas in Amman’s City Mall.

Speaking about his start in Lebanon, Ramia says they had to improvise and deal with things as they are since they acquired theaters which were already in operation — albeit theaters that were not doing so well, thus he had to turn them around, revamp them physically and introduce more efficiencies, such as electronic ticketing booths and online services.

Grand Cinemas in ABC Dbayeh Mall was their first “from scratch” cineplex in Lebanon and Ramia says the reviews have been great. Of the Grand Class cinema, Lebanon’s first luxury cinema which includes champagne and caviar canapés as part of the viewing pleasure, Ramia says the 20 seater theater is full for at least two shows per day. “The Lebanese love to show off and so will encourage each other to try out our theater,” says Ramia, adding that while the champagne and caviar are not cheap, they are a marketing gimmick which is working in attracting viewers.

With its latest cineplex in ABC Dbayeh, and the Grand Cinemas in Saida Mall, Grand Cinemas now has 32 screens in operation in Lebanon — including the country’s first 3D theaters — and plans to open a cineplex in the Landmark on Riad El Solh. The company’s headcount totals 136 employees in Lebanon between management and theater staff.

The movie market

Today Grand Cinemas has 41 percent of the movie market share in Lebanon, Circuit Empire has 46 percent and the rest is distributed among Planete Cinemas and others. Ramia explains that since Circuit Empire owns the largest cineplex in Lebanon in City Mall, which has 2,200 seats, it dominates by sheer numbers — by comparison, ABC Ashrafieh has 1,039 seats. He believes this will change with the introduction of ABC Dbayeh’s theaters, which opened in July (a notoriously slow movie season as would-be customers flock to beaches instead).

After Empire’s Cinema City, the next three theaters topping market share belong to Grand Cinemas (ABC Ashrafieh, Concorde and Saida Mall). While Ramia declined to go into revenue details he did say that three of his theaters were losing money, but added that this is something he can afford, and one has to be a good loser to be a successful businessman.

In the rest of the Middle East, Grand Cinemas has nine screens in operation in Kuwait and 10 in Jordan with a new partnership for 16 theaters. The company also has a deal for 14 screens in Erbil, which will make for a total of 100 screens for including their Lebanese operations. Comparing his other businesses to Lebanon, Ramia says people in the Gulf go to the movies more. “In Lebanon, they have bars, rooftops and theater as entertainment options. In Kuwait, what else is there to do besides watch a movie and eat out?” says Ramia. He also speaks of censorship, which is much harsher in the Gulf and vetoes nudity, religion and politics. In Lebanon, according to Ramia, censorship is limited to issues of religion. Besides being a movie theater operator, Ramia still deals with film distribution and says the Lebanese market is now open, where any theater can run any movie, though with a certain percentage paid to the distributor. “Distribution rights to a movie could cost between $100,000 and up to $1.5 million depending on what you are getting. It is a gamble because you are buying a movie based on the script, and on the name of the actors,” he says, adding that to be a successful distributor, you need to have the right contacts.

“In short, the movie business is an entertaining and glamorous one where you get to meet people,” concludes Ramia. “But it is also one with a lot of risks.”

September 1, 2012 0 comments

Comment

An illogical conspiracy

by Moe Ali Nayel September 1, 2012

written by Moe Ali Nayel

It was an apparent fall from grace for Lebanon’s former Minister of Information Michel Samaha, still in his pajamas as he was hauled from bed on August 9 during an early morning raid by heavily armed Internal Security Forces (ISF) personnel. His wife reported that it seemed as if the officers from the ISF’s Information Branch had “come to liberate something.”

Samaha, a close friend and ally of Syrian President Bashar al-Assad, was widely acknowledged to be Assad’s man in Lebanon, and his arrest shook his Lebanese allies in the March 8 coalition as much as it garnered fanfare from his opponents in the March 14 political alliance. Information leaked from the Information Branch indicates Samaha — whose house was reportedly found filled with explosive devices — was plotting to plant bombs in Sunni and Christian areas in Akkar, North Lebanon, under orders from Syrian intelligence chief Ali Mamlouk. The attacks were planned for the following week, during Maronite Patriarch Beshara al-Rahi’s scheduled visit to Christian villages in the area.

Samaha started his political life as a member in the students’ branch of the Kataeb political party, later defecting to the Lebanese Forces under the leadership of Elie Hobeika. Known to have close ties with the French intelligence and a Canadian passport, Samaha was also a renowned intellectual with in-depth knowledge of political theories, and had spent the past five years as a Syrian regime spin doctor, while also advising President Assad on foreign policy. Shortly after his arrest, Samaha confessed to taking orders from Mamlouk and transporting bombs himself, in his own car, and handing them over to a “secret witness”, who filmed the whole exchange through the lens of a pen-like camera. Lebanese media later exposed this “secret witness” as Milad Kfouri, the head of a security company that provides security services for politicians and businessmen; among his clients is Finance Minister Mohamad Safadi. Kfouri has since disappeared without a trace.

Notably, the Information Branch, which carried out Samaha’s arrest, is headed by Wissam al-Hassan, previously a bodyguard for the late former Prime Minister Rafiq Hariri, with Hassan under the authority of ISF Director General Ashraf Rifi, himself known to have close ties to the Hariri family. As with every public department in Lebanon, the Information Branch operates under the unofficial sectarian quota system, and favors Sunnis from the Hariri camp. Thus, Samaha’s arrest is seen by some to be a blow in the internal war currently under way between the variously aligned security apparatuses in Lebanon now divided over the Syrian situation. Samaha, however, confessed to taking orders from the Syrian regime to plant bombs inside Lebanon and implode the country by pitting Christians against Sunnis: the regional instability Assad has warned about since the beginning of the Syrian uprising seems to be itself crafted in Damascus. Given the evidence and Samaha’s confessions, Hezbollah, Syria’s major ally in Lebanon, has kept quiet on the affair. When Member of Parliament Mohamad Raad, part of Hezbollah’s ‘Loyalty to the Resistance’ parliamentary block, condemned Samaha’s arrest, Hezbollah announced that Raad’s comments reflected his own opinion and not that of the party.

Could the surrender of Samaha — a man of often shifting political allegiances — be seen as another defection high in the ranks of the Syrian regime? The simplicity of the plot and Samaha’s personal involvement in the minutiae of the operation make one wonder what happened to the massive human resources and agents operating on behalf of the Syrian regime in Lebanon. Remember, Samaha’s role with the Syrian regime was always in an advisory and scholarly capacity, but never as mercenary. This whole operation does not fit with Samaha’s historical precedent, expertise or style. The criminal aspects and viciousness assigned to the operation simply seem outside of Samaha’s purview, and his CV would show none of the necessary prerequisites for the job. Why was this intellectual suddenly operating as an undercover bomber?

Government deputy Commissioner to the Military Court Judge Sami Sader has charged Samaha and Mamlouk with conspiracy to commit crimes in Lebanon. The Samaha case is another episode of Lebanese upheaval stemming from political and security developments in Syria. Whether Samaha defected, or was caught red-handed, his arrest diffused a plot that could have had similar results to the 1975 bus shooting in Ain Al Roumani — that sparked the 15-year-long sectarian civil war that we have yet to recover from.

MOE ALI NAYEL is a freelance journalist based in Beirut

September 1, 2012 0 comments

Society

Making them like they used to

by Nabila Rahhal September 1, 2012

written by Nabila Rahhal

What was once a relatively quiet bohemian street parallel to the Mar Mikhael main road has begun bustling in recent months. While artistic types have long visited the art and architectural book shop Paper Cup and the Spanish library here, the increased footfall seems due to a little diner called Frosty Palace, which boasts the best burgers in town. The diner has been a well-kept secret since it opened its doors in February 2012 , but as word of the quality of food spread, customers came to taste what the fuss is all about.

Tell me more, tell me more!

Frosty Palace is originally the name of the diner from the movie “Grease” where Sandy, Danny and the rest of the gang used to enjoy their burgers and shakes. Today, Zalfa Naufal has brought Frosty Palace to Beirut, with three booths and a bar running the length of the place. Frosty Palace is not for those who want “to see and be seen” while enjoying their meal, nor does it pretend to be: its small size sends the message that the focus is on the food itself, and not on catering to extroversion.

To step into the restaurant is to walk back into the American 1950s. No detail is spared to invoke the essence of a classic American diner; even the sugar and straw dispensers are reminiscent of those in the old time eateries. A checkered black and white floor, monochrome photos on stark white walls and icy blue booths all set the mood. The atmosphere is completed by the music, which features old time classics as “It’s Raining on Prom Night” and “Heartbreak Hotel”.

The crystal chandeliers dangling from the ceiling may seem out of theme, but can be considered a quirky charm, and one can tell a woman’s taste is behind the retro yet elegant setting.

Like the original Frosty Palace, burgers, shakes and fries comprise the menu’s signature items. Other offerings, (including vegetarian options) include sandwiches and salads. The chicken salad, a Thai style conception, is well done and the portion is generous. The brunch menu, offered from 11:00 am, sports tantalizing sounding items such as poached eggs and buckwheat pancakes with strawberries.

However, Frosty Palace’s reputation is built between the buns, and one must stay focused. The Frosty Palace Burger arrives alone on a plate, topped with salad leaves, tomatoes and pickles. Additional toppings, such as caramelized onions, cheeses or bacon, come at prices which vary from $0.75 to $2.60. The burger itself does not come cheap, priced at $13.50 without the side orders which usually come with burgers (fries cost $3 extra). It is, however, a delicious gourmet burger, with premium quality Australian meat cooked just right, with that barbecue taste in every bite. The bun is soft, and goes well with the burger, not overwhelming the taste of meat. The thick fries are served with dipping portions of homemade mayonnaise and tomato relish, a fresh alternative from ketchup.

In the tradition of 1950s diners, Executive ordered a shake to wash down the burgers, and again found it to be on the expensive side at $8. While the taste of the homemade strawberry ice cream in the shake was amazingly fresh, the drink could have used extra milk to make it more of a milkshake, and less of a fruit smoothie.

Frosty Palace isn’t easy on the pocket, but for those with the cash to burn it’s worth a visit, serving up a burger the 1950s would be proud of.

September 1, 2012 0 comments

Real estate

For your information

by Executive Editors August 7, 2012

written by Executive Editors

More ups and downs for Bahrain

Despite simmering unrest and a tarnished image over alleged human rights abuses, the number of real estate transactions in Bahrain rose 59 percent in the first half of this year, according to Survey and Land Registration Bureau statistics obtained by Al Watan newspaper. The vast majority of those transactions were made by Bahrainis, but 10.1 percent did come from overseas buyers. In total, these transactions were worth $842 million. But all is not well for the sector. Prime rents in the capital city Manama dropped 16 percent in the first quarter, making it by far the worst performing city in the world over that time period. The closest city was Hong Kong, which saw a 4.1 percent drop in rents.

Lebanon’s real estate sector: only slightly more transparent

AIn its bi-annual global real estate sector report, the 2012 Real Estate Transparency Index, international real estate firm Jones Lang LaSalle ranked Lebanon fifth in the Middle East and North Africa and 66 out of 97 countries worldwide in terms of transparency. And while Lebanon has moved up in its global ranking this year, the sector is still only considered to be “semi-transparent”. According to the report, one of the biggest reasons for Lebanon’s ascent was the “newly formed Real Estate Association of Lebanon, [which implemented] other improvements in transparency by better regulating the previously chaotic brokerage industry.”

Regional energy investments soar

Results of a study released last month indicate that new investment in the energy sector is on the rise this year. This is welcome news for a Middle East and North Africa, which has long struggled with meeting its energy needs. The report by Ventures Middle East, in which energy-stricken Lebanon receives barely a mention, points to 97 new water and power projects across the Middle East that have started or will start construction this year, with a total value of $32.7 billion. The top beneficiaries are the United Arab Emirates, Saudi Arabia and Kuwait. The UAE has 10 new water and power projects on tap to begin construction by year’s end, worth a total of $1.5 billion — namely the $740 million Noor 1 solar energy plant and the second phase of the $580 million Emal Power Plant. Saudi Arabia has 15 new power projects worth $8.8 billion, led by the $1.2 billion Shuaiba 2 Power Plant and the $2 billion Al Qurayyah Independent Power Plant. Kuwait is set to build $4.2 billion worth of new water and power plants, spread over 19 different projects. The largest of the group will be the $2.7 billion Al Zour North Independent Water and Power Plant.

BoA: Saudi Arabia to lead regional construction boom

A new Bank of America-Merrill Lynch report predicts that Saudi Arabia will lead a new 15-year construction boom across the Middle East and North Africa, led by spending on regional infrastructure projects. The report states that the construction sector will benefit from “reforms to raise productivity of the non-oil sector”, led by the kingdom. The study also predicts that investments in construction across the MENA will total $4.3 trillion by 2020, which would be an increase of nearly 80 percent over current spending this year.

Dubai property sizes shrinking

Long known for outlandish, and extremely large property sizes, Dubai is seeing more transactions in smaller properties during the first half of this year. Figures released in mid-July by the Dubai government’s Land Department show that the average size of residential properties purchased in the emirate shrank by nearly half in 2012 to date. And while the total number of all real estate transactions rose by 24.5 percent over the same time last year, to 12,521, the size and value of those properties has dropped by 44.8 percent. In the first half of 2011, the average size of purchases was 533 square meters. Today’s average size is 294 sqm.

Mubarak-era tax law coming soon to Egypt

Egypt is pushing ahead with a controversial law that was originally passed under deposed leader Hosni Mubarak, Egyptian daily Al Ahram reported in late July. The country’s new finance minister, Momtaz el-Said told the paper that a new real estate tax law would go into effect in January of next year, but with amendments to some of the most widely criticized portions of the original draft of the law. Said remarked that the amended law will exempt citizens’ homes from the tax, and that 25 percent of funds collected by the government would go toward developing poorer areas across Egypt. He estimated that the new tax would bring in $330 million annually for the state.

Mubarak-era tax law coming soon to Egypt

Saudis hopeful with new mortgage law

In June, Executive reported on a newly approved draft mortgage law in Saudi Arabia, a first for the kingdom, meant “to ensure the fairness of the transaction and the safety of the financial system.” In late July Arab News reported that experts across the kingdom expect the law to modernize the sector and attract more foreign investment. “After the implementation of mortgage law, we expect the Saudi market to witness an increase in the amount of foreign investment to 70 percent,” Aziza Mansour, chairman of real estate developer, Aziza Mansour, told the paper. He added, “Many real estate companies have been looking to invest in the Saudi real estate market. However, new Emirati, Japanese, and Korean companies would join the Saudi real estate market very soon. I believe that Makkah is the most demanded residential area where a Korean company will start the building of five residential projects very soon.”

August 7, 2012 0 comments

Banking & Finance

Business from the start

by Executive Editors August 7, 2012

written by Executive Editors

“Entrepreneurs in Lebanon are not mature enough and not trained well enough to become investment ready, but once they are investment ready, they could find money here, in Jordan or anywhere in the world if their business model makes sense and has potential and scalability.”

Walid Hanna, chief executive of Middle East Venture Partners

“It is a risky environment and startups are even riskier. It might not be the right timing today to finance startups but we are definitely thinking of helping within the right environment and with the right product.”

Ibrahim Salibi, head of commercial and corporate banking at Bank Audi

“A lot of entrepreneurs know very little about raising funds. They don’t know what their options are and they get massively ripped off by people.”

“Lebanese are entrepreneurs in their souls. You would very frequently hear young men and women discussing dreams and projects of opening restaurants, fashion boutiques, etc. Provided the infrastructure is there, startups will pop up like mushrooms.”

Stephane Abi Chaker, head of investment banking at Blom Bank

“Banks are doing a great job in protecting money and assets of people but a very poor job in terms of building infrastructure that people can innovate on top of. The obvious one is online payment gateways.”

“Some young entrepreneurs don’t have the maturity or experience of what it means to safeguard shareholder value. Their primary concern is sweat equity and how much they get in upside rather than focusing on how they will make their business flourish and grow.”

Khaled Zeidan, general manager of MedSecurites, a BankMed subsidiary

“From the venture capitalist’s perspective, he knows that startups are risky and in Lebanon riskier than elsewhere so if he were to adopt a pure finance perspective, he would propose a very low valuation. And as Lebanese, we all have a good opinion of ourselves and high valuations [from entrepreneurs] can be expected. What ends up happening is that both give. Question is do they give enough?”

Michel Nehme, chief executive of Cedrus Ventures

August 7, 2012 0 comments

Banking & Finance

For your information

by Executive Editors August 7, 2012

written by Executive Editors

And then there were 8…

Lebanese banks lost ground in The Banker magazine’s latest survey of the top 1,000 commercial banks in the world. Eight Lebanese banks made the list, down from nine last year, and none feature among the top 25 banks in the Middle East. The criteria for the ranking is the banks’ tier one capital, the core capital of a bank and a measure of its financial strength, held at the end of 2011. Bank Audi, while regressing by 33 notches, was the top Lebanese bank in the ranking, securing 288th place. It was followed by Blom Bank, down 44 notches to 411th place, and Byblos Bank, down 22 notches to 460th place. Bank of Beirut registered the largest drop, sliding 120 spots to 753rd place. The other four banks in the ranking were Fransabank (down seven places to 616), Banque Libano-Française (down two spots to 674), BankMed (down 22 spots to 681) and Crédit Libanais (down 15 spots to 874).

Bank robberies in Lebanon

“Which bank is next?” has become the joke of the day among the inner circles of the Lebanese finance industry. In just the past two months, five robberies have taken place and a total of eight since the beginning of the year. On June 14, Federal Bank’s Damour branch was robbed and four masked gunmen took off with LL100 million according to Voice of Lebanon radio. On June 20, Bank Audi’s Verdun branch was the target of an attempted robbery, prevented by the security guards. On June 26, Banque Libano-Française was the prey as $40,000, and LL64 million were snatched from their Dbayyeh branch, according to the National News Agency (NNA). On July 3, it was Société Générale de Banque au Liban’s turn as two gunmen robbed the Kfar Shima branch of around $50,000 and LL40 million, and left behind two injured customers according to NNA. On July 10, Bank Byblos’ Choueifat branch was the target with the amount stolen undisclosed and two people injured during the robbery, according to the NNA.

Lobby group calling on financial institutions to divest from Lebanon

United States-based United Against Nuclear Iran (UANI), an advocacy organization, is calling on financial institutions to divest their holdings in Lebanon’s sovereign debt market and for credit rating agencies to re-rate the country’s debt to “no rating” following their three-month-long investigation, which according to UANI, revealed the existence of a money laundering scheme involving Lebanon’s central bank, Iran, Syria and Hezbollah. According to their press release, Lebanon has employed a state-sponsored money-laundering scheme to “wash” Iranian and Hezbollah illicit monies, in order to artificially and fraudulently support Lebanese debt securities. Some institutions such as Erste-Sparinvest, Aktia, and Ameriprise Financial, have already divested their holdings following UANI’s efforts. Lebanon’s central bank governor recently denied charges that money was being smuggled from Syria to Lebanon and added that Syrian deposits in Lebanese banks were actually decreasing. Also in response to the accusation, Hezbollah said in a statement: “These accusations are pure lies and come within the context of a suspicious US campaign to smear the image of Hezbollah through fabrications and false allegations.” [see page 12]

Egypt raises $1.1 billion in debt

Egypt raised $1.1 billion through the issuance of treasury bills as yields on the domestic debt dropped due to efforts by the central bank of Egypt (CBE). The bulk of the debt issuance ($660 million) was done through the sale of nine-month treasury bills at an average yield of 15.67 percent. Another $155 million of three-month securities sold at an average yield of 14.24 percent. Back in June, the CBE reduced banks’ reserve requirement ratio in local currency to 10 percent from 12 percent, its second move this year as it lowered the rate by two percent in March as well. To increase liquidity in the financial system, the CBE also started selling 28-day repurchase agreements (repo) — form of short-term borrowing — on July 10 in addition to the seven-day repos it introduced in March of last year.

HSBC accused of financing Iran and Saudi-based radicals

A United States Senate subcommittee led an investigation into British bank HSBC and concluded that the institution was lenient with its anti-money laundering control. It accused HSBC of several abuses, among which was the transfer of $7 billion into the US from HSBC Mexico with the funds originating from the sale of illegal drug sales. It also charged the bank of avoiding to “block transactions involving terrorists, drug lords, and rogue regimes,” and gave the example of two HSBC affiliates that sent nearly 25,000 transactions, worth $19.4 billion, through their US affiliate accounts over a period of seven years without disclosing the links of these transactions to Iran. The subcommittee also found that the bank was providing US dollar financing as well as banking services to banks in Saudi Arabia and Bangladesh tied to terrorist organizations. It also attacked the bank’s regulator, the Office of the Comptroller of the Currency, for failing to take action against these abuses. The head of compliance, David Bagley, has resigned following these accusations. “HSBC has fallen short of our own expectations and the expectations of our regulators,” said Bagley.

Iran to introduce three-tiered exchange rate for different imports

As Iran battles with sanctions from the West, the Islamic republic is introducing a three-tiered exchange rate system for the purchase of different classes of imports. For the purchase of “basic goods” such as meat, medicine and sugar, the government is allocating between $24 billion and $30 billion at the official exchange rate of 12,260 rials to the US dollar — a drop in value of nearly half over the past year — though there is a limited amount of dollars available at this rate and the unofficial rate trades at higher levels. The Iranian government makes it more expensive to purchase “capital and intermediate goods” as the rate becomes 15,000 rials to the dollar and even more expensive for luxury products as these will have to be purchased using dollars bought at free market rates. US-based lobby group United Against Nuclear Iran is launching an Iran Currency Tracker, in order to monitor the value of the country’s currency and the impact of international sanctions on the rial.

On the Qatari calendar: Valentino, Harrods hotel and Shard Tower

Fashion designer Valentino, the inauguration of the Shard Tower in London and Harrods hotels in several cities were all on Qatar’s agenda last month. Qatari investment firm, Mayhoola for Investments, is snapping up Valentino Fashion Group (VFG) from Red & Black Lux, a unit of European private equity firm Permira, for an undisclosed amount. VFG operates more than 700 boutiques in more than 90 countries. Qatar Holding, owners of London-based luxury department store Harrods, are planning to venture into the hotel business using the name of Harrods. They intend to open Harrods hotels in several cities including London, Paris and New York with a preference to construct on sites already owned by Qatar Holding or its affiliates, such as Chelsea Barracks in London or Costa Smeralda in Sardinia, according to a statement by Qatar Holding. Sticking to London-based news, Qatari-financed Shard Tower, Western Europe’s tallest tower, was officially inaugurated in the presence of Prince Andrew, Boris Johnson, the prime minister of Qatar, Sheikh Hamad bin Jassim bin Jaber al-Thani and Irvine Sellar, developer of the skyscraper, who said London “owes a debt” to Qatar.

August 7, 2012 0 comments

Economics & Policy

For your information

by Executive Editors August 7, 2012

written by Executive Editors

Left in the dark

Technical problems, industrial disputes and political brinkmanship have left most of Lebanon without electricity for abnormally extended periods of time on a daily basis. Around 2,500 contract workers and bill collectors at the nation’s sole power provider, Électricité du Liban (EDL), entered into their third month of strikes as they demand permanent employment with the company. Minister of Energy and Water Gebran Bassil has staunchly refused their demands and opposes the bill passed last month granting the workers permanent employment. The bill was awaiting approval of the parliament’s secretariat at the time of Executive going to print. Meanwhile, the ministry signed a $360 million three-year contract to lease two power-generating ships from the Turkish company Karkey Karadeniz Elektrik Uretim. The first ship is expected to arrive in four months and the second within six months and combined they should provide Lebanon with 270 megawatts of electricity. Lebanon’s current electricity production stands at around 1,500 megawatts while peek demand exceeds 2,400 megawatts. However, the ships would not increase power generation in Lebanon as they are intended to offset the drop in production as vital maintenance works are done on existing power plants. Treasury transfers to EDL totaled $360.9 million in the first two months of 2012, constituting an increase of 56 percent from $231.5 million in the same period last year. [see comment page 14]

Not-so-happy holidays

The number of tourists visiting Lebanon in the first five months of 2012 was down almost 7 percent on the same period last year. Despite warnings from several Gulf Cooperation Council governments against travel to Lebanon, Arabs still accounted for 39.9 percent of total visitors and their numbers were actually up 15.2 percent on the same period last year. After Arab visitors, Europeans accounted for 29.7 percent of arrivals, 12.8 percent came from the Americas , 10.1 percent from Asia and Africa 4.4 percent. Tourists from Iraq accounted for 8.3 percent of total visitors in May 2012, followed by visitors from the United States (8.1 percent), France (7.3 percent), Jordan (7 percent) and Saudi Arabia (6 percent). Incoming tourists totaled 1.66 million in 2011, down 24 percent year-on-year.

A banal budget, but a budget nonetheless

The Lebanese cabinet approved the 2012 draft budget, albeit without any of the tax changes mentioned in the budget that the Ministry of Finance proposed in May. The new version calculates $13.9 billion in expenditures and about $10.2 billion in revenues, which constitutes a fiscal deficit of $3.7 billion. Among the new taxes, or tax increases, dropped from the May version were a new 4 percent capital gains tax on real estate transactions on property owned prior to Jan 1, 2009 and 15 percent on transactions on property owned thereafter, an increase in value added tax from 10 percent to 12 percent, an increase in taxes on interest from banking sector deposits from 5 to 7 percent and an income tax rise in the banking sector from 15 percent to 20 percent. The budget still has to be passed in Parliament where it is likely to face criticism from the opposition block. Lebanon has been without a budget since 2005 and the state’s institutions have been kept afloat through extra budgetary spending bills. Lebanon’s contribution of approximately $33 million to the Special Tribunal for Lebanon (STL) was removed from the budget at the last minute as the funds were provided by the Higher Relief Committee, which falls under the prime minister’s office. The new budget will not cover the contentious issue of public sector wage increases as new sources of funding will be sought towards that end.

S&P: Growth on course, but also at risk

Standard & Poor’s (S&P) credit rating agency has maintained its projection of Lebanon’s real gross domestic product growth at 3 percent in 2012 compared to an estimated 1.7 percent in 2011, but acknowledges that the prospects of higher and sustainable medium-term growth, which would increase competitiveness, enable private sector development and improve fiscal stability, depend on the implementation of key structural reforms by the government. The agency stated that the government’s proposed public infrastructure investments would support growth but are unlikely to materialize in the current political environment. S&P further observed that the continued factionalism in the cabinet is hindering macroeconomic and fiscal policy. The nation’s economic activity is supported by regional growth, especially in the GCC, but the turmoil in Syria since March 2011 has hobbled Lebanon’s economic growth. In the rating agency’s assessment Lebanon had not capitalized on potential benefits from the regional unrest, as it was not able to capture outflows from unstable neighbors due to its own instability in the first half of 2011 and the ongoing perceived risk emanating from the crisis in Syria.

A board to brand the nation

A Lebanese Promotion Board is slated to be established to support and promote the tourism sector and improve Lebanon’s brand perception. The council of ministers agreed to the creation of the new body that will be headed by the Minister of Tourism Fadi Abboud. On it will also sit the first vice governor of the central bank, the chairman of the nation’s flag carrier Middle East Airlines and the chairman of Casino du Liban, the president of the Association of Banks in Lebanon, the head of the Federation of Tourism Syndicates, the president of the Economic Associations, and the head of the Syndicate of Advertising Firms, in addition to five persons from the tourism sector to be selected by the tourism minister. The board will also help raise funds for the ministry, which is currently only able to make very minor contributions to the branding of Lebanon with its annual budget of just $18.4 million. The body will have an advisory role to the ministry proffering suggestions and advice regarding the development of the tourism sector, which is estimated to make up some third of the Lebanese economy. The Nation Brand Perception Index, compiled by the international consulting company East West Communications, ranked Lebanon in 189th place among 200 countries and territories in terms of how a country is projected in major media around the world and in 13th place among 19 countries in the Middle East & North Africa region in 2011.

Feeding the MEA fleet

Lebanon’s flag carrier Middle East Airlines no longer intends to buy a share in Cyprus Airways, having stated a previous interest in doing so. The Cypriot government, a 70 percent share holder in the carrier, revealed its intention in February to sell a portion of the airline, which posted losses of 29.3 million euros in the first half of 2011 and received 20 million euros in compensation from the government for extra costs incurred after Turkey banned Cypriot traffic. Meanwhile, MEA signed a memorandum of understanding for the purchase of 10 new Airbus aircraft at an estimated cost of $1 billion. The five A320neo and five A321neo planes will join the company’s existing fleet of 16 Airbus planes. MEA claims the new aircraft will offer the company 15 percent gains in fuel efficiency and cost effectiveness.

August 7, 2012 0 comments

Business

Q&A – Jacques Sarraf

by Executive Staff August 6, 2012

written by Executive Staff

Growing a Lebanese enterprise in the Middle East is fraught with risk and uncertainty but can sometimes reap huge profits. The company which embodies both the latter and the former is Malia Group, which has expanded from an industrial company into a regional holding active in six sectors. Executive chatted with chairman Jacques Sarraf about business wins and challenges in Iraq, Syria, and North Africa.

As a Lebanese business leader, what is your perspective on investing in Iraq today?

We are going to talk about Iraq? I am happy. I like that you think about Iraq. This is the way we make money.

How long have you been active in Iraq with Malia Group?

We have been in Iraq since 1997, after the agreement between Iraq and the United Nations was signed to exchange food and [medical] drugs for oil. We succeeded to get contracts through the UN system but it was very limited by products. It was food and drugs. Today, there is a big difference. You can trade all the goods you want and the Lebanese are very well accepted in Iraq.

How competitive is the environment today when compared with 1997?
In ‘97, the competition was a political decision. Today, the competition is in the private sector and within the risk system. There is a high risk in Iraq and if you are afraid, you have to delete Iraq from your concept. This is the name of the game: it is high-risk, yes, but at the same time, high profit.

High risk-high profit seems to have been your motto throughout your career as a business leader and industrialist. What is the risk premium in Iraq today?

It is a calculated risk. In the north of Iraq, there is a very low risk. The security is very high and the investment is also highly secure. Things are a little bit different in Baghdad or in Basra, where today we have a lot of support from decision makers in those regions. Our group is present in all of Iraq, but that is in distribution of [fast moving consumer goods] FMCG. In Kurdistan, we are in distribution but we are also in resort hotels and in controlling, in a partnership with [Bureau] Veritas; we are in construction and we are, with MIS Services, in information technology.

Can you give us an estimate on the value of your assets in Kurdistan?

It is about $400 million.

You have also been in the distribution business in Syria. Is this business currently under duress?

Since the beginning of 2012 we have been downsizing our business. We still have a team working there but we are on hold for any expansion or import activities. Our fashion business in Aleppo is completely closed whereas in Damascus we still have a team working on distribution and collection and doing business. But the risk is there.

For exporting to the region, how critical is the ability to ship through Syria for you?

Until today, we are not facing this issue but our contingency plan is to go via Turkey. If we want to go to the Gulf, it is by vessel from Beirut harbor. For our pharmaceutical business, we always ship by air freight, which gives us a lot of cost but we are always present in those markets.

What do you think of the risk of the euro?

We are exporting to Europe and we are in a positive situation until the euro is equal to about $1.20, not less. If the scenario goes to [one euro] at $1.15, we have to review our price strategy. [As Executive went to print the euro stood at 1.21 to the dollar.]

When viewing markets in the region and in Africa, which markets are overall the most important?

North Africa is one of the most important markets today where the Lebanese can expand their business. This is not only in Algeria, but Morocco, Tunisia, Libya and including Mauritania. That is why we have our liaison office in Algiers and have established Malia Group Algerie and from there we can serve those markets. I believe that the Lebanese have to look at these markets more deeply, because Lebanese businessmen and Lebanese products are very well accepted in those countries.

Between your manufacturing and your distribution activities in Malia Group, how have the profit contributions shifted over the years?

We view this by sector and also by year. For example, in 2010-11, construction contributed a big part to our business turnover and profit. Within the industrial sector, our manufacture of pharmaceuticals and cosmetics is representing a good return on investment but FMCG, due to the high turnover in this region, is also giving us the same percentage. If I have to divide it, industry is representing one third of our business and return on investments.

Your vision also seems to have shifted toward becoming a publicly traded company…

We began planning for our IPO in 2005 but going public [that time and again in 2008] was a risky decision. We postponed the IPO. We are a Lebanese group and if we want to go public, we have to offer something safe to our new investors. This is why we said let’s wait until 2016 and this is what we have been advised to by our lead manager of the IPO.

How many companies are today in the Malia Group portfolio?

Twenty, and I just returned from the North [of Lebanon] where we will launch our biggest development with Natour {Resort] Developments in September.

And the IPO will be for the whole group?

In our strategy and IPO it was decided to sell 35 percent of the group, 10 percent for our employees, 10 percent for our partners and 15 percent on the markets.

In 2004, you had 400 employees. How many employees does the group have today?

Today, we have 1,382 employees, and a big part of that is in Iraq. However, from this number we are excluding the construction teams that are hired on project base.

What more can you tell us about the Natour Project in North Lebanon? Will this be a partnership?

We are two groups today [on this project] and we are now looking for a management company. We are on the edge of negotiating this.

With a European management company?

No. On that, it is always good to have a Lebanese with high experience in managing such a resort business.

If you are looking forward, what size are you aiming at for 2016, depending on the investments you are working on today?

A lot will depend on the Natour project. Natour alone is an investment where we are talking between $900 million and $1 billion. We are talking about 80 acres with 450 meters on the seashore and this needs a lot of investment. We are also going to create not less than 3,000 permanent jobs.

So as far as benefit to the North…

…it is going to be the total reverse of the North Region.

And you are not worried of fighting in Tripoli?

Let me remind you, this is our culture — we have profits because we embrace risk.

August 6, 2012 0 comments

Business

Spirit of success

by Maya Sioufi August 6, 2012

written by Maya Sioufi

Sitting in his office in Sursock tower with a jersey of Barcelona club footballer Lionel Messi hanging on the wall, Hani Haddad, founder and Chief Executive Officer of Spirit, does not seem too concerned about the impact of Lebanon’s political instability on the advertising industry, but “by the time you go to print, things could change.” Established in Beirut in 2004, Spirit is a boutique advertising company providing custom made services to its clients in the Middle East and North Africa region in ways that “supermarket agencies”, as Haddad calls the large multinational advertising agencies, cannot. Unlike these agencies, “we do not copy and paste templates from abroad that can’t be applicable in our region,” adds Haddad.

Structured for success
With more than 20 years of experience in the advertising industry in the Middle East — during which he founded advertising agency Triple H that was later sold off to Beirut-based Intermarkets, a subsidiary of global advertising agency WPP — Haddad felt there was a gap in the market for tailored services and he founded Spirit to fill that gap. For instance, Haddad highlights the recent TV ad campaign done for Skinnet, and the corporate event done for the launching of BMW’s six series in Zaitunay Bay, as examples of tailored services. Haddad refused to divulge his price structures to Executive but claims he charges “a little bit less” than multinational agencies. Spirit’s portfolio of clients now includes accounts such as Rotana Hotels and Al Ahli Bank as well as BMW and Renault in Lebanon.

With a total of 36 employees, after having made layoffs in its second office in Dubai two years ago, Spirit is made up of four entities: Spirit ME (the ‘ideas provider’), Spirit media (media planning and buying arm), Spirit PR (public relations) and Spirit digital (online advertising).

Total revenues for the group stood at $22 million last year, up from $18.5 million in 2010 and $16.5 million in 2009. “This year is still promising despite what is happening politically and economically [in Lebanon],” adds Haddad. Whereas real advertising expenditure in Lebanon dropped by just more than three percent last year to stand at $174 million according to research firm IPSOS-STAT, Spirit’s revenues from Lebanon, its largest market, grew by 20 percent, up from 18 percent in 2010 and 15 percent in 2009. The second largest market, the United Arab Emirates, did not witness such solid figures as Spirit recorded five percent growth rate last year, up from 3 percent in 2010 and zero in 2009 due to the financial crisis that shook the emirates. Haddad expects that this year growth in their UAE market will be in line with other Middle East markets.

Ads of the future

In Lebanon, the vast majority of expenditures go to television, as this media avenue netted $38 million of the $174 million total expenditures last year, but Haddad believes television is losing its importance. He jokes that “unless Barcelona or Liverpool football clubs are playing a match, people won’t watch TV.” In fact, television advertising spend, while still receiving the bulk of total advertising spend, grew by just three percent globally in the first quarter of the year according to Nielsen figures, the slowest growth after magazines among the seven media categories. In the Middle East though, as in Lebanon, television remains the avenue most widely used for advertisement purposes with TV ad spend growing by 34 percent in the Middle East and North Africa.

For the advertising space in Lebanon, his main concern is the lack of transparency. “In Dubai, there are monitored figures for prices, reaches, etc. In Lebanon, we don’t have such figures. You cannot trust anybody.”

He sees two key trends shaping up the industry in the near future. The first is for direct contact such as sending personal emails to consumers, calling them to discuss a promotion and planning events to launch a product.

The second trend, and the one where Haddad sees the most significant growth in advertising, is the shift from traditional to digital. In the UAE, Spirit’s clients are allocating a larger percentage of their advertising budgets to digital. “30 percent of their traditional budgets is digital, up from 5 to 10 percent [a few years ago] and the shift is coming to Lebanon too,” says Haddad. Online advertising witnessed the strongest growth worldwide among the seven different media categories in the first quarter of the year, up 12 percent according to Nielsen figures. Haddad is keen to direct interaction online through social media tools such as Facebook and Twitter. “Everybody now has a fan page on Facebook. You have to interact, activate and bring fans,” adds Haddad. “No brand can ignore this.”

August 6, 2012 0 comments