Society

Views, Reviews, and Previews

by Thomas Schellen
written by Thomas Schellen

The new book by Lebanese communications consultant and former ad-man Ramsay Najjar, “Views, Reviews, and Previews”, in intellectual association with Executive, is a tour de force of theories, recommendations and projections on the pivotal role of communications and journalism in the history of humanity, as well as in the unfolding of the Arab uprisings. Executive sat with the author to chat about his latest work. 

What motivated you to write this book?

The driving force that pushed me to write this book was that I discovered, to my surprise, that we lacked a serious source on the deed of communications in this part of the world. A reference sounds a bit too academic, but this was the driving force. But that was the second reason, the less important. The first was the ‘Arab Spring’. I always had a theory that in this part of the world, [with maturity of legislative, executive and judiciary being a long way off], the fourth pillar — communication — might be our only shortcut and roadmap to real democracy. That is why when the ‘Arab Spring’ started, I felt ‘this is my theory!’ and I wanted to grab the opportunity to prove this was opening a window to reach democracy, which we always thought to be beyond our nature and beyond the organic gifts that were given to the Arabs. 

Would you be able to summarize your book in three words?

The title is doing exactly what you are asking me to do. We have views, in the sense that we are writing about the essence of communication from its start with the dawn of humanity until today. The ‘reviews’ is a connection between this and the real life, be it in politics, in the lives of society, in struggles, in war, everything where communication becomes organically linked to the game of life, and the third part was the preview and the ‘Arab Spring’, how can we make sure that communication can be the real safety net that would guarantee for this change to be positive and evolutionary. 

Some key words appear quite frequently in your book, one that you emphasized yourself was ‘nuances’ and another one was ‘noble’. Both terms are rarely used in connection with the topics of journalism and advertising. Are these translations from Arabic concepts?

These are original to the English book and the proof of that is that the Arabic version does not have an equivalent of the term nuance. This word is key in my book because I meant to write an ethical chart that people in media should respect and abide by. Nuances are strategic because of three chapters in my book where I meant to create a certain equilibrium that will help the reader understand why the media is the fourth estate, why it was given the privilege of being the only tool that the citizen has to practice his democratic belonging to a system to observe and render his rulers accountable and liable. 

Even more frequently than nuances, noble appears more than 120 times in the first 250 pages, or on average on every second page. Why do you stress so much on media as a noble cause and journalism as a noble profession?

Nobility is lacking in this part of the world. I think that we have imported the concept of media without its noble dimension. Even professionals in this line of business have a tendency of forgetting that they are in this noble cause. Only when they die, we remember that they are on a noble mission. My theory is that this fourth pillar can build the ‘temple of democracy’. 

In the sixth chapter you defend the role of advertising and talk of its noble mission and benefits. Why is that a separate chapter?

All my life I felt that advertising is really underrated in this part of the world; that is what I try to say in that chapter. Also, the practitioners of advertising never have the time or motivation to defend themselves and their profession in the way I try to do. 

Do you see it as realistic description when you say the journalist of the past was “super human, intelligent, enlightened, noble, daring, combative, and exemplary in seeking the truth and amplifying the voice of right and its achievements”?

Let us say it is the 17th or 18th century and you are recruiting a reporter. Would you have accepted to recruit someone who is less than that? In the early 20th century, you would have had Andre Gide, Albert Camus — those were the people with the profile of a journalist. 

So you are not talking about the average practitioner of journalism?

No, I set a precept. Let us take Jean-Jacques Rousseau in the Renaissance; he was a journalist. Victor Hugo was a journalist. Milton, Baudelaire were journalists. Take the Arab example of what we pretend to call the Renaissance period, the Mohammed Abduh, Mohammed Ridha, Jurji Zaydan. All these were not only journalists but saw the fulfillment of their humanity would only be achieved if they either launch a newspaper or have a publishing house.

When you say that only the voluntary soldier and the journalist willingly face death, you seem to be saying that the journalist has something of a martyr impulse.

If he wants to abide by my ethical chart, yes. 

You speak of a journalistic oath. How would one want to go about implementing this?

If doctors have it, engineers, pharmacists, and lawyers have it, I don’t see why we are until today not imposing on journalists to have a professional oath. Under the assimilation theory that I believe in, this [oath] will push you as journalist to be more disciplined. I am not saying that every single journalist will become a saint over night by respecting the code but at least it is the right way to go. 

In your opinion, when you think of journalism as the brightest jewel in the crown of humanity, and taking all things into consideration, will quality journalism come back to the Middle East? Under your anthropological postulate will this new journalism provide leadership in the future and will your book help in giving birth to this journalism?

For me, the journalist should play the role of a catalyst, to empower the citizen to become more mature, more aware and vaccinated against all those diseases and viruses [of bad societies]. I believe that the ‘Arab Spring’ is definitely the opportunity for communication to play the role that is lacking in this part of the world, of empowering people to kind of elevate their IQ from instinct to the mind. I totally believe in that. 

At the end of your book you develop scenarios on the future. How much probability do you give to this scenario where journalism as the fourth estate gives birth to democracy?

As a consultant I am not supposed to be present in the sense of ego. I am telling you that there is a scientific probability that is solid. Now, my personal subjective opinion is on a totally separate track but I believe it is possible and I can defend this. If four specific coordinates — the demographics, the freedom of expression, the law of ownership of media, the auto-regulation — are respected to the letter, the chances are very high. If they are not, we are doomed. We will go from bad to worse. 

So its either good journalism or dictatorship?

Exactly. That is how I see it. 

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Yemen’s long path of thorns

by Farea al-Muslimi
written by Farea al-Muslimi

Yemen’s old history books speak of the fifth century King al-Tuba al-Yamani who, in the final seconds of his life, gives his heir some tips on ruling the country. The king whispers to his son that the one who rules the kingdom should “bear the bites of snakes and scorpions, devour its money, waste its blood, and kill the closest people to him, even it be his brother”. One might now wonder whether former President Ali Abdullah Saleh said anything of the kind to Abdu Rabbou Mansour Hadi, who took up the reigns of power at the end of February and has since gone about a purge of former Saleh loyalists

For 15 years before becoming president, Hadi had perhaps the most boring job in Yemen: as Saleh’s vice president his job was to attend ceremonies, cut ribbons and sit silently wearing his sunglasses. In just 60 days as president, he has sacked no less than 20 military commanders and 4 civilian governors.

This has relatives and loyalists of President Saleh, who still man many of the posts in Yemen’s government and military, feeling unnerved. Muhammed Saleh al-Ahmar, half-brother of the former president and the air force commander, refused to step down and shut down the airport upon hearing of Hadi’s decision to remove him. Eventually air force bases began to take orders from their new chief — the widely respected General Rashed al-Ganad — but Ahmar refused to hand over the air force's headquarters, stacked with Republican Guard units lead by one of Saleh’s son. He only left office on May 4, the same day tens of thousands of Yemeni’s took to the streets to demand the purge of Saleh loyalists.  

The United Nations envoy to Yemen Jamal Benomar is now leading a new phase of negotiations between confronting sides. But getting Saleh’s relatives and allies to give up their financial and political power is an uphill battle. In Benomar’s own words before departing the country “the worst is yet to come.” Already there are murmurings in Sanaa that UN Sanctions could be imposed after a Security Council meeting on May 17. That’s not all.

Taking apart Saleh's old power apparatus is just one issue facing Hadi as he tries to balance an extremely fragile peace in Sanaa and quell mounting violence outside the capital. Yemen was already in an economic crisis before the uprising. Today it faces a humanitarian crisis, armed conflicts in many governates, governates outside the government control, fighting with Al Qaida in the Arabian Peninsula in the south, just to name a few burning issues. Yet, for all the press Yemen gets because of its role at the crossroads of so many conflicts in the region, little is done to actually help those who rose up against autocracy. So far the UN has received only $63 million dollars out of the $447 million dollars it needs for its humanitarian operations in Yemen. Moreover, the northern province of Saadaa is now under the harsh control of ethnic Houthi elements, and could inflame another sectarian conflict like the other six that occurred between 2004 and 2009.

Perhaps the largest challenge facing Hadi (and the rest of those with an interest in Yemen, from the United States to Iran,) goes is beyond military and security issues. Yemen’s youth movements remain camped out in the country's squares, unemployed yet determined to see out their revolution to wherever it may take them. But with idle hands in the devil's workshop, the more they sit around, the less likely they are to join the workforce. 

Indeed, with the almost surreal swirl of calamitous circumstances enveloping Yemen, Hadi may need a miracle to come out of the coming months with the country anywhere near a semblance of stability — but it is not impossible. Thus, if he manages to continue his purging of Saleh’s old guard on the back of international, regional and local support, Yemen's downward spiral may be begin to plateau, and perhaps he may have more favorable advice to offer whoever is next at the helm.

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Business

Sweet offerings

by Sami Halabi
written by Sami Halabi

Patchi International (Patchi), the family owned Lebanon-based chocolatier with operations in over 29 countries, is planning to offer up to 49 percent of its ownership to a strategic partner in the next two years, its Founder and Chairman Nizar Choucair tells Executive.

“We believe that we cannot continue by ourselves,” says Choucair. “We are not in need of funding. We just need companies in our field of business that have more expertise than us in the areas we are willing to invest.” Strategic partners will be included on the company’s board of directors on condition that they do not divest for a period of five years from time of acquisition.

The plan for expanding its shareholder base was first hatched in 2009 when Patchi had announced that it was interested in floating 49 percent of the company through an initial public offering (IPO) but later called off the listing citing post financial crisis market conditions as the reason.

Choucair declined to give details on how much the company was worth or what the target price of any IPO would be, stating that a valuation for the company has not yet been set. However, he says the company has seen a 45 percent increase in turnover since global coca prices spiked in 2010.

According to Choucair, who has run the business since 1974, the new expansion could be a mix of equity participation and IPO but the company has yet to decide whether it would offer the entire proposed stake to a strategic partner, put it on the market, or seek a combination of both. He adds that currently the company is targeting a sale of between 45 and 49 percent.

Listing in Lebanon, however, is not an option for Patchi because, “Lebanon has no laws that protect you or the partners you work with and lawyers can fool you,” says Choucair. Instead, he adds that the company will actually move its registration to the United Kingdom’s island of Jersey for its tax laws and because it “acknowledges the [Sunni] Islamic laws that state that when the owner dies, they give a share to the son, and half of that to the daughter.”

When asked about the type of partner Patchi would be willing to consider selling a stake to Choucair stressed that the company was not looking to sell to a private equity fund but rather to a company larger than Patchi in the same line of business in order to serve their new target markets.

According to Choucair, in the coming years Patchi will focus its retail expansion in the Far East with a focus on China. The move is another in a series of expansionary measures by the company away from its local Lebanese market. Patchi’s largest operation is in Saudi Arabia where it also has concentrated the manufacture of its chocolates.

But while the company’s main expansion focus is outside its home nation Choucair insists he is not giving up on Lebanon. He tells Executive that a new 15,000 square meter factory some 40 kilometers south of Beirut is slated for opening by the end of the year and adds that Patchi also expects to open four new branches in the country (Hazmieh, Nabatiyeh, Jbeil and Tyre). “But that would be it in Lebanon,” he says. “I love Lebanon and am still investing here since this is where I belong. However, I will not invest any more than that.”

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Economics & Policy

Lebanon’s awkward first steps

by Zak Brophy
written by Zak Brophy

For more than 14 years Lebanon has watched in frustration as neighboring Israel and Cyprus have searched for and discovered rich reserves of hydrocarbon fuels under their maritime waters. Political instability and ineptitude had ensured that Lebanon remained a jealous bystander during this period. However, the passing of the first implementation decree pertaining to the Offshore Petroleum Resources Law on January 4 suggested that the country was finally on course to join the bonanza. 

A short flurry of hubristic statements for the press at the beginning of the year suggested the petro-dollars would soon be bulging from the state’s coffers, providing plenty for all. However, while credit must be given to the Ministry of Energy and Water (MoEW) for having finally got the show on the road, some faltering and somewhat dubious occurrences suggest the country has stumbled as it shoots out of the starting blocks in its race for hydrocarbon riches.

Gebran Bassil, minister for energy and water, confidently told reporters back in January that the Petroleum Administration (PA) would be named within a month, the first tender round would begin within three months and the first exploration contracts would be signed by the end of the year. However, as Executive went to print at the end of April, the PA had yet to be appointed.  

“This administration is the most important thing for the pre-launching of the exploration rounds and the tender rounds,” says Roudi Baroudi, an independent energy consultant and secretary general of the World Energy Council’s Lebanon member committee. “Once the PA has been nominated they can immediately move ahead with the different consultants they have to start preparing the bid rounds for exploration and to define which blocks they would like to have the companies bid for.” 

From council to council

The passing of the decree approving the bylaws of the PA in early January should have immediately paved the way for the creation and staffing of the PA. However, on January 29 the Shura Council, Lebanon’s administrative advisory body, issued an opinion noting no less than 51 points of contention with the decree. In a copy of the document obtained by Executive, the first point raised is that it is incumbent upon ministers to send decrees to the Shura Council before they are sent to the Council of Ministers (COM), Lebanon’s cabinet. It notes that in this case the Shura Council was bypassed and the decree was submitted directly to the COM.

Cesar Abou Khalil, advisor to the energy minister, said, “The Council of Ministers re-voted on this decree and confirmed it, so it is pointless to discuss what issues the Shura Council has raised now that the Council of Ministers has used its prerogatives and have confirmed it. It is confirmed and in vigor.” 

Shura council rulings on decrees are advisory, but they ensure that they are harmonious with Lebanese laws and the constitution. However, the course of events ensured that the COM was caught in a bind whereby, even if they had wanted to, it would have been difficult to adopt the Shura Council recommendations after already issuing the first decree. In such a scenario they would have been obligated to pass a revised decree, which would have left them looking both incompetent and inconsistent in the eyes of the prospective oil companies. The COM voted on March 21 to ignore the Shura Council and proceed with the January decree in its original form. 

The majority of the 51 points from the Shura ruling are for minor technical details, but some significant issues are raised with regards to the independence enjoyed by the PA. For example, the Shura Council ruled that article 6 of the decree that gives the minister power to impose punitive sanctions on the PA, including a deduction in benefits, was in contradiction to the Offshore Petroleum Resources Law passed on August 24, 2010. In that law the PA is afforded financial and administrative independence under the Wasiyeh, or tutelage, of the MoEW and it is the level of control incorporated into this Wasiyeh to which the Shura Council took exception.  

Abou Khalil from the MoEW, however, argued, “[The Petroleum Administration] is purely advisory… They have administrative independence because they are named by the COM and only the COM can dismiss them. The minister cannot dismiss any of them. But by law 132, [August 28, 2010] it is an advisory body to the MoEW. Under our watch, there will no breach to the constitution. The minister is the head of his sector.”

According to Abou Khalil the ministry is fighting a precedent set during the time of former Premiers Rafiq and Saad Hariri, as well as Fouad Saniora, which “hollowed the ministries by creating these independent bodies which are under the tutelage of the prime minister… The oil sector should be under the minister and it is the same in all of the ministries.” 

Another significant objection of the Shura Council was to the proposed rotating chair of the PA. Under the MoEW plans the six members will each spend a year presiding over the body, which breaks with the convention of appointing one chairperson within such bodies. Opposition member of Parliament and head of the Parliamentary Energy and Public Works Committee, Mohammad Qabbani, is opposed to the level of control the MoEW is set to have over the PA arguing, “The idea of the presidency rotating between the six members will only weaken the power of the administration.” 

Abou Khalil confirmed this was for all intents and purposes true, but argued that it is a positive and necessary development: “When there is a rotating presidency there is a cross auditing between the members… This sector, we believe, will become one of the main drivers of our economy and development in the near future. We need to be tough on this issue, we don’t want to create another body that can become stronger than the government.” 

The COM is within its rights to either heed or ignore judgments by the Shura Council on proposed decrees, but the fact that the Shura Council was not initially consulted, as is both protocol and law, and topics of considerable import were later contested, hardly sets a promising precedent for the development of this nascent industry. 

Filling seats in the PA

Malek Takieddine, a Beirut-based legal consultant who works closely with international oil companies in the United Kingdom and Iraq, pointed out that the delay in appointing the members of the petroleum administration has been a cause for concern for some oil companies. Nonetheless, he argued there is still strong interest from international players in Lebanon’s play, given the initial achievements of the ministry. 

With the decree in its original form re-voted on by the COM, Prime Minister Najib Mikati told Parliament in mid-April that the PA would be announced within the month, and as Executive went to print the government was in the process of selecting candidates through the Office of the Minister of State for Administrative Reform and Development (OMSAR). 

There was a time lag of some three weeks between the passing of the decree in March and the launching of this process, raising concerns that the major political players had tried and failed to barter the PA appointments before moving to the more formal approach. Going forward, which strings will be pulled to influence the appointment of the PA and the PA’s day-to-day operation remains an open question.

“If a minister decides to go through a procedure where there is deliberating, accepting applications and examining CVs before taking it to the Council of Ministers then we hear such accusations,” said Abou Khalil. “And if we propose the names right away to the COM they scream ‘oh, they brought their guys.’” 

The oil and gas industry is incredibly complex, with large sums of money at play, and so the PA requires high caliber professionals with extensive and particular skills —however, qualified candidates will not be easy to land.  

One of the pre-requisites for applicants is 10 years experience in the industry, but Takieddine reasoned, “It needs to be clarified when we say experience, it needs to be specifically upstream.” In common speech upstream is a reference to stages within the industry such as exploration and production, while much of Lebanon’s current involvement, and therefore skill-base, in the sector is in downstream activities such as marketing and distribution.

Furthermore, industry opinions point out that the wages envisaged for members of the PA, while being hugely generous for a Lebanese government employee — expected to be around $10,000 per month — would be considerably lower than similar-level private sector posts in the oil and gas industry. The majority of Lebanon’s talented workers with suitable upstream experience are based abroad and the government may struggle to lure them home with such wages.  

The MoEW’s Abou Khalil dismissed these concerns, assuring that the quality of the applications were more than up to scratch. “They will be stunned when they see the CVs,” he said, and while acknowledging that the wage would be small compared to what could be expected from comparable posts with major oil firms, he was confident that enough talented Lebanese would want to share in the development of this potentially very lucrative sector for the country.  

As with all public sector posts there is an age limit for applicants, which in this case has been bumped up from 35 to 57. However, Takieddine argued that the posts on the PA are perfectly suited for highly skilled and experienced people who are near, or past, retirement age, and would be more likely to accept a considerable drop in pay in order to return home and take on these important and challenging roles. Although the maximum age is 57 he argued an exception could be beneficial in this case. When asked if the MoEW would consider such a move Abou Khalil responded, “Then we would have a real problem with the Shura Council…We have pushed it to the maximum that we could.”

Perhaps one of the biggest hindrances to filling the PA with qualified people is the rigmarole of satisfying the sectarian divide. Within the pool of grade one posts in government, such as the PA, there has to be a balance in the representation of Muslims and Christians according to the constitution. However, over the years, it has become protocol to balance the allocations not just across the whole body of grade one posts but in every administrative body across the country’s main religious sects. Qabbani argued, “It should not apply to every administration. It should be a ratio that applies to the whole basket of first grade positions. It’s suicide.” 

Considering the massive importance of administering and managing the oil and gas sector properly, there have been calls for the PA to be staffed purely on ability. “In the current arrangement qualifications and merit are not being sought after but rather it will be the blackmailing of each community against the others,” says Yahya Hakim, board member of the Lebanese Transparency Association, the local arm of the global anti-corruption organization. “Each community will be putting [forward] someone who speaks in their name, not someone who can really run the show. So all of the issues will be political and not in the hands of the professionals as it should be.” 

Although it is only a legal requirement to balance the sectarian ratios across all first grade posts, and not in every administration, it seems that this practice will still be applied to the PA. “We will employ people with the best capabilities while respecting the Lebanese system,” said Abou Khalil, in reference to the sectarian balancing act in top level recruitment.

Minister Gebran Bassil has surrounded himself with a technical staff that has worked assiduously to lay the groundwork for the development of Lebanon’s oil and gas sector. Some progress is being made. However, the irregular way in which the decree was passed raises concerns over the integrity of the approach. All eyes are now focused on exactly what kind of body the PA will be and what role it will play in the evolution of this embryonic, yet potentially vital, industry. 

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Rolling back the frontiers of reform

by Jihad Yazigi
written by Jihad Yazigi

On March 18 the Syrian government announced it would set price controls for a whole set of key commodity items, and that all retailers will have to comply with the new restrictions. The decision is a response to the surge in prices witnessed recently in the local market. Indeed, while inflation remained relatively under control for most of last year, the last few weeks of 2011 saw a steep rise in the price of various consumer items, particularly food products; this trend has only accelerated since the beginning of this year. 

The factors behind these price rises include the depreciation of the Syrian pound, the suspension of the free trade agreement with Turkey, the rising costs of banking and transport insurance due to economic sanctions, logistical and supply difficulties across the country and the increase in production costs due to growing power shortages. The prices of many food items such as sugar, rice, vegetable oil, tea, poultry, meat, eggs and butter have risen by double digit-figures in recent weeks; sometimes by up to 100 percent.

In effect, this dramatic move by the government marks a return to price control practices that had been abandoned long ago, when the Syrian government began to liberalize its economy in the mid-1980s. It is also a move to show the Syrian people that their government is doing something to relieve them from increasingly difficult living conditions. The Minister of Economy Mohammed Nedal al-Shaar said that “some greedy” traders were trying to benefit from the Syrian crisis, with local press accusing them of “sucking the blood of poor Syrians.”

This discourse on the responsibility of the business community is likely to be well received by large segments of the population. Four decades of socialist policies and anti-business discourses have, indeed, helped shape the mind of many Syrians. The Baath party’s rise to power, which promoted the country’s rural population and widened the size of country’s middle class, was largely made at the expense of the land-owning and urban elite that ruled the country since its independence from France in 1946. Putting the blame on capitalists, traders and the bourgeoisie was a regular part of the official speeches of Syrian leaders from most of the 1960s to the mid-1980s.

Obviously, the accusation was not to the liking of the business community and, in a statement, the head of the Damascus Chamber of Commerce asked the local media to stop blaming traders, who were “part of society and not imported!” The bad press for traders is, however, not solely to be blamed on ideology. It is also to a large extent the reflection of the severe market distortions present in the Syrian economy. Indeed, oligopolistic situations continue to prevail in a wide number of business sectors and although in recent years government officials used to acknowledge this more or less openly, nothing significant was made to curb these practices — doing so would, indeed, have endangered the interests of too many people closely tied with the government.

More significantly, the trade in accusations between government officials and traders reflects the dismal way in which the liberalization of the Syrian economy was conducted. Under the management of Abdallah Dardari, the key decision maker on economic policy in the Syrian government for almost a decade, large sectors were liberalized in the hope of attracting private investment. While in itself this opening was widely deemed necessary, it was conducted in a largely unregulated environment.  

The retreat of the state coincided with the lack of a civil society and of its institutionalization (for instance consumer protection bodies) which enjoy little judicial oversight over enforcement. The large number of restrictions, which formally regulate business practices, helped give the impression that the State continued to cater to the general welfare. But in practice, a structurally corrupt administration acted more as a middleman for business actors than as an efficient body defending the interests of society.

The consequence of all this has been an increasing income gap and a gradual meltdown of state institutions. In a statement to the press, Shaar admitted to how empty-handed he felt. In reference to when the state still had a strong hand in regulating the economy he said: “We are no more in [the year] 2000.” It was also the year Bashar al-Assad became president. 

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Finance

Money Makers

by Maya Sioufi
written by Maya Sioufi

With the macroeconomic blues still singing in the headlines, the prospect of earning big returns through conventional market investments — such as buying stocks, bonds or trading foreign currency — seems increasingly uncertain. Investors are looking for alternative assets, for real deals, for something they can touch, such as acquiring property or investing in a start up. 

Lebanon has its share of alternative investment opportunities to offer those looking to place their capital. But these opportunities will not to be found at local banks, which have largely run dry on deals; it is the small number of private equity firms in the country that hold the keys to the lion’s share of these investments. Small and medium-sized enterprises represent the vast majority of Lebanese companies, but increasing limitations on their access to leverage means raising equity through selling stakes in their companies often becomes the only solution if they wish to grow.

This urgency to access capital, combined with the increasing awareness of the financial benefits of raising equity — no regular interest payments — is intensifying SMEs willingness to chase this route. Private equity funds have taken note. New funds dedicated to Lebanon — such as Riyada Enterprise Development’s Lebanon Growth Capital Fund and Middle East Venture Partners’ Building Block Equity Fund (BBEF) — are jumping on the bandwagon. Other funds dedicated to the Middle East and North Africa are also looking to invest in Lebanon — such as Wamda’s and Capital Trust’s Euromena funds, which have already made two of their last three investments in Lebanon. SMEs need capital to expand, but this expansion is often outside of their home market as the prospect for further internal growth remains small. Lebanon is the lab in which concepts are tested, with successes here then taken abroad.

In the following pages, Money Makers details close to $200 million worth of investment opportunities in Lebanon, with this new regular feature of Executive catering to those enterprising individuals looking for alternative avenues to expand their financial portfolios and change the country’s financial landscape.

 

1- Building Block Equity Fund

What’s the deal? Participate in a fund that will invest in Lebanese enterprises.> Who is running the fund? Middle East Venture Partners (MEVP) headed by Walid Hanna.

What type of companies will the fund invest in? The fund is opportunistically looking to invest in Lebanese start up companies in any sector with a preference for those that have a tech component. “The magic word is scalability,” says Hanna, noting that MEVP is looking for small companies with rapid growth potential.

What is the size of the fund? BBEF currently has $8 million in assets (none invested yet) and will start raising another $7 million this month. Hanna expects to have completed the financing within three months.

What is the minimum ticket (investment)?$200,000; there is also a maximum ticket of $2 million.

What is the term of the fund? Six years with a one-year extension option

How much will the fund invest in each company?The fund will take minority stakes by investing between $200,000 and $1.5 million per company.

What is the target rate of return? The target internal rate of return of the fund is 30 percent.

How will MEVP exit the companies? By selling their stake to a strategic investor in the same line of business, to a private equity fund, or to an investor looking for a high growth company.

What if MEVP can’t exit an investment? “We can force majority shareholders to buy us out at a multiple of 2 within 5 years” says Hanna.

Give me more details: This is MEVP’s second fund. Its first fund, Middle East Venture Fund, raised $10 million by June 2010 and has so far invested $6 million in a total of eight companies. 

How to invest in this fund? Contact MEVP at [email protected]

"Banks tell small and medium enterprises (SMEs) your debt-to-equity ratio does not make sense, we can’t lend to you, you need equity but no one is providing equity to SMEs. That’s why they need a fund like BBEF and then they can leverage the equity with bank debt”, says Walid Hanna, Chief Executive of MEVP. "

 

2- Lebanon Growth Capital Fund

What’s the deal? Participate in a fund that will invest in Lebanese enterprises.

Who is running the fund? Riyada Enterprise Development (RED) owned by Abraaj Capital, the Middle East’s largest private equity firm.

What type of companies will the fund invest in? The fund does not have a sector focus. “We will invest across multiple sectors, some are very low risk, low growth and some are high risk and high growth,” says Elie Habib, Lebanon country manager of RED. For a company to be considered, it has to have a minimum worth of $7 million.

What is the size of the fund? It already has $30 million of committed capital from Cisco, the European Investment Bank and Abraaj Capital. RED is now looking to secure $20 million from Lebanese investors. “The sooner, the better; there is no set date,” to meet the target, says Habib.

What is the minimum ticket? The minimum ticket is $500,000 and there is no maximum. If investors want to come in for less, a feeder fund can be put in place in which investors place their capital and then the total is invested in the fund.

What is the term of the fund? Eight years, which consists of an investing period lasting four years during which the funds should be invested in Lebanese companies, and a harvesting period of four years during which the investments should be exited. There is a one-year extension option for each period. 

How much will the fund invest in each company? The fund aims to invest $3 million to $4 million per company by taking minority stakes (minimum 20 percent).

What is the target rate of return? The target IRR for the fund is 30 percent.

How will RED exit the investments? “Before we enter, we study the exits,” says Habib. Exits will be achieved through a merger with another company, through a buyout by another private equity firm or a strategic buyer such as an international company looking to expand into the Middle East, or through the founders buying out RED’s stake.

What if RED can’t exit an investment? “We put in a ‘forced realization’, that is if after five years there is no sale or we rejected all the offers then we can force an exit; either the founders buy us out or we find them a buyer. It is a joint decision with the founders,” says Habib.

Give me more details: Lebanon Growth Capital Fund has so far invested in just one company by injecting $3.25 million in Nymgo, a software application allowing users to make calls from computers to phones over the Internet. Founded by Omar Ounsi, Nymgo differs from Skype by having a 100 percent paying customer base for voice offerings.

How to invest in this fund? Contact Elie Habib at 01-983640

 

3- Beirut Terraces

What’s the deal? Shares in a high-end residential property project in Beirut Central District’s Minet El Hosn area.

What is the size of the offering? $100 million

What am I acquiring? Shares in a residential apartment with prices starting at $1.5 million; price is subject to a 20 or 30 percent discount.

What is the term of investment? Four years from closing date, which has been postponed from March 31, 2012, to an undetermined date.

What is the coupon rate (rate of return)? 7 percent of the investment’s value per year.

What are the exit strategies? Shareholders have a call option (the right to purchase a unit) at a 10 percent discount at the end of the third year. If this option is not exercised, then in the fourth year, the owners have a put option (the right to sell the unit) to the shareholder at a 20 or 30 percent discount. If the options are not exercised then the shareholder is paid back his initial investment with the 7 percent annual coupon.

Can I get access to leverage? BankMed is offering a loan facility for 70 percent of the investment.

Developers/Owners/Architects? Benchmark Development, also behind Wadi Hills Residences, are the developers of the project. It is owned by DIB Tower and Town Tower and designed by Swiss architects Herzog and de Meuron, those behind the Tate Modern museum in London.

Give me more details: Beirut Terraces, a vertical village overlooking the Beirut Waterfront, is comprised of 25 residential floors with 130 apartments. It also has one retail floor and 5 underground parking floors. Each apartment will have its own terrace and selling prices will start at $5,200 per square meter. The building is expected to be completed in 2015.

Interesting extra: There is a free iPhone application.
How to invest in this real estate project? Contact BankMed at 01-361380

"There are two key features of this product: the coupon payment which allows the investor to earn while he/she waits for the unit to be delivered, and locking in the price of the unit for a significant period of time, says Khaled Zeidan, general manager of MedSecurities, a BankMed subsidiary "

 

4- Wamda Fund

What’s the deal? Invest in an early stage MENA fund run by Lebanon-based Wamda.

What type of companies will the fund invest in? The Wamda fund is part of a wider entrepreneurial ecosystem looking to empower entrepreneurs in the MENA region. The fund hopes to invest in the early stages of two types of companies throughout the region. “The first type are technologically advanced companies that can succeed globally, and the second type we call ‘copy paste innovate’,” says Wamda’s CEO Habib Haddad. “Its not that we want to promote clones but we think there is so much value and white space that can be filled in the regional market so a good team with good execution can go after that.”

What is the size of the fund? So far the six-month-old fund has only one anchor investor (though the amount invested remains undisclosed) and it is looking to raise $15 million this year with an aim to eventually reach $25 million.

What is the term of the fund? The fund is looking to invest between $50,000 up to $1 million per company over the four years and expects to have exited the investments within six years.

What is the minimum ticket? $100,000

What is the target rate of return? The target IRR for the fund is 45 percent.

How will Wamda exit the investments? Haddad sees three types of exits for the fund: A buyout of investments by European and US companies looking to enter the regional market, a buyout by companies in emerging markets such as Turkey, China and South Africa, and finally a buyout by local companies. “Local markets present the biggest opportunity; it might be time for them to wake up and start acquiring,” says Haddad.

How to invest in this fund? Contact Wamda at [email protected]

 

5- Mach-3D

What’s the deal? Invest in the development of an online social platform looking to open a lab 
in Lebanon.

What is Mach-3D?

Headquartered in Luxembourg, Mach-3D offers a ‘mood-based’ platform that enhances the web and mobile experiences through personalized 3D profiles, interacting and sharing emotions. It uses a core technology called 3DoM (3D Operated Motion), that transforms pictures into realistic, emotional and customizable 3D avatars, called Living Portraits (LP). Through its cloud platform and the users' favorite social networks, LPs can interact with one another by sharing emotions, communicating and exchanging virtual gifts.

Who founded the company? There are three co-founders: Chief Executive Chandra de Keyser, Chief Technology Officer Massimiliano Tarquini, and Alessandro Ligi, the senior software architect.

What are the expected revenues of the start up? The founders expect revenues to reach $900,000 in 2013 and grow significantly to reach $9 million in 2014. It projects a positive cash flow by the first quarter of 2014 and it expects to break-even by the end of 2014.

What’s the link to Lebanon? They plan on opening a lab in Lebanon and they aim to hire 8 people. They have partnered with the Investment Development Authority of Lebanon (IDAL) for their expansion.

How much capital do they want to raise? They have €200,000 ($263,000) of seed money taken as equity from the two founding companies, Internationalize-IT based in the United States and 4IT based in Italy. They are looking to raise another €500,000 ($657,000) to hire more talent. “We are keen to have a ‘hands on’ investor who can coach us, help us develop strategic relations with clients, partners and give us visibility,” says de Keyser.

How to invest? Contact Capital Trust on 01-368968

How to invest in this start up? Contact IDAL at [email protected] or 01 983 306 Extention 233

 

6- Euromena II

What’s the deal? Capital Trust has already raised the total amount for its second fund dedicated to the MENA region, Euromena II. It is now deploying the funds into companies in the region. For two of the upcoming deals, it is looking to invest $20 million: $13 million (the maximum limit allowed by the fund) will come out of the Euromena II fund and Capital Trust is looking to raise an additional $7 million for each deal from private investors.

What are the two companies it is looking to invest in? One of the investments will be in an oil business in the Levant area and the other one is in a recycling business in North Africa. Capital Trust cannot disclose more information on the potential investments at this point. The two investments will be made out of Lebanese holdings.

What is the minimum ticket? Investors have to come in for a minimum of $1 million.

What is the target return on these deals? Capital Trust targets an internal rate of return (IRR) of 20 to 25 percent over four to five years. “If we can’t make at least twice our money then we don’t invest” says Romain Mathieu, the managing director of the Euromena funds.

When will the fund exit these investments? After four to six years.

How will they exit? All the options are on the table from a strategic sale to a secondary buyout to listing on the stock exchange. “What is important to know is that we never invest before having a very clear idea of the exit route of the deal. Investors know the most likely exit route,” says Mathieu.

What is in it for investors? As they would be investing in a company and not in a fund, investors would be taking a specific risk. They would invest because they like the sector, the region or the management, or “most of the time because they want to try us before investing with us in upcoming funds” says Mathieu.

Tell me a bit more about Euromena funds? Euromena I raised $64 million and has invested in nine companies, of which three have already been exited returning more than 50 percent of the commitment. Three of the investments were made in Lebanon: chemicals company Sodamco, Intercontinental Bank Lebanon and Chedid Re, a reinsurance company. The second MENA dedicated fund, Euromena II has raised $100 million and has so far invested in three companies, of which two are from Lebanon: First National Bank and Khoury Home, a retailer of household products.

How to invest this fund? Contact Capital Trust at 01-368968

7- Grade ‘A’ office space in Beirut

What’s the deal? Invest in prime property in Beirut’s Central District on which a multi-use modern office tower will be built. The project will consist of two towers of 25 to 30 floors. Each floor will be made of 700 square meters of office space.

What is the size of the offering? Capstone is looking to raise $18 million. “We will start raising capital in a few weeks,” says Ziad Maalouf, Chief Executive of Capstone. He expects the raising of capital to be completed in a couple of months. They will be taking on leverage for the project. For every dollar of equity raised, they will take a dollar of debt.

What are the expected returns? 30 percent annual returns.

What am I acquiring?Investors will acquire shares in a company, which will own the land and the entire project.

What is the minimum ticket? Investors wanting to pour funds in this deal need to come in with a minimum of $500,000. There is no maximum.

What is the term of the investment? The project will be completed within four years, after which investors’ capital and profits should be returned.

Who are the developers/architects? Capstone is the developer and they intend to retain an international architect for the project.

How to invest? Contact Capstone at 01-993311

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Economics & Policy

Tomorrow’s ‘good society’

by Ghassan Hasbani
written by Ghassan Hasbani

The ‘good society’, in a connected world, is one that provides a framework for people to realize their potential in a meaningful and dignified manner. Steps toward this society, and economic growth, are being realized today by developments in information and communication technology (ICT), and by people who have grown up connected to the Internet. 

Those who are getting their first job today, those born around 1990, are the spearhead of the future economy: the first generation to know the World Wide Web for the entire course of their lives. They are at the vanguard, leading future generations into an increasingly borderless society and an economy that is global and highly connected. For them to build the good society of tomorrow, they must be allowed to operate within a framework that provides connectivity and basic business infrastructure, one with regulations that fit the realities they face, and one that provides access to investments to fund the realization of their visions. 

However, looking at the prospective opportunities, we must acknowledge the challenges and risks that are likely to dominate the global socio-economic and political scenes over the next 10 years. At the 2012 World Economic Forum in Davos, world leaders agreed on three risk dimensions, as published by the WEF’s Global Risks Report. 

The first category of risks entails growing income disparities and widening social gaps among young and old between East and West and within the West. The combination of these factors could create a dystopia, a global society full of hardship and void of hope. The second risk relates to the readiness and speed with which governments and governance systems respond to change and the third risk stems from the rise of hyper-connectivity that creates the specter of cyber attacks. 

Responsibility for addressing these risks falls to national governments and stakeholders in international governance systems on the one hand, and on the other to companies such as the leading telecommunications and ICT firms that provide the infrastructure for the connected global economy. 

So how can these global risks be addressed and a good society created over the next decade? The answers lie somewhere within the risks themselves; hyper-connectivity and the cyber world, while creating the majority of risks, also provide many of the solutions if handled well. 

Where we are threatened by income gaps and polarization of societies with chronically unemployed youth and state-dependent impoverished retirees, connectivity can help economies to reach sustainable prosperity. In three examples where ICT can be a major factor in building a good society, I want to highlight education, healthcare, and e-government.     

Education: The use of technology and provision of a connected infrastructure for universal learning in the classroom of the future can simultaneously increase the quality of education and improve its affordability in all corners of the world. Students in rural areas or urban ghettos, which have been historically deprived of quality education, will have better chances to realize their economic potentials through connected education.

Healthcare: Connectivity in healthcare will reduce the burden of skyrocketing medical costs on older population groups and help in creating a healthier society with huge positive implications for increased and extended productivity of citizens. Realistic examples are remote diagnosis and also remote operations, where a surgeon in the United States can perform surgery in Lebanon using cyber-controlled robotics. Similarly, connectivity in healthcare could allow remote heart monitoring or tests for blood sugar levels. Faster, more efficient and more affordable care for the most wide-spread medical problems of our time will result not only in greater well-being of people and create healthier workforces, but also keep in check the healthcare cost for the state and families. 

Government services: Connectivity in provision of governmental services, e-government, represents a third immense potential to use ICT for building a good society through reduction of public sector costs and through decentralization. In adapting all administrative government processes to electronic infrastructure, we can apply for a passport, legal documents and register property transactions without the need to go a government office. This decentralizes access to services while it maintains control centrally to reduce the possibility of human error or fraud and thereafter creates efficiency.

There is a need for proper regulation, however. Too much government intervention and protectionism would stifle progress; too little, and it will open the room for greed, and abuse of power. The balance will be struck by creating an efficient yet largely liberal economy in which governments create the necessary policies and regulatory safeguards for the emerging world, while allowing the private sector to compete in a fair and transparent environment. This approach will require policy makers to set clear rules and enact governance systems that are suited for managing a connected world. 

As the breakneck speed of technological change and the rise of new trends in hyper-connectivity create new opportunities and risks, the governance systems need to be able to respond to changes faster than ever before. The liberal management of economic sectors will also need to create sufficient reasons and incentives to attract investments in sectors best suited for private initiative while maintaining sovereign authority in other areas. 

These examples are based on solutions available today, but will require some time to achieve mass-market adoption. Implementing these effectively will require things such as everyone having access to a mobile phone and an internet connection, and for the fixed internet to work with high reliability. ICT readiness and quality are key to tomorrow’s good society.

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Economics & Policy

Failing the Arab people

by Zak Brophy
written by Zak Brophy

Arab states have failed to successfully translate their material wealth into human welfare, according to a new study by the United Nations (UN). Were it a school report card it may well have read: “Has great potential, but must try harder.”

Taking 1970 as the base year, the Arab Development Challenges Report 2011 found that the Arab region made some considerable gains in human development throughout the 1970s and 1980s. This was due both to the very low starting point and the large investment in social services undertaken by most Arab governments. However, the rate of progress on human development has slowed considerably since 1990.

While the usual culprits of poor governance and ineffective accountability frameworks receive their share of the blame, the report also lays bare structural defects and policy blunders that have contributed to the reality that “the region has patently failed to transform its wealth into a commensurate improvement in human welfare.”

Poverty is an important indicator in assessing human development and, at least on the surface, the Arab region has managed respectably. On the human poverty index — the UN's measure of living standards in a country — the Arab region as a whole improved 24 percent in the decade between 1997 and 2007, while, perhaps unsurprisingly, Gulf Cooperation Council countries registered a 45 percent improvement over the same period.

However, measuring poverty is notoriously complex and initial impressions can be deceptive. In 2009, 36 percent of the population across all Arab states were living on between the $1.25 per day and $2.75 per day. The implication of this is that any small shock to disposable income levels or income distribution could have a massive impact on more than a third of the region. This precarious existence for such a large proportion of the Arab world means, while the Middle East and North Africa has so far remained relatively unscathed by the global financial crisis it, “may suffer more than any other region if growth falters,” the report stated.

Afloat on oil, if nothing else

A structural weakness within the economies of the Arab region is that their vitality is dependent on the vagaries of the oil markets. Following peak oil prices in 1980, average real gross domestic product per capita in the MENA hobbled along at 0.1 percent. Conversely, the uptrend in oil prices since the early 1990s has resulted in relatively high and stable average GDP growth per capita of 2.4 percent. 

The report outlined, however, how oil dependent growth has retarded the structural transformation processes that normally occurs during sustained increases in per capita real GDP. It may be a cliché to say oil is both a blessing and a curse, but it still rings true, for while black gold may have bought exorbitant wealth to some Arab states and driven growth numbers across the whole region, it has also propagated a service led path of economic development at the expense of the productive sectors, such as agriculture and manufacturing.

Today, the Arab world is now the least industrialized among the developing regions, including sub-Saharan Africa, increasingly becoming import orientated and service based. What is more, the UN says the nature of most services found in Arab countries are at the lower end of the value chain, such as travel and transport, whereas services that use and advance the knowledge base of the societies, such as communications and financial services have, for the most part, made little progress.

Structurally retarded

Trade is pivotal to the economies of the Arab region and the meager developments realized in industry, along with the relatively low quality but high quantity of services emerging from its economies, has resulted in a somewhat primitive export structure compared to a relatively diversified import structure. The UN report concludes that the very slow rate of increase in high value-added exports is, “a reflection of the structural retardation of the region.”

Considering that, according to data from the World Bank and United Nations Statistics Divison, trade accounted for 84 percent of the Arab world’s GDP in the 2000s, this is a cause for concern. The study goes further in stating that for much of the region, “the transition to indiscriminate premature liberalization at a time of low productivity levels has rendered manufacturing uncompetitive and exports concentrated in primitive products and natural resources.” 

Lining up for work

The tumultuous upheavals across the Arab world this past year and a half have cast an unforgiving light on the lack of opportunity for huge swathes of the region’s youth. This is in a large measure due to an unhappy confluence of economics and demographics: the Arab world is at a relatively early stage of its demographic transition, meaning it can expect a sustained increase in its working age population.

Although Arab countries managed impressive average annual growth in employment between 1991 and 2009 of 3.3 percent, the region still maintains one of the highest unemployment rates in the world. The burden is highest among the youth, with data from the International Labor Organization and the UN indicating rough a quarter of all Arab youth were out of work between 2005 to 2011, more than double the world average of 11.9 percent.

The distortion of the Arab economies away from the productive sectors results in a failure to stimulate “job creating” growth, the report states. Moreover, the education system and vocational training available are creating a divergence between educational outcomes and market demand.

The UN report put the price tag on the investment needed for the MENA (excluding the GCC) to reach “full and productive employment” by 2030 at an ominous $4.4 trillion (in 2005 constant prices). This entails an average annual investment bill of $220 billion for the region outside the GCC, or roughly half these countries' collective GDP in 2009. This is in contrast to their actual average investment-to-GDP ratio of 27.8 percent for 2004 to 2009. 

Finding new revenue

According to the report Arab states have “fiscal space” to contribute to the necessary “employment centered transformation” and certain policy choices can increase the margin for stimulus. However, Jordan, Egypt and Lebanon are singled out as having to “urgently address the budgetary burden of their subsidies and interest payments in order to free up meaningful fiscal space for needed capital investments.”

 The UN also suggested that the Arab world could benefit from considerable tax revenue expansion. Comparing the Arab world with Latin America, the Caribbean and South East Asia, the UN concluded that the taxes to per capital income were still much lower on average. The argument follows that the Arab states could undertake fiscal reform to increase tax revenues to facilitate “positive structural transformation and at the same time reduce distortions inherent to excessive dependence on non-tax revenues.” Of course, with higher taxes would come greater implicit obligations to the public, something policy makers may be weary of in a region that has shown itself ripe for unrest.

The massive task at hand

While a failing of the study is that it does not factor in the huge upheavals that have shaken the economic, social and political strata of the Arab world over the past year and a half, its findings help give insight into the economic dysfunctions and societal malaise that precipitated the uprisings. What it does most, however, is illustrate the magnitude of the task ahead that cannot be met without serious, and long overdue, structural reforms.

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Real Estate

Landlord versus tenant

by Paul Cochrane
written by Paul Cochrane

Say you’re one of those unlucky landlords whose tenants have an “old rent” contract, meaning they inked their deal before existing laws were passed in 1992. Annual rent can be as low as $100, or if you were slightly luckier, around $250 — the cost of a decent bottle of champagne. So while such low rents can keep your tenants sipping bubbly, paying for nice trips abroad or having the disposable income to buy their kids a BMW, you are left scraping the bottom of the barrel. So, as a landlord, what do you do if one day you see your tenant’s 18-year old son drive by you in a convertible with a bottle of Moet on the way to the airport, and you've had enough? 

You can: 

1. Prove (or frame) the tenant has reneged on the contract by removing windows, doors or making major renovations without your expressed approval. 

2. Get your video camera out and fix it to their door to prove that no one has been in the house for a whole year. You may need to buy some extra film.

3. When your tenant comes around to pay his measly fee, don't give them a receipt and claim they have not paid rent for 6 consecutive months. 

4. Keep coming around to the house and telling the tenant there are cracks in the outside walls and you hear the building groaning, hoping they will up and leave.

5. If you have the financial wherewithal or a real estate developer that will ‘loan you the money’ to buy your property, you may find yourself buying your apartment again by forking out 25 to 50 percent of the total value of the property (not the land), generally settled out of court. Of course, a little sweetener to the ‘registered experts’ can make that financial medicine go down a little easier. 

6. If your tenant is in the business of anything other than ‘residential activity’ you can claim the red lighting is proof of business activity and claim the residential contract has been breached. 

Now, if you are that tenant indulging in the bubbly and luxury cars, and want to stay put, consider the following:

1. Remember “the tenant is the owner” and you are in the right. So whatever that whiney landowner says is of no consequence as long as you follow your original contract to the ‘T’ for tenant. 

2. If he takes out a legal case against you, stall. Tell the judge you have no money for a lawyer so the courts can take another half-year to appoint one. 

3. If your landlord is trying to buy you out and appoints an ‘expert’ to appraise your apartment all of a sudden, somehow, no one is ever home during his working hours. Beware however, if you are caught unaware opening the door adorned in a towel (or a more risqué form of dress) it is a crime not to let the expert in, even if he does look like a peeping Tom. 

4. After you have succeeded in stalling for three to five years you can then go to the First Court of Appeals whereby you will pull at the judge’s heartstrings (and perhaps his ‘public’ purse) with stories of your kids first footsteps in the corner of your lounge and where your dying mother expressed her final wishes that you stay in the neighborhood to water her favorite plant that has grown up the side of the walls. 

5. Never park your new Hummer in front of the house, even if it’s late at night and you’ve hit the bubbly particularly hard. Compensation for getting you out will vary according to your financial standing. If you are ‘poor’ you can get the higher amount of 50 percent of the value of your rental. The old Renault 12 will do well at the courthouse, especially pushed the final 100 meters by your wheezing grandfather. 

6. If all fails don't panic, the snails pace of the Lebanese judiciary kept one case going for 47 years.

Landlords get the keys back

The 1992 Rent Act put the landlord back in the driver’s seat of many of those luxury SUVs seen around town. For starters, any rental contract that expired between January 1, 1987 and December 31, 1991 is subject to a series of multiples, while anything after that date, the tenant is no longer the “owner”. Contracts usually last for three years, after which the landlord has free reign to up your rent or turf you out. So what do you do if your part of this class of renters and like your five-meter ceilings? 

1. You are basically out of luck. But if you know a notary, the judge and a few bad boys you may be able to stay for a year or two. 

2. If your three-year contract is up, you will have to go to court. See above stalling methods for reference but keep in mind that you will need to butter up the right people and if you lose the case, you might end up paying for that slimy landlord’s lawyer. In the meantime, do not pay rent and save up for that penthouse on the Corniche, the eventuality of a basement abode, or maybe a tent in the park.

3. Make sure that you agree on things that cannot be delivered by your landlord: cue contractual obligation for helipad written in small letters your landlord couldn't see with his bifocals. If you can prove that the landlord did not deliver on the contract, you can stay, rent free.

Underhanded tenant turfing

If your tenant is proving difficult, the legal route is not always the quickest road to liberate your property of that noisy ragtag occupant. 

You might consider:

1. That there are many plugs, many wires and many pipes that no one really keeps tabs on. They can come undone, burst or just disappear at anytime. Just saying. 

2. If your unruly inhabitant has any acute fears, say arachnophobia, then a trip to the pet store for a few rather hairy tarantulas will do well crawling over the balcony. Rabid canines have also been known to raise a few hairs and eyelids, especially if they can bark into the night or enjoy romantic moments with the tenant’s ankles. 

3. By this time you will have noticed the affinity the resident of your own property has with his auto. Small notes written with newspaper clippings attached to destroyed windshields have been known to prove useful, as does spray-painting the car a lurid color. Just be sure to stock up on the turpentine to clean away the evidence from your fingernails. 

No need for contracts

More often than not a gentlemen’s agreement is the best way to do a deal. Such is the case with rents too. If no contract between the tenant and the owner exists, it is the person living in the house who has the upper hand. So if you are looking to sell off that old part of your family heritage and think you pulled a fast one by not inking a contract or paying municipality fees: think again. 

1. In order to tear down any building, permits from the municipality are required. But if someone is living in your house and paying the bills, the receipts are proof of tenancy and the fact that you don't have a contractual right to boot out anyone since, simply there is no contract. Tenants without contracts should note that buddying up to the electricity guy with the green slips can mean the difference between a bed and the street. 

2. If your tenant has not been paying rent and knows they are on the better side of the law, the best course of action for a landlord, when there is no ink on paper, is simply to come around during working hours when no one is around and change the locks on the door. When the renter comes out of the building confused and looking for a crowbar you can remind them that you hold the key to their furniture, not to mention to the flat screen TV as well.

Things of course are rarely this vindictive or unruly. Most contracts are clear and the tenant/landlord relationship can be managed with a little cunning and a lot of reason when it comes to upping the rent every few years. Even if a new rental law comes into play, the basic legal procedures will hardly change. Thus, it may be preferable to leave the antics to these pages and proceed to the next page to find out what is being cooked up for the country’s rental market.

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Real Estate

Turning tragedy into transformation

by Paul Cochrane
written by Paul Cochrane

The notorious ‘old rent’ law that has pitted landlords against tenants for more than half a century may, after two decades of legislative delays, be seeing its last days. If the draft of the new rent law passes in Parliament this month, landlords and real estate developers will be lighting up the sky with fireworks. The prospect of reclaiming properties in the coming years — meaning land to be bought and sold — entails billions of dollars in potential earnings amid a renewed construction frenzy in land-scarce Beirut. But for tenants, a less certain future awaits, hinging on a planned government fund to financially assist economically disadvantaged tenants pay gradually higher and higher rents, and the actualization of public housing projects to re-house the dispossessed.

The lingering law

The ‘old rent’ law is one of the more bizarre laws still in existence. Enacted after World War II to prevent socio-economic deprivation and protect tenants from greedy landlords, the law resulted in the saying, “the tenant is an owner”, as it gave many rights to the renter. Under the law, all rental contracts would be extended — against the will of the landlord — until a new one was enacted, meaning rents were fixed at the originally agreed upon rate despite inflation and changes in market dynamics. 

If that was not bad enough for the landlord, getting the tenant out is nearly impossible without significant financial compensation, which ranges from 25 to 50 percent of the value of the property (not the land) and decided upon by a judge based on the financial situation of the tenant in relation to the landlord. 

Furthermore, there are only two ways to ask a tenant to leave if no contractual mistakes have been made: if the purpose is to destroy the building, or if the landlord (or his family) wants to live in the apartment for which they have to prove a need to do so. “You can’t lay a trap to kick out the tenant. The law provides a very powerful status and protection for tenants. The only way is by default [on contractual obligations] or to pay them to move out,” said Nader Obeid, a partner at law firm Alem and Associates.

Rent law number 160 materialized after the Civil War in 1992. Crucially it liberalized the rent market allowing for new contracts, with the landlord able to raise rent after three years, yet it made minimal difference to landlords with tenants paying old rents. These rents were adjusted in line with the depreciation of the Lebanese lira in the early 1990s and a government-mandated minimum wage increase, although not to market rates. For instance, according to research by The Monthly, a residential rent agreement from 1970 estimated at LL1,000 per year would come out to LL390,000 ($260) at today’s prices.

Since 1996, Rent Act 160 has been extended 12 times, with the last extension, law number 171 dated August 29, 2011, having expired at the end of March this year. If the new draft law does not pass, a 13th extension will have to be enacted.

Problematic numbers

While the old rent issue could have been a marginal one if the number of tenants was relatively low, according to the advocacy group named the Committee for the Rights of Tenants (CRT), some 170,000 of Beirut’s 210,000 tenants pay old rent rates. But just as no one is exactly sure how many people there are in Lebanon (the last national census was in 1932), the number of properties on old rents — and the number of people living in them — is not exact either. 

“The differences in the estimates of how many people are on old rents is a weapon in the fight between the pro and against camps for restructuring the law,” said Obeid.

According to Ministry of Finance statistics published by Executive in 2010, there are 139,719 properties rented before 1992 throughout Lebanon, with 58,341 in Beirut. In February, online publication NOW Lebanon challenged these statistics, stating that the Finance Ministry did not have a breakdown between old and new rents, while the Central Administration of Statistics (CAS) also said they had never carried out any research, and information released in 2004 only distinguished between residential renters and owners. [However, CAS’s statistics in general are out-of-date and unreliable, notably claiming there are only 3.5 million people in Lebanon when other estimates put the figure at well over 4 million, if not closer to 5 million.

According to Joseph Zoghaib, head of the Association of Landlords in Lebanon, based on taxation records and copies of rent laws submitted by municipalities to the Finance Ministry, there are 81,000 tenants on old contracts and an estimated 40,000 to 50,000 on new contracts. As to the number of landlords affected, Zoghaib estimates it at anywhere between 15,000 to 20,000. Whatever the statistics are as to the number of tenants on old rent, clearly tens of thousands of Lebanese will be affected if the new law passes; at the same time thousands of landlords have been financially out of pocket due to receiving such low rents. [The Committee for the Rights of Tenants could not be reached for comment.] 

No money for maintenance

Zoghaib likens the old rent law to a cancer as it has deprived landlords of return on initial investment in constructing buildings and meant there have been insufficient funds for proper maintenance of properties. 

“Rent control is a cancer on Lebanon’s economy, the standard of living, and should be aggressively treated,” he said. “Most landlords have lost hope that the issue will ever be resolved.”

Zoghaib has plenty of accounts about the trials and tribulations of being a landlord with tenants on old rent, with some forced to become doormen in the buildings they own to get access to the National Social Security Fund. According to Zoghaib; one landlord is so fed up he is considering a class action suit against the Lebanese government in the United States to pressure Beirut to overturn the law or face having the state’s assets frozen in the US.

Anger runs deep among the association’s members over what Zoghaib calls an “unjust law”, while in TV talk-shows addressing the issue over the past year heated words have been spoken between those ‘pro-landlord’ and those ‘pro-tenant’. 

“Landlords have been suffering for 70 years. Before, when we talked of our plight, we were laughed at, but the second generation are freedom fighters,” said Zoghaib. “The silent majority think they are not affected by the old rent issue, but they are. For every $1 the renter saves, the Lebanese public is paying thousands of times more when it comes to higher rent and higher real estate prices, and it has caused huge revenue losses to municipalities and the government.”

Indeed, it would make for an excellent research paper to estimate the financial losses incurred by old rents on the Lebanese economy and how this factored into current real estate prices. The existence of old and new rent contracts has certainly wreaked havoc on trying to effectively analyze the real estate market, while it has contributed to Lebanon having an average price-to-rent ratio (how  long monthly rent would have to be paid to cover the selling price of the property) of 22 years, compared to 11 to 16 years in peer countries. Lebanon also has much lower gross rental yields than elsewhere, at 4.65 percent, whereas it is more than 6 percent in Egypt, Morocco and the United Arab Emirates, according to the global residential property investor portal Global Property Guide in 2011.

“There is a gap between rent and real estate prices. It is between 3.4 percent to 4.5 percent gross rental yield versus the price, while it should be 6 percent, 8 percent or even 10 percent,” said Ayman Sanyoura, general manager of ProServices, a property services and management company in Beirut.

The shortage of properties available for rent on post-1992 contracts has also driven up prices, while the existence of the old and new rent contracts has often caused confusion between tenants and landlords as to their rights. “People are still unconsciously living under the old law,” said Obeid.

Furthermore, the lack of funds for maintenance has led to the loss of heritage buildings throughout the country, with buildings in such a dilapidated state that it is cheaper to tear them down — once the tenants have been compensated to move — than renovate.

“We are fighting for the law to be changed to be more fair as far as owners are concerned. It is not possible that a 200 meter square apartment is rented for $200 a year,” said Mona Halak, an architect and member of the Association for Protecting Natural Sites and Old Buildings in Lebanon (APSAD). “For heritage buildings, the owner should have the right to charge more. When we ask an owner of a heritage building ‘why are you tearing it down?’, he says ‘I get $300 a year, so why keep it?’”

The draft law

What galvanized the government into action to address the old rent issue was the collapse of a building in the Fassouh district of Beirut in January that left 27 dead and 12 injured. While there were tenants paying new rents, the majority of the occupants had been on old rent contracts, which opponents of the old law cite as a reason for the building’s tragic collapse due to lack of funds for maintenance. “It is sad to say it took 27 dead people to shock the government to draft this new law,” said Zoghaib.

The new law was drafted by the Parliament’s Administration and Justice Committee, chaired by West Bekaa Member of Parliament Robert Ghanem. A copy of the draft law in the form submitted to the committee was obtained by Executive, despite Ghanem’s office attempting to withhold it from the media. In its current form, the draft law seeks to find a solution by having tenants on old rent pay gradually higher rents over a six year period. Through government-appointed experts that report to a judicial committee, properties will be evaluated and an amount agreed upon by both the landlord and tenant. Then each year for the first four years the tenant will pay a 15 percent increase in rent, then 20 percent per year for the fifth and sixth years. After this time, the property can be rented at free market prices, but the tenant has the right, if they notify the landlord three months before the period ends, to stay on for a further three years, although at market rates agreed upon between both parties.

If a landlord wants to reclaim the property for family usage during the six-year extension period, then he has to pay compensation to the tenant equivalent to four years rent after four years of rental increases. To tear down a building, the same principle will be applied but on the value of the total six years of increased rent. In either of the above situations, if a property is considered ‘luxurious’, compensation will be reduced by half. 

This proposed solution means that the compensation landlords pay out to tenants would be significantly less than the 25 to 50 percent of the value of a property under the old law, which is clearly to the advantage of landlords keen to reclaim their properties. The big question if this law passes is whether tenants will be able to pay the higher rent.

According to Zoghaib, out of the 81,000 tenants he claims pay old rent, 13,000 are economically disadvantaged (again the Committee for the Rights of Tenants were not available for comment). To alleviate the pressure, a government fund is to be established for tenants with a household income that does not exceed three times the minimum wage of LL675,000 ($450) to cover the difference in rent for nine years. By that time, the plan would be for the Public Corporation of Housing to have built apartment blocks that evicted tenants could live in under a ‘lease-to-own’ agreement (which cabinet approved last month) with no age stipulation, meaning elderly tenants could be part of the scheme. However, while the draft law is still being hammered out at committee sessions, there have been no announcements as to how the housing scheme will be financed, what land will be available for construction or where, and how willing private banks are to be a part of the scheme. What is more, Lebanon has been without an official budget since 2005.

While government sources suggest the bill will pass in May, the socio-economic repercussions could force politicians to oppose it. “Nobody wants to lose the next elections [in 2013] for passing this law,” said Sanyoura. Indeed, it is such a contentious issue that Ghanem said at a committee meeting in early April that he had received an anonymous letter threatening to kill him, his wife and his children if the bill passes. 

Billions to be made?

If the bill remains relatively intact after numerous rounds of amendments and reformulations, and then passes into law, it will have a profound impact on the real estate market. 

“Definitely there are both positive and negative repercussions from the eventual introduction of a large [amount] of stock to the market,” said Karim Makarem, director of Ramco, a real estate advisory firm. “If landlords are looking to sell or to rent, a substantial amount comes online, not to mention that the former tenants who vacate will need to be housed. So there are many new possibilities as well for developers.” One  possible knock-on effect would be more supply than demand, which would lower real estate prices. For that reason, Sanyoura suggested it is “a good time to consider implementing this law as we’re not in a boom market.”

With buildings being vacated and renovated, and others being torn down for new projects, Zoghaib opines that $50 billion could be pumped into the economy in the coming years. A back of the envelope calculation of 30,000 buildings being re-developed at an average of $500,000, would generate $15 billion and potentially billions more in associated services. 

A further boom could occur if another stuck-in-a-time warp law is overturned: the pre-1992 law concerning commercial rents, which is similar to the residential law in fixing rents, but to remove a tenant requires the landlord to compensate for the “loss of footfall” to the premises. “We’ll have a party when the [new rent] law passes and the next day move onto proposing a commercial rents bill,” said Zoghaib.

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