Executive Magazine

The apper class

by Thomas Schellen March 3, 2012

written by Thomas Schellen

Times always seem fortuitous for those companies in information and communications technology (ICT) that focus on the newest and fastest growing demand. This is even truer when other outlooks in the economy are, to say it nicely, as subdued as is the case today. So it come as no surprise that the handful of Lebanese companies which specialize in the emerging business of developing applications for mobile devices are buzzing with aspirations.

By the reckoning of the members in this new Lebanese branch of the global ICT industry, the field of developers in Lebanon today comprises about five companies that are focused exclusively on mobile app consulting and development. Approaching the market with innovative names such as FOO Solutions, Eurisko Mobility and Apps2U the larger of these companies employ between 15 and 25 professionals apiece and have on average produced 20 to 30 mobile apps in the past three years or less.

A second group of Lebanon-based companies with supply-side mobile app business interests include developers that produce apps as a value-added service to their existing ICT business or are expanding from their existing business into the apps space. A third group of companies are startups and young companies that are product centric, meaning they are in the business of developing games or financial payment solutions and use the mobile as one of their channels to engage customers. These companies, however, do not seek to address third party demand from companies that are looking to have apps developed by specialist services firms.

For FOO founding partner and CEO Elie Nasr, a crucial value gain since the company’s formation in early 2009 was the acquisition of skills. “Part of the process [is] where clients invest and the company benefits from delivering the project but also from the learning involved in producing the app,” he said.

Eurisko’s co-founder and CEO Zack Morad told Executive that the company has become a regionally known entity in less than 18 months of operations. “We started marketing our services in late 2010 with all cold calling,” he said. “In the first six weeks of 2012, there was almost no cold calling. Now, a lot of people call us.”

Up-sizing

The growth rates for the relatively small, in terms of employment numbers, have been impressive. FOO and Eurisko expanded from founding teams of two and four entrepreneurs in 2009 /10 to teams each numbering just under 20 professionals at the end of 2011. For 2012, each of the two competitors looks to reach team sizes of 30. Like the other mobile app developers in Lebanon, FOO and Eurisko have been financed from own funding resources of the founding entrepreneurs and their business partners, not by small and medium enterprise investment funds, venture capital groups, or private equity firms. Morad and Nasr also both said that they are entering a phase where their respective companies are looking for injections of capital. The company has grown organically until now and is bent on reinvesting its earnings, Morad said, “We are not taking anything out of the business. We will always be investing and growing because we see the big picture and we want to grow and help grow the market.”

Going viral

Similarly to Eurisko and FOO, the headcount at Apps2U is advancing toward 20 specialists. What is different in the genesis of Apps2U is that this enterprise grew out of the business of parent company MT2. This firm, although having worked for many years with relatively low profile, is well established in regional ICT. Its corporate DNA is rooted in telecommunications and MT2 acts as a content and services provider in partnership with network operators and audiovisual media across Arab markets. “We are a telecom company and we are offering all kind of mobile app services to all kind of customers in the region, not only in Lebanon. MT2 has connections with over 30 operators,” Apps2U managing partner Mario Hachem told Executive. The content formulas of MT2 include highly profitable features such as subscription-based delivery of Islamic content – e.g. guides to the proper observances during Ramadan and hajj – via SMS to mobile phone users across regional markets from Saudi Arabia to Iraq under revenue sharing agreements with network operators.

This business sparked the formation and growth of Apps2U, said Hachem, who is also chief technical officer at MT2. “For the last three years, operators have been asking for apps and for the last three years our team has been increasing in numbers and experience,” he said.

Scheduled to be turned into a standalone company under ownership by the current MT2 investors, Apps2U plans to increase team size from 16 developers to between 25 and 30 before the year’s end. The growth is in part for adding new technical expertise, as the firm wants to build skills in developing apps on the Microsoft 8, Facebook, and SmartTV platforms. As it has been expanding into the mobile app sector, the latest addition to the interactive portfolio of MT2 and Apps2U in February 2012 was a dedicated television channel on Nilesat where Blackberry users in the Middle East can flash their chat messages on the TV screen while communicating within the Blackberry community as well as with users of different smartphones.

Also sporting a strong business profile in providing value-added services to telecommunications operators is Inmobiles. Established in Beirut as startup in 2003, the firm has grown to a current team size of 80 by delivering products to telecoms operators or the banking sector, but until now never to end users, Inmobiles CEO Charbel Litany told Executive. The company made its first foray into the provision of an app to end users just at the end of 2011. It did so with a big splash, as the “whozcalling” app went viral in the space of weeks.

According to Litany, the roll out of the free app and its success nicely links to a strategy to convince network operators of a value proposition involving operator-owned app stores to push into the space currently controlled by device manufacturers. “I am trying to push value-added services on the device side and have network operators change from the network side to the device side. With the huge growth of the smartphone market, we have decided to test the market with one of the free products,” he said.

The company has so for not been monetizing its successful app in favor of using it as “proof of concept” in demonstrating to regional telecom operators that they can generate their own revenue with their app stores. This notwithstanding Inmobiles’ first free app appealed equally to regional and global users.

Market potentials

Corresponding to the limitations on assessing the value of enterprises on the supply side of mobile apps, searching into the demand side value for Lebanon’s mobile app developers does not provide a picture with clear and sharp contours.

According to Fadi Sabbagha, the chief executive of Born Interactive, local market potentials for mobile apps are limited by the small budgets that most Lebanese companies allocate to digital. For his firm, apps are not a standalone business but a natural extension of its communications services on a basis of client demand. What’s more, most of the business is in the region, not in Lebanon.

In all likelihood, the small budgets in Lebanon are directly correlated to the small size of the Lebanese market which translates into small revenue potentials, he told Executive, noting that hype over mobile apps here is paired with restrictions on budgets whereas in regional markets he observed, “a bit less hype but clients are more comfortable with budgets.“

While acknowledging that apps are still on the slow burner in the Lebanese market, Ralph Khattar, CEO of 2010 startup Virtual, added that the launch of every app developed for a major Lebanese company provides a boost to the business.

“Each time a company launches an app, they are promoting it, and each time is advertising [app development]. There are a lot of companies that need an app and we can have a good market share. Twenty percent is a good number,” he said.

Reality tests

Responses from the firms that have ordered apps give a clue that the experience is a bit more differentiated. Some high-profile companies which had apps developed for them in the past two years gave Executive overall positive and satisfied feedback but added that things could still get better.

According to Jihad Murr, the Chief Operating Officer of television station MTV, the station’s strongly advertised app is not yet highly used but among the most downloaded Arab applications on all platforms.

“For Lebanon, it is too early to make money from mobile apps but I think mobile apps and related revenue streams in the future will be a big part of the income for our media. We wanted to be the first in this market,” Murr said. MTV’s mobile app is linked to the station’s website, which has 70,000 unique visitors per day.

According to Eurisko Mobility, which developed the app for MTV, the station’s app has been downloaded over 300,000 times. The company embarked on the mobile app project with the intent to monetize it through revenues streams from paying advertisers, he added. The ad activity has been scheduled to start in March and MTV will also seek to obtain revenue from in-app sales of specific programs. Both projects are in progress but have advanced slower than planned. “We were late in monetizing it. We are starting now but I expected to start six months ago,” Murr said.

Similarly, business development director Michel Aji at restaurateur Roadster Diner enthused about the company’s mobile app in general but could convey no positive message about harvesting financial rewards from the year-old gadget.

The app was the number one among the free-to-download apps for the Lebanese market in the first two weeks of its launch in the first quarter of 2011 and had reached 15,000 downloads by mid February 2012, Aji said. The company serves in the range of 200,000 monthly visitors across its 12 eateries in Lebanon.

“On return on investment on this particular application, there is no reliable data,” he conceded, pointing to the Lebanese issue of unreliable data connectivity as a reason why the app does not facilitate online ordering.

No cheap feat

Costs of commissioning a mobile app are certainly an issue in the small local market. Companies that ask a Lebanese provider to custom develop a mobile app for them look at a cost of “at least $5,000”, Sabbagha said. This appears to be a consensus figure in the industry. The ceiling of possible cost for an app is not really defined, and Hachem said it can reach “$100,000 per platform”.

For entrepreneur Bahi Ghubril the cost of having a high-end app developed for several thousands of dollars per mobile platform is certainly a barrier. Ghubril is CEO of Zawarib, a mapping company with a declared mission to make Beirut easier to navigate. But although maps and mobiles make a natural fit and location-based services are among the reliable performers in application stores, the value proposition in Lebanon is not strong enough for his company to go it alone in commissioning an app.

“People consider apps to be a sign of success but users expect everything in apps and online to be free; at the same time it costs a lot of money to develop a strong app that would have good interactivity and a good search function for Zawarib while the market for this in Lebanon is very small,” he said, adding that the proposition of developing an app could be interesting in a partnership with online portals but not as a branding tool or mere image project.

Competitive edge or just edge?

The developers agree that infrastructure problems and high cost of connectivity are barriers to the industry’s growth in Lebanon. However, the better-late-than-never rollout of 3G services by the mobile phone operators Alfa and MTC Touch since last November has resulted in some 400,000 users who by February 2012 have taken to the services.

The outlook seems to be moderately positive also on the structural side of telecoms as latest annual management contracts between the government and the two network operators, which went into effect at the beginning of last month, contain two, albeit somewhat vague, management objectives of positive relevance to mobile applications developers: network operators are each to enable at least one Mobile Internet Service Provider by deadline of May 31 and to establish a mobile applications platform by 2013 “that hosts and offers mobile applications to subscribers”, with the added stipulation that four fifths of the applications have to be sourced from Lebanese developers. The two propulsion factors for competitiveness of Lebanese developers are the high quality of the human capital and its low cost in Lebanon. “Beirut has a highly-educated human resources pool, highly motivated, highly creative, and very cost efficient,” Morad said.

From Inmobiles, whose Charbel Litany said the company has seen zero attrition in its headcount since starting operations in 2003, to Virtual whose Ralph Khattar referred to the country’s leading universities as ready sources of talent, the developers describe Lebanon’s rich human capital as a core strengths that the industry can build on. This comes with the downside of losing staff to players abroad. As Nasr said, “the problem is not migration to competitors in Lebanon but people going overseas.” For FOO, a loss of four staff members who went abroad to join companies or pursue further education represented 70 percent of employee turnover since the company started.

As all mobile app developers in Beirut are aware of the threat of losing high-value talent to multinational firms, each company said that it is investing substantially in employee loyalty and retention, offering profit sharing or stock grants to its existential talents.

As every developer Executive talked to also has aspirations to grow its business internationally, foreign competition is an issue to consider. According to the Lebanese providers, India, the world’s leading country in ICT outsourcing, is not the biggest competition, because, as Nasr argued, Indian supply comes with a price-value caveat under which high-quality apps will be just as expensive as those produced here.

The GCC countries are also not on the radar as big competitors because of their low availability of native human resources and high costs of production in the knowledge economies. This leaves countries closer to Lebanon as main sources of competition in developing mobile apps under similar price and quality matrixes. One serious contender is Egypt, which was one of the rising stars in the outsourcing globe, before running into disruptions of economic reliability in 2011. Other countries with competitive potential vis-à-vis Lebanon are Jordan and, according to Nasr, Palestine.

Mobile applications developers represent the third wave of potential knowledge economy progress via ICT made in Lebanon. It serves to recall here that the first two waves — the introduction of mobile telephony in 1994/95 and the new economy take-off in 1999/2000 — also saw the country start out at the forefront of ICT adoption and native entrepreneurship. Both times, the natural competitive advantages of Lebanese innovativeness and richness in human capital were eroded, at least in part, by systemic, political inabilities to support the economic competitiveness of Lebanese ICT firms.

Business Models in Mobile apps

The business models underlying the development and delivery of mobile apps by serial app developers come in three main categories:

First — the free to download, which is still the largest group. When such an app is ordered by a client, the app developer produces a customized product according to demand specifications that include interactive features and the number of operating systems and platforms that the app needs to run on. These apps can function as enterprise tools within a company (for example as catalogues for the sales team), as marketing, branding, and customer relations tools toward a company’s end customers, or as instruments enhancing the company’s corporate social responsibility portfolio. As the developer produces the “free” app for a corporate client, he is paid like any other software consulting and developing company. In many cases, developers also produce free apps at their own cost and push them into the markets to build reputation or to generate advertising or sponsorship revenue streams.

Second — user paid and individually priced apps which can be downloaded for a onetime fee. This bazaar or mall-like business model has been pioneered by Apple’s App Store and benefits both the developer, who in case of the App Store reaps 70 percent of revenue, and the platform, which takes the rest. This model has proven to work well for popular apps as users pay fees that in many cases amount to less than one dollar for each download. If an app goes viral through peer-to-peer recommendations by users or effective marketing schemes, the monthly revenue streams can scale into very handsome sums and high profit margins. Apps in the ultra-long tail of available products, however, until now are not likely to generate enough income to recover development costs. The owners of leading platforms and application stores — currently the device makers (with Apple on top) and Google — are beneficiaries of concentration in consumer capital, but network operators and other players are not going to leave this attractive market place un-staked in the rising mobile technology economy, or mobitech.

Third — apps that rely on recurrent revenue streams from users. Under this model, a basic app is often offered for download at no cost. However, the free download acts as teaser. To succeed, the app needs to convey attractiveness and inspire loyal and habitual usage. Customers are either asked to pay for the continuous use of the app after the initial free usage period, or are offered premium services for which they pay either time-based, recurrent subscription fees or per-item charges. This in-app purchase model unlocks income streams for content providers and network operators.

March 3, 2012 0 comments

Society

Colored by uprising

by Executive Contributor March 3, 2012

written by Executive Contributor

As headlines are dominated by the Syrian political crisis, new exhibitions in Damascus have drawn to a halt. But the city’s art gallery doors are still open.

The conflict seems unlikely to deter the Syrian contemporary art boom that has lit up the market over the last five years. In 2007, a major work by Safwan Dahoul, a leading and much coveted Syrian painter, sold for $10,000. Today it reaches $150,000. The post-9/11 appetite for Arab culture may have played its part; as titles on Islam and the Middle East flew off the virtual shelves of amazon.com, art from the Middle East also experienced unprecedented international attention.

Compared to artists from Lebanon, Morocco and Egypt, who were already relatively exposed to global galleries and collectors, Syria revealed itself to be an oil well of untapped talent, paint being the asset. Artwork prices soared, contemporary art galleries mushroomed and reports such as “Syrian Art Sizzles” (Time Magazine, Sept 2008) and “Damascus Evolves Into a Hub of Mideast Art” (New York Times, Nov 2010) saluted the awakening.

“The talent hiding over the last five or six years was the surprise factor, the shock factor, that made them globally interesting,” says Khaled Samawi, the owner of Ayyam Gallery, a blockbuster art enterprise with a roster of some of the most highly-valued Arab artists — the majority from Syria — and a triad of exhibition spaces in Damascus, Beirut and Dubai. “When we first opened in 2006 to 2007, in Damascus, it was absolute golden years. I’d say once a week a private jet would land from the Gulf or somewhere, who had come to Damascus just to visit Ayyam.” Samawi, a former hedge fund manager, has spearheaded the rise of Syrian contemporary art, with a smaller cluster of galleries, such as Damascus’ Tajalliyat Art Gallery, and auction houses Christie’s and Sotheby’s following suit. Most of Ayyam’s artists, such as Asaad Arabi and Oussama Diab, have seen their paintings rocket in value five to 10-fold, thanks to Ayyam’s polished and well-publicized exhibitions, record-breaking auctions and young artist competitions. By providing their artists financial stability and access to an international hit list of collectors, the market has grown so much that Edge Capital, a venture capital and private equity holding company, is now choosing to invest in Ayyam’s expansion. New galleries in London and New York will open in the next two to three years, a major triumph for Middle Eastern art. Samawi sees it as a “vote of confidence”, both for the artists and collectors, giving “the scoop” to Executive before the official press announcement.

Fearless expression

The investment strikes at the right time. The political uncertainty embroiling Syria is inspiring a new drive in contemporary art: angry, poignant and provocative. “They’re painting the best art they’ve ever produced. It’s painful, humanitarian art,” Samawi describes it.

“For years people have been living under fear, and now the fear is gone. Now artists can express themselves. There are no more taboos. They can talk about the president, the power, the party,” says Ammar Abd Rabbo, a Paris-based Syrian photojournalist who exhibited “Coming Soon”, a series of portraits of pregnant women, in Beirut last February. He believes there is a new, powerful generation of young Syrian artists in the making, “born from the crisis and revolution.”

Some art has already left Damascus’ citadel. “In Army We Trust”, a radical set of paintings by Thaier Helal, sold positively at Ayyam’s Dubai gallery earlier this year, despite its provocative title. Established artists Mohannad Orabi, Mouteea Murad, Kais Saman and Omran Younes have abandoned their solitary ateliers and transformed the empty Damascus gallery — which stopped hosting new exhibitions four months ago — into a remarkable shared workspace. The ferocious art being produced, both in quantity and subject matter, is broadcasted on a live feed from Ayyam’s website. “It’s probably the busiest the gallery has ever been,” says Samawi, who has offered the space as a cultural refuge to citizens surrounded by violence.

“We started the workshop to see this situation in a different way. There is a huge power inside us, and we have to make these ideas and feelings visual,” says young Damascus-born painter Mohannad Orabi, whose work is becoming “more realistic, more emotional.” The eerie, blackened eyes of his human figures are unmistakable, but Orabi now paints them “open.” “Now,” he says, “you can see the detail inside and the sparkle. This sparkle is a kind of hope.”

March 3, 2012 0 comments

Society

Banquet on the bay

by Ellen Hardy March 3, 2012

written by Ellen Hardy

Even by the standards of a city where you can dine at the tables of multi-Michelin-starred chefs one night (Yazhou, S.T.A.Y.) and be seen eating out at global trendsetters the next (Momo at the Souks, Gaucho), Zaitunay Bay is piquing interest. Pitching as it does a complex of 17 new restaurants, five retail outlets and a public promenade into the heart of the commercial district at a cost of $160 million, the brainchild of Beirut Waterfront Development (BWD) is a bold attempt to recreate the area’s pre-war sense of glamour and community. But what is it like for the local businesses whose hopes are riding on the project’s success?

Two concepts, Cro Magnon Steakhouse & Bar and St Elmo’s Seaside Brasserie, are the work of one set of five Lebanese investors, and for them, the location sealed the deal. Though rental prices in Hamra and Ashrafieh may have been anywhere from 10 to 20 per cent cheaper, “We wouldn’t have come on board if it wasn’t Zaitunay Bay,” says one of the investors, Mazen Fakhoury. Employing some 100 people between the two restaurants, Cro Magnon is a high-end, glamorous steak house, and St Elmo’s a more casual brasserie with a slew of theme nights. Putting together the $4.5 million initial investment required a special chemistry between the five shareholders, who came together through casual meetings and are mostly newcomers to the hospitality industry. Operations manager Joey Ghazal is the most experienced restaurateur of the group, with over 14 years in the restaurant industry in Montreal and London. He is joined by engineering and financial investment services CEO Houssam Batal, nightclub public relations and communications veteran Ramzi Traboulsi, oil and gas expert Mazen Fakhoury and finance professional Rami Batal.

Ghazal and Traboulsi first met with the BWD in February 2010, when they proposed a casual seaside brasserie. Learning that the landlord was also insisting on having a steakhouse in the project, they ended up signing the leases for two restaurants in December. “There are a lot of back office and operational expenses that you incur,” explains Ghazal, “and it’s obviously better to take those on over two profit centers.” On this day February, as the five settled into their distressed leather armchairs at Cro Magnon to sample their own menu of prime steaks and seafood, single malts and cigars, more than a desire to make a quick, high return on their investments ties them together. “You have to feel that there’s a measure of trust, a foundation of business understanding,” says Ghazal. All the investors contribute their business wherewithal; Rami Batal, for example, already has accounting and finance infrastructure in place for his other companies, so can manage the back office, while Traboulsi contributes PR expertise. “They’re their own number one clients,” winks Traboulsi. Established businessmen with a taste for the finer things in life, they came on board for the chance to bring a type of restaurant to Lebanon that they’ve admired abroad. “We are people who travel a lot and… appreciate the best class restaurants in the world,” says Houssam Batal. As such, he explains, they are long-term investors, not out to make a quick buck. They “hope to be able to pay back our investment in three years… you expect to double your money at least within the first five years maybe.”

Working with Zaitunay Bay ensured that there would be no competing concepts on the site; the most intense negotiations were over the specific concept briefs. After that, says Ghazal, apart from external design issues, the BWD was surprisingly hands-off — though citing problems with ventilation and delivery access, he notes wryly that the complex overall “could have been designed by someone who has some knowledge of the restaurant industry. It wasn’t.” Other niggles of opening a restaurant in Beirut — such as a lack of qualified staff and the terrible truism that political uncertainty hangs over everything — are a standard part of the deal. Just two months into operation, it is too early for Zaitunay Bay to release meaningful footfall and revenue figures, but Ghazal will say that “the landlord assured us they were going to do everything in their power to ensure a certain amount of footfall per week or per day, and the project has kept its promise.”

Like most restaurant businesses, the shareholders are open to including other investors and franchising the concepts to other territories in the future. As Zaitunay Bay looks ahead to spring, its many partners will be hoping to see their investments flourish. “It’s a high risk, high reward country,” concludes Houssam Batal, and one that is unlikely to lose its appetite.

March 3, 2012 0 comments

Society

A crown for the wrist

by Michael Karam March 3, 2012

written by Michael Karam

Ask anyone on the street what he or she thinks the world’s most luxurious watch brand is, and they will probably say Rolex. They’d be wrong. But perception is everything, and the timepiece that is regarded as the sign that you have made it — a person to be reckoned with, a person imbued with a hint of rugged glamour — is indeed a Rolex. There are more accurate watches, more expensive brands and more prestigious brands, but Rolex has captured our imagination like no other.

Don’t get me wrong. There is no sleight of hand here. They are not, in luxury watch terms at least, overpriced (unlike some brands I could name). They are supremely well made and they will last forever. I should know; I have a steel Rolex Oyster Perpetual Datejust made in 1963. It still keeps immaculate time and has been serviced a maximum of four times in its life. It also looks almost identical to the current model — the only difference is an extra 2mm in the diameter, a sapphire glass and a quick date changer. So in a global luxury watch market that has gone bonkers in the last 20 years, Rolex has both pedigree and consistency.

The company was founded in London in 1905 by Hans Wilsdorf and Alfred Davis and moved to Switzerland in 1919 after the First World War. By 2003, Rolex was earning revenues of $3 billion annually, according to Stern Business, with BusinessWeek ranking it the 71st most valuable brand in the world in 2007. Like Patek Philippe, arguably the most prestigious watch brand in the world — and unlike other luxury brands such as Vacheron Constantine and Jaeger Le Coultre, both of whom are owned by the Richemont Group — Rolex is still a private company, a factor that arguably adds to its aura of distinction.

So what is it about Rolex’s enduring appeal? Luxury aside (Rolex caters to all tastes, even producing some eccentric designs for those who like a bit of diamond-encrusted bling), I would wager it is the fact that no other watch has as much history, glamour, sex appeal and adventure, allied to reliability and looks, wrapped up in one brand.

Take the Rolex Submariner, the iconic diving watch that was worn by Sean Connery’s Bond on a fabric NATO strap — to lady-killing effect — or the Explorer, the equally famous black-faced chronometer. You aren’t just buying a watch, you are buying into the very fabric of 20th century achievement. Omega is the only watch brand that comes close to matching this heritage (its Speedmaster was famously worn on the moon) but Rolex, with its functional designs and almost onomatopoeic name, has captured more of the public’s imagination, allying itself with sports stars, musicians and scientific pioneers the world over. Not surprisingly, Rolexes are among the few brands with a strong resale value, especially for the iconic Daytona Cosmograph with its famous Zenith “El Primero” movement, and the other professional models.

But at the end of the day, it’s all about owning the item that you love. And as my wife found out, Rolex watches are very desirable. She does not share my obsession with watches, but over the years has faithfully tramped round showrooms or stood patiently as I peered in shop windows like an excited schoolboy. For her a watch is a watch. It tells the time. Who cares if it’s manual, automatic or quartz, or if it’s a 36mm or a 45mm? But on New Year’s Eve, while I tried on a new Explorer II (now 42mm and with an orange 24 hour hand, if you must know) in the Rolex showroom in Beirut, she pointed to an Air King in brushed steel with subtle blue numeral batons on an off-white face. “I like that a LOT,” she said. It was the first time she had ever really expressed a genuine interest in a watch. What could I do?

March 3, 2012 0 comments

Society

Tender teachings

by Ali Kazma March 3, 2012

written by Ali Kazma

At any given moment in a randomly selected Lebanese café, one will likely spot an eight-year-old girl amusing herself with the newest iPad or other high-tech device. It is difficult to imagine that said young girl realizes that what she holds in her hands is worth more than what thousands of Lebanese families make each month. These children are being raised to see expensive things — and money itself — as playthings, and what many are not learning as they grow into adults is that financial success requires them to see money as a tool, not a toy.

In Beirut and other metropolitan areas, conspicuous consumption seems to be the order of the day. It is becoming all too easy to forget that almost 30 percent of the country lives in poverty, according to the United Nations. With all of this country’s outward displays of wealth, what’s slightly less apparent is how much of our nation’s youth is clueless about the true value of money, and the risks this financial illiteracy poses to the country at large.

While Lebanon was lucky enough to be relatively insulated from recent global economic crises, all over the country one can see the effect that poor money management is having on the nation as a whole. We live in a culture of waste at every level in our society — from the government sector to the corporate realm, and we often see examples of poor financial decision-making at work within individual homes. Consumer debt levels are climbing, while our public debt is estimated at a jaw dropping $54.3 billion, roughly 133 percent of GDP, among the highest ratios in the world. Lebanon exports relatively little aside from much needed human capital, but our taste for extravagant things still sees us importing products and luxury items at considerable levels. The Lebanese economy is increasingly dependent on remittances from those living abroad, but given the recent economic crises around the globe, this dependency will only make us more susceptible to market fluctuations elsewhere. All together, if this continues unchanged, it is a recipe for national disaster.

Nipping the bud

We must combat these dangerous practices that place our entire economy at risk, and it is imperative we start the fight early. If we ever hope to witness the success borne from a financially responsible citizenry, we ought to begin by teaching Lebanese youth to respect and understand the value of a lira, by teaching them how any economy works: You work hard for financial rewards, and then you must make important decisions regarding how to best and most efficiently use those resources.

Understanding how money is earned, and learning through vivid and detailed first-hand experience how to make informed and conscientious financial decisions, will give our children the best tools to succeed in the modern world. Some parents already do this by involving their little ones in the purchases they make everyday. Parents need to let their children see and understand that money is not something to be toyed around with. Giving children strict allowances and spending limits, as well as explaining our own financial decisions, will help train youth to cope with the kind of financial choices they will be forced to make later on.

Outside the home, Lebanese parents and policy makers should begin to encourage activities for our children that will help us instill these important financial values early on. Fortunately for parents, teachers, and children alike, there are facilities popping up all over the globe that are developed with just this goal in mind, and one is set to open in Beirut in the summer of 2012. These facilities employ a concept called “edutainment,” and are rich, highly interactive mini-cities with functioning kid-sized economies that encourage children to learn the value of money by role-playing through numerous careers, earning “cash,” and offering choices on how to invest that money throughout the facility, with not all choices being equal.

Though money might not be a toy, if we aim to take a playful approach in transmitting these important economic practices, learning how to be financially responsible can still be great fun. If we do not, the opportunity to address our current state of financial illiteracy will skip another generation.

March 3, 2012 0 comments

The Buzz

Promise and peril

by James Reddick March 3, 2012

written by James Reddick

Above the vast expanse of the East African plains, signs of human life finally come into view. Hardly the congested maelstrom of its neighboring capital cities of Kampala and Nairobi, Juba spreads outwards in moderation, a seemingly sedate outpost along the Nile. As the plane circles, the thatched, pointed roofs of tukuls, mud huts not usually befitting a nation’s capital, appear, dotted among the city’s more robust structures.

After touching down, the weary arrivals pile into the stiflingly claustrophobic room that makes up this “international” airport’s baggage terminal and immigration hall. Some are returning home after years away, having left to escape the war and to seek out opportunity in neighboring Uganda and Kenya, or beyond, and anxiously await the reunion beyond these walls with their long-separated families. One man spots a woman outside — most likely his mother — and waves excitedly. She puts her hand to her face in exaggerated joy. Drawn back by the promises suggested by independence, and the prospect of lasting peace, what is actually to come for this man and other returnees, and for those who waited out the continent’s longest running civil war, is increasingly uncertain.

On the streets of Juba, and other semi-urban centers like Rumbek and Torit, the excitement in late 2011 remained palpable. The boyish face of John Garang, the founder of the Sudan People’s Liberation Army, which fought and won against Khartoum’s rule from the North, stares down approvingly from billboards throughout the capital, and t-shirts commemorating the July 9 day of independence are still very much the fashion du jour. But while nobody expected an easy transition to statehood for the world’s newest nation, just how calamitous an infancy it has proved to be has shocked those who for so long sponsored the idea of a sovereign South Sudan.

Nearly 40 years of civil war since united Sudan’s independence from British control in 1955 have naturally taken their toll — all the more so since one of the costs, and a principal motivation, of that guerilla war with the predominantly Arab North was a deprivation of development in the South. In terms of infrastructure, the country is virtually starting from scratch, with no homegrown electricity generation, 100 kilometers of paved roads in a country of approximately 660,000 square kilometers and no running water. In late fall of 2011, at the end of the rainy season, huge swaths of the country — nearly all of the northern half — were inaccessible by car, and even those routes with “safe passage” were a pock-marked mess, littered by the carcasses of trucks and vans left to rot after succumbing to one of many craters. For South Sudan, infrastructural development should be the number one priority of the new government, but the persistent threat of violent conflict both with Khartoum and among communities within the south is siphoning its resources and attention.

Cattle raiding — the practice of stealing another group’s livestock — is certainly not a new phenomenon among the country’s largely pastoral communities, but the scale of the raids and the collateral damage inflicted on civilians have escalated dramatically. At a certain point the term “cattle raiding” no longer does the violence justice; in December, a series of cyclical clashes between the Murle and Lou Nuer tribes in the largest and least developed state, Jonglei, prompted the release of an open letter by the Lou Nuer calling for the extermination of the rival group. In due course, “6,000 to 8,000” Lou Nuer youths brazenly attacked Murle villages over the span of several days and killed more than 3,000 people, according to a local commissioner (the figure has yet to be confirmed by the government). Despite tracking the column of fighters for weeks, neither United Nations peacekeepers, nor the SPLA (South Sudan’s army) soldiers deployed to prevent their approach were able to intervene, as the raiders’ forces dwarfed their own.

And particularly troubling in post-independence South Sudan are relations with the North, as the prospect for a return to war grows more imminent by the day. The two are linked by oil, a vital resource for both struggling economies, the majority of which lies in South Sudanese territory. Once extracted, however, it must pass through the North, up to Port Sudan. Since independence, the two sides have been unable to agree on a transit fee for the oil, leading Khartoum to seize shipments and Juba to halt its pumping altogether in January. And as the North suppresses an internal rebellion on its southern front, it has bombed the disputed town of Jau on multiple occasions, wounding several SPLA soldiers, as both sides mass forces along their respective borders.

This was not the narrative envisioned by John Garang, nor by those who danced in the streets on July 9 in cathartic jubilation. And it is certainly not the foundation of a new and better life envisioned by returnees — neither the more than 100,000 from the north, nor members of the diaspora who bring with them technical skills essential towards rebuilding a country. Blessed by largely untapped natural resources, South Sudan has the potential to be an economic powerhouse in East Africa, but the same conflict that has stunted its growth for decades continues to fester.

Back in the arrivals hall, the developmental depths out of which this nascent country will need to rise are on full display. The returnee jostles for position at the end of a conveyor belt, which unceremoniously dumps a suitcase to the floor while its owner scrambles to retrieve it, pushing people aside, before the next one falls on top. At the immigration desk, desperate hands wave passports at the two unfazed officials while a European NGO employee argues with another who has rebuffed her visa. It is not an easy thing to leave Juba Airport. Finally, passports stamped, bags collected and blood pressure high, the man steps out into the late morning sun of South Sudan, the world’s newest nation.

March 3, 2012 0 comments

Society

Porsches for courses

by Yasser Akkaoui March 3, 2012

written by Yasser Akkaoui

Las Palmas sprawls along the coast of the third largest of the Canary Islands archipelago, scattered in the warm seas just beyond the northwest coast of Africa. From a satellite’s eye view, the island is almost a perfect circle; Gran Canaria, with a surface area of 1,560 square kilometers, centers around its highest peak, the extinct volcano Pico de Las Nieves — the ‘peak of snows’ — at 1,949 meters. It’s a long way from Lebanon, and yet the charms are superficially similar: you can spend your days basking in balmy weather, draining the cocktail bars while admiring the snow-capped peaks above. It’s a superb destination for a Porsche press trip to test out their gleaming new 911 Carrera Cabriolet, but it also reminds you how pollution and traffic impede top-down driving in Beirut.

Until now, the choice between coupé and cabriolet might have been an agonizing one for someone considering dropping in the region of $100,000 (depending on customs fees) on the car of their dreams. Supreme performance from a coupé, or the style and freedom of a cabriolet with some compromises on the frame and engine? Now, a new intelligent lightweight design for the hood and all-aluminum frame for the body means that when the hood is up, the silhouettes of the coupé and the cabriolet are barely distinguishable. And, both of the 911 Careera Cabriolet and the sports version have the same engine as the 911 Carrera Coupé equivalent: 3.4 and 3.8 liter boxer engines, respectively, with 350 and 400 horse power. The driving power has been ratcheted up as well, with electro-mechanical power steering and, for the Carrera S, Porsche Torque Vectoring with differential lock featured as standard.

Foot to the floor

These features were amply put to the test spiraling up the sides of Pico de Las Nieves in a yellow Carrera S the morning after our arrival. The car, with its significantly reduced weight from previous models and torque of 390 Newton meters at 5,600 revolutions per minute, ate up the roads and cornered elegantly.

The fantasy trip came to an end on the sands of the Las Palmas autodrome. In this environment you really test the car, and the fact that these are seriously high quality racing sports cars comes to the fore. Handling them requires reaching top speeds of around 286 kilometers per hour and taking curves brutally fast, and after putting the pedal to the floor for two to three laps you have to cool the car down for one slow driving lap, a process that really drives home its racing credentials.

After honing my embrace of the car and witling down my lap time through the day, needless to say, I left Las Palmas with a smile on my face.

March 3, 2012 0 comments

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Driving us mad

by Sami Halabi March 3, 2012

written by Sami Halabi

Inching along amid a cacophony of horns in one of Lebanon’s estimated 1.6 million vehicles leaves a driver with ample time for reflection. As the clock on the dash ticks past another hour and the feet maneuver endlessly from gas to brake, how the country reached this point inevitably comes to mind.

For the sixth year running the country is set to operate without a budget. The president has again broken his oath to uphold the constitution, which states a budget must be passed by the end of January.

This is beyond unfortunate. With a budget comes some sort of policy framework that, in theory, commits the government to put its money where its mouth is. What we have currently is the politically calculated calamity of treasury advances, a crude process where cabinet has to agree on every spending measure outside of the 2005 budget. In any case, hardly any money that came from the people that year, or any subsequent year, comes back to them through the budget. That’s because after the debt servicing is paid to the banks, the deficit of Électricité du Liban is covered and the salaries of the patronage apparatus (also known as the public sector) are paid, the state is already in a deficit.

Any further spending, with borrowed funds, lies solely in the hands of cabinet. In other words, the money borrowed on behalf of the public, that should be spent on the public good, becomes fodder for the overlords pulling the strings at the cabinet table in their petty battles and under-the-table deals. The fact that the funds of $1.2 billion agreed to by cabinet for new power plant construction is to be allocated from the next budget — regardless of how unlikely it is to manifest — and not done through a treasury advance, highlights how little intent exists in cabinet to actually implement reforms.

Thus no one should be surprised when they look out from the windows of their cars to find themselves locked tight in an inescapable labyrinth of metal, given the absence of government policy to reform public transportation. To say that we are approaching tipping point in terms of what our roads can handle would be tardy commentary — we are well past that point. Since our policy makers ceased producing budgetary policy, more than 500,000 cars have entered the country, with the current trend at around 100,000 cars every year. The traffic and the pollution can only get worse.

But traffic aside all these cars are, quite literally, starting to drive the economy and an increasing proportion of the job market. Already the value of the car imports totals some 4 percent of gross domestic product, which doesn’t help much given that this is money leaving the country, not staying in it to create employment. Then consider all the customs and fees, which account for another 4 percent of GDP, which people must pay to a government that does little for them in return. And since the years of economic growth were “jobless,” in the words of the last finance minister, many local private sector jobs are now being steered by those very same cars.

Figures relating to how many people are directly and indirectly employed in the automotive sector are sketchy, not least because a national labor survey has never been conducted. But the sprawl of the ‘car economy’ can easily be seen with just a glance at the countless mechanics in Goberi, Sarafand or on the road to Halba, or the armies of valet parking attendants and cabs in the capital.

With labor-intensive sectors such as agriculture in decline and the trade or services having a small labor component, the options left for gainful employment are hardly the professions that will produce a society that progresses beyond being passive consumers of imports, or one that has the political and economic infrastructure to build anything else. The longer we go without a shift in the financial dictates that rule the country, the more our job market and our economy will be skewed toward import-based sectors, rather than creating one that can compete productively on an international level.

Unless our financial policy makes an abrupt U-turn, we will continue to be driven mad by our politicians and, perhaps deservedly, ourselves.

March 3, 2012 0 comments

Society

Journey to the opening bell

by Line Tabet, Ramsay G. Najjar & Zeina Loutfi March 3, 2012

written by Line Tabet, Ramsay G. Najjar & Zeina Loutfi

Facebook recently announced that it is going public, in a move which would constitute one of the biggest offerings and tech initial public offerings in history, estimated to reach $5 billion. While dwarfing the $1.67 billion raised by Google in 2004, this news can only remind us of the buzz that surrounded Google, turning it into one of the fastest growing companies and most attractive places to work at.

All this ado about Facebook cannot but get us thinking about IPOs in our region, which have been relatively few and far between compared to most developed and emerging economies. Surely there are several challenges that stand in the way of regional companies wishing to go public, ranging from unfavorable regulatory and market conditions to lack of investor confidence in such times of political upheaval. However, there are several areas that a company can work on to prepare the grounds internally and thus improve its chances of carrying out a successful IPO.

It is true that no one can predict the volatility of the stock market or the investors’ mood; however, it has become widely acknowledged that communication is key to any successful organizational change, especially when it involves going public.

A well-established corporate culture is crucial to successful organizations. In fact, a corporate culture that all employees identify with is an enabler of their alignment around the company’s purpose, strategy and goals; it enhances productivity and increases their pride and sense of belonging to the organization.

Part of the family

But having a solid and well-established corporate culture becomes much more critical when a company ventures into an IPO. This is because when a company goes public, it is moving from being privately managed to becoming publicly transparent and accountable, thus welcoming a new stakeholder to its family: the shareholders. The way business is managed changes and thus requires the company to adopt new management processes that reflect best leadership and management practices. This places employees under scrutiny and pressure; they feel vulnerable and are reluctant to change. Clearly, all these adjustments put a strain on the corporate culture, which would need to be solid and resilient to smoothly navigate the bumpy road of an IPO. As a very recent example of this, Zynga, the world’s largest social gaming company behind the popular Farmville Facebook game, decided to go public and succeeded in raising $1 Billion when it first traded on NASDAQ in December 2011. However, the company’s shares went down by 5 percent soon after the launch and upon announcing first quarter results that were more or less in line with expectations the stock fell nearly 18 percent. One of the reasons according to experts was the company’s corporate culture. Employees describe the corporate culture as intense and data-driven, where objectives and key results are the basis for employee and staff evaluation, and where performance data are used to calculate hard work, thus creating an atmosphere of competition and even all-out war between colleagues and departments.

However, even having a strong corporate culture in place is not a sufficient guarantee that employees will remain on board during and after the IPO. Efforts should be put on internal communication to reassure employees that the change in the way business is conducted and the addition of new business partners does not imply that their performance will be questioned or that the company will no longer value them. Communication efforts should strive to make employees feel proud of being part of the IPO adventure; they should feel part of a family rather than pawns manipulated by top management. Google understood that the reason behind its success is in attracting top notch professionals and young minds, and as such, its IPO letter started by “Our employees, who have named themselves Googlers, are everything,” putting the emphasis on the idea that going public will not change their corporate culture but rather reinforce it.

Returning to the Arab region, we note the large number of companies that have yet to institutionalize their corporate cultures, let alone establish strong and solid ones which could withstand the strains of an IPO. With a vast majority of companies being family-owned businesses, family feuding, nepotism and emotions remain at the center of management practices. Non-family employees many times feel like outsiders and thus lose the motivation and desire to work, never mind getting into a long process of an IPO that will bring new stakeholders on board and make the family members richer. There is no secret ingredient in the recipe of a strong corporate culture. However, there are key drivers that any organization should have in order to build or reinforce a distinctive yet common corporate culture; this should start by gathering all employees around the same mission, vision and values of the company and establishing a two-way communication whereby leadership would make sure to listen to concerns, address doubts and acknowledge achievements.

Weaving a tale

The second success factor that can go a long way in helping ensure a smooth IPO is elaborating a story or narrative around the company, one that would go beyond business and profit to emphasize its achievements, namely in terms of how it touches the lives of its various stakeholders. Who can forget the story of Facebook that has been turned into an award-winning movie? It would be a generalization to say that behind every successful company that went public is the story of a young student with a genius idea who tried to make it happen from his bedroom.

However, Steve Jobs, Larry Page, Sergey Brin and now Mark Zuckerberg are the first names that come to mind, when we think of successful companies that went public. In fact, the common ground between them is that all these high-listed companies were first start-ups whose founders wanted to make the lives of people easier through a certain service or product. Sometimes these stories might be far from reality, such as the story of e-bay founder Pierre Omidyar who started the e-shop concept following a discussion with his wife about how to acquire PEZ-dispensers. The anecdote might not be true; however, it succeeded in attracting potential investors, increasing familiarity with the company, allowing the public to relate to its founder, while downplaying the fact that he was already a multi-millionaire when he created the company.

As such, it is important to create a story around the company, whether it is centered on its founding and evolution, its services and products, or the noble cause that it espouses, as it will help generate considerable brand awareness and often loyalty, allowing stakeholders to identify with it and providing it with significant communication mileage. But most importantly, a story helps establish an emotional bond and paint a human side to a company, particularly at a time when the schism between the corporate world and the rest of society is growing wider. A feel-good, inspiring story encourages people to often unconsciously root for the company over others, providing it with a competitive edge that can translate into a solid goodwill bank that might shield it in times of crises and positively impact its bottom line.

When we think about IPOs, the first thing that comes to mind is a number in billions, a ringing opening bell at Wall Street, and a success story of entrepreneurship. This entrenched image could very well be duplicated in the Middle East, especially since the region is now becoming an investment hub with many countries well on their way in carrying out capital market reforms and instituting regulations that are in line with international practices. With communication as a pivotal enabler behind the success of any IPO, regional companies should start by cementing their corporate cultures and creating an inspirational story behind their success. Who knows, the next Facebook or Google might just be around the corner.

March 3, 2012 0 comments

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Salafi spillover

by Peter Speetjens March 3, 2012

written by Peter Speetjens

"We salute the Free Syrian Army,” reads a banner in Badawi, a poor suburb of Tripoli, where the Lebanese flag is about as common as the three-starred flag that adorned flagpoles in Syria prior to the 1963 Baath Revolution. Further down the road, a billboard heaps praise upon the “Islamic” revolutions in Tunisia, Egypt and Yemen.

Tripoli and the north of Lebanon are increasingly entangled in the Syrian quagmire, which could have dangerous implications for the future of Lebanon as a whole. As the Syrian conflict grows increasingly violent, Tripoli is no longer merely a safe haven for civilian refugees. It is also a base for the FSA to treat its wounded, as well as pick up arms and supplies. Syria is not at all popular in the predominantly Sunni city. Most inhabitants have not forgotten the heavy-handed presence of the Syrian army during and after the Lebanese Civil War. Many people were killed, or “disappeared”, and members of the Islamic movements bore the brunt of Damascus’ wrath.

Today, seeing their Muslim brethren being killed in Syria, they smell revenge. Mohamed, a Badawi shopkeeper, armed with a walkie-talkie and a handgun under his shirt, explained how cross-border activities between Lebanon and Syria concerned people, medication and arms. He complained about inflation: three dollars for a bullet and up to $2,000 for an AK-47. “Thank God, we are supported by the Gulf,” he said. The financial and logistic support for the Syrian uprising by countries such as Qatar and Saudi Arabia is no longer a secret. British daily The Times on January 22, for example, reported that Qatar and Saudi Arabia were beginning to fund the Syrian National Council (SNC) and armed groups fighting the Assad regime. On paper, the SNC is an umbrella organization for Syrian opposition groups. In reality, it is dominated by the Muslim Brotherhood, while there appear to be sharp internal divisions. Such growing pains are of course only normal for an organization less than a year old.

On January 26, the SNC published a one-page ad in Al Hayat thanking Saudi King Abdullah for his generous support; the 87-year-old monarch as a symbol of change in the age of Twitter and Facebook — who could ever have thought? Other reports are even more worrisome. On February 12, Al Qaeda leader Ayman al-Zawahiri urged Muslims in Lebanon, Turkey and Jordan to join the struggle in Syria. A day earlier the Iraqi vice-Minister of Interior, Adnan al-Assadi, claimed that Iraqi arms and Jihadists were crossing the western border.

While most mainstream media continue to broadcast a black and white picture of “the people vs. the power,” the mood of Syrian artists, students and intellectuals in west Beirut’s trendier bars is changing. They feel “their” revolution is slipping out of their hands.

“The regime has committed too many crimes — we want it to fall,” a student from Homs summed things up. “Yet you cannot deny that the opposition is mainly Sunni. The religious minorities and Kurds are hardly part of the uprising. If the majority of the Syrian people vote for an Islamic government, I think we should give it a try. But seeing the way things are going, I fear a civil war.”

If that were to be the future for Syria, then Lebanon would be foolish to think it can remain unaffected. The recent deadly clashes between pro and anti-Syrian factions in Tripoli were but a warning shot. The suggested solution, to turn the city into an arms-free zone, was well-meant yet laughable. No sane Lebanese person would dare uphold that as a feasible option. The problem with arming (radical) Sunni groups in Afghanistan, Iraq, and even Libya, has proven to be an unpredictable affair, as they often have their own agendas. Lebanon should know, following the pitched battles with Sunni fundamentalists at Diniyeh and Nahr Al Bared. Ask a shopkeeper, such as Mohamed, what he thinks should come next and the answer is truly frightening. According to him, the Shia simply are not Muslims and it is only thanks to Hezbollah that Assad is still in power. Therefore, following the fall of the latter, it should be the former’s turn. “If we had not had a civil war in Lebanon, Lebanon would today be Palestine,” he said. “That’s why we need another civil war to get rid of Hezbollah, so Lebanon is not an Iranian satellite state.”

March 3, 2012 0 comments