Executive Magazine

Big is getting bigger

by Rayya Salem February 3, 2012

written by Rayya Salem

Increased competition in the retail sector has ushered in a new era, whereby malls have become the major players, as exhibited by the increased demand for space and rising rental prices. But there is little doubt that upcoming malls will irrevocably change the rules of the game in terms of operations, services, rents and fees. The price of doing business is definitely on the up.

“The cost of construction [has] reached peak levels, leading shop rents to the highest point ever and newcomers [malls] are modifying their prices,” said Michel Abchee, chief executive officer and chairman of ADMIC, the builder of City Mall in Dora and parent company of retailers BHV and Monoprix.

Already, Beirut is home to the third most expensive retail rents among 13 cities in the Middle East, according to a September 2011 survey by property consultants Cushman & Wakefield. Beirut’s retail stood out as the only city in the region where retail rents in general increased, while the report zoned in on ABC Ashrafieh’s retail rents, which increased by 33.3 percent over the year ending June 2011. But it was a report released in the second quarter of 2011 by Ramco Real Estate Advisors (RREA) that exposed the trend of steady rises in mall rents, while pointing out that surrounding retail areas outside of the mall had stabilized.

Considering the added pressure of new supply and the impact of a seemingly impending wage hike, local retailers will have to play it smart if they are to compete with large retail groups and international stores.

In with the new

Despite several established retail areas, some believe that supply is still limited. According to RREA, 95 percent of retail space in Hamra, Verdun, Ashrafieh and Gemmayze was occupied, as of July 2011. New mall operators will likely look to fill much-needed supply in areas outside the capital. Hazmieh will be home to Lebanon’s largest mall as Dubai-based mall developer, Majid Al Futtaim Properties, will deliver 60,000 square meters (sqm) of Gross Leasable Area (GLA) when the Beirut City Center opens this year, which will include more than 200 shops.

Acres Development, a subsidiary of the retail group Azadea, will deliver its third installation of the Le Mall brand with a new mall in Dbayeh, which they intend to open in August. Although the Dbayeh building offers 25,000 sqm of GLA, more than double that of the existing Sin El Fil location, it is already sold out of retail space “even for a stand,” according to a representative at Acres. The mall is aiming for high foot traffic by the inclusion of attractions such as an eight-screen movie complex, along with two floors of food and beverage outlets. It has also been successful in luring new entrants to the Lebanese market. Several European and American brands have taken up the largest swaths of retail space; international apparel giants Decathalon and The Gap have both booked sizable space at 3,000 sqm and 900 sqm respectively.

Go big or go home

Although tourism fell 23.6 percent last year compared to record numbers in 2010, according to the tourism ministry, tax-free purchases by tourists actually grew by 10 percent for the year, according to Global Blue, the reimbursement firm, although that was lower than the 21 percent growth recorded in 2010. However, if tourism numbers continue to fall and the retail market is flooded with more malls, it will likely force retailers to improve their services, and offer better prices. More than ever, increasing competition will push out low performers to make room for newer or international brands. “At renewal time, some [tenants] are asked to leave because there’s a waiting list… and malls want to improve their tenant mix,” said Abchee.

According to the owners and managers of the Verdun 730 and 732 retail buildings, Aliamad Group, ground floor retail space always has a waiting list of around 10 companies with rents starting at around $700 per square meter. While each mall caters to a different category of shopper in various geographical areas, whether retail rents will stabilize across the board as new supply enters the market is something that only time can tell. But according to Abchee one thing is certain: “Those who are not client-oriented will fade out and lose their market share.”

February 3, 2012 0 comments

Society

Foam and fortune

by Ellen Hardy February 3, 2012

written by Ellen Hardy

If you fancy an evening of Lebanese food, implores Karim Haïdar, do not book a table at his newly opened restaurant, Zabad.

“Please,” he says, “go to Karam [Al Bahr, a close neighbor at the Zaitunay Bay restaurant complex], because if you come here you’ll be disappointed.” Given Zabad’s tagline “Lebanese Cuisine by Karim Haïdar”, this might seem counterintuitive. But it is a serious attempt to prepare his audience for what many will see as an unorthodox dining experience.

A traditional Lebanese table invariably calls for blizzards of mezze, steaming mountains of main dishes, pagodas of fresh fruit and platters of sweetmeats — even if half of it gets thrown away. But at Zabad, you will consume a finely-orchestrated procession of seven small savoury dishes and two sweet, from a set tasting menu that changes every few days and name-checks a raft of well-known Lebanese ingredients — tahini, moghrabiyyé, kafta — while presenting them in unheard of forms and flavors.

Food as art

A dollop of chickpea “espuma”, a scoop of moghrabiyyé with cheese foam, a single square-cut chip with a slick of basil coulis — this is Haïdar’s interpretation of Lebanese cuisine in the modernist tradition. Sometimes known (and maligned) as “molecular gastronomy”, this precise, experimental and technical style of cookery has been obsessing the greatest chefs around the world for the past decade, and has influenced a whole generation of restaurateurs.

Names like Ferran Adrià, Thomas Keller, Heston Blumenthal and Grant Achatz have dominated the scene, with Adrià’s three Michelin starred restaurant elBulli, situated on the northern coast of Spain, and its mythical 35-course dinners making it to the number one spot of Restaurant Magazine’s annual “Best Restaurant” rankings a record five times. But despite the two million requests it received for tables every year, elBulli closed in summer 2011 due to massive financial loss, and is due to reopen in 2014 as a culinary research and education center.

Modernist kitchens have often been compared to laboratories — they rely on sophisticated cooking methods, intricate equipment and a lot of highly-trained manpower to achieve dishes that bear little relation to anyone’s idea of a square meal. Adrià and his ilk’s repertoire of foamed, frozen, deconstructed and reconstituted ingredients have become bywords for a scientific complexity that has nevertheless become popularized to the extent that Adrià created Texturas, his line of products for home kitchens.

Alginate for spherification (“the controlled gelification of a liquid which, submerged in a bath, forms spheres”), lyophilized (freeze dried) fruits and anti-humidity tablets are all on the menu — at a cost. A “mini-spherification kit” will set you back around £85 ($130) from Harvey Nichols in London, and if you want to purchase a cookbook, ‘Modernist Cuisine’, created by former Microsoft chief technology officer Nathan Myhrvold with a team of 20 staff over five years, it comes in at six volumes, 2,400 pages, 1,500 recipes and a $625 list price. This is fine dining taking itself extremely seriously.

Shy tongues for modernism

Beirut is still in the early stages of acquaintance with modernist wizardry, but there are a number of the famous sous-vide machines (long, slow cooking in a plastic vacuum) in operation in kitchens around the capital, and some restaurateurs are taking the idea further. Badeeh Abla is the founder of beirutrestaurants.com, creative director of Nobrand agency and a self-confessed “gourmet and gourmand” who has created a private kitchen in his Gemmayzeh mansion dedicated to hosting top international chefs and “putting Beirut on the culinary map.”

In September last year, he hosted a team of chefs from elBulli for three nights, investing $85,000 in equipping his kitchen with everything from obscure herbs to a $4,000 Pacojet machine, which purees frozen ingredients. The event, at $350 a head, was booked out, but Abla barely broke even. He says wryly “I really understand why elBulli [did] not make money… It’s a lab, it’s a show.”

One of Nobrand’s former clients, chef Dory Masri, has ample reason to agree with Abla’s assessment. After rising through the ranks in London to work with celebrity chefs like Gordon Ramsay and Angela Hartnett, he returned to Lebanon in 2011 to invest $400,000 with two friends in opening La Manche on Pasteur Street, offering exclusively modernist dishes.

With a menu listing sea bass with pink grapefruit foam, carbonated mashed potato, deconstructed peanut butter sandwiches and liquid nitrogen frozen kiwi lollipops, Masri’s influences and ambitions were clear. The project lasted eight months.

“The only interest I had was from chefs, to be honest, and restaurant owners,” says Masri, who regrets his assessment of the market and location (being located in Downtown, he suspects, would have helped). Importing pigeon breasts and bringing in alginate and other substances by DHL courier pushed the price of a single dish up to as much as $65, earning La Manche a reputation as unfeasibly expensive. He was also frustrated by the reception of his ideas by his audience, characterized by suspicion of the unknown.

“Lebanon is a very hard market to deal with. You go for a soft poached egg and people tell you: ‘It’s nayyeh [uncooked], you can’t serve that…’” says Masri.

His passion for the modernist approach suffered an early casualty in regards to marketing with the PR company Grey, who “didn’t have a clue about it. Their presentation was like another McDonald’s.”

As an unknown chef in Beirut and with no knowledge of the market, he now says ruefully that his advice to other chefs contemplating a similar move would be to “be very careful. Market it big time.” Given the chance again, he would “start with what the market needs, establish my name and then do it [with] a menu of 60-70 percent molecular and 30 percent other stuff.”

Is there a genuine market for modernist cuisine in Beirut? “Yeah, like 12 people,” says Abla. At his elBulli event, “I’m sure 40 percent of those people didn’t know what they were eating.” And he is cautious about the potential for growth, pointing to the high cost and small portions associated with this approach. “[Beirut] will never be ready for such a cuisine,” he says. “It [modernist cooking] came late to Beirut.”

If a chef is really passionate about his art, perhaps he should look to Burgundy restaurant, whose more traditional à la carte menu and focus on a quality wine list give their Canadian chef freedom to experiment with acidulated cucumbers and foie gras with curry. Restaurants that do not succeed will lose in the region of $50,000 a month in running costs, Abla estimates. Even popular restaurants rely on franchising to grow their business. For modernist restaurants in Beirut, he says “it is a risk and I don’t know how they can pull it [off].”

Culinary for love

Haïdar will be hoping he can prove the naysayers wrong. A Lebanese restaurateur based in Paris since 1985, with successful operations Point Bulles, L’Enclume des Bulles and La Branche d’Olivier to his name, he opened Zabad at Zaitunay Bay in late December, his first venture in his home town. “I don’t want to change Lebanese cuisine,” he insists, citing the variety found within French cookery. “I want to add to it… it’s for people who are interested in this new dining experience.” Moghrabiyyé, for example, “in Lebanon is made only one way… with cinnamon and caraway, with chickpeas and with red onions. We are serving it with saffron as a spice, totally changed, and a foam of cheese.” Instead of Arak in a glass, you’ll find it in a palate-cleansing granita between the savoury and sweet courses.

Haïdar has invested, he estimates, 50 percent more in his kitchen than he would otherwise have done to acquire the requisite Pacojet, siphons for injecting liquid fillings, a sous-vide machine and a thermoplongeur for achieving exact temperatures. But although he’s “very scared” about the prospect of failure, he says he makes significant savings on wastage and labor. And he is prepared to listen to his customers. He has already had “good” and “horrible” feedback, but “of course I’m not coming to make the restaurant that they love to eat in, because Lebanon is full of that,” says Haïdar. “I’m not coming just to make money and fill my restaurant and make whatever people want. So I’m making what I want them to eat, but I want to listen to them, to understand what they really feel about it.”

February 3, 2012 0 comments

Comment

A man of change?

by Peter Speetjens February 3, 2012

written by Peter Speetjens

King Abdullah of Jordan continues to rule in all shapes and sizes. The country is filled with images of Abdullah as a pilot, student, family man and Bedouin. In Amman, there is even one poster of him cheering in a football jersey next to the smiling face of Ronaldo. The message is clear. King Abdullah is like a father to all his subjects. He also remains a trusted friend of the West that continues to portray him as a man of change. Surprisingly, Abdullah’s talk of reform since his ascendency to the throne in 1999 has actually manifested very little.

Politically, the constitutional reforms suggested last summer were disappointingly meager, as they hardly limit the king’s powers and still await parliamentary approval this spring. The same is true for the new election law — no one expects a fundamental change. Abdullah’s support base in the sparsely populated tribal and rural areas is likely to continue to dominate over the densely populated and predominantly Palestinian urban areas. Economically, Jordan under Abdullah’s reign has increasingly adopted a free market ideology. Yet, while the country has shown a healthy gross domestic product growth rate in recent years, most observers agree that the increase in wealth has not been evenly distributed, while corruption has been gradually on the rise. On the 2011 Corruption Perceptions Index issued by Transparency International, Jordan ranked 56th out of a total 183 countries. In 2004, the kingdom ranked 37th.

As Jordan’s reputation was fading, something needed to be done. Consequently, the Anti-Corruption Law (ACL) was passed in 2006, which shortly after gave birth to the Anti-Corruption Commission (ACC). Admittedly, the ACC has since uncovered a series of major scandals: in 2010 four suspects were sentenced to three years behind bars for paying $18 million in bribes with the aim to obtain a multi-billion dollar contract to expand the country’s one and only oil refinery. They included an ex-minister, a former adviser to the prime minister and a billionaire with, reportedly, good contacts at the royal court.

The ACC is currently investigating the wrongdoings in a major affordable homes building scheme that allegedly involves a former Minister of Housing. Mawared, a property development firm with close ties to the military, is also under investigation.

Still, it remains to be seen if Jordan is serious about fighting corruption, especially since King Abdullah last year replaced Prime Minister Sami Rifai with Maroun Bakhit. It was a decision that raised quite some eyebrows, as Bakhit in a previous stint at the helm supervised the most tainted elections in Jordan’s history in addition to the “Casinogate” scandal.

In 2007, former Tourism Minister Osama Dabbas signed a contract with an Iraqi investor to build a casino on the Dead Sea coast. Within a week however, the Bakhit government changed its mind, even though the investor in that case was contractually entitled to damages worth some $2 billion. The case was eventually settled out of court.

As soon as his second coming was a reality, Bakhit referred Casinogate to the ACC. He had little choice, as he had vowed “to open all corruption files with transparency and with no exceptions” and “there will be no immunity for an official, no closed files and no protection for the corrupt.” In reality, the former general set out to do the exact opposite. Based on recommendations by the ACC, Jordan's parliament managed to obtain the required two-third majority to prosecute Dabbas, but not Bakhit. The latter went on to amend the ACL by adding Article 23, which penalizes an accusation of corruption “on false grounds” with a fine of up to $86,000, which seems to have but one goal: to stop the media from meddling in potentially embarrassing affairs and keep the decision to investigate corruption cases firmly in the hands of the establishment. Shortly after, Bakhit was replaced by Awn Shawkat al-Khasawneh, King Abdullah’s 9th premier in 12 years. Looking back at those 12 years, one cannot but conclude that very little of the promised reform has actually materialized.

There is one exception: the streets of Amman are increasingly adorned with the images of Abdullah’s son Hussein — there is little Hussein serious in a suit, little Hussein smiling in a shirt and little Hussein complete with Bedouin scarf watering an olive tree. Thanks to this most salient successful policy change of his father, one can only imagine the day young Hussein himself ascends to the throne, heralded by the horns of reform and bearing the mantle of a better tomorrow that looks surprisingly similar to yesterday.

February 3, 2012 0 comments

Comment

After the brinkmanship

by Gareth Smith February 3, 2012

written by Gareth Smith

The failure of Iran and the United States to negotiate risks all out conflict. Western advocates of sanctions against Tehran argue they will pressure the Iranian people to lean on their government to abandon its nuclear program. “Intelligence sources” are claiming that covert operations can do the same.

Many Iranians question this belief. Farideh Farhi of the University of Hawaii noted that the latest murder of an Iranian nuclear scientist, Mostafa Ahmadi-Roshan, was followed by the plastering of his picture throughout the Iranian media “with his adorable young son, both sweetly gazing at the camera.” She continued: “The picture went viral and, with it, a rather explicit message: America, Britain, and Israel… have killed a father and orphaned a son. It must have been pure fortuity for Tehran that, on the same day, a video of American marines urinating on dead Afghan bodies also took the internet by storm.” The notion that sanctions and covert operations will turn Iran’s leaders rests on some analysis of their psychology and political thinking. But is it right?

Iranian politics is factional. When I lived in Tehran from 2003 to 2007, there was a leadership group of around six to eight people, reflecting the balance of factions within the political class that weighed up important decisions. Within the group, Ayatollah Ali Khamenei was pre-eminent as the rahbar (‘leader’) but he was no simple autocrat.

When he succeeded Ayatollah Ruhollah Khomeini in 1989, he lacked his predecessor’s religious pre-eminence and stature as leader of the 1979 revolution. Partly as a consequence, Khamenei rarely led from the front, preferring to wait for consensus or balance to emerge within the leadership.

True, Khamenei often sided with Iran’s conservatives. In the 1997 presidential poll, he barely hid his support for Ali Akbar Nateq-Nouri and when reformist Mohammad Khatami won, Khamenei allowed conservatives to undermine him, especially through the judiciary. But in 2005, he instructed the Guardian Council, a constitutional watchdog, to reinstate two reformists in the presidential election. And in March 2006, he publicly backed talks with the US regarding Iraq, despite strong objections from fundamentalists aired in the media, including by Hussein Shariatmadari, editor of Kayhan newspaper, who wrote two stinging editorials describing talks with the US as a “trap”. Mahmoud Ahmadinejad’s election in 2005 capped a rightward shift in Iranian politics and the new president, endorsed by a landslide, elevated the nuclear program from a state policy to a popular campaign. Slowly, the balance in the leadership had moved in favor of a more assertive — or, as Washington would see it, defiant — foreign policy, and Ayatollah Khamenei moved with it.

When the reformists took to the streets after Ahmadinejad’s disputed re-election in 2009, it was clear that Washington’s political class was wary of the “engagement” promised by Barack Obama when elected the year before.

And like Khamenei, Obama has shown little inclination to lead from the front. Whilst it is true that by recently postponing joint military maneuvers scheduled for April he signaled to Israel not to take for granted US support for a military attack, he has seized on tighter sanctions as a ‘cost free’ alternative to force, as a way to buy time and assuage domestic and international critics. Khamenei knows sanctions are cutting deeper as they have focused on Iran’s central bank and oil imports. Tehran enjoys some leeway due to high oil prices, but this could diminish as China, South Korea and India scale back purchases, or perhaps, in the case of Beijing, use the situation to drive down prices.

Diplomacy barely exists. The P5+1, the permanent members of the United Nations Security Council plus Germany, is an unwieldy negotiator led by Catherine Ashton, whose main diplomatic experience appears to have been negotiating the Lisbon treaty through the British upper chamber, the House of Lords. On the Iranian side, Saaed Jalili, secretary of the Supreme National Security Council, lacks the worldliness of predecessors like Hassan Rouhani or Ali Larijani.

If Obama and Khamenei really wanted to talk, they could dispatch serious and trusted people to meet, ideally in secret, in Norway or a South Sea island. But that is where domestic calculations come into play. For all their bluster, neither Obama nor Khamenei are ready for the risks. The outcome is a dangerous drift. And looming US presidential elections this year and parliamentary elections in Iran next year will give plenty of room for advocates of confrontation to make the running.

February 3, 2012 0 comments

Society

Discovering Armenia’s palate

by Executive Editors January 28, 2012

written by Executive Editors

For some it is the smoky strips of blood-red basterma hanging in glass windows in Bourj Hammoud and filling the air with leathery, spicy scents, while others have a weakness for muhammara, rich with walnuts and pepper paste. More still grow misty-eyed at the thought of kafta, drenched in wild cherry sauce and strewn with cashew nuts and fried bread.

Most Beirutis with more than a passing interest in what goes on their plate will be able to name a favorite Armenian dish. But although people of Armenian origin have been in Lebanon for centuries, it’s only in the last few years that they have been drawing attention to themselves as restaurateurs.

The bulk of the Armenian diaspora in Lebanon are descendants of families from Cilicia, a region south of the Anatolian plateau, today in eastern Turkey and northern Syria. During the First World War, the Ottoman Turks pursued a campaign of ethnic cleansing that left some 1.5 million Armenians dead and drove tens of thousands into exile in the Levant; the survivors today in Lebanon are a 150,000-strong community known as much for their commercial industry as for their traumatic history. But if there is one way to pique interest in a people, it’s through food.

Aline Kamakian — co-author of the recent cookbook “Armenian Cuisine” and member of the family behind Mayrig restaurant — says that in her youth, going out to eat Armenian dishes would not have occurred to her. “It was everyday food. Traditionally, it’s always been Armenian mothers who cook.” But as second-generation families loosen up and intermarry, women have more time and independence.

Restaurants with an Armenian twist are therefore thriving on the skills of mothers who have time to spare — the kitchens at Mayrig and Seza are staffed by local women, not chefs — and who fill a need for labor-intensive traditional dishes. Madame Seza, who opened her restaurant a year ago, still idolizes the cuisine of her mother, who “did everything at home, and so well, to perfection.” Now, it is her children who have been re-enthused about the cooking of their forebears through the restaurant. “Before they asked for burgers, now they ask for manteh,” she says.

This flourishing of the cuisine in the public domain is also helping connect Armenians with their homeland and educate outsiders about Armenians and their history. As “Armenian Cuisine” demonstrates, with the recipes come memories, and many dishes — hummus with basterma here, pastries from Latakia there — are expressions of long geographical dislocation.

Rich variety and demand support flourishing restaurants across Beirut. There’s a familial welcome and bistro atmosphere at Onno in Bourj Hammoud, boutique design and ladies in lace headscarves at Seza in Mar Mikhael and seu beureg with a side of jazz at Razz’zz in Hamra. Now two of the more long-standing (and pricey) outfits — Mayrig and Al Mayass — are expanding, taking Cilicia’s heritage global. Kamakian is plotting a central kitchen in Europe that will be able to supply branches in Paris and beyond with food as skillfully produced as it is at Mayrig in Beirut, where “everything is handmade, mum’s doing it.” Al Mayass has had a branch in Kuwait since 2008, and is introducing four more outlets in the UAE and New York next year.

And so the cuisine of Cilicia, which tells the story of a country lost and countries gained through smoky meats and spices, is taking on new commercial and cultural significance. “When you’re eating the food and someone is telling you this is Armenian but the name is in Turkish,” says Kamakian, “the first question is, ‘Why? What happened?’ You’re opening a door for a million people to smell, taste, listen to what is Armenia. You’re moving all the senses through a simple dish.”

January 28, 2012 0 comments

Economics & Policy

For your information

by Executive Editors January 28, 2012

written by Executive Editors

Paying the bill

Lebanon’s banks made an uncharacteristically political move last month when they decided to fund Lebanon’s contribution to the controversial Special Tribunal for Lebanon. The move follows a decision by Prime Minister Najib Mikati to fund the tribunal in late November through the Higher Relief Council. The decision to pay Lebanon’s share of approximately $32 million was announced by the Association of Banks in Lebanon (ABL) and will see the country’s top 12 banks, which sit on its board, put up the money. Each bank will pay a share proportionate to their assets, according to the ABL. The ABL justified the move by saying that it would protect depositors’ funds, maintain political stability and help the investment climate in the country. The banks on the ABL’s board are Byblos Bank, BLOM Bank, Bank Audi, BankMed, Fransabank, Banque Libano-Française, Crédit Libanais, Bank of Beirut, SGBL, BBAC, the Lebanese Swiss Bank and Fenicia Bank. Hezbollah criticized the move to fund Lebanon’s portion of the tribunal but said it will not create a political issue out of it.

Digging deeper deficits

Lebanon’s trade balance (exports minus imports) and balance of payments (or BOP, the measure of money coming in and out of the economy) have hit their greatest deficit levels to date, according to the latest data released by customs and the Banque du Liban (BDL), Lebanon’s central bank. By the end of October the trade deficit had widened to $13.35 billion, up 18.4 percent year-on-year, even while exports increased by 3.3 percent to $3.6 billion during the period. In October alone, the trade deficit was $2.2 billion, 107 percent higher than the same month in 2010. The BOP deficit increased accordingly to $2.13 billion in October, compared to a surplus of $2.8 billion in 2010. October’s BOP deficit, $589.8 million, was up from September’s $301.7 million figure. The two largest factors weighing into the BOP were the BDL’s net foreign asset surplus of $1.8 billion, and the $3.9 billion deficit in the payments of commercial banks and financial institutions.

Minimum wage, maximum anger

Much to the ire of trade unions, Labor Minister Charbel Nahas and his Free Patriotic Movement party, the cabinet voted last month to amend the minimum wage decree that was previously rejected by the Shura Council, Lebanon’s highest court. After a debate that has lasted months, the cabinet decided to increase the minimum wage from LL 500,000 ($331.67) to LL 600,000 ($398.00) and institute various other raises on other brackets. Teachers then held a strike shortly after the decision, which they called “humiliating”. The General Labor Confederation (GLC), the country’s largest labor union, also called for a nation-wide strike on December 27. When the measure came to a vote in cabinet, some of the labor minister’s recommendations were incorporated and the minium wage was raised to LL868,000 ($575.78), which includes LL 236,000 in transportation allowances added to the basic salary. Salaries between LL 1.5 million ($995) and LL 2.5 million ($1,658) will get a further 10 percent raise (above the intial 18 percent) while with anything above LL 2.5 million rises by LL 370,000 ($245). The raise is retroactive on a monthly basis as of December 1, 2011. Prime Minister Najib Mikati stated that the raise may hurt the economy and the GLC was considering calling off the strike as Executive went to print.

Dropping less calls

The typical Lebanese annoyance of having your phone conversation cut short because of the country’s infamously low quality cellular phone services is set to change in the next eight months, according to the telecommunications ministry. Last month the ministry unveiled a plan to invest some $110 million in a project to upgrade and modernize the country’s two cellular networks. The National Quality of Services plan will be implemented by the two privately owned operators Alfa and MTC, and could start showing results in as little as two to three months, according to the ministry. The first phase of the plan was to determine the geographic and technical weakness of the networks and as such the ministry has committed to purchasing 400 new antennas to support areas where reception is weak or non-existent. A further 20 mobile stations will provide backup support in densely populated areas. The ministry will also buy around 120 repeaters to install in areas where people have installed their own equipment to enhance signal strength.

Eating out

Known for their ability to throw a party and have a good time, the Lebanese spend around one-seventh of their income on eating out, according to a new study. A survey released last month compiled by the global credit card company MasterCard showed that the Lebanese spend an average of $105 per month on dining out and that 20 percent of consumers spend between $101 and $200 every month on restaurants. The highest spenders by age bracket were seen to be seniors over 55, while consumers with an annual household income over $30,000 spent around $169 every month eating out. The survey said that more than half of respondents eat out on average five times a month at mid-range family restaurants or cafes and six times per month at fast food restaurants; 32 percent went to food courts while 16 percent went to fine dining establishments in both hotels and standalone restaurants.

Labor makeup

New figures released by Lebanon’s official statistics agency have shed light on the makeup of employment across the nation. According to the Central Administration for Statistics, which used the International Labor Organization’s standards to measure the job market, Lebanon’s employment rate stood at 44.6 percent in 2009, the latest year studied by the agency. Of the total, 77 percent of the labor force is male and 23 percent is female. Around a quarter of workers were shown to hold university degrees, while another quarter had completed intermediate-level education, with 4.2 percent of workers deemed to be illiterate. The survey showed that 36.9 percent of workers are employed in the services sector, 27 percent in trade, 12.1 percent in industry, 8.9 percent in construction, 6.3 percent in agriculture and just 2 percent in financial intermediation and insurance.

Tentative growth prospects

Barclays Capital has forecast Lebanon’s gross domestic product growth at 3.6 percent this year after an estimated 1.8 percent growth in 2011. The firm said that an escalation of sanctions against Syria would pose downside risks for any economic growth and hurt the economy due to close economic ties between the neighboring countries. It also cautioned that the capital inflows enjoyed previously could be a thing of the past if the situation in Syria continues to worsen. The firm added that if the budget is passed as is presented by the finance ministry it would reverse previous fiscal gains due to higher and haphazard spending. It indicated that this increase in spending might not be absorbed by the ministries, which would entail a waste of public funds and inefficient spending. Barclays also cautioned that if the economic situation continues to deteriorate, this year could see political risk spill over onto banks’ balance sheets. It urged the government to support an orderly budgetary process, something that has not occurred since the last budget was passed by parliament six years ago. The government has until the end of this month to pass a yearly budget under the constitution. As Executive went to print the cabinet had yet to pass its version of the budget onto the parliament for debate and ratification.

January 28, 2012 0 comments

Real estate

For your information

by Executive Editors January 28, 2012

written by Executive Editors

Changing hands in Cannes

Eight months after Lebanese investor Toufic Aboukhater bought a string of seven InterContinental Hotels in Europe from Morgan Stanley Real Estate Fund, including the Carlton Hotel in Cannes, the same hotel has been sold to Qatari national Ghanim bin Saad al-Saad for $586 million, according to AFP. Starting in August 2012, the hotel will undergo previously planned renovations for a period of 10 months, its first major renovation since being established in 1911. In 2006, Morgan Stanley paid $826 million for the same portfolio. The December AFP report said the Qatari investor was also interested in other hotels belonging to the InterContinental chain, including those in Vienna, Rome and Madrid. In similar news, Saudi Arabian businessman Sheikh Mohamed bin Issa al-Jaber concluded a “100 percent equity” deal on December 14 to buy back the Scotsman Hotel Group, after it fell into the hands of creditors during a lengthy legal showdown with Standard Bank Group. The group accused him of reneging on $150 million worth of loans due but later settled out of court, in a deal that indirectly cost him a total of $1.55 billion, according to Jaber and reported by Arabian Business. Though the deal signed by Jaber’s hospitality firm, JJW Group, to buy the hotel properties out of administration was left undisclosed, Jaber’s December 15 statement said the hospitality firm would see an investment close to $100 million in 2012. The portfolio includes luxury hotels in Leeds, Edinburgh and Paris. Jaber’s MBI group originally bought the Scotsman Hotel Group, the hotel operator, for $98 million in 2006.

Red-hot healthcare

A partnership between Beirut’s Red House Group, a real estate investor, and Rizk Healthcare, has created the newly formed Rizk Red House Healthcare (RRHH) to deliver 10 hospitals in Saudi Arabia, a deal worth $1.35 billion. RRHH will work in partnership with the Saudi Arabian investment firm, Ebram, to complete the projects, which will see nearly 3,000 hospital beds added to the kingdom’s healthcare industry. “Today’s announcement of our partnership with Red House is a great example of how we continue to invest in the healthcare industry and of our commitment to provide healthcare services not only in Lebanon but also on the regional platform,” added Sami Rizk, chief executive officer of RRHH, which will be headquartered in Beirut with an office in Riyadh.

Lights on in Ajman

Originally announced in 2007, Al Zorah Development Company has re-launched its mixed-use tourism development, covering 5.4 million square meters in the northern emirate of Ajman in the United Arab Emirates. Solidere International, registered at the Dubai International Financial Centre, and the government of Ajman are behind the joint venture, with Sheikh Rashid bin Humeid al-Nuaimi as chairman of Al Zorah. The project’s strategy has been restructured so that 70 percent of the land area will have resorts or tourism-related entities on it, 14 percent will be for residences or mixed-use plots, while offices and retail will take up 7 and 6 percent of land area respectively. The project leaders said the first phase will see delivery of a five-star resort, as well as a luxury hotel, with 160 rooms and 300 rooms, respectively. A luxury golf course and a community of villas and townhouses will round out the first phase, which should be complete by 2014. Speaking at the launch, Al Zorah’s Chief Executive Officer Imad Dana said 1.2 billion dirham ($140 million) worth of contracts have already been issued, but confirmed that management is still deciding on international hotel operators. Infrastructure work has started and completion of the roads and the four marinas is due by 2012. The total project comprises five developments, with nearly 5,000 hotel rooms in total. Regarding financing, Solidere Chairman Nasser Chamaa said the project had enough cash to fund its first phase without resorting to bank finance, but admitted that paid-up capital for the venture had halved to $234 million.

Lebanese buy into London

Ireland’s National Asset Management Agency has reportedly sold a property in London to an unnamed Lebanese developer for a hefty sum. Regarding the plot on the Isle of Dogs, where a 62-storey apartment block was to be built, the Irish Independent newspaper said in a November 30 article that: “It has been bought by a Lebanese developer for around £50 million [$78 million],” without naming the developer. The agreement is part of four deals concerning London properties, which will generate some $117 million for the group. In related news, M1 group, a private investment firm based in Beirut, has made headlines in recent years for some of the largest property deals in the British capital. The group’s real estate arm, based in Monaco, bought Victoria House in Bloomsbury in 2010 for $295 million and Credit Suisse’s headquarters in Canary Wharf in 2009 for $242 million. A December 7 BBC article quoted M1’s Executive Director of Real Estate, Mustapha el-Solh, as saying: “The system in London is very investor-friendly with transparent legal structures… and it has fiscal benefits in terms of tax and capital gains which give it a certain advantage.”

Luxury still sells

Despite the political instability in the region in 2011, Dubai-based developer Damac said a third of its luxury apartments in its Beirut high-rise have sold. “In Lebanon, we mobilized the site in 2010, we launched in June 2010, and so far, although being a very premium project in an area which is still under a lot of political turmoil, our sales are very good,” said General Manager Ziad el-Chaar in a December 5 statement reported by Arabian Business. The 28-story Damac Tower, situated near the Phoenicia Hotel and featuring interior design by Italian fashion house Versace Interiors, is the first residential project in Lebanon for Dubai’s largest luxury homes builder. In Dubai, a number of Damac’s projects have stalled, though the firm has delivered 21 buildings in total. Speaking of those investors who bought off-plan in the Palm Springs residential project on the now-stalled offshore island, Chaar said: “We have offered them a full refund in staged payments [or] a lump sum [70 percent] immediate payment, which is unprecedented in the market.” He added that there are no plans to launch future projects in Dubai in the foreseeable future.

Kuwait teams up with REAL

In a December 11 workshop titled “Mechanism of Real Estate Investments in Lebanon,” Chairman of the Kuwait Real Estate Association Tawfiq al-Jarrah said Kuwaiti investments in the Lebanese real estate sector were growing steadily. The workshop was the first formal cooperation with the Real Estate Association of Lebanon (REAL), headed by Chairman Massaad Fares, since the Kuwaiti team signed a ‘cooperation protocol’ with the former in November to help “remove hurdles facing Kuwaiti businesses” in Lebanon, according to the Kuwait News Agency. REAL’s agreement means it will help register land plots bought by Kuwaiti businesses with the relevant Lebanese departments. In addition to legal and administrative council, the group will provide names of accredited companies, dealers, engineers, brokers and lawyers in Lebanon. In previous statements to Executive, Fares said the organization aims to promote reputable companies and eliminate or reduce the expanded number of non-professionals who enter the industry.

January 28, 2012 0 comments

Banking & Finance

Lebanese capital markets

by Executive Editors January 28, 2012

written by Executive Editors

Equity update

	16/12/2011	18/11/2011	% change
BLOM Stock Index	1,189.41	1,174.81	1.24
Daily Average Traded Volume	513,173	69,186	641
Daily Average Traded Value	$1,945,930	$766,177	154

The payment of Lebanon’s $32.6 million share of the annual funding for the Special Tribunal for Lebanon boosted activity on the Beirut Stock Exchange (BSE) in the latter part of November. The BLOM Stock Index (BSI) climbed by more than 4% during the period to 1,224 points, before retreating to 1,189 points by the end of the fourth week (December 12-16). Hence, the BSI advanced 1.2% from its previous close on November 18, with total losses in 2011 at 19.39%. The daily average volume per month rose more than seven-fold to 513,173 shares, up from 69,186 shares in the preceding four-week period, due largely to 6.8 million shares in Byblos’s common stock being traded on 16 December.

On the regional front, the BSI managed to outperform both the MSCI Emerging Market Index and the S&P Pan Arab Composite LargeMid Cap index. The former fell between November 18 and December 16 by 6.5% to 897 points, reflecting fears over the European debt crisis and signs of economic slowdown in China and South Korea. The S&P index followed suit, retreating 1% to 106 points.

Most banking stocks ended the four week-period in the red, affected by Moody’s Investors Service Outlook‘s downgrade for local banks to ‘negative’ from ‘stable.’ In fact, BLOM’s global depositary receipts lost 2.5% and BEMO common stock retreated by 4.9% to $7.70 and $2.35 respectively. Bank of Beirut stocks followed suit as its common stock declined by 1.3% to $19.20, while its preferred Class D lost 0.4% to $26. Bank Audi stocks also drew back, with its GDR losing 2.3% to $6.29. Its listed stock fell 2.2% to $5.85 and its preferred Class D decreased by 0.5% to $10.30. Byblos common stock was the sole gainer among banking stocks, rising 3% to settle at $1.65.

Solidere stocks A and B, which accounted for around 42% of total value traded, rallied during the first three weeks to hit $16, their highest level since mid-August 2011, before closing at $14.5 each on December 16 with a monthly increase of 6% and 7.5%, respectively.

Within the manufacturing sector, Holcim stock grew 1.5% to $16.15, whereas Ciment Blancs Nominal Class witnessed a single trade of 2,496 shares, lifting its price by 40% to $2.41, its highest level since inception.

Eurobond bulletin

	16/12/2011	18/11/2011	Change
BLOM Bond Index (BBI)	110.70	111.09	-0.35%
Weighted Yield	4.88%	4.69%	19bps
Weighted Spread	413	400	13bps

The Lebanese Eurobonds market remained subdued over the past four weeks, sending the BLOM Bond Index (BBI) down 0.35% to settle at 110.7 points. Thus, the portfolio-weighted effective yield advanced 19 basis points (bps) to 4.88% and the spread against the United States benchmark yield widened 13bps to 413bps. Lebanon’s credit default swap (CDS) for five years — a proxy for a country’s default risk — reached 440-466bps, compared to 402-432bps on November 18. Comparatively, in regional markets, Dubai and Saudi Arabia CDSs were quoted at 449-465bps and 123-130bps, respectively.

January 28, 2012 0 comments

Banking & Finance

Financial quotes of the month

by Executive Editors January 28, 2012

written by Executive Editors

“Let us not hide it, Europe may be swept away by the crisis if it doesn’t get a grip, if it doesn’t change. We don’t have the right to let such a disaster happen.”

“The economic situation is worse than anyone imagines.”

Kamal al-Ganzouri, Egyptian prime minister

“Acting like everyone who’s been successful is bad and that everyone who is rich is bad — I just don’t get it.”

Jamie Dimon, chief executive officer of JP Morgan

“Iran is a major oil producer and any sanctions on our oil export will definitely harm the global market.”

“Rick, I’ll tell you what: $10,000 bucks? Ten thousand bet?”

Mitt Romney, Republican presidential candidate, to rival Rick Perry while arguing over whether Romney had once supported nationalized healthcare

“There is no truth to what has been said of an intention to restructure part of debts that are due on [Dubai government-related] companies in 2012.”

Sheik Ahmed bin Saeed al-Maktoum, chairman of Dubai’s Supreme Fiscal Committee

“I simply do not know where the money is.”

Jon Corzine, former chief executive officer of MF Global, in his testimony to Congress regarding $1.2 billion in missing customer funds

“Between 2010 and 2011, lending to the private sector surpassed investments in treasury bills.”

Riad Salameh, Lebanon’s central bank governor, on commercial bank lending

“We think this will encourage the establishment of more new companies in Dubai because it makes the regulations and business environment more attractive for foreign investors.”

Hamad M Buamim, director general of the Dubai Chamber of Commerce and Industry, on the new UAE company law

“It means that Libya’s government will now have full access to the significant funds needed to help rebuild the country.”

William Hague, Britain’s foreign secretary, on the UN Security Council’s unfreezing of Libyan central bank assets

January 28, 2012 0 comments

Banking & Finance

Investment guide MENA stock tips

by Executive Editors January 28, 2012

written by Executive Editors

After a turbulent 2011, investors hoping for relief in 2012 are likely to be disappointed, with little prospect of a solution in Europe, an election year in the United States and a prolonged lack of stability in the Arab world. This month Executive asks Najib Semaan, assistant general manager and head of global markets at Bank of Beirut (BOB), and Yves Rahme, head of equities unit at Byblos Bank, for insights on where to invest in these challenging times.

Najib Semaan

Bullish or bearish? Semaan is cautious on prospects for global markets due mainly to the European sovereign debt crisis, but he does believe that “the end of the tunnel is near”. He expects the markets to reach their bottom toward the end of the first or second quarter of 2012.

Will politics drive the markets in 2012? The Middle East and North Africa region will be affected by the political situation. In Europe, as there are several decision makers wanting to influence the final decision to their own personal interest, politics will be a driver of the markets as well. In the United States, 2012 will be about growth, which will be better than 2011, while equities will also be in better shape. Semaan very shortly expects to see a bottom in US equities.

Favorite assets? Semaan will buy large cap equities and avoid small caps, as BOB cannot afford further pressure on their balance sheets. Large caps, on the other hand, might see lower volumes but they can afford another bad year. He also likes German government bonds and those of large European corporations.

Thoughts on the MENA region? Semaan expects the unrest in the region to remain for another two to three years. Within the MENA region, he has a preference for Qatar and Saudi Arabia and has enormous confidence in Lebanon. He believes that the Lebanese central bank’s monetary policy has created confidence in the economy but he stresses that it is critical that the government steps in to “restructure the debt and put in place a plan for growth”.

Thoughts on Lebanese securities? “Interest rates on Lebanese bonds are now close to their bottom and we can’t afford lower interest rates, as they are no longer justified relative to our fundamentals,” he says. He expects Lebanon to afford another one to two years of interest rates at these levels but in the long run, without restructuring, he expects rates to go up. As for the Beirut Stock Exchange, he doesn’t expect much as “Lebanese investors are short-term oriented” and since many Arab investors lost substantial funds during the revolutions, they are not taking new positions.

Top picks globally? Semaan would buy US large-cap stocks such as General Electric and well-capitalized US banks and oil companies globally. He would also buy German government bonds and bonds from large European corporations, such as Électricité de France.

Yves Rahme

Bullish or bearish? Rahme would prefer to wait for dips before buying into the markets. He highlights that the real losses in the markets are in Europe and the MENA region, as the US markets recovered their losses in 2011. The problems in Europe have not been resolved yet and although European policymakers “have helped Greece, it’s just like putting on a band-aid, they didn’t dig deeper”.

Will politics drive the markets in 2012? In the MENA region, “it will take a year or maybe more to put in place real governments after 40 years of dictatorship”, so politics will still drive the markets, according to Rahme. He fears that in Europe the main issue has not been resolved yet. Rahme believes that each European country should try to resolve its own deficit. He is concerned by the lack of coordinated action from Eurozone policymakers in taking “a bold step to show all the markets and investors that they will do whatever it takes to save the euro”. As for the US, Rahme believes the markets will be driven by politics, as 2012 is an election year.

Your favorite asset classes? Rahme would buy stocks in defensive sectors such as telecommunications, consumer retail and healthcare, or companies such as Visa and American Express, and would also recommend companies exposed to emerging markets. Rahme also likes companies such as McDonalds, which are not much affected by the net worth of people.

Thoughts on the MENA region? Rahme likes Saudi Arabia and Qatar. He would invest in Saudi Arabia as it is an oil-rich economy with a large current account surplus and enjoys a growing GDP. As for Qatar, he would be investing there due to upcoming infrastructure investments driven by the World Cup in 2022 and Qatar Vision 2030, the country’s long-term strategy for economic growth.

Investment picks in MENA region? Rahme would invest in a Qatari bank as the developers of the large infrastructure projects need liquidity. His top pick in Qatar would be Qatar National Bank. In Saudi Arabia, he would buy National Industrialization Company, also known as Tasnee.

Your thoughts on Lebanese stocks? The issues with Lebanese equities at the moment are mainly political, according to Rahme. For Solidere, its depressed value is mainly due to local politics. For the banks, it is due to both local and regional politics, as the most traded banks have branches in Syria and Egypt. Rahme also highlights that Arab investors are selling their stocks everywhere, which is not helping Lebanese equities. For a long-term investor willing to wait two to three years for a return on his money, Rahme would buy Solidere. He would also look at Lebanese banks as they are conservative, they are doing well and they offer attractive dividends.

“It will take a year or maybe more to put in place real governments after 40 years of dictatorship”

Recommended stocks

Qatar National Bank, the country’s first Qatari-owned commercial bank, has 40 percent of the

market share in Qatar and is one of the largest financial institutions in the MENA region. It is up 13 percent year to date and has a $26 billion market capitalization. Qatar Investment Authority owns 50 percent and the remaining shares are listed on the stock exchange. Its regional presence has grown through stakes in several banks in the MENA region: 35 percent in Jordan-based Housing Bank for Trade and Finance, 24 percent in UAE based Commercial Bank International, 50 percent in Tunisian-Qatari bank, 23 percent in Iraqi-based Mansour Bank and 51 percent in QNB-Syria, a private stock company.

National Industrialization Company, also known as Tasnee, is a Saudi-based holding with worldwide industrial projects. It operates in five sectors: petrochemicals, chemicals, metals, diversified (includes plastic and batteries) and it also provides industrial services. It is the first Saudi joint stock company fully owned by the private sector. It has a market capitalization of $6 billion and is up 36 percent year to date.

January 28, 2012 0 comments