EconomyMedia & AdvertisingSpecial Report

Hard cash for hard talk?

by Thomas Schellen
written by Thomas Schellen

If you contemplate how local creativity has fared in the past 20 to 30 years, and especially if you contrast Lebanese creative and cultural content productions with productivity and innovation in the real economy, content has traversed a very long road in a very short time indeed. There could hardly be greater diversity, for example, between a 2007 play on the glory and fall of heroic Queen Zenobia and a 2021 animation movie on the fictitious Arab dictatorship of Alephia, nor could their creative pathways be more constructively conflicting.

The first production, Zenobia, being a Mansour Rahbani tale set to music and dance, extols the near-mythical queen of the fleeting Palmyrene Empire of third century AD fame and her tragic desire to build an identity. The second, Alephia 2053, being an hour-long animation movie in the dystopian genre, advocates a very young-adult message of fighting corruption, martyrdom for the cause of freedom, and ridding the world of yet another hereditary, oppressive (and of course male) tyrant dynasty in the mid-term future.

Cashing in on creativity

The sole common touch point of these two content productions – diametrically opposite to each other in terms of artistic style, visual language and narrative, technology and target audience, and historical projection line of past and future – is their shared ingredient of Lebanese creativity. Both were concocted in the creative cauldron of overlapping, fragmented, contradictory, and complementary belongings that arguably distinguish this country and set it apart from much larger states in the Arab world and from your average small society anywhere.

Thus, in order to test the hypothesis that content creation is one of the economically potent sub-sectors of a media and communication industry that could help pull Lebanon out of its self-inflicted swamp of job insecurity and sub-standard productivity – the topic that was on the agenda of the third roundtable organized at the end of March 2021 by Executive Magazine and the United States Agency for International Development USAID) – Executive inquired about the economy of their latest content production with Spring Communications. This digital agency is the company whose unit Spring Entertainment launched Alephia 2053 online at the start of astronomical spring on March 21 and witnessed more than 8 million YouTube views of the feature by end of April. https://sg.news.yahoo.com/youtube-hit-alephia-2053-brings-182927216.html

At the start of his conversation with Executive, Rabi’ Sweidan, the head of Beirut-domiciled Spring Communications, creator and co-producer of Alephia 2053, is full of exultation over the achievements of his new production, which he dubs the ”first-ever dystopian entertainment in the Arab world.” According to him, the animated feature’s reception by audiences in Arab countries over its first month has not been varied in response to the dominant political ideologies of said countries but rather reflects national demographics and internet penetration. In other words, it is digital entertainment that, once released and having gained momentum, moves on its own trajectory.

However, while Arab and other viewers of Alephia 2053 would easily be reminded of fairly recent and even some ongoing totalitarian experiences (according to Sweidan, viewers from countries such as Algeria, Iraq, Syria, Yemen, Sudan and others said that the story resonates with them as a home story with elements of their reality), the tale’s dystopian-totalitarian framing in the perspective of its creator also has elements of purposeful departure from content obsessing over a falsely glorified past into content that speculates to a more productive future.

“If you are always looking at the past, [you are] walking backwards and we believe that you will tumble in the present [time] and fall in the future,” Sweidan says, conceding that for him as content creator and producer this future also is one of hoped-for economic and commercial rewards. “We are basically a strategic content and communication agency [that is] driven by a purpose. Content is one way of what we believe is the future of communication. We are a content-driven agency and believe that we can make money out of it,” he tells Executive.

Sweidan fundamentally holds the view that conflict, meaning first of all the conflicts of competing ideas and the intensive discussions that are endemic to Lebanon, is a fount of creativity rather than an obstacle to it. Consequently, he has no problem at all in associating the Lebanese paradigm of abundant conflict with creativity and the potential for marketable content that to him seems to follow creativity as surely as the vernal equinox follows upon the winter solstice. He cautions, however, that this market potential for Lebanese content is not in Lebanon but from Lebanon, meaning directed at other markets. “The big question for me is not if there is potential. The big question is the challenge whether it can be monetized to benefit the creators of the material, and the creative community and industry in the wider sense. The potential is there for the Lebanese, the challenge is how you can monetize it,” he says.

In this regard, his recipe for finding acclaim and pulling viewers to the firm’s content has been to follow the circuit of international creative festivals around the – mostly developed – world that provide conventional or digital content of Lebanese origin with exposure which financially restrained content creators could never buy with their own means. According to Sweidan, Spring made its bet on the pull-potential of such exposure more than ten years ago and scored award nominations and awards for several productions.

This vision and the fast success of his latest production in terms of high viewership notwithstanding, Sweidan admits that the forward-going potential of Lebanon-based production houses is limited by the cowardice of capital in the face of uncertainty. “The more the situation is uncertain in Lebanon, the less people are willing to come and invest in this talent,” he says.

Drains on creativity

In the wider context of barriers faced by Lebanese communications and ideas-focused enterprises, Spring’s experiences as outlined by Sweidan show that content creation as industry in Lebanon today is in the same boat with journalistic media and marketing communications agencies. This entire industry is assailed by challenges of a small native market, difficulties in access to finance and risk capital, intense commercial competition from rivals with deeper pockets in regional and international markets, and uncertainty pressures that push creative talents into seeking refuges of stability, away from Lebanon – a burning problem in 2021 that is inadequately subsumed under the long-standing moniker of brain-drain.

Notably, although the latter point of the industry’s sensitivity to adverse developments in the country’s living environment must be assumed to be a universal deterrent to anyone’s will of accepting the laborious burden of rebuilding this country’s economy, the vulnerability of minds was during the Executive roundtable series of March 2021 highlighted more in the media and knowledge economy roundtable contexts than in the roundtables dedicated to real economy and hospitality sectors.

Acting as a content focused and purpose driven enterprise, the Spring Communication venture moreover shares another key denominator with the, by no means excessively large, realms of quality-oriented marketing communication and authoritative journalistic media in Lebanon: a fierce determination to be independent.

On the other hand, content creatives face a contradiction that is inescapable when local origin-content seeks to compete with others in a global or even Arab village of content consumption. This is the question of what actually is Lebanese content or Lebanese creativity. “I don’t know how one can identify Lebanese content per se in an era where identity is seen as a personal self-assessment or choice in a fluid universe of identity choices,” Sweidan notes.

In this sense, Alephia 2053 might be seen as neither fully Arab nor fully dystopian but as a work of anti-totalitarianism that draws inspirations from many diverse sources which are as far apart in time and space as 1917 Petrograd, 1934 Nuremberg, 2003 Baghdad, or 2021 Pyongyang. Thus the particular production value of Alephia 2053 is perhaps not that is part of a by now well-established and almost tired genre of dystopianism – after all, the last decade’s myriad dystopian fantasies in their end-of-world rationales did not anticipate the universal infodemic and overwhelming infections of social media as the most damaging and consequential geo-dystopian experience of this age. Rather, the appealing element from the regional cultural perspective might be that the production is not ignorant of the Arab experience and approach in seeking for a culturally acceptable solution to the universal problem of human tyranny.

Fuel for academic juices

However academic this discussion of Arab contributions to the dystopian genre could be, and how far or near a global content culture and such a culture’s aggregate wealth of diverse local inputs might reside in the future, the content entrepreneur Sweidan has experienced concrete disadvantages not because of global-local identity conundrums but because more powerful and organized states in the Arab sphere have entered the competition over influencing global perceptions of their societies – and thrown financial resources at the task. “Creativity for us is a form of soft power and a driver of social influence. Arab countries around Lebanon have realized the importance of creativity and are spending 100s of millions of dollars [on their creative industries]. What is very difficult is that I am competing with investments from countries that have a lot of money and have decided on policy level, government level, that this is very important for them,” Sweidan says.

On this uneven playing field of Arab content production, Spring largely auto-financed the production of Alephia 2053 by contributing to the venture an – undisclosed and even uncharted but very large – number of man-hours. Taking such efforts forward into a monetization model for a Lebanese content creation industry will require mobilization of investors into digital-era technology, prominently including artificial intelligence, Sweidan says. And it will not be something that any one niche content company should go alone. “There will now be a need to work in an ecosystem that can complement the work of the creatives while ensuring the most important aspect for creative companies, which is independence,” he emphasizes.

Creation of this ecosystem of content creation and communication-driven companies in Lebanon, however, requires something beyond private sector sharing of interests. Here, Sweidan is not bashful. He says, “Our homegrown talent, for whatever reason, is world class. Our digital content is world class. At the same time, the competition in the region is starting to copy us and move with great speed. In the short term, if you ask me, we need a bit of stability just to know where we are standing. This is not something that the private sector can do. This is something that the public sector can do. In the longer term, if there is one thing that I would love, it is for the government or the public sector to designate the content creation industry in Lebanon as a strategic pillar for the country.”

0 comments
1 FacebookTwitterPinterestEmail
EconomyOverviewSpecial Report

With the wind in their sails

by Alexis Baghdadi
written by Alexis Baghdadi

While the Lebanese Media, Publishing, and Content Creation industry appears to have been largely resilient to the disruption caused by the COVID-19 pandemic, it has had to review its operational models and strategies under pressure from an economic slowdown, inflation, and lack of government support. Yasser Akkaoui, Executive Magazine’s editor in chief, notes that in the past two decades, the industry has outgrown its domestic borders – a key factor in its survival. The industry has succeeded so far in maintaining its reputation as a pool of talent and quality in the region, despite important technological and financial advantages its neighbors possess. On the journalism front, Thomas Schellen, Executive Magazine’s editor-at-large, mentions the most recent World Press Freedom Index that showed Lebanon in a higher position than other countries in the Middle East. But this competitive edge needs to be carefully looked after and nurtured by the very professionals who forged it and wield it at home in order to preserve its core strengths, namely quality, creativity and freedom, before it can be thrust in new directions and markets to reap benefits. 

Laying the tone for the discussion, Akkaoui says: “We can think outside the box to outsmart hopefully the situation and the establishment and to be able to make sure that this space has a chance to strive and continue to be, a success story, a Lebanese success story around the world.”

Participants seem confident in the skillset of Lebanese talent, a skillset that can be leveraged to develop promising opportunities. It is worth noting that media and content professionals invested themselves in acquiring their skills and knowhow to offset the limited capacity-building opportunities locally and the near-total absence of government support for the industry. As an example, Gabriel Chamoun, chief executive officer of The Talkies, cites the growing number of talented writers developing their skills through script writing workshops and study abroad programs. “This was lacking for a long time, I wouldn’t say today that we have a huge pool of good writers but we’re getting there,” he enthuses. This type of self-development is essential to grab an early share of what seems like a promising Arabic-speaking content creation market. Despite Arabic being one of the fastest-growing languages on the internet, the language is extremely underserved, and in varying degrees of quality. “While 7 percent of Internet consumers are Arabs, only 1 percent of Internet content, or less, is in Arabic,” says Eli Khoury, chairman of Quantum Communications. “International media companies are ‘arabizing’ their content while every study in the world, including the EU report, show us that people like localized content, they don’t want translated content anymore,” adds Alia Ibrahim, co-founder of Daraj Media. In her view, taking advantage of relatively lax censorship laws and combining this with talent can help produce much-desired high-quality content in Arabic whether in terms of journalism, arts, marketing or communication. Even if local talent is unavailable, it has become much easier for the media and content production industry to work remotely with best-in-class professionals, noted Ibrahim. The COVID-19 global lockdown provided just the right conditions to jump headfirst into this model. Additionally, inflation in Lebanon has resulted in a relatively low cost of living for professionals earning “fresh dollars,” which could help media companies with access to this type of income attract top talent to Lebanon – provided the country can offer one day present enough incentives in the form of security and safe living conditions. This will allow Lebanon to compete globally and sell productions to services like Netflix and Amazon.

Rocking the boat

After painting such a rosy picture, one might be tempted to think that the industry has a bright future ahead of it, but the reality is that getting there will not be entirely smooth sailing. Several factors threaten the cruise if the self-appointed navigators do not plot their course smartly.

First among the common challenges faced by the industry is the loss of income, brought about by the economic crisis, and consequently of operations and growth capital. Traditional media suffered from the drying up of advertising revenue, increased printing and production costs, and the loss of subscribers who either left the country or didn’t renew their subscriptions. Additionally, the relatively well-established traditional media outlets and production companies, either fall under direct political ownership or rely on political funding from local or regional political forces or advertising agencies linked to these forces. “All these models are today in a deep crisis,” argues Ayman Mhanna, executive director of Skeyes, as most of them are unable to think in terms of creative business models and build creative links between quality and monetization. The near absence of dedicated investment funds have further aggravated these dire straits, forcing companies to downsize and turn to external markets and fresh dollars to ensure their survival. The issue of revenue is slightly more complex when it comes to journalism proper. “Initially journalism as we all know is very expensive and it’s very unlikely to make any profit. So our business model right from the beginning was based on the idea of creating content that can be monetized to fund our journalism,” says Ibrahim. Uniquely within the industry, traditional print journalism incurred additional income losses from the COVID-19 pandemic as newsstands closed down due to lockdowns and movement restrictions, forcing these outlets to move to online-first or online-only models – a strategy that wasn’t necessarily well-planned ahead.

A second challenge is the state’s neglect of the industry, reflected in an antiquated legal environment and zero state-led initiatives to support the sector. Intellectual property laws are largely insufficient, for example. “When it comes to feature films and big international productions, the role of the state or the government is very important. And no country has managed to develop this without an active role from the public sector,” says Chamoun, citing examples from Morocco, such as the Centre Cinématographique Marocain (the Moroccan cinematographic center) and the Royal Film Commission in Jordan which offers a 25 percent cash rebate incentive to international productions filming in the Kingdom. For news journalism, the repercussions are on freedom of speech again. “Defamation laws, libel and slander are written in an extremely vague way that is interpreted by the judicial bodies based on the political balance of power of the moment,” comments Mhanna.

To be fair, the state has paid some attention to some aspects of the media sector, which brings us to the third challenge: the threat to freedom of expression. This asset is one of the pillars of the industry, without which creativity and quality analysis – but also accurate information – cannot exist. True, Lebanese media professionals enjoy relatively better leeway than their Arab counterparts, but this a statement we should be wary of, warns Mhanna: “It is that very statement that our authorities use to justify new limitations on freedom of speech, arguing that we are ‘still better’ than Egypt, Jordan or Turkey […] That’s an argument we will never accept.” In the past two years since the start of mass protests in Lebanon, attacks on freedom of speech have intensified, he laments, painting a dark picture. “Unfortunately, we had to wait for a tragic event, the assassination of [journalist and activist] Lokman Slim, to understand that we live in a country governed by impunity at every single level, not only when it comes to killing journalists or writers, but also impunity in terms of financial management,” he says, adding that figures from 2019 to March 2021 showed an unprecedented increase in the number of attacks on journalism and freedom of expression, not matched even at the height of the Syrian occupation and other crises since 2005. Speaking on behalf of Executive Magazine, Akkaoui states, “We are independent in our journalism, and we have been paying the price quite dearly for the last 20 years, the frequency and intensity of attacks has increased. And we see and feel that oversight.” Limitations on freedom of expression are not restricted to journalism, but extend to other related industries, not least of which in the Arts and Culture fields, noted Mhanna. Theater productions have been denied a stage – literally – since the COVID-19 lockdown and have therefore not come under the radar, but other forms of artistic content have been the target of censorship and attacks by polarized media outlets and so-called electronic armies.

Finally, the fourth challenge concerns the Lebanese talent pool itself and the infamous “brain drain.” One problem that aspiring media professionals face is the shortfall of academia and training centers when it comes to equipping them with up-to-date and in-demand skills. In a country facing a severe economic crisis, with limited local employment opportunities and insufficient investment in media companies, many fresh graduates and even seasoned professionals are left with the choice between expatriation and freelancing with overseas clients in order to secure “fresh dollars.” This is a highly competitive arena and getting there requires the right connections but most importantly the right skills which, as mentioned above, many Lebanese look beyond the borders to acquire. In journalism, the issue is twofold. Some universities do not offer their students enough quality education and tools. “In the context of journalism, the content creation that journalism does in Lebanon, leaves a lot of room for quality improvement and it has been so for many years,” echoes Schellen. Other universities fall short in terms of preparing and adapting them to the Lebanese context. “They become the local correspondents of the largest newspapers from the United States because they know how to write really well, and they master the tone that appeals to foreign audiences, but they don’t actually have such a strong connection with the ground in Lebanon,” says Mhanna. For Khoury, the talent pool in Lebanon is in danger of drying up: “The ones who remain are three kinds: those who are not really up to it and therefore have no chance to leave; the diehards who love the country and are willing to stay here; and those who don’t have the means to move. Otherwise, the good talents, I’m afraid are almost about to finish.” Chamoun adds that over 50 percent of people in the production field are now in the United Arab Emirates, Saudi Arabia, Qatar or elsewhere.

A safe harbor?

Some coastlines promise safe harbors for Lebanese media, publishing, and content creation companies, and consist primarily of niche markets targeted to the Middle East region. Dropping anchor in these ports will require collective efforts on the parts of the private sector. Alexis Baghdadi, Executive Magazine’s managing editor, addressed the panelists saying “It’s time to pass the torch of pioneering journalism and by running media content, content creation to another generation while you take on another role, which is not very different from your role, but more advanced, as guides.” Speaking for the United States Agency for International Development (USAID), Georges Frenn reasserts the importance of the sector in terms of the objectives set by donors, namely quality job creation for Lebanese and economic support and diversification. “Usually donors focus on agriculture, manufacturing, tourism, rural tourism and environment, but the [media, publishing and content creation] is very much interesting and this is why we are analyzing this and USAID is putting this sector as one of the sectors to partner with and support with partnerships,” he explains.

Consensus seems to be the need to produce quality content. Chamoun finds it necessary to reiterate the need for additional investment in content creation, “I think there should be an investment fund developed in Lebanon. When it comes to TV series, development is very important. It’s the name of the game. How to develop content from a concept, from an idea, and having what we call ‘a bible’ that could be then taken by Netflix, Amazon and the other big streamers.” Commenting on the small quantity of Arabic content online, Ibrahim finds that it is mostly of poor quality, and identified this as an opportunity for Lebanon.  “Today the production that makes money is drama, where we cannot compete on the production level because everyone is doing it,” she says, “We have an edge in what we’ve always been good at, becoming, or re-becoming the hub of the best writers, the best archivists and researchers and storytellers, and produce high quality content for this type of production. I genuinely believe we would first be contributing to closing this gap of Arabic content that is very sellable to international audiences, we can even do it in English.” While Arabic is important, Khoury notes that content should not be exclusively in Arabic. “Out of 10 million pages roughly consumed on the internet, 54 percent are in English. So I wouldn’t shackle myself with language. I would push for the authenticity and locality of the story, irrespective of the language.” Mhanna mentions the availability of international funds for quality content and journalism that could be targeted by local companies, asking “[Are] the owners and CEOs of the very established TV stations in Lebanon ready to actually introduce some real new type of content that is truly high quality journalism even if it would put [them] at odds with some of [[their] previous friends and sponsors.”

Mark Daou, chief executive officer of RPR, leads the exploration of examples for collaboration within the sector. Among those are “free zones,” such as in the United Arab Emirates, which could give creative industries room to develop their financial capabilities, offer them financial and legal facilitations, and probably create new employment opportunities. Another idea he discussed involved infrastructure and technology clusters that would solve a lot of technical difficulties for players in the industry. “Those centers will create a lot of knowledge that will create impact and it will allow a lot of young people to aspire to belong to a community that is physically present or at least virtually present,” he says.

For Dany Richa, chairman and chief executive officer of BBDO Middle East, Africa, and Pakistan, winning at the future of the industry requires having the necessary future skills: “You’d be surprised how talented the people that we have are. We don’t have enough of them, and this is where we need to work with universities to graduate more people in neuroscience, in data, analytics, coding, instead of grooming them unfortunately for the jobs of the past that we’re trying to hang on to.” Daou agrees that the private sector should actively engage educational institutions. “We should make sure we continue to get the flow of talent into our institutions to be able to flourish, because the reality is, we will not be able to recruit from abroad to Lebanon.” Here Akkaoui is prompt to point out that in the absence of public policy and safety net, “the disparity between professionals with access to “fresh dollars” and those still getting paid in Lebanese pounds will increase, and with it the misery.”

The public sector remains very largely absent from the discussion, amidst calls for more collaboration with the sector. “We need to contribute to building a strong public sector but we don’t have the luxury of time for it. We have been trying to push cultural actors to start thinking in terms of policies for the sector instead of only asking for money for their performance,” concedes Mhanna. Akkaoui adds: “We’re not as disappointed as the primary, secondary and tertiary industries, who depended on public policy, or public initiative […] which allows us to get organized, it’s most probably the industry where we can see much more cooperation between different stakeholders.” Ibrahim intones, “We need a strategy because, we’re really functioning in a vacuum; there’s no state, there’s a failed state and we’re literally doing the job of the state so this could also be an opportunity. Money alone will not solve the problem [we need] an overall strategy to educate properly and to keep them in the country, create an ecosystem where they can function. With some strategizing, it’s doable.” According to Richa, Lebanese people around the world are willing to help by commissioning work to Lebanon and employing Lebanese outside Lebanon. “It’s really encouraging that the diaspora is creating a platform where like-minded people can closely collaborate with one interest in mind, the interest of our people, because honestly we’re the only ones thinking about our people, our government aren’t thinking about our people, they’re thinking about staying in power and it’s sad, it saddens me,” he concludes. 

0 comments
3 FacebookTwitterPinterestEmail
EconomyOpinionSpecial Report

Lebanon: Time to Think Sustainability

by Maya T. Dada
written by Maya T. Dada

Lebanon’s financial and economic collapse – and failure of the economy’s institutional pillars – present an opportunity to rethink the country’s economic model and raison d’être, repair the causes, and modernize the way we think about and do business. Putting this within the context of Lebanon’s private sector, and in light of the challenging, unstable and negative environment in which private enterprises operate, there is an urgent need to explore alternative operating models, funding options, and business strategies that gear companies for growth while de-risking the operation. In order to do that, private enterprises will have to initiate a qualitative transformation that embeds sustainability at the core of their values and decision making: sustainability to ensure economic viability; improve institutional resources and capacity; respond to the ecosystem in which the business operates; and satisfy consumer-led demand.

Fundamentally, the private sector in Lebanon has always had the right ingredients for success: commercial wit – possibly inherited from our ancestors and facilitated by our geographic positioning – agile businessmen & business acumen, highly skilled labor or potential to produce the skilled workforce, and a business community that survived in doing business under harsh conditions despite the continuous absence of a business conducive environment and supportive policies and policymakers. Whilst fundamentals are there, challenges are numerous. Two crippling challenges have emerged for private enterprises following the financial collapse. The first is the absence and complete stoppage of funding from traditional commercial banks, considered to be a main inhibitor for growth and threat to private sector survival. The second is the scarcity of foreign currency in the local market, a necessary resource for obtaining raw material, and preserving income and value.

From family to partnership

With the absence of lending from commercial banks, other channels will have to be tapped for access to capital, such as local or foreign private investors, development banks, or funds, which – on top of their commercial incentives – may have developmental & social incentives. Moreover, capital may not be restricted to loan-based products, but can include a whole array of simple or blended products from equity to senior debt.  Funding may be in local dollars, in which case there is ample supply but less demand, or ‘fresh’ dollars, in which case there is ample demand but less supply. Investors, particularly institutional ones, offer important networking, technical assistance, synergies, opportunities for reaching out to other markets, connections to potential customers and suppliers – but most importantly offer long term value and position the company for growth, modernization and better resiliency.

Most institutional investors nowadays are responsible and socially conscious investors, who will require the companies in which they invest to comply with their environmental, social and governance (ESG) standards. Therefore, to be able to access capital from such investors, family-owned businesses in Lebanon must transition to an institutional mindset and embed ESG standards that reflect their own values and those of their potential partners. Owners will have to understand that their decisions must not only create value for their family, but also their employees, value chain, community and other stakeholders. Sustainability issues will be at the core of decision making for institutional investors when considering investing in any company.

What does that mean for most Lebanese companies? It means that the issue is not only to have a convincing story about the company’s economic feasibility and viability; owners must go beyond. To transition from a family mentality to an institutional one, it implies that family members must accept to institute a functioning and effective board of directors that provides discipline, accountability, and objective and expert opinions from independent members.  Lebanese enterprises that wish to access capital are advised to develop written policies and procedures to ensure transparent decision making based on the company’s values and principles, integration of checks and balances, a code of conduct that clarifies rules and standards, and very importantly transparent and accurate reporting. Written policies and procedures ensure commitment and adoption across the firm. New partners would be looking at a corporate governance structure that promotes trust between stakeholders, better risk management, and sound decision making to ensure long term sustainability.

Companies are required to understand the impact of their decisions on the community in which they operate, and manage their environmental and social impacts to support sustainable value creation. Energy use and their implications, proper waste management and disposal of hazardous waste, toxic emissions, natural resource conservation, adequate working conditions, health and safety measures, diversity and inclusion, engagement with community, among other issues are ones that must be understood, assessed and addressed.

The earlier Lebanese companies incorporate ESG concerns into their framework and decision making, the better they are positioned to access capital, overcome the credit constraints in the local market, and ensure smoother onboarding of new partners and long-term value creation.

Export-led recovery

Most Lebanese companies cannot operate without access to foreign currency, a scarce resource nowadays. Foreign currency is used to import raw material, make required investments, and preserve value in an environment with a depreciating currency. To access foreign currency, Lebanese companies must focus on an export-led recovery. Are we ready for exports?

Despite the devaluation, there generally does not seem to be an opportunity for Lebanese products to compete on account of price – because economies of scale are lacking – but rather to compete on quality, uniqueness and sophistication. This comparative advantage is important because it not only positions Lebanese enterprises for exports into more sophisticated markets, but also creates more highly skilled jobs, opportunities for economic growth, and prospects to transform the economy into a more modern one.

Additionally, exports help Lebanese enterprises de-risk by dissociating them from a contracting economy and a volatile currency.  The key is to understand what products can make breakthroughs by understanding what consumers in offshore markets are looking for; then work on modifications, required certifications, and consistency.

There is no reason why Lebanon’s private sector recovery cannot be export-led. Trade has been a pillar for prosperity for all people who have occupied our land many centuries ago. It all goes back to our history and geography. Lebanese are culturally diverse, having inherited aspects of different cultures and civilizations. Geographically, our land is unique in being accessible to the GCC, Europe and North Africa, with a Mediterranean that has made openness possible, and that has made trade our skill. We have a huge diaspora with a reach to all continents. Sometimes we forget our potential. Sometimes we need a crisis to be reminded. Sometimes we need to look at our history – not our present – to build a future.

0 comments
4 FacebookTwitterPinterestEmail
policySpecial Report

Integrity safeguards in financing elections and political parties

by Omar Kabboul
written by Omar Kabboul

Money is often deemed an integral component of democracy as it enables political participation, campaigning, and representation. However, when money is not efficiently regulated, it endangers the integrity of both the political and electoral processes, it weakens institutions, and jeopardises the quality of democracy.

Lebanon is no exception to the rule. The dissection of the money-politics relation in the Lebanese context shows how entrenched corruption is in a system made of sophisticated networks of clientelist networks across both the public and private sectors whose sole purpose is to maximise private gains. As such, a sound enforcement of campaign finance regulations as initially envisioned by lawmakers is intertwined with an advanced global regulatory framework for political funding.

 

Corruption as a prevalent aspect of the political life

Whilst systemic corruption is hardly regulated through traditional means of campaign finance, maintaining integrity safeguards in financing elections and political parties could be the cornerstone of a competitive electoral process, a guarantor for a modern functioning democracy despite everything, when coupled with other well-grounded measures to control political financing and funding of political parties in the first place.

Looking at Lebanon’s scores across the indicators of integrity, transparency, and accountability would help experts in the field understand the interplay of the de jure and de facto realms of campaign finance in the country. For instance, the supervisory commissions which were first and foremost tasked with monitoring electoral spending have faced impeding challenges, ranging from the lack of will to the lack of effective support teams, manpower, and budget, which would enable efficient reinforcement of prerogatives and regulations alike.

The expediency of campaign finance regulations

The campaign financing system was introduced for the first time in the 2008 Parliamentary Election Law no. 25. The law established the Supervisory Commission on Elections Campaigns (Chapter 3, Article 11), whose prerogatives evolved around the regulation of campaign spending and the use of media; however, the commission was linked to the Ministry of Interior and Municipalities, with the minister supervising its work, despite calls for its independence administratively and financially.  At the time, the commission fell short on enforcing campaign spending regulations, either for limited capacities, or legal loopholes. For instance, while the law provided for advertisements’ audit by the commission, the latter could not make use of this competence.

In June 2017, Parliament passed Law no. 44, which brought about many changes on the campaign spending front. The introduced reforms reinforced the statute of the commission to a great extent, whose mission was no longer restricted to elections campaigns, but covered the whole electoral process, and was named as The Supervisory Commission on Elections (SCE) – rather than The Supervisory Commission on Elections Campaigns (SCEC). The commission had by then the opportunity to exert greater control in order to increase transparency of campaign finance and a great level of independence from the Ministry of Interior and Municipalities, with the exception of the election management roles which were retained by the latter. However, the SCE lacked the resources to audit the campaign finance reports submitted by candidates, as well as the power to enforce penalties for violations.

The definition of electoral spending as stipulated in the 25/2008 and 44/2017 laws is very restrictive, given that spending outside the campaign’s window is allowed, in addition to the law’s shortcomings in sanctioning cash distributions. Whilst the SCE has access to the candidates’ campaign accounts, it cannot audit the personal accounts of the candidates, through which most spending is processed as the Banking Secrecy Law that was not lifted for candidates as is the case with the campaign accounts.

While it stands true that the administrative and logistical constraints impeded the SCE’s operations, the commission needed four months to audit the reports submitted by candidates, let alone being faced by a staunch resistance of media outlets to provide the commission with the respective paid media advertisement data which should have been reported.

Private and public funding of political entities

The challenges, which both the SCEC and later on the SCE encountered, are entrenched in Lebanon’s political financing system. Private and public funding of political parties is often channelled via unrestrictive routes.

As listed by the Administration and Cost of Elections (ACE) project, the world’s largest online community and repository of electoral knowledge, the sources of private funding, namely subscriptions, donations by individuals or corporation, as well as contribution by supporters are never disclosed nor regulated as has been the case in Lebanon for a while, nor do they compare in amount and influence to foreign support and the use of public resources for sustained private gains.

For instance, funding by foreign sources and abuse of public sector or state resources outweigh private funding in influence and have avoided accountability and regulation for decades. These often take the form of vote buying, clientelism via public employment offered to constituents, as well as parastatal institutions meant to circumvent ministries and uphold voters’ freedom in exchange for services. Hence, most of the services offered to voters are largely unaccounted for, as the electoral laws exempt candidates from reporting on service delivery by an affiliated charity in the case where this service delivery has been ongoing and consistent for more than 3 years in a row prior to the election date.

As such, there is an urgent need to approve new laws, including bills that give the Constitutional Council more enforcement capacities which would enhance the transparency in reporting the sources and uses of said political funds. In that regard, the notion of transparency is codified in the United Nations Convention against Corruption (UNCAC) which Lebanon joined in 2009, and calls on all countries to strive to “enhance transparency in the funding of candidatures for elected public office and, where applicable, the funding of political parties” (Article 7(3)).  

Way forward

Liberating Lebanon’s democracy and institutions from the influence of money should not be restricted to reforming the Electoral Law. This step should be complemented with other reforms and bills such as lifting banking secrecy on all candidates’ accounts as well as those of their family members, revisiting the political parties law which dates to 1909 (Law of Associations), amongst many others meant to reinforce the role of regulatory authorities as provided for in Lebanon’s Anti-Corruption Strategy 2020-2025, which are primarily intended to prevent grand legalised corruption, such as the appointment of civil servants, public procurement and allocation of public money. As such, monitoring the source and spending of political financing channelled to contenders, either through public funds or foreign support, is very critical.

Lebanon stands at a crossroads ahead of the upcoming parliamentary and municipal elections scheduled for 2022, following the promulgation of the national anti-corruption strategy that brought about serious plans for reform, which if applied, would set the ground for a healthier and better financing of the political life.

Disclaimer: The analysis, views and policy recommendations of this article do not necessarily reflect the views of the United Nations, including UNDP, or its Member States. The article is an independent piece commissioned by UNDP as a build up to the “Integrity Safeguards in Financing Elections and Political Parties” webinar organized in partnership with Executive Magazine.

https://youtu.be/CO1qEMCQ_50

 

0 comments
0 FacebookTwitterPinterestEmail
EconomyLeadersOpinion

Purpose at the edge of chaos

by Executive Editors
written by Executive Editors

Chaos is a complex system ruled by discernable patterns where the agency of minute initial changes creates hugely different outcomes. The chaos system, while appearing predictable early on, thus cannot be predicted in its future outcomes. Also, if there are conscious forces of agency that perpetuate the deterministic chaos that is Lebanon from the perspective of a governance system, they appear to cherish obscurity. Our socioeconomic fate thus is uncertain as well as obscure on any time horizon, despite overwhelming evidence of dysfunctional public agency that underlies the problems of our economy.

Secondly, even when discussing the survival strengths or the residual weaknesses of Lebanese public and private sectors, the full identity and extent of the chaos system tend to remain impervious to analysis. Perhaps this is because, by human reason, such an insidious, logic-defying system ought not to exist.

By contrast to the unpredictability of the public system, however, there are many reasons to marvel at the survival skills of our private sector economy – which have been demonstrated more convincingly with every passing month of our 20 months of open economic crisis. Proven survival skills create opportunities. Yet a precious few observers, one of them Executive Magazine with the support of partners and stakeholders, have dedicated themselves to highlighting those opportunities.

This Lebanese constellation – of public development barriers and private development wants – today warrants newly discussing the social enterprise fundamentals: the purpose of business units in their evolutionary habitats of profitable industries. Profit and purpose belong together if the economy is to function as an ecosystem, as the noted international central banker Mark Carney – whose sterling reputation in the global finance realm was built over his tenures at the Bank of Canada and the Bank of England – preaches in a very recent discourse on the relationships of economic value and moral values.

According to him, companies with an internal sense of purpose and high employee buy-in into their purposefulness perform better for society – and prove themselves in times of disruption. “To build a better tomorrow, we need companies imbued with purpose and motivated by profit,” Carney writes.  And purpose, he emphasizes, is modeled and informed by an underlying set of values.

Ergo, developing a new game engine, in the form of a collaborative and rational private sector paradigm, seems to be the only answer that would allow for the Lebanese private sector economy to thrive at a not-impossibly-distant future time point. All the available evidence suggests furthermore that the construction of this economic growth framework has to start with rebuilding socially productive entities in the categories of industry and the firm – quasi the formation of stronger Lebanese business tribes and superior warriors that can compete in the global game world of economic Warcraft.

SNAFU

Perhaps the construction of a new economic paradigm for Lebanon then needs to commence from two opposing points: construction of a new constitution for the state – an ethical state – on top and building industries from the granular structures of their two core economic unis, the ethical family (and socially alert family business) and the ethical firm. Firms, by collective wisdom of today’s inclusively minded female and male economists, are the core of capitalism, their habitat is the marketplace, and their survival depends on corporate governance in alignment with ruling standards and goals, known as ESG (environmental, social and governance) goals. 

The first issue, a stakeholder discussion for creation and encoding of new purpose in the DNA of five Lebanese industries, provided the thrust to the special report on the Economic Framework for the Creation of Sustainable Private Sector in Lebanon, which the Executive team worked on in partnership with the United States Agency for International Development (USAID) and in alignment with over 50, highly qualified, stakeholders from finance, advisory, strategy design and operation in the fields of manufacturing, food-processing & agro-industry, media & content creation, food & beverage concepts and hospitality, and technology and knowledge enterprises.

This project was kicked off in February. Its first stage entailed diligent selection of a steering committee (SC) and a foundational SC meeting wherein our consultative approach determined the five industries that the project would focus on. Roundtables convened on March 30 and 31, resulting in 10 hours of recorded insights that were transcribed into approximately 70,000 words of raw minutes, condensed, journalistically augmented, and contextualized with expert comments in the writing and production of a benchmark report that was printed and presented on June 9.

Will history absolve us?

We noted three outcomes to this exceptional report. The first outcome was an affirmation of the capacity for brainstorming and constructive dialog that participating stakeholders have and the assurance that these experts and practitioners are perfectly motivated to construct a better economy. A second result of the deliberations was that industries have as yet underused potential for coordination in the current crisis. As a third conclusion and implication of untapped potential, the roundtable discussions have hinted at vertical and horizontal opportunities of supply chain development and innovative pairings of industries for mutual benefits.

Painting a realistic picture of the constructive discussion of our over 50 roundtable participants requires noting their will to listen to each other and hear out opposing views, but also means acknowledging that long-standing economic weaknesses and risks in the private sector economy have been exacerbated by the crisis and that there will be no lasting solution without political change, even if the economic actors do their best to perform as if there was no public disruption.

The detriment of entrenched old problems is reflected also in other challenges to our collective sanity that are documented in this issue, namely the perennial combat against corruption and the quest for a restructuring of our banking industry that will enhance our future economy, not cripple it further.

While there are comets of a new banking reality flashing through our financial sky, the harbingers of better times are yet feeble prospects. They have resisted our journalistic hunger for a clearer picture as reports on the banking sector’s current health, or absence thereof, will have to be assessed on basis of accurate sector data – which are still not in our line of vision – as well as implementation of restructuring and forensic audits. But being confronted with a banking picture of many imperfections today only whets our appetite to bring you, in the third quarter of this year, a fuller and deeper understanding of where banking stands and what it can again become.

The one thing in the past few months that was as important for this magazine as our project on creation of sustainable private sector employment in Lebanese industries, and even more energy-consuming than the development of our five economic roundtables, was the challenge of elevating our inner purpose and making it stand up to the burden of this ongoing crisis. We – every last member of the Executive team – have worked, striven, revised, and worked more on developing our purpose in midst of the social, economic, and worst of all political crisis that has bounced all Lebanon from one moment of despair to the next.

In a journalistic nutshell, the anchoring of purpose in the enterprise and the needs to counteract the deterministic chaos in the state, were the on-agenda drivers of this April/May 2021 issue of Executive, which we present to you belatedly, and which will be drivers of our future.

It may or may not be true that, as about a dozen staff researchers at the World Bank have just suggested in the Spring 2021 Lebanon Economic Monitor, this country’s still ongoing economic crisis will go down in history as one of the most extensive and consuming episodes of recession that have been recorded in the past 150 years.

But taking this observation from its opposite implication, Lebanon’s economy may yet deliver new empirical evidence that there is that real existent transition zone, between the realms ruled by anarchic disorder and stagnant order. This is the realm that has been dubbed the edge of chaos. Described constructively and optimistically, it is the place of bounded stability where new solutions can be innovated and verified in a sphere of maximum complexity.

It is then not inconceivable that the painful quagmire of the historically exceptional Lebanese crisis can ignite the mixture of desperate needs and applied ingenuity that can unleash what Carney calls the “magic of capitalism”, meaning the solving of a burning social problem with a profitable business model, which can generate a self-sustaining and/or scalable process which by virtue of its creation unlocks new answers to basic and current economic problems. Thus, in the extreme economies at this edge of chaos, developments can be initiated that shape the future of systems, such as the global economy that is battling to find its path between stagnation and anarchy.

Post scriptum: the edge of chaos is an exciting state of mind; a cozy place for the fainthearted, it sure ain’t.

0 comments
0 FacebookTwitterPinterestEmail
agro-industryEconomyOverview

From local to global

by Thomas Schellen
written by Thomas Schellen

The agro-food sector is highlighted as a defensive value proposition that has many underused development potentials in the contexts of satisfying local demand and achieving exports. Food safety and certification barriers need to be surmounted and challenges of breaking from ethnic niche markets into mainstream markets with Lebanese exports were confirmed, with the upside crisis risks of temporary cost advantages on labor and local produce inputs presenting opportunities will erode with time but can be maximized with decisive action in the short term. “We want to go beyond advocacy and actually see things happen,” says Executive’s editor in chief Yasser Akkaoui in the welcome note and introduction to the discussion.

As noted by Thomas Schellen, Executive’s editor at large and moderator, the steering committee of the roundtable project, which had been quick to agree that food processing and agro-industries warrant inclusion in the selection of industries with high job generation and productivity gain potentials, pointed to the wine and spirits sub-sector as specific area of interest for discussion by this roundtable.

In opening the deliberations on the sector’s issues and concerns industrialist Imad Abi Chaker confirms that the agro-food industry has room to grow. His enterprise Confexia – specialized in the manufacture of chocolates – was confronted overnight with growth potential that exceeded its production capacity which was established a few years ago. “The setback was that we would have planned a bigger capacity if we had known. When we originally planned we did not expect the growth to be what it is today,” he points out, citing fast growing demand to compensate for the loss of imports. He says a second growth challenge for his enterprise is to develop further products “that can be good substitutes for imported products that demanding and often spoiled Lebanese consumers are used to but can no longer afford.”

 By the menu

Outlining the situation of the Lebanese wine producers, Zafer Chaoui of leading Lebanese winemaker Chateau Ksara and head of the Lebanese Wine Importers Association, describes Lebanon’s annual wine production as being worth “around 50 million dollars a year in products of which 40 percent are exported.”

While emphasizing that Lebanese wine is internationally competitive on quality and price, he cautions that this promising sector has to “solve administrative problems” to reach full potential. Pointing to global influences of the coronavirus pandemic and the lower purchasing power of the Lebanese consumer as factors behind his expectation that the economy in future will be very different from the years before 2020, Chaoui nonetheless sees persistent handicaps that Lebanese winemakers have to deal with. “The main handicap is that prices for vines to produce grapes is higher than other countries; the second handicap is that our equipment and habillage (bottle, cork,) are imported,” he says.

Mounir Bissat, president of the Syndicate of Lebanese food Industrialists and manufacturer of sesame-based ingredients that are widely used in Lebanese kitchens, concurs that the Lebanese food processing industry is one of the industrial sectors with the highest potentials before and during the ongoing national economic crisis. Consistently among top exporters, the food industry employs a quarter of the industrial workforce and ranks top by value added, he says. Acknowledging that sector challenges have pre-existed the sudden disruption of liquidity and international transfer activities in fall 2019, he highlights new financial threats that existentially challenge food industrialists. “As industrialists, we are in need of credit facilities, and in agro-food there is a three to six months cycle,” he says.

While some food industrialists found themselves during the crisis in less unfortunate positions of having working capital largely in form of inventories and receivables that they could cash out, the disruption of the agro-industrial financing cycle meant that agro-industrial businesses could not securely finance their credit facilities, which created a massive challenge to working capitals. Companies were in need to obtain new working capital to finance export activities and operations.

Delving further into his description of food industrial specificities, Bissat adds agro-industrial exports are a real success story but that the Lebanese exporters’ product niche to date is concentrated in ethnic markets. Widening of the product reach to mainstream products in national markets of developed countries requires bridging of these gaps with the collaboration of academia and consultants. “There are three phases: we need to upgrade the existing products, develop new products derived from the existing products, and we need product upgrading and adaptation to the taste and products of foreign consumers,” he says.

As he describes the situation, there are appropriate infrastructures as far as academia and consultancies, but a gap of communicating industry needs must be closed as a basis for new success stories. “Made in Lebanon” provides a value premium to Lebanese foodstuffs in Arab markets and elsewhere, but there are gaps in market perception and product design as products need to be better aligned with preferences of non-Arab consumers.

With regard to the experiences and challenges in finding access to finance, Bissat says that important funding barriers stand in the way of agro-industrialists attempting to activate holdings in Lebanese dollar (lollars) for the purpose of investing; he points out that such holdings are not suitable for acquisition of machinery and equipment by import, unless there is a substantial discounting.

According to Akkaoui, the financial idea on the table for its fit with the needs of Lebanese agro-industries today is the role of private equity and banks. A second key possibility to develop agro-industries is “your role in upgrading compliance and international best standard practices, whether its environmental impact, social sustainability, and governance, along with a development curve from family-run enterprises to corporate mentalities,” he advises.  Funding barriers exist if agro-industrialists want to activate lollar holdings, Bissat points out.

Eating at the same table

As Nadine Chemali, deputy head of the Trade and Investment Facilitation (TIF) project, funded by the United States Agency for International Development (USAID), confirms, the relative resilience of agro-food processing in context of the current crisis and its important role in employment have reinforced the agency’s attention to the sector. “We believe that the impact [of economic achievements] will not only be on the industry but it has a value chain impact, so on the whole food sector,” she says. In addressing challenges from the current crisis to the need for research and development in this industry and the move from ethnic to mainstream markets, she underscores that “a lot of work to be done with compliance standards and make new products.”

Noting that the TIF project has received a new authorization to work on issues of wine and arak trade facilitation because of its newly increased export potential, she tells roundtable attendees: “We can put our resources together to try to find a solution for this sector. We would love to collaborate to have an impact on the wine and the whole agro-food sector.”

According to Atef Idriss, agro-industry expert and food safety consultant, collaboration on industry level is in great need of intensification. With knowledge of food safety impediments and repercussions on consumer health not communicated between industrialists, consultants, and other stakeholders, long-standing quality issues in the industry need to still be resolved and in some cases re-addressed.

“Addressing markets, consumers, [and] addressing our trade partners’ priority are core [issues]. In this age of economic meltdown, I am not talking about the Lebanese economic meltdown; I am talking of value chain changing because international trade is changing,” he emphasizes. Value chains that stretch across economies with very diverse food safety regimes must be understood and the process by which Lebanese agro businesses are integrating different ingredients in value-added products must be elucidated further, Idriss admonishes.

Pointing to the fact that he has been involved for years with devising plans for agro-industry development that are updated every few years, he asks why the importance of interaction in Arab trade agreements, or of understanding drivers and restrictive influences in intra-regional Arab trade, is mostly still obscure. “This is the market where we are most prone to succeed and deliver,” Idriss says. According to him, long-standing biosafety issues must be addressed at the places where they occur and cannot be deflected, “otherwise we will always think that the problem is somewhere else.”

Commenting on the access to finance challenges of the agro-food industry, Abi Chaker notes that the pressures of losing banking facilitation of trade had advantages by turning the entire market into a cash market as a temporary solution where long lead times have vanished. This underlines the need to find new financing solutions and diversify products to more effectively reach markets.

“Today, the problems are not different than before [the economic crisis],” observes Fadi Fayad, consultant and expert of food entrepreneurship. Some capacities for manufacturing value chain components such as glass bottles and caps, which had been present in Lebanon, were eroded or disappeared entirely, causing the need to import all packaging materials, he points out. “We lost something that we had, because we did not look well after our sector. We need to reestablish the infrastructure, [and] build back those factories so that we can have the basis for the food industry operating,” is how he describes one key present problem of agro-industry. “The second [key problem] is that since we do not have the financial resources, and import, we need to find this relationship between the agricultural sector and the industrial sector,” he adds. 

Common infrastructures for electricity etcetera have to be built. Temporary advantages such as lower labor costs and good exports in some agro product categories are not sustainable as platform for a strong agro-industry. “We need to do more than this to be able to succeed in the agro-food sector, we need to work in a professional way. We cannot hope to build an agro-food sector if we cannot build the things needed to have such a sector. We need to have this infrastructure; this requires solidarity between the sectors and especially on [the level of] the Association, who has representatives on this panel,” he emphasizes. If infrastructures are built and greater international competitiveness is achieved, the agro-food sector in Lebanon is very promising, he concludes.

Sampling global opportunities

Participants presented what solutions they thought viable for the needs of their industry. For Bissat, the overdue implementation of the Lebanese food safety law and activation of official accreditation council Colibac are priorities, along with adoption of laws that ease doing business and enable access to finance, by transforming incorporation requirements and making mergers or acquisitions less costly. 

Chaoui, who reiterated that the wine sector has seen tremendous improvements in producer diversity and more-than-doubling of total annual wine production over the past three decades, sees the wine sector’s top priority and biggest target for the coming years in the development of exports. From the perspective of the consultant Idriss, efforts should be concentrated in the area of confidence creation within the food industry as well as in relations between academia and the private sector overall. Creation of strong awareness on consumer rights as well as building of a Lebanese consumer culture, secure compliance with food safety standards nationally and internationally, and protection of the environment, are his further priorities.  

Modernizing the food safety system in Lebanon is essential for improving both domestic and export market access, Fayad concurs. He points out, however, that the Lebanese agro industry has already been put on a track of progress in the area of regulations and compliance with food safety standards, and expresses his view that the financial challenges of the monetary and liquidity crises of Lebanon will increase the food industry’s appreciation of donor funding and make use of financial resources more prudent and rational.  As to placing greater priorities on research and development, he says, “We have a lot of potential in our country because of our universities, also some research industries, but we need to focus on our applied research, on our needs, and these needs to be determined by the industry.”  Infrastructures and supply chain components need to be rebuilt, often from zero, he agrees, but besides seeking solutions in export growth, as proposed for the wine sector, Fayad says that focus also needs to be directed to the local market, reasoning that without the mass of the local market, better economies of scale are not achieved and products cannot become competitive.

As the discussions circle back into further detailing the proposed approaches for developing crucial aspects of an agro-food industrial ecosystem in Lebanon, Wissam Ghorra, a member of the management team of the Cedar Oxygen ESG Fund, makes a brief intervention to say that an “interesting percentage” of the fund’s portfolio is in agriculture and that development of financing tools for this sector is a priority of the fund’s management. “Agro-food is one of the main pillars that we are working on and ready to finance. The facilities of Cedar Oxygen are structured to cater to either local sellers of agro-food, or food industry in general and to exports. This is a crucial sector in which we believe, because it affects other sectors,” he enthuses.

As Ghorra asserts, and as Nadine Chehadi and Mounir Bissat agree with regard to the question of in-sector communication and collaboration barriers, or “ego-issues,” the agro-food sector is growing. Chehadi asserts that the sector “has the nicest people” as industrial decision makers and enjoys close-knit employer-employee relations on the levels of the factory floors and the farms. Bissat concedes that there are communication issues within the sector for which there are “endless examples,” yet emphasizes like Chehadi that ego issues are not festering in the agro-food industry to the detriment of productivity.

More detailed interventions on agro-industrial priority needs, such as had been alluded to in the roundtable to this point, elucidated participants on problems such as quality and certification deficiencies that pose reputation risks or block exports of some produce and agro-industry products to important markets.

 Food safety policies in focus

Geographical and quality certifications – with wines being a prominent example – could be advanced much more, to the benefit of products from olive oils to jams and pickles, and thus give a big boost to local production. “There are projects and initiatives that should be adapted if you want to introduce a game changer in our industry,” Bissat emphasizes.

As several participants agreed, the lack of agricultural policy and the lack of trust in Lebanese agro-food products constitute bigger and more deeply seated problems for this industry than the national economic and political crises that have been charring the country in the recent past. However, fighting through the policy and trust crises will afford the stakeholders in the agro-food industry to demonstrate “proper leadership,” Akkaoui opines. “[Past governments] did not promote any collaborative effort among different stakeholders. I think the crisis should bring everybody together, to introduce these principles. Across all industries, there should be bridges built with the financial industry, consulting firms, [and] branding companies, making our products mainstream,” he says.

In addressing fears of distressed Lebanese consumers, discussants showed confidence that local suppliers have enough capacity for serving their domestic markets but admitted to having fears of devaluation and purchase power erosion.

Representing USAID, Georges Frenn commented on the roundtable that the agency has witnessed, over many years of working on development projects, that it could succeed on the enterprise level more strongly than on sector or value chain levels and also did not achieve success on the micro level of farming. “There are still many issues to deal with. The sector has not been growing or has not grown as much as potentially could have,” he says, continuing that the recent changes in the situation of the agro-industrial and food production sector need new collaboration and initiatives. “We would definitely need a lot of your insights and to be able to prioritize and focus where support and assistance would be most useful, and most efficient,” he adds, confident that roundtable participants could all work together in continued networking efforts or collaborate in other ways to address the needs and opportunities that roundtable participants had elaborated on. 

His peer Bourhan Kreitem added as his impression from the roundtable deliberations that, in light of the lived tragedy of Lebanon, there is a need for a clear plan. “What should the sector, and the supporting sectors [adjacent to] this sector, should do first in order to get out of the problem? There should be a plan,” he says, because many stakeholders in the community of donors will be ready to support many initiatives. Once a government of some sort were to be established in the country, a plan should be ready for discussion and financing. “I would hope that the recommendations [resulting from the roundtable] will really highlight a need for some sort of plan and activity that might be of interest to us as the Lebanon Enterprise Development project and, obviously, USAID, and also to other donors,” he concludes.

Closing remarks from roundtable participants Idriss and Chemali emphasize the need, on the side of industrialists, and readiness, on the side of agencies, to restart projects and programs under the umbrella of USAID. Bissat points out how the industry has made substantial progress in certification to standards such as ISO 22000 which has been achieved by more than 50 manufacturers over the past 30 years.

Abi Chaker in his closing remark emphasizes the need for the private sector to lead new initiatives – possibly with support of international organizations – but without waiting for governmental action.

0 comments
0 FacebookTwitterPinterestEmail
AgricultureEconomyExports

Inspiring libations

by Thomas Schellen
written by Thomas Schellen

Of the specialized economic activities that the 10 members of the steering committee for the project on private sector employment creation and productivity – organized by Executive Magazine in partnership with the United States Agency for International Development (USAID) – agreed on when determining the five industries that would be the focus of the roundtable series and report, the activity of wine and spirits production as sub-sector of the food processing and agro-industrial sector, is perhaps the most consistent and at the same time a most ambivalent choice.

The latter appears to apply in the cultural context that this activity is not accepted unequivocally as constituent of a desirable national economy of Lebanon but also in the sense that it relates to some products that are strongly established on domestic and export markets and some products, such as liquors made from domestically produced ingredients, that arrived on the market just a few years ago. It is certainly a convincing proposition from the perspective of a taste shared by many and one that is easily memorable.

When compared with niches such as content production in the media sector or the digital outsourcing proposition in the tech entrepreneurship and knowledge enterprises sector, Lebanese wine making is an established cultural good. From the agro-economic development perspective, it has, together with olive oil production, since the 1990s commanded attention by international development advocates as one of the economically “low-hanging fruits” in the country’s most traditional sector of agricultural production.  

Production of flavorful spirits, firstly the distilling of Arak from grapes and aniseed, is just as traditional an activity as cultivation of wine in Lebanon and the Eastern Mediterranean but not one that has been able to break reputation barriers that kept Arak confined to a niche of connoisseurs. Thus distilling of liquor from local ingredients, and notably the production of gin, is a recent and more promising niche of spirits production. A “2020 Factbook” published by the Investment and Development Authority of Lebanon (IDAL) names two spirits ventures (gin and vodka) among a short list of nine announced investment projects in the agro-food sector for 2018-19, albeit without citing investment amounts. Surprisingly the changing economic conditions and social trends of Lebanon appear to have boosted this promise.

Counting bottles

The wine industry in Lebanon does not only have roots dating back millennia, its modern incarnation is highly mature by comparison to other real economy niches under discussion at the five roundtables. Put in numbers, the industry has a total output of 9 million bottles per year according to Zafer Chaoui, current president of industry body Union Vinicole du Liban (UVL) and chairman of leading winery Chateau Ksara. In terms of registered enterprises, the industry advanced from five wineries in the early 1990s to 56 registered at the Ministry of Agriculture, Chaoui informed his fellow participants in the Executive roundtable on food processing and agro-industry.

According to numbers which IDAL cited from Lebanese customs, wine exports have grown annually from 2010 to 2019 to reach a total of $21.3 million – an increase of 71 percent over the decade. Newer figures cited by Chaoui put wine exports for 2020 up to the month of November at $14.5 million. The wine sector has also increased in geographical diversity and sophistication when comparing the early 2020s to the early 1990s. There have been even a few forays into development of building a wine making ecosystem from biologically responsible and chemicals-free cultivation of grapes to programs that were brought into the country some six years ago under a collaboration of Chateau Ksara and the UK-based Wine and Spirits Education Trust (WSET), a specialized education and certification provider.  

Notwithstanding the fact that wine making in some form is one of the oldest human preoccupations practiced in the hill country of the eastern Mediterranean and has seen an economic rise over the past 30 years, it would be difficult or even preposterous to claim that local wine culture is firmly on the way of fulfilling its utmost potential and reaching superior maturity. Its market power in terms of per capita wine consumption is minuscule by comparison with the old-established European wine countries but also by lateral comparison to production and per capita consumption in up-and-coming wine making and exporting countries of the 21st century like Argentina, Chile, Australia, or South Africa.

Furthermore, noting a data deficiency on wine and spirits as part of what still appears as an endemic data gathering weakness of the Lebanese economy, it would be an illusion to think that this sector is fully transparent in terms of its economic role. This opacity unfortunately extends to absence of knowledge on the number of viable enterprises and their output capacity as well as the number of sustainable jobs that are created by the sector directly and indirectly. Lastly, from the supply chain and talent perspective, wineries and their non-viticulture input needs, appear to be hardly integrated with either the manufacturing industry or native vocational or university education.

On both wine and spirits, it is notably easier to find information on the participation of Lebanese producers in foreign trade and taste fairs and the accolades that they received at those occasions than to find economically relevant data. Chaoui discloses to Executive that Chateau Ksara as the largest single producer in the wine sector has 160 permanent employees but cannot provide granular information on either permanent or seasonal employment figures for the Lebanese wine industry. Compared with estimates on the wine industry, however, the annual performance of the country’s new spirits, such as vodka and gin, seems still invisible even to analysts and industry insiders. When Executive inquired with the owners of the Three Brothers gin brand about the total domestic market in terms of production and their share in the market, Ralph Malak, chief taste developer and partner in the enterprise, said it was too soon to have studies on this market niche.

With data on wine often being estimations and data on gin barely on the radar, the non-existence of a local supply chain even as a manufacture of suitable bottles, and with neither oenology nor viticulture visibly entrenched in the education sector, the potential of the wine and spirits sub-sector is a proposition that has yet to be amplified.

The year that reshuffled all cards

No person even most fleetingly informed about the recent economic fortunes of Lebanon should be surprised to hear that the 2020 crisis brought immense disruption to the wine and spirits sector. “What happened in Lebanon consequent to the devaluation of the Lebanese pound is terrible,” Ksara’s Chaoui confirms to Executive in a follow-up conversation to the agro-industry roundtable. “Wine, gin, whatever, will become luxury products. And the poorer we will become, the more they will become luxury products,” he warns ominously.

“2020 [has been] a life-changing year,” summarily sighs Three Brothers’ Malak, who was not a roundtable invitee, when asked by Executive about last year in an interview on the situation of the spirits niche.

While by Chaoui’s expectation the crisis on one hand will open development opportunities for national industries, the flipside of this coin and driver of domestic wine prices to him will be higher cost for producers that rely on imported materials. “In the wine industry, what we call habillage, meaning the bottle, label, capsule and cork, are imported. Also 90 percent of the equipment, which has to be kept at the highest level, has to be imported. These inputs will follow the price logic of the devaluation and lead to substantial price increases,” he reasons.

From the perspective of Malak, whose gin making interest is part of a group that includes wine making, distilling of gin and arak, as well as operations of nightlife venues and resorts, the most direct expression of last year’s malaise was the closure of the group’s hospitality venues that in his assessment annihilated business for six to eight months of 2020. 

In the same breath with which he reminisces on the pain of 2020, however, Malak adds an interestingly upbeat twist to the story of the forced inactivity of their pubs. “We took this time to focus on alcohol production. We doubled the production of the Three Brothers, doubled the production of our wine, and we limited our production of arak,” he says, explaining that a target line for restricted monthly output of arak was set in connection with the group’s aims to approach markets mainly with socially accessible wine and gin.

The counter experience to the closure of Lebanon’s nightlife and its severe repercussions for the so-called on-trade of Three Brothers gin within bars and pubs was a huge boost of demand in the digital off-trade. Simply said, the nightlife clientele’s thirst for this local gin found its expression in a spike of e-commerce and delivery business. “The demand for Lebanese products and especially the Three Brothers [gin] went up so much. We focused on delivery and on the people who deliver,” Malak says. According to him the spike in demand was entirely unexpected but a group-owned alcohol sales outlet, “The Bottle Shop,” with a proprietary e-commerce platform as well as distribution via third-party ecommerce platforms helped to sweeten the pain of the on-trade slump.

This explains why the course of the gin maker over the past months has included new investments in semi-automatic machinery and production venues (Malak declined to name the size of the investment) and new product development of a dry gin – that he says is soon to be brought to market – and also of another liquor product distilled from a local agricultural produce that is often going to partial waste. This is without even mentioning the ambition of the enterprise to access export markets in Dubai, Germany, and North America where certifications for Three Brothers have already been obtained. “The plan is to take it abroad while keeping base and operations in Lebanon. We want all the world to know about the brand,” Malak says. However, the changes for the outlook in both niches, like the situation of wine and spirits in overall societal context, are not lacking ambiguity.

Seeking the truth in exports

If you want to forget all about the Latin “in vino veritas” phrase (suggesting that wine consumption makes you speak the truth), it certainly appears as if it is the shared truism of the day of most if not all Lebanon’s wine and spirits producers that their future is in exports.

“Exports are the main guarantee of the future of the wine industry,” emphasizes Chaoui. In his view, one major barrier to improvement of exports for members of the industry is the reliance of most wineries on diaspora connections as an export channel. It would be better for the industry to penetrate national markets in export destinations and transcend the niche of an ethnic product found in a Lebanese restaurant. However, while exports would secure winemakers’ ability to pay for imported inputs and maintain their equipment at high output – quite the rationale for focusing on exports even if this comes at the expense of local affordability of Lebanese wines – Chaoui notes that export potential is over-hyped and restricted by the smallness of the supply that producers can bring to export markets. “In my opinion the whole sector sells in value between $50 and $60 million annually,” he says.

His bigger fear for the wine industry is the emigration of qualified employees, he adds, before mentioning fear factors that range from bureaucratic and political barriers at regulatory body Institut National de la Vigne et du Vin (INVV) to reputation risks for Lebanese wine in case any producer starts to peddle a fake or unhealthy product.

In collaborative potentials with adjacent industries, Chaoui cites the capacity of chocolate makers that he saw at the Executive agro-industry roundtable, because the combination of wine and chocolate is a culinary theme that has been explored elsewhere but not yet in Lebanon. He disapproves of persistent barriers against effective collaboration among wine makers in the UVL where “many of my colleagues have opinions that are opposed to the ideas of some other colleagues.” He also mentions “terrible individualism” that can obstruct progress through collaboration at a time when the greater good might be the industry’s better interest. “It is high time that we believe that we can do better together than each one individually,” he says.

For Malak, the question of the pricing of and demand for Lebanese products in the pressure cooker-scenario of the Lebanese crisis entails significant positive experiences of seeing solidarity-driven demand, where people voted with their purchases to help one another. When asked if the enterprise has become an economically serious business after all partners contributed to an increase in capital, he says that the idea of the company is that of a brotherhood of bartenders and that “We never want to be serious” – sounding more like a social entrepreneur of the Ben & Jerry type than a ruthless profit maximizer.  As to the pricing policy of the venture, he says enthusiastically: “We have settled on a strategy that will be good for us and for the people. All the people in what I call the tribe understand why prices have to be a little higher. At the end of the day, we are more than fair with our prices.”

The anecdotal impression of price developments in the off-trade of Lebanese wine and spirits since the beginning of the lira crisis is one of shrunken imports and growing retail prices. These accelerating retail prices might only very imperfectly reflect the fact that, as noted by Chaoui, producers since the start of the crisis had advantages in costs of grapes and labor. It has to be acknowledged that, as Chaoui further notes, these temporary advantages will erode and disappear with time, but the price trajectories of Lebanese wine look uncertain from a consumer perspective.

The wider cost-benefit computation of wine and spirits might indeed benefit from stakeholder considerations that include more than export-import equations. Street wines of local vintage that, as Malak puts it, one can enjoy without consuming a steak or shrimp dinner are not only appealing from the perspective of being generally preferable over questionable hard liquors that pretend to be whiskeys or Lebanese vintages that have crossed price thresholds of becoming prohibitive for all local earners. Also importantly for the consideration of a future national wine market, these local street or table wines are starting to meet on supermarket shelves with imported table wines in similar price categories. To be sure, some imported wines have even more mind-blowing price tags for a local earner than the priciest local name but it could be a shaky move for Lebanese producers to set price points in disregard of the fact that by far not all of their needs are focused in importation of bottles and ink to print labels. 

The trajectory of prices for wine and spirits, which appear to intersect with divergent economic and social narratives in the significant Lebanese communities of wine drinkers and nightlife aficionados, thus hints that the potential of this industry is yet undecided from a job creation, social development and communal cohesion perspective. There are signs, however, that development of this sub-sector could be beneficial beyond aspirations of job creation and economic productivity.   

0 comments
1 FacebookTwitterPinterestEmail
EditorialOpinion

Lessons from our chaos

by Yasser Akkaoui
written by Yasser Akkaoui

The Lebanese constitution is clear in laying down the principles of democratic governance and the
responsibility that those who wish to hold office have towards economic democracy, social equality,
human rights, and more. And yet, our daily reality is nothing if not a narrative of chaos.
Isn’t it ironic that we despair that our political leaders cannot agree on a government but we have no
greater wish than getting rid of our political corruption?


I don’t know if you agree with me but I hold true that we all, each in our own way, have to challenge the
chaos that is bringing us to our breaking points. For Executive, putting our shoulder to the wheel of
fighting chaos has meant holding industry roundtables and asking leaders in our economy: How can a
corporation preserve the value that it built over years of hard work, retain its talent and pursue
profitability in an environment where those in the highest political power have demonstrated their
disregard of all those principles?


Their answers and other lessons of the chaos experience of this year up to the present moment
encourage me to call your attention to three points of note and request your responses.


Lesson One: Economic democratic principles are built on contracts and agreements. The functioning of
such an economy needs all its participants’ adherence to policies and procedures. Public and private
institutions alike therefore must be accountable, honoring contracts, reporting to internal and external
auditors, and obeying legal and regulatory authorities that monitor and reinforce commitment to
governance standards and take to task all those who breach the law and violate stakeholders’ rights.
This is what builds trust, attracts capital, and nourishes innovation and trade.


Lesson Two: The ethical firm and the ethical state are more than assemblies of contracts and
agreements. They need purpose, and the ethical state must support the purpose of the ethical firm and
the ethical family, just as the ethical family and ethical firm have to meet their obligations to the state.
Lesson Three: When the state fails to honor its purpose, the people have to repurpose the state and
create an inclusive higher union of belonging, mutual obligations and benefits.


It is obvious that political systems will be degraded and fall into chaos if they produce public servants
that use the constitution as a tool to grab power and gain unfair advantages for themselves. They slide
down the slope of corruption, extracting economic value without adding any value in return. Pursuing
this model of constant depreciation, the culture of public corruption crowds out those who want to play
by the rules. Instead of being the agency of growth for private economic actors, such a broken public
system exhausts the remaining economic performers, be they employers or employees, consumers or
producers.


The Lebanese private enterprise can and must build its capacity to rise above the broken system. In an
increasingly connected and globalized world, the Lebanese private enterprise can and must evolve,
adapt, and persist in its pursuit of value creation. Its talents will always be recognized and valued for
their creativity and innovation.

0 comments
0 FacebookTwitterPinterestEmail
F&BQ&ASpecial Report

Pushing forward and outward

by Hadi Bou Chaaya
written by Hadi Bou Chaaya

At a time when Lebanon is witnessing the most severe political, economic and even security crises, the ambitions of entrepreneurs in Lebanon refuse to surrender to this reality.

In this context, Anthony Maalouf, chairman and chief executive officer of ANT VENTURES International and vice president of the Lebanese Franchise Association (LFA), points to a number of factors that have prevented the progress of this sector, but lists initiatives taken to protect it and preserve human capital. In his opinion, the Summer season will be a promising one, unprecedented and prosperous for several reasons and factors.

There is no doubt that the hospitality and food sectors depend on basic factors, most notably tourism, which is its mainstay, which has declined due to several factors, which we will mention in the course of the interview. First of all, what is your assessment of the reality of the sector today?

Very difficult. I used to say, from experience, that this kind of industry, especially our type of industry (casual dining), is the most resilient in facing challenges and the fastest to recuperate. It is human behavior to go out and have coffee or drinks. So the problem now is how long the crisis will last. Entrepreneurs need to be patient and take a long breather, especially as there is a growing array of difficult and complex crises. Certainly, this crisis that we are living in today is the most difficult of all for many reasons.

If the situation remains unchanged and threatened with more difficulties, this will put additional pressure on you as entrepreneurs and as owners of the company?

In fact, the crisis can be divided into two main parts: the COVID-19 pandemic, which has exhausted the whole world and Lebanon of course, and the economic crisis that has afflicted Lebanon and is still draining it. With the COVID-19 pandemic beginning to recede, movement is gradually returning, especially since we have ventures abroad, specifically regionally. But at the local level, the crisis still exists, especially with the decline in purchasing power.

What are the most prominent political and economic factors that have prevented the sector from developing to a large extent?

There are many political and economic factors that hinder the progress of all economic sectors, especially our sector, which depends heavily on tourism and its multiple seasons. There is no doubt that the absence of political and security stability plays a fundamental role in the lack of progress in the economic sectors, in addition to the complete absence of the State and the absence of a medium- and long-term action plan and vision for the advancement of Lebanon and putting it on the right track to achieve prosperity, growth and success. Everyone knows that 70 percent or more of restaurants, cafes and tourism establishments have closed as a result of the crisis that began before the demonstrations of October 17, 2019, and worsened after that due to several factors. But in particular, and being affiliated with the Lebanese Franchise Association (LFA), we work on the principle of pushing the internal crisis abroad. This is what happened during the July 2006 war, when Lebanese businessmen went to open businesses abroad to protect their interests inside Lebanon. Today we are out again, otherwise we would not have been able to survive. For a large number of actors in various economic sectors, the emphasis is on individual initiative and starting again after every strong shock and constantly searching for solutions to problems and crises.

Several companies have witnessed the dismissal of a large number of their employees, and this certainly applies to your sector. How was this reflected on your performance in terms of service and the quality of the products you offer?

In fact, we had two options: to initiate layoffs between 30 and 40 percent and continue with the rest of the staff, or to reduce salaries and keep up to 75 percent of staff in some cases. Especially during the beginning of the crisis and in cases of complete lockdowns, we were not able to pay salaries. The good thing is that with the return of the dynamics of the franchising process, we decided to pump part of the financial returns from it to our branches in Lebanon, and we called it the “Currency Depreciation Correction Program” (CDC), as we were keen to raise wages and salaries between 35 and 40 percent to enable employees to pass this stage with minimal possible losses.

As for the quality of the products that we offer, the matter may not apply to us directly, but the hospitality, food and drink sectors suffer from it, as there is no longer a qualified workforce to manage the sector as a result of the terrible devaluation of the currency, which prompted some professionals to migrate in search of job opportunities that match their aspirations and the way of life that they were used to in the past. In fact, a large number of competent people migrated, especially to the Gulf countries, even if the offers they received were 50 percent less than what they were in the past.

Being an entrepreneur, what initiatives will you take, in terms of re-employment and job creation, to avoid a societal explosion? Starting with promoting abroad in search of promising markets that protect the survival of companies, and how will this be reflected in creating job opportunities for the Lebanese citizen?

We must definitely take steps in the interest of the workers. The simple solution is for most companies to increase sales as much as possible and cut costs to keep the business running. Personally, we pursued a policy of diversification, as we have entered into the coffee business and now we have the Caspresso brand that we sell to supermarkets. Therefore, we must diversify our business and distribute our workforce in popular branches in order to achieve a material return to remain resilient, as there are no other solutions for us. On the other hand, in regards to re-employment, we are constantly looking for qualified employees who have sufficient knowledge and experience to move forward in managing this sector and improving its services, knowing that we are looking for a long-term relationship, creating careers and offering salary packages that are in line with market requirements and maybe more. Our company has taken the initiative to improve the value of low wages due to the economic crisis, through the CDC program that allowed us to raise wages by 30 to 40 percent as an incentive for employee self-sufficiency and empowerment. We must continue to work to preserve our human resources.

In addition to the above, we redoubled efforts to open new branches in Baghdad, Iraq and Libya. This aligns with one of our primary areas of focus by giving employees career development opportunities that allow for the continuous advancement of our employees and senior positions. This gives us the opportunity to send our employees to work for our franchisees. We are also conducting training abroad, especially in countries that now have large branches such as Egypt and others, or at branches under opening, which allows us to send a team from Lebanon to provide staff with sufficient expertise, similar to what happened after the opening of our branch in Syria last December.

In short, we are working on correcting salaries and sending employees from Lebanon to our branches abroad to earn fresh dollars.

In light of the fluctuations in all world economies as a result of the COVID-19 pandemic. Is it possible to talk about future plans in the medium and long terms?

There is no doubt that the COVID-19 pandemic had severe economic and financial repercussions, and this was reflected in the countries in which we are active throughout some 40 branches, but with the beginning of the recovery we have witnessed a significant improvement gradually removing the lockdown, because people naturally like to go out to restaurants and cafes. It is true that all world economies have been affected by the crisis, but this has not significantly affected our business sectors.

What does Lebanon need today to revive the sector in terms of the necessary infrastructure?

The State has many duties that it must perform in terms of infrastructure, from electricity to the Internet, roads, bridges, tunnels and many other things. But I think that relying on the State to manage its simplest duties is a waste of time, especially since State institutions are completely absent. We are used to taking individual initiatives. I think that the summer season will witness unprecedented tourism activity for several reasons, most notably the depreciation of the Lebanese currency’s value, which will increase the appetite of tourists from different nationalities to come to Lebanon, as well as Lebanese expatriates. In the hope that a regional political settlement will be reached in the region to remove this uncertainty that burdens all sectors.

To what extent is the launch of new concepts in the world of hospitality and F&B in line with the markets you target? Is it permissible to talk about launching concepts specific to each market separately?

Certainly, and I will give you two examples of that, one local and the other regional.

At the local level, the Batroun region is witnessing a large and unprecedented turnout, similar to what the Faqra region witnessed about two years ago. Therefore, the products that we offer for a specific region differ from others in proportion to the demand.

At the regional level, we allocate special concepts for each country separately according to need and demand. There is always a launch of new concepts due to the continuous development that the world is witnessing; with the difference between generations, the requirements differ, so any new development that you present to people at the global level is considered promising if the requirements are met. 

0 comments
0 FacebookTwitterPinterestEmail
F&BSpecial Report

Planning the post-COVID19 feast

by Wissam Assouad
written by Wissam Assouad

The fortunes of the Lebanese hotel industry and of enterprises in the hospitality sector have been entwined not only with the economic problems that erupted in late 2019 and coincided with the people’s outcry for systemic change when the Lebanese community took to the streets protesting yet another increase of taxes and demanding a change to their fragile status quo way of living. Losses of purchase power of the disenfranchised population and the demand for ousting corrupt decision makers in political class came together with the pandemic of COVID-19 and the physical destruction wreaked by the August 4, 2020, explosion at Beirut Port in a ruinous deluge that shook the hospitality sector of Lebanon from the bottom to the top.

The food & beverage and hospitality industry

The food & beverage business has always relied on tourism with its backbone being the internal Lebanese community purchasing power. Figures from the Ministry of Tourism show that 1,592,301 visitors entered Lebanon so far in 2017 (until October 2017) which energized the industry following a stagnant period.

Since 2017, the F&B industry has been on a slow decline, reaching its tipping point and rapid fall with the revolution in 2019, and then a bigger decline due to the COVID-19 pandemic in 2020. According to Yasser Akkaoui, Executive Magazine’s editor in chief, the F&B and hospitality industry “is reliant on physical contact, is reliant on physical movement, which puts you (the industry) at a specific risk that is beyond other industries. And of course the attractiveness of Lebanon to tourism has been diminishing in the last few years, not only because of COVID-19, pre-COVID, it has been impacted due to certain political and geopolitical lines that Lebanon has adopted, and of course because of the purchasing power and the economic situation which diminished the propensity of consumers to spend on restaurants.”

Maya Bekhazi Noun from the syndicate restaurant owners in Lebanon says that “It’s very important to note that the F&B business in Lebanon was at one point mainly sustaining on tourism, on tourists or, on Lebanese expats who would come to Lebanon to spend in Lebanon money; and people in Lebanon also, a lot of people used to. The spending power came also from families who used to send to their families money from the outside in order to spend.”

The main challenge the sector is facing, she explains, is one being faced across the Lebanese economy: the dollar liquidity crisis and increased price of the dollar in the unofficial foreign exchange market, which is impacting both the ability of businesses to secure necessary funds to pay importers and their bottom lines. “Today, as restaurant owners, we spend most of our day identifying which suppliers take Lebanese lira versus dollar or checks versus cash,” Bekhazi says. “Most of them are now asking for cash in dollars while very few of our customers are paying their restaurant bills in dollars anymore—and when they do it is by credit card, not cash. So, we are having to buy dollars at the market exchange rate, which can reach 2,400 Lebanese pounds to the dollar on some days, while as restaurants we follow the official rates of 1,515 Lebanese pounds on our POS.” She explains that restaurants cannot increase their prices by much for fear that consumers will no longer dine out, and so this is a losing situation for the sector (see Executive’s previous story Lebanon’s economic crisis weighs heavy on F&B outlets and hotels).

It takes a drastic approach and steps to revive an industry relying on physical and social contact. The political instability severely keeps impacting the internal Lebanese market and the purchasing capacity of the Lebanese community. Also, the tourism sector is struggling mostly in terms of safety in Lebanon due to political unrest; while travel restrictions due to the pandemic came in as the cherry on top of the downfall. 

Diving a bit deeper on the political side, the fluctuation of the Lebanese Lira is also seriously crippling the F&B industry and not helping the stability of the products and services offered to the public. While the official rate in the banks is still fixed, the market and organizations face a different reality buying much needed material and products with rates up to 15,000 Lebanese pounds per dollar. This instability continuously affects product and service prices which is showing a gradual increase in monetary value, and unfortunately a decline in the overall quality. Several brands and products have become scarce such as baby milk formula, medicines …etc.

“According to data tallied by the Chamber of Commerce, Industry and Agriculture of Beirut and Mount Lebanon (CCIA-BML), 280 food and beverages producers are presently registered as members of the CCIA-BML and employ a total of 17,149 employees according to an estimate based on the classification of companies in each category. Total registered capital, at incorporation, of these firms stands at around $290 million. The majority of producers, nearly 79 percent, are small and medium enterprises.”

Joumana Dammous, chief executive officer of Hospitality Services, voices her concern and optimism emphasizing that “it’s quite breathtaking, I mean it’s really, how can I say, it’s really very heartbreaking to see how difficult and how many challenges we all have to face, but as just said, we are, I think there’s something about us as people that makes the whole situation different, we react, we are proactive people, and if you will go through all of us, through each and every one of us, you’ll see we’re all creating new solutions, inaudible] events honestly, events have been totally devastated, have been totally disappeared from the equation at this time, we’ve been suffering as event organizers for the last year and we had to reinvent ourselves totally.”

What now?

To move forward, industry stakeholders have to collaborate on finding new and better ways to get the industry out of the slump. As Georges Ojeil, general manager of Four Seasons hotel in Beirut, puts it: “We are so proud of Lebanon, we are so proud of the people of Lebanon, and we will never be cheap. We are full of heritage, we are, you know, full of history, and then full of knowledge, and then even promoting Beirut as an accessible destination, this would bounce back eventually with time because we’re going through economic collapse that would eventually balance in some time when the demand would be here.”

The optimism is here, the Lebanese resilience is rooted in its culture and history. Our cuisine made it around the world with an astounding reputation mainly thanks to our large diaspora and to the attractive Lebanese tourism, culture and history.

Akkaoui’s approach to moving forward was in line with many of the participants at the roundtable. Looking forward to reviving and helping both the industry and the job market need a new and upgraded approach. “We need to look at how this disruption has impacted us. Lebanon has always been the country where we validate ourselves. Where young people or maybe less young people would also as entrepreneurs always venture into new concepts, and there was quite a turnover on these concepts, a lot of them succeeded, a lot of them grew in Lebanon and outside of Lebanon and we can name many.

And this is the biggest disruption, first Lebanon being this entrepreneurial hub where young people or concept developers would have the courage to go and launch their concepts out of Lebanon, refine them through user experience or consumer experience, and once they reach a certain maturity within the local market, it was time, and a guarantee for success outside of Lebanon, because the Lebanese consumer is sophisticated enough for them to take, to crash-test if you will, these concepts, that’s why somehow, if you succeed in Lebanon you can succeed anywhere else in the region, and so this is the first disruption.

So how do we make sure that these young entrepreneurs have, can still be incentivized to launch these concepts out of Lebanon? Does the consumer have the purchasing power to take these concepts for a test drive, if you want? So this is the second question we want to ask. Innovation, because also the Lebanese restaurateur has also been innovative, not only in the recipes, but also in the systems that they are using, and they are even innovative in the legal frameworks they use to export these concepts, so franchising.

Collaborating forward

First, we need to get the ball rolling, to find and act on initiatives that revive the Lebanese Industries. Following that step, there are many maneuvers and funding opportunities from the Lebanese diaspora and from NGOs such as the United States Agency for International Development (USAID).

“USAID has the partnership opportunity open for the actors of this sector and the associations including the restaurants association so we can invite you to propose your ideas for partnerships where we can put our resources together and bring some donor funding to support initiatives on the short term on the medium term and maybe later also on the longer term … we’ve mapped the stakeholders, we’ve mapped the chains, we’ve mapped the systems and we’ve put all the numbers that we had knowing that a lot of the statistics can be missing particularly the last 2 years but with the help of all the stakeholders I think we can help rebuild this together, put the baseline but especially put the plans for the future to regain the maximum share and the maximum growth that will support the economy of the country,” says Georges Frenn from USAID.

Involving the private sector to take part in the reforms of the F&B and hospitality sector is a must nowadays as Bekhazi mentions: “We can’t even prepare our own profit and loss statement with this current situation. However, all this is still a survival mode; what would make it a long-term recommendation would be definitely to have the private sector take some, a share in reforms, without reforms the whole sector would not be able to survive on the long term.”

“There’s always hope. There’s always hope, and as Lebanese we hope, hope is something that pulls us and drags us. So yes, there is hope but as everybody said, as we are all in this together we need to pass this moment, this very tough moment we are all facing in order to rebuild ourselves, and while we are doing that use this time to train our teams, to organize ourselves, to take this moment at the moment to be ready when things are better,” says Joumana Dammous emphasizing on the need to keep moving even in tough times like these. While the funding is scarce, we can focus our efforts on planning and strategizing, and when the opportunity knocks on our Lebanese doors, we will be ready to get into action.

Akkaoui’ vision falls in line with most of the participants in spreading hope and the call for action. His perspective is that “COVID-19 will release its grip on us most probably within the coming few months or early 2022 and this will be the right time to go out there maybe and seek investors or present to investors in order to invest in these concepts’ expansion outside of Lebanon. So I see these synergies and I see this is the perfect time to launch initiatives that allow entrepreneurs that have really invested a lot in the last few years in making sure and validate during which they validated their concepts, this is the right time to accompany them to help them creating a platform that we can share experiences that will allow them to capture a lot of these concepts.”

0 comments
10 FacebookTwitterPinterestEmail