Executive Magazine

Markets review

by Executive Editors December 25, 2011

written by Executive Editors

Beirut SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 728.99 points Period change: -25.01%

One has to wonder what is worse for the economically-minded living in the country once hailed as the Switzerland of the Middle East — the muddled perspective on economic and fiscal policies by the national government, the slide of equity values on the Beirut Stock Exchange or the external risks of exposure to trade disruption and internal warfare in one neighboring country and to unabated dangers of intrusion and armed interferences from a second. Although there is a link between external risks to the reduction of total turnover on the BSE to $405 million in 47 weeks of 2011, from $1.4 billion in the same period in 2010, this is not the primary factor affecting the country economically.

Amman SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 1,997.55 points Period change: -16.63%

Sitting on fences is generally a disingenuous activity and Jordanian equities certainly did not benefit from the country trying to keep one leg on either side during the Arab spring. Whereas the market capitalization of the Amman Stock Exchange (ASE) has been ahead of GDP in better years, the $26.7 billion market cap reading on Nov 24 suggests that it will close the year below $30 billion for the first time since 2006. Arab Bank, while weakened considerably with a 23.5 drop, remained the ASE’s most valuable company. Industrial assets Arab Potash Co. and Jordanian Phosphate Mining Co. closed the period 9.9 and 24.2 percent lower respectively but the stock of Northern Cement Co., which debuted on the ASE in spring 2011, managed to defend its value and was best nominal performer, with a share price gain of over 200 percent when compared with its initial public offering.

Abu Dhabi SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 2,418.13 points Period change: -11.78%

Representing a drop of 28 percent from the same period in 2010, the Abu Dhabi Exchange’s (ADX) total 2011 traded value up to market close on Nov 24 reached $6.2 billion, according to data company Zawya. Compared with the hyperactive 2008 and the pre-crisis year 2007, traded values in 2011 were down about 90 and 84 percent respectively. The last time the ADX had hovered lower than this was in February 2009, when the index fell below 2,200 points. The finance sector indices fared better than the benchmark, while the consumer, construction and industry indices underperformed the market thoroughly. Market leader Etisalat dropped under pressure in the second half of the review period but the NBAD, the largest bank registered, stayed in positive territory despite sliding from September. A brief upward ADX index interlude in June on the back of hopes of UAE inclusion in the MSCI’s Emerging Markets proved an aberration.

Dubai FM

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 1,348.59 points Period change: -19.16%

Those who believed that the UAE was an island of stability in a sea of uncertainty need only have paid a little more attention to the downswing of the Dubai Financial Market (DFM) to realize that UAE exchanges are nowhere near immune from global and regional concerns. Although not suffering the worst index fall in either the Gulf Cooperation Council or North Africa, the DFM on Nov 24 had moved only a millimeter away from a seven-year bottom. The exchange’s market cap was lower than at the end of November 2009, when the Dubai debt crisis was rattling international financial markets. Among the few gainers on the DFM were market cap leader Emirates NBD, albeit they were unable to hold onto most of their intra-year gains. Developer Emaar Properties was less fortunate, registering a 30 percent drop in its share price.

Kuwait SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 7,782.00 points Period change: -16.63%

Whatever Kuwaiti citizens did with the $4 billion in free cash the government gave them to celebrate 50 years of independence last January, there is no sign that any of it worked its way into the domestic stock market. The Kuwait Stock Exchange (KSE) market cap stood at $101.3 billion on Nov 24, down more than $20 billion from the end of 2010. When compared with the same period in 2010, total traded value from Jan 1 to Nov 24 dropped more than 50 percent. The National Bank of Kuwait, the KSE market cap leader, dropped 12.9 percent but the second largest, telecommunications firm Zain, weakened by 40 percent. Developers MENA Holding, troubled airline Wataniya Airways and investment bank Gulf Finance House were among the KSE’s worst losers but the budget flyer Jazeera Airways showed a steep ascent. The banking and food sector indices were among the market’s better performers.

Saudi Arabia SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 6,086.10 points Period change: -8.54%

Unlike many other markets in the Middle East and North Africa, the Saudi Stock Exchange (SSE) sported a broad range of stocks that achieved substantial gains in the 47 weeks covered by this review. However, the most valuable companies on the SSE, chemicals giant Sabic, Banking group Al Rajhi and telecom operator STC, all experienced double-digit drops in share prices. On the positive side, a number of smallish insurers were among the fewer than 10 stocks that closed the period between 50 and 125 percent higher, with agro firm Jazan Development Co the only non-insurer among the five top advancers. While there was a deep v-shaped cut in the first-quarter performance of the TASI benchmark index, caused by the political jitters that affected the kingdom during the Arab Spring’s initial period, the index curve in following months appeared more reflective of global market volatility than of domestic dissent.

Muscat SM

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 5,428.52 points Period change: -20.24%

The Muscat Securities Market (MSM) seems to be a case study in both contagions and fear, as the decline in its index appears to exceed any domestic threats, either economic or political. The total traded value on the MSM during the review period was down for the third year in a row. The only lines in Oman looking worse in 2011 than the MSM general index were those of the banking and industrial sector indices, which both underperformed this underperforming securities market. The services index was no anomaly, but it dropped a comparatively benign 12 percent from the start of 2011. Market heavies Bank Muscat, Omantel and Bank Dhofar were all trading down in the review period. However, unlike in Bahrain, there were also some strong gainers, led by leasing firm United Finance and by agricultural firm Salalah Mills.

Bahrain SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 1,161.34 points Period change: -18.67%

One extremely hard political bump in February killed of any idea of a normal year on the Bahrain Bourse and sent the small market’s index sliding to a dismal close on Nov 24. Although it is not the year-to-date’s lowest point, having bottomed out another 17 points further down on Oct 20, the scale of the crisis is captured by the fact that the index has not stooped this low at any moment since September 2003. Notwithstanding the impact of global crises, the domestic political connotations of the Bahraini equity market’s depression cannot be denied; the best hope for the Bourse in 2012 may be that the insular Kingdom’s professed will to reform will prove to be genuine.

Doha SM

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 8,564.59 points Period change: -2.02%

With roughly 90 percent of the year’s trading sessions in the bag, Qatari investors will be thankful that by November 24, 2011 the market capitalization of the Qatar Exchange (QE) was actually $4.4 billion higher than a year ago, at $123.5 billion, while the exchange’s total traded value of $19.3 billion in the period also exceeded the corresponding 2010 figure. In total, the QE, despite its marginal drop for the review period, was the best of a bad bunch in terms of markets across the Middle East and North Africa. If there was a slight dampener it was in real estate, where Mazaya Qatar (-21.2 percent) and Barwa (-19.2) rolled downhill the most of QE-listed stocks. Except for the Commercial Bank of Qatar, lenders stayed on top and the banking sector index outperformed the QE index.

Tunis SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 4,722.67 points Period change: -7.06%

The greatest relief currently available for any regional investor whose sentiments are torn between the profit motive of engaging in financial markets and enthusiasm for democratic change comes from the trading hall in Tunis. The Tunindex, pulled down 1,000 points or 20 percent in the hot revolutionary weeks from January through early March, has regained almost 700 points since March 7, displaying surprisingly little volatility during its steady rise in the past six months. While the remoteness and small dimension of the Tunis Stock Exchange (TSE) — market cap $9.6 billion on Nov 24 — do not lend themselves to extrapolating the local experience in the same way that Tunisia’s politics has influenced other countries, the rebound of the TSE demonstrates that good business, principled profits and freedom with dignity are indeed interconnected.

Casablanca SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 10,909.13 points Period change: -13.8%

While many stock market analysts had seen Morocco, before the start of the Middle East’s migration into the new and unknowable future, as the region’s best bet for investing in securities, the Casablanca Stock Exchange (CSE) has failed to meet expectations. Inverse to the trajectory in Tunisia, the MASI held relatively steady in the first five months, with a minimal net drop during that period, but has bowed to downward pressures in the six months since then. Speedier political reform in the country would have meant better performance for the CSE, though it is to be noted that Morocco’s bourse is presently the largest securities exchange in North Africa, with $60.65 billion in market capitalization versus the Egyptian Exchange’s $48.4 billion.

Egypt SE

Review period: Jan 1, 2011 to Nov 24, 2011

> Closed at 3,332.87 points Period change: -46.86%

In the country’s social and political storms of 2011, market buying emerged as the only upward impulse on the EGX, with two periods of gains in May/June and October paling in insignificance when compared to the overall erosion of financial value. The drops are indicative of the poisonous mix of factors that have marred the state since Mubarak fell, including political uncertainty, social unrest, international fears of extremism, unclear relations with global funders and lethal patterns of oppression. In 2011, $32.7 billion in market cap has been wiped out on the EGX and, with minimal exceptions, stocks were in the red. In international investor parlance, the time for buying is good when blood is pumping, but that adage gets exposed for its financial fallacy when the real red stuff is being shed.

December 25, 2011 0 comments

Banking & Finance

Banking Talk

by Executive Editors December 25, 2011

written by Executive Editors

“The global picture is gloomy and the regional picture is not clear. Oil prices are still maintained but if the crisis persists there will not be enough global demand for oil. Syria is another question mark, and because of its historical and political ties to Lebanon there will be an impact on the local scene, whatever the outcome will be. These unclear issues lead me to believe that prospects for 2012 won’t be much better than 2011.”

“Lebanon cannot afford a crisis. You have seen what happened to Greece. Greece being a European country, having a strong currency, not having political or security problems, saw interest rates at 40 percent and was on the brink of defaulting, despite all the backing it had from very strong countries and the IMF (International Monetary Fund). Lebanon doesn’t have these advantages so we have to work on building up a real economy, and we have to keep our tradition of commercial banking. We want to have investment bankers and capital markets, but let it be outside of the commercial banking.”

“We expect next year to witness a better growth than this year. Regionally, the situation is affecting us negatively, as the instability is leading to lower growth. However, over the medium to long term, as the situation improves, stability is regained and economies enjoy more openness, the impact on us will be positive. It may also open doors for us to expand in other countries.”

“Lebanese banks are proving to be resilient so far to what is happening in Lebanon, in the region and over the world. Going into 2012, we have a lot of concerns: how things will develop in Syria is very important and critical for the banks and how the Lebanese government will tackle the budget deficit and the issue of the Special Tribunal for Lebanon. Lebanese banks are already very conservative and will continue to be so next year.”

Byblos Bank: Alain Wanna, Deputy General Manager – Head of Group Financial Markets Division

“I think the banking sector will remain stable during 2012, and I don’t believe we will see very interesting local growth opportunities. The challenge for the banking sector will be how to continue the high pace of growth. ”

BankMed: Khaled Zeidan, General Manager of Securities & Structured Products at MedSecurities

“In the current situation it is very difficult to make a forecast and see exactly what will happen tomorrow in Lebanon and the region; 2012 will definitely be a tough year. The situation in Syria is a concern, elections are coming up in the United States and in France, and the European crisis will continue and will have a strong impact. With all this, one will have to be cautious.”

“I think great companies as well as great banks are built during tough times, so for me these times present both an opportunity and a challenge for Lebanese banks. If they know how to weather the crisis, especially the banks exposed to countries such as Syria and Egypt, and even Jordan to a certain extent, they will emerge stronger. All these troubles will end, and when they do the banks will probably be able to grab the opportunity.”

“There is still an increase in deposits in the banking industry, which is a sign of confidence in Lebanon. If you look at the rates paid on the Eurobonds and the rate achieved on the latest Eurobond issued in May 2011, you can see the rate has dropped and not increased. That’s really a sign of confidence in Lebanon.”

HSBC: Francois Pascal de Maricourt, CEO Lebanon

“Going into 2012, I am quite optimistic about the banking sector in Lebanon, and I think economically Lebanon will fare much better next year. I am not worried about the outcome from Syria as I think we have already seen the worst and I only see things improving. The main opportunity looking forward will be the development of the capital market in Lebanon. The new law passed in August will definitely help.”

“I wish for economic prosperity and political stability so that Lebanon can continue to prosper and grow to the best of its ability. We have a strong banking sector and a strong regulatory environment; there are always opportunities for growth. Unfortunately, growth this year has been affected by lots of events but, I hope that we will go back to the growth momentum we enjoyed in previous years.”

Standard Chartered: Pik Yee Foong, CEO Lebanon

Credit Agricole: Mario Jamhouri, General Manager

“[For private banking portfolios] in terms of investments, cash in 2011 was king and bonds and commodities were also part of clients’ allocation. In the middle of a crisis people look for real assets, as witnessed by the real estate boom we saw in the past years in Lebanon. We are seeing our clients invest in real estate in Europe as well, as part of their asset allocation.”

December 25, 2011 0 comments

Editorial

Pride, if nothing else

by Yasser Akkaoui December 25, 2011

written by Yasser Akkaoui

The year began with hope — it was contagious after seeing Tunisians rise up and send the tyrant Zine el-Abidine Ben Ali fleeing the presidential palace for exile in Saudi Arabia. Next came Egypt, where the awe-inspiring resolve of millions of Egyptians not to yield Tahrir Square to the regime’s security forces and thugs led to the removal of President Hosni Mubarak.

However, nations of people rising up for the freedom to claim their own destiny was a veneer that became sullied shortly after the beginning of the Libyan revolution. As the NATO bombing campaign ramped up and global powers began jockeying for position in anticipation of the post-Qadhafi era, the work of foreign hands pulling strings in Arab affairs again became apparent.

Given the strategic importance of Bahrain to Western powers, the Saudi decision to invade and crush the uprising there could not have been made in a vacuum; Ali Abdullah Saleh’s dubious cooperation with the West against Al Qaeda led to the continued support for his regime, long after its brutality against protesters was exposed, while Syria, at the crossroads of a myriad of Middle Eastern conflicts, is a veritable playground for foreign interference from every direction.

But look around the world in 2011 and it is no longer clear that the global powers know what they are doing anymore. Currencies and economies are crumbling everywhere while mass public protests have taken hold throughout much of the West. There would seem to be a fundamental reordering of the global geopolitical and economic structures taking place, and with so many moving parts, where the world will settle in five years is beyond any plausible guess.

What is certain is only uncertainty. And, almost ironically, there are few people more schooled at adapting to, and thriving in, instability than the Lebanese — when the sky is falling, who else would think to begin exporting umbrellas?

Whatever the future of the uprisings across the Middle East and North Africa, however, and no matter how foreign influence contorts the counter revolutions, the one thing the Arabs have taken back in 2011, what will not be easily stolen again, is their pride.

December 25, 2011 0 comments

Comment

Stagnating in stability

by Nadim Houry December 3, 2011

written by Nadim Houry

I never thought I would say it, but Lebanon was one of the most stable countries in the Middle East this past year. Many commentators and politicians expressed regret that Lebanon failed to capitalize on this to attract capital escaping the tumult of Cairo, Damascus and Tripoli. My regret is that Lebanon failed to use this opportunity to finally push forward reforms essential to make it a fairer and more transparent place.

2011 was a year of paralysis. The country had no government for the first six months, and while political life resumed in July following the formation of a new government, there was no progress on many draft laws — some that have been languishing in Parliament’s drawers for years — meant to prevent torture, improve the treatment of migrant domestic workers and protect women from domestic violence. The prisons are as crowded as ever. By the Ministry of Interior’s own account, the country’s main prison in Roumieh — a facility built for 1,500 inmates — held 3,700 in April of this year. Most troubling, 2,757 were awaiting trial. Faced with multiple inmate riots, Parliament finally approved the building of additional prisons in September but failed to tackle the real reasons behind the overcrowding: rampant overuse of pretrial detention and lengthy trials.

Lebanon’s military and security forces may be less intrusive than their Arab counterparts but there are worrying signs of increased harassment of activists and artists who criticize the army and certain high-ranking officials. In July, military intelligence summoned Saadeddine Shatila, of the international human rights group Alkarama, for his work documenting torture at the Ministry of Defense, and detained him for seven hours. Lebanese judicial authorities detained musician Zeid Hamdan — who toiled for years to promote Lebanon’s underground music scene — in July for several hours based on an accusation that he had defamed the Lebanese president in a song calling on him to “go home.”

The semi-naked images of women adorn our overcrowded highways, but when it comes to politics, women seem to have no place. Politicians spent months haggling with the Council of Ministers to ensure that all religious groups were adequately represented, but failed to include a single woman in the 30-person group. Dar Al Fatwa, the country’s highest Sunni Muslim authority, and the Higher Shia Islamic Council, are opposing a law that would protect women from domestic violence for fear that prosecuting husbands who beat their wives would affect the family unity.

Frankly, what harms the family in Lebanon are personal status laws that differentiate between citizens based on the religion into which they were born. These laws discriminate against women in matters like divorce, child custody and inheritance, forcing many of them to stay in abusive marriages. It is no wonder that an increasing number of Lebanese travel to Cyprus to get married.

Instead of finally shedding light on those who disappeared in Lebanon’s turbulent past, the authorities watched impassibly as more politically motivated kidnappings took place in 2011. The February kidnapping of three Syrian brothers from the Jasem family — one of whom had been detained for distributing flyers in Lebanon denouncing the Syrian regime — and the disappearance in May of Shibli Aisamy, an 86-year-old Syrian dissident, are painful reminders of the ongoing risk of politically motivated kidnappings. But even more troubling is what the Jasem case reveals about the state of Lebanon’s judiciary: a leaked police report contained evidence linking the kidnapping to a member of the Lebanese security forces in charge of the Syrian embassy’s security. Yet the judiciary has not investigated the accusations, proving yet again that it is incapable of resolving politically motivated crimes.

So “where do we go now?”, to quote Nadine Labaki’s recent blockbuster movie about the dilemmas facing a divided Lebanese village. Change in Lebanon will not be easy. There is no dictator to topple, no common enemy to rally the country’s youths. It is doubtful that the current political elite can truly reform the system which keeps them in power. But short of systemic reform, they could at least open up the drawers in Parliament and in the ministries and start adopting and implementing many of the laws and decrees that have been left there to rot.

NADIM HOURY is director of the Beruit office of Human Rights Watch

December 3, 2011 0 comments

Real Estate

Back to basics

by Executive Staff December 3, 2011

written by Executive Staff

Following Lebanon’s skyrocketing success in 2010, this year saw a much calmed real estate sector. Though many buyers have been carefully shopping around and looking for the best deals, most industry representatives contend that prices will not fall any time soon.

Because of the limited availability of land plots in prime areas, the price of land remains high while developers have little reason to sell quickly as many have relatively small debts. Therefore, prices have remained stagnant this year, while sales across mid to high-end units have slowed.

Yet, one market that has continued to grow is small-size homes, 250 square meters or less, in proximity to the central business district.

Contrary to last year’s record-breaking sales, the statistics covering the first nine months of 2011 paint a downward slope in revenues, largely due to a 26 percent drop in sales to foreigners. In the words of Karim Makarem, director of real estate firm Ramco, “The market for foreign buyers is almost nonexistent today.”

The Directorate of Land Registry and Cadastre recorded $6.84 billion in total property sales during the first ten months of the year, a 10.78 percent drop compared to the same period last year; property transactions decreased by 14.5 percent to 66,143 throughout the same period.

Supply side figures are not much rosier. The Order of Engineers of Beirut and Tripoli reported that construction permits covered an area of 12.4 million square meters during the first nine months, down by 5.4 percent year-on-year. However, cement deliveries actually increased by 7.7 percent during the period.

For the Ministry of Finance, the slowdown means a 6.8 percent drop in property taxes, down from $453 million in the first nine months of 2010 to $422 million this year.

Slow sales

“A couple of years ago, half of the project would have been sold by the time excavation was complete… The absorption rate would have been 80 percent by the time it was delivered, now it is about 60 percent,” said Makarem, who insists there is still demand for in the right areas.

Slow sales may be attributed to the fact that rents in Beirut are still relatively cheap, with residential yields only 3.3 percent of the value, the lowest in years. Conversely property prices are over-inflated, leaving increasing numbers of people happy to remain in the rental market.

The September 2011 Global Property Guide rated Beirut 36th in terms of most expensive cities to have property in, with average prices pegged at $4,258 per square meter, and average rents at $2,342.

Secondary market

Not only have foreigners stopped buying in abundance, but some have also started to sell up and put their money into other regions where they feel there are gains to be made.

“There is a surge in the secondary market,” says Zina Dajani, managing director at Benchmark, the developer behind Beirut Terraces and other residential projects in Beirut. “Some owners who had bought their apartments at the early stages of some projects during the years 2007, 2008 and 2009, and that have now come to completion, are offering them at prices that are slightly lower than developer’s prices, making an acceptable profit but not necessarily doubling their money.”

“In our project (Venus Towers), we expect maybe 20 percent [of buyers] to resell,” said Salah Karameh, sales and marketing manager at Venus Real Estate development, asserting that prices have never dropped in Lebanon.

Especially in Beirut, real estate players expect prices to be stable for a few years and then rise again.

However, others are reluctant to resell. Capstone Investment Group’s Trabaud 1804 high-rise in Ashrafieh is 70 percent sold; it launched in mid-2010. Capstone Chairman Ziad Maalouf claims that though there is a waiting list for the small size apartments “no one who bought wants to resell for profit.”

Investment and financing

In 2010, $4.9 billion in foreign direct investment was funneled into real estate. Chairman of the Investment Development Authority of Lebanon (IDAL) Nabil Itani says 2011 saw less investment in real estate and tourism than previous years. Given the double effect of the financial crisis and political instability in the region, it is investment from Lebanese diaspora, rather than Europeans or Arabs buying second homes, which is keeping the market afloat.

Though there is still a residual oversupply of luxury apartments in Beirut that continue to struggle to attract serious buyers, developers have realized there is huge potential demand in the undersupplied middle segment, especially in the capital. As such, developers are focusing much more on lower quality apartments in peripheral areas to fit demand. It is this segment that is most efficiently supported by bank loans and subsidized lending through the Banque du Liban (BDL), Lebanon’s central bank.

Though developer borrowing to finance a project is capped at 50 percent by law, many Lebanese real estate firms have continued to use pre-sales as a buffer, so that debt financing is far below 50 percent. Some developers have priced their apartments at below market prices in order to sell all of their units in days, while others have used a private equity model to spur financing (see page 150). Still, leverage is limited so developers can afford to go one, two or three years without selling.

“If you look at all the unsold apartments, developers have already paid back their investment by selling 30, 40 or 50 percent of their buildings,” said Freddie Baz, chief financial officer at Bank Audi.

Banking loans to the housing sector grew by 61 percent in 2010 up to $4.5 billion, while bank loans to construction totaled $6.3 billion, up about 30 percent, according to BDL’s most recent figures. Yet Jean Riachi, chairman of FFA bank, sees little reason for optimism that current trends will continue.

“I think the banks will be more conservative with regard to lending to real estate, be it housing loans or loans to developers, because obviously the market is slowing down so they have to be careful.”

Priced out of pocket

While budgets haven’t changed much in the past few years, property prices have increased tremendously, particularly in Beirut, pricing many locals out of the central market.

The suburban area of Hazmieh has experienced increased construction activity in the last year, with the biggest Spinney’s super market in the country, a new airport link and the upcoming Hazmieh City Center only likely to increase demand. Two developments there plan to ask for Ashrafieh-level prices, according to Ramco.

In addition, areas like Baabda and Metn have experienced a revived interest in real estate activity in the past few years, while other areas like Fanar, Horch Tabet and Aramoun have rising potential.

The Mechref suburb of Beirut will soon see large investment, with Zardman real estate planning to build an ‘affordable’ housing community there. Yarze, however, “is facing a bit of a downturn because it was over -reaching and I think certain brokers there played a part in that, evidenced by [the fact that] property there that has been on the market for a while and hasn’t sold,” says Makarem.

Developers have also realized that there is greater potential in some underdeveloped areas where land is cheaper. Ramco stated in its third quarter report that developers have turned to areas such as Corniche El Nahr (in Ashrafieh) and Jnah to build housing, where the cost of land is under $1,500 per square meter, whereas Beirut’s prime land can cost up to $5,000 per sqm of built up area (see chart above).

As there are few empty plots left in prime locations such as Ashrafieh, many heritage buildings and landmarks are being torn down by developers to build more profitable towers, a phenomena many consider a crime against Lebanon’s cultural and social history. Though Beirut’s Mayor Bilal Hamad told CNN in August that developers have to get a permit from the Ministry of Culture before they can build on site of old buildings, so far less than 300 classified heritage buildings remain from around 1,000 that were documented in 1995.

Predictions

In November 2010, the director general of the Ministry of Economics and Trade predicted that Lebanon’s real estate market would grow by up to 15 percent in the next three years. With this year’s stagnation in sales and downward statistics across both supply and demand indicators, and with most experts predicting that prices won’t budge and sales may remain slow for the next two years, it seems his prediction was highly ambitious.

It can, however, be applied to underdeveloped regions around the periphery of Beirut where developers are able to buy and construct projects that cater to the undersupplied, middle-income housing market. A prime example is the success of FFA Real Estate’s first development project in Badaro, where apartments ranging from 75 to 214 square meters sold out within five days in May.

With 15,000 additional homes required each year to keep up with rising local demand, a sound real estate market remains on the horizon — as long as developers shift focus to a more reasonable, middle class segment.

December 3, 2011 0 comments

Comment

The year since Mubarak

by Jonathan Wright December 3, 2011

written by Jonathan Wright

The year began in Egypt with a sudden but thankfully short-lived rash of self-immolations by aggrieved Egyptians following the example of Mohamed Bouazizi, the young street vendor who set himself ablaze in a solitary protest in southern Tunisia, December 2010. Tongue in cheek, commentator Issandr el-Amrani predicted “a year of spontaneous combustion” and imagined the authorities grappling with an epidemic of suicides across the oppressed nation. But millions of Egyptians, inspired by the Tunisians who drove out President Zine al-Abidine Ben Ali, had other ideas about how best to express their grievances. Less than a month after the first Egyptian doused himself with petrol and lit the match, President Hosni Mubarak had been toppled from the throne he had held for almost 30 years, pushed out of office by the largest street demonstrations the Middle East has seen since the Iranian revolution of 1979.

As the sun set on February 11, Vice President Omar Suleiman appeared on television to announce that Mubarak had ceded power to the Supreme Council of the Armed Forces, a group of some 20 generals who remain in power as the year draws to a close. Egyptians went home to rest, declaring themselves confident that their revolution was in safe hands and the generals would oversee a speedy transition to democratic and civilian government.
But the next 10 months have not been easy for almost anyone in Egypt. Many of the revolutionaries, especially the liberals and the leftists, say the military council has betrayed their revolution; the generals have sent more civilians to military trial than Mubarak ever did and have failed to purge the security forces and bureaucracy of the brutal and corrupt officials who thrived under Mubarak. The generals themselves soon learned that managing civilians was not the same as barking orders at conscripts in boot camp and that there were limits to the goodwill Egyptians showed them when they took power. Ordinary Egyptians lamented the lawlessness in outlying areas, the rising unemployment and the higher prices. Egypt's Coptic Christians, said to make up some 10 percent of the population, saw four of their churches set ablaze or demolished and then scores of young Christians massacred outside the state television building on October 9, in an incident that the military shows no willingness to investigate.

Hundreds of thousands of workers and civil servants, no longer deterred by state security and the riot police, have staged strikes, sit-ins and protests for better conditions; strapped for cash, the government cannot possibly meet all their demands. The upper echelons of the old regime have had it rough, but not as rough as many thought they deserved. Mubarak himself appeared in court lying on a gurney, charged with giving orders to shoot the demonstrators who brought him down in January and February; his sons and senior ministers are in detention, some convicted of financial crimes, others still on trial. The Islamists appeared to be the most obvious beneficiaries. Free to campaign for imminent parliamentary elections without fear of harassment, they have made hay while the sun shines. But their politics is fragmented across a broad ideological spectrum — from the hard-line and literalist Salafis to urbane intellectuals for whom Islam is the cultural backdrop to liberal democratic politics.

What happened in Egypt was not quite, or is not yet, a revolution. State structures have survived, though much weakened and vulnerable to contestation by competing political forces. The ruling military council has been cautious and conservative to a fault, taking no bold initiatives and usually acting only in response to street protests. The police force collapsed in the first few days of the uprising but is slowly finding its feet, without any fundamental change in its authoritarian mentality. The social and economic systems remain in place, and there is little popular demand for dramatic changes that go beyond eliminating corruption, favoritism, inefficiency and other vices.

The euphoria of the uprising has dissipated, along with the sense of unity and purpose that opposition to the Mubarak regime generated. But for the moment Egypt is a place where people can breathe more freely and can cast their votes with some confidence that they are choosing their own leaders.

December 3, 2011 0 comments

Society

Q&A – Nicolas Chammas

by Executive Staff December 3, 2011

written by Executive Staff

As chairman of the Beirut Traders Association, Nicolas Chammas oversees study and research into Lebanon’s commercial sector and lobbies the Lebanese government on behalf of traders. In a chat with Executive he spoke about the contracting economy and the need for policymakers to cut retailers some slack through more supportive legislation.

E Where has 2011’s poor economic performance left Lebanon’s retailers?
The year 2011 started very weakly because we had a hangover from 2010. The political bickering really dragged the entire economy down. And then in the very early days of January the government collapsed. So all in all, with the absence of government and no decision makers at all and the troubles in Syria, in the first semester of 2011 the [commercial sector] activity collapsed by about 30 percent. There has been a correction upwards in the third quarter… there was a slight increase in the number of tourists and number of visitors and on the retail scene as well. So I would say that we are looking overall at a 20 percent decrease in 2011. The first semester was terrible, and we were able to get some breathing room in the second part of 2011. Lebanon is a resilient country — the economy goes through terrible cycles, very deep troughs and very high peaks. But our problem now is a macroeconomic one, because we have fallen down from an 8 percent to a 1 percent growth rate and now you need some momentum in order to go back up.

E How exactly has the regional unrest affected the economic performance of the retail sector?
You have to bear in mind that the situation in Beirut is different to the situation in other regions. [In Lebanon] you have two types of interactions with Syria — you have the interactions at the borders in Tripoli and in Zahlé, whereby you have a daily exchange between the Lebanese and the Syrians. In Beirut, you have the final customer coming to shop from the retailers and you have the retailers of Syria coming to buy from the wholesalers, so all these have been affected.

E Have some consumer sectors been disproportionately affected?
You have three segments of consumers in Lebanon. You have the Lebanese residents who constitute perhaps, depending on the sectors, at least two thirds of the consumers, you have the Lebanese expatriates and you have the Arab residents. When you talk about the luxury segment, you have perhaps 40–30–30 [distribution across these segments], because the purchasing power of the visiting Lebanese is much higher than the local residents. We have estimated that the revenues of a typical Lebanese residing abroad are four to five times higher than his counterpart here in Lebanon, so this directly affects the luxury sector.

The medium level [of the retail sector] has been really affected because of the melting purchasing power of the population. The luxury items and international brands have not been suffering because of the constant flow of visitors and expatriates. The number of tourists coming by land has drastically decreased, and it’s true that visitors from the Gulf states have decreased in number, but if you look at the purchasing ticket, it has stayed strong, which at the end of the day makes for a good sales volume in luxury products. The problem is the down periods are measured in months and the up periods are measured in days or at best in weeks.

E Are some shopping areas within Lebanon succeeding more than others?
Malls are becoming more and more important, and they are taking away some business from the traditional markets. You have typical streets in Beirut — I would say Hamra, Verdun, Ashrafieh [and] lesser-known areas like Mar Elias and Barbour. These areas are suffering because malls are one-stop shops. Parking is a terrible thing, so you are in a tough spot if you are a middle-of-the-road retailer on one of the streets of Beirut. On the contrary, you are in a sweet spot if you have a strong international brand and [are] located either in one of the known malls or in one or two streets in Downtown Beirut. So you have a matrix in terms of positioning and location.

E What does the Beirut Traders Association envision for Lebanon’s retail sector?
Our aim is to make Lebanon the showcase of the Arab world and the meeting point of trade currents between East and West. We believe that in the past, in the ‘60s and ‘70s, Lebanon actually played that role. So we see it as our responsibility to replicate this — trade is a traditional sector, but its interests have been overlooked, unfortunately.

E What specific legislation are you lobbying for to try and support retailers?
Subsidized loans have been awarded to the tourism, IT and agriculture industries. [Retailers] did not benefit from this at all. There was a misconception because [the government] thought that as traders our balance sheets mostly consist of current assets, which is not the case. We need to get subsidized loans on commercial investments. The cheapest boutique costs $3 million to $4 million. This is our single most important demand from the government. They bet on laissez-faire whenever it makes their case easier, but it will not happen spontaneously this time. You need to inject either some liquidity or maybe remove some constraints; give the economy more degrees of freedom. And it seems they are taking us the wrong way, because now we are negotiating the minimum wage and so on.

E Is it not difficult to get the numbers to back up your campaigns?
Data is very scarce. [The Beirut Traders Association] analyses the data, we do the number crunching and we face the government on behalf of the entire business community. As far as micro data is concerned… companies are not listed; most companies are family businesses and they don’t have any obligation whatsoever to publish their results. And then you have a banking secrecy law, which makes things even more difficult, so our aim is to try to find some proxies or some alternative ways. We need the data rather than the individual traders because… when we are bargaining with the government we need stronger data.

E What unique strengths does Lebanon have as a retail destination going forward?
The strong demand. [International shoppers] will keep coming because Lebanon has traditionally been the showcase for the Arab world. So even if it is small compared to Dubai and elsewhere, it is an elegant and sophisticated market. It is also perhaps a testing ground for the large companies, so they cannot afford not to be in Lebanon — not so much for the volume they will achieve here, but for the image. Being in Lebanon is important because Lebanon also is a trendsetter. As long as you have political stability, they will keep coming. We would like Lebanon to be a shopping destination for all seasons, and we will work hard toward achieving this goal.

December 3, 2011 0 comments

Finance

Executive Insight – Corporate governance in the Middle East

by Alissa Amico December 3, 2011

written by Alissa Amico

One year ago, I argued that the second wave of corporate governance had arrived at the shores of the Middle East and North Africa. Put succinctly, the first wave was about the introduction of corporate governance frameworks and the second about their implementation.

It goes without saying that the events of the Arab uprisings have planted the governance debate firmly within public discourse in the region. In Egypt, criticism of the privatization process has, for better or worse, drawn attention to the governance of state-owned enterprises (SOEs). In Tunisia, the confiscation of private ownership stakes of the Ben Ali and Trabelsi families has required a reflection on how these enterprises should be governed. Across the region stock markets have tumbled and some, such as the Egyptian Stock Exchange (EGX), remained closed for over a month to prevent a drastic capital outflow.

This outflow of capital might be a reflection of the political risk attributed by investors to Egyptian companies, but arguably also a reflection of the corporate governance risk. Speaking at the meeting of the “Organisation for Economic Co-operation and Development (OECD) Taskforce of Stock Exchanges for Corporate Governance” earlier this year, Chairman of the EGX Mohamed Omran argued that good governance of listed companies has played an essential role in allowing the stock market to re-open in March. Due to the separation of ownership and executives in many listed companies, in cases where controlling shareholders were subject to legal proceedings listed companies were able to continue their operations.

It is important to consider what has been the impact of the Arab uprisings on corporate governance in the region, beyond anecdotal evidence. First, it is indisputable that the link between good corporate governance and anti-corruption, especially in the banking sector, is increasingly being drawn. There is a growing interest in how good governance can help preserve the integrity of Arab banks, beyond anti-money laundering or anti-fraud provisions. Risk management and related lending in the banking sector is likely to remain a priority for some time.

Political lessons

Beyond this anti-corruption angle, the connection between sound economic governance and good corporate governance is evoked less frequently. This is curious considering that the events that transpired earlier this year in Egypt and Tunisia were arguably rooted to a certain degree in economic governance perceived as unjust. And yet, when pressed to speak about the impact of recent events on the evolution of corporate governance practices, experts either hide in the comfort of national corporate governance regulations in place before the events of this year or point to the need to engage with citizens in making corporations more accountable.

Neither of these approaches enables us to gauge the implications of political transitions on corporate governance in Egypt or Tunisia, or to draw lessons for the wider region. Instead, we should focus on the actual changes on the ground such as the swift modifications to corporate governance frameworks during the past year. For instance, in Tunisia, the transitional government just a few months after the revolution introduced new guidelines for corporate governance of banks. New guidelines for banks, effective next year, have also been introduced in Egypt, in significant part as a response to the anti-corruption concerns.

Attention is also being paid to corporate governance of state-owned enterprises (SOEs), an area which until about two years ago was a no-man’s land in the corporate governance debate in the region. Egypt was the first Arab country to introduce corporate governance guidelines for state-owned enterprises in 2006, and the Egyptian Institute of Directors has made considerable awareness raising efforts to encourage their implementation. Since then, governance of SOEs has been a matter that was allegedly of interest to everyone but which few policymakers or state-owned companies would address publicly. This appears to be changing.

The Moroccan government in October of this year released a comply-or-explain code for its SOEs, modeled on the “OECD Guidelines for Corporate Governance of State-Owned Enterprises”. Weeks later, the government of Dubai issued a decree addressing the governance of its own state-owned companies, which have been under the spotlight, not least due to the Dubai Holding restructuring. Prior to the issuance of this decree, SOEs in the United Arab Emirates were not subject to many corporate governance requirements and even listed SOEs were exempt from corporate governance guidelines issued by the Emirates Securities and Commodities Authority in 2009.

A number of governments in the region have adopted more than two or three codes for specific sectors, notably banking (Jordan, Tunisia, Egypt, etc.), but more recently also real estate (Dubai), as well as for small and medium and unlisted companies (Morocco, Lebanon, etc). It is difficult and perhaps too early to judge the effectiveness of this more extensive code drafting effort. But It ought to be emphasized that codes and guidelines are important but not sufficient for fostering good governance.

Deeds beyond words

All too often in the region, corporate governance is referred to as a practice with a finite outcome, as opposed to an ongoing process. In the public debate, the question seems to be posted in terms of having or not having “corporate governance” as opposed to having effective governance. This is a risky way of framing the question because the answer is then often given with reference to having a code or a guideline, either at the company or national level. In this view, the issuance of corporate governance code regulations is the final destination, a happy status quo.

This approach confuses a patient who has been diagnosed with one who has been cured. And yet, the difference between the two may be one of life and death. Many companies in the region, especially listed ones, have made serious progress in improving their disclosure practices, introducing board committees and establishing investor relations departments. Fortunately, some of these companies publish corporate governance reports that demonstrate with startling clarity the problems of this binary view of governance as something that can be introduced overnight like new software, without changing the hardware.

Consider, for example, one Gulf-based bank that boasts all the right policies, including specialized committees, a chief risk officer reporting to the board and standards for a number of board and committee meetings per annum. There is only one problem with the governance of the said bank — half of its board has been in place for over 30 years. In addition, some of these board members are considered to be independent since they do not hold any executive posts. But it is doubtful whether board members who have presided for that length of time can continue to exercise independent judgment.

This example underlies the dangers in the current corporate governance debate in the MENA region, whereby governance is considered as fait accompli after the boxes required by the national code have been checked. It also highlights that the risk of complacency by regulators and companies is not negligible. After all, stocks of Arab companies do not feature prominently in the portfolios of international fund managers not due to a lack of corporate governance codes or ESG guidelines but due to failings in developing implementation and enforcement cultures.

Another issue is that practices meant to be inspired by these codes are often not publicly disclosed even where there is a positive story to tell. The latter is an important point if Arab markets wish to position themselves as hubs for international capital. A dialogue between regulators, companies, investors, proxy advisers and corporate governance advisory firms may help to project Arab companies onto the international arena.

The Arab uprisings may have in the short term been detrimental to the performance of capital markets in the region, but perhaps we should remember that there is nothing better than a crisis to bring out an opportunity. The opportunity is to leverage the corporate governance debate to raise international interest in Arab markets and to attract more stable investment in the region. Liquidity and listings, the two preoccupations of stock exchanges and securities regulators in the region, will follow.

ALISSA AMICO is program manager for the Middle East and North Africa, Corporate Affairs Division, of the Organization for Economic Cooperation and Development (OECD). The opinions expressed in this article do not reflect the official views of the OECD or its member countries

December 3, 2011 0 comments

Finance

A bumpy ride

by Executive Staff December 3, 2011

written by Executive Staff

The insurance industry in Lebanon is priding itself on a good year in 2011, with measurable partial results documented faster than ever before. Issues that inhibit the sector’s growth, however, do not get resolved; they merely get reiterated.

The total gross written premiums of insurance companies in Lebanon reached 14 percent year-on-year growth in the first three quarters of 2011, to $904.4 million. According to a ranking source with knowledge of the insurance industry, this nine-month rate of growth stated in the third Quarterly Report of the Lebanese insurance association is more credible than an earlier figure of 17 percent which the second Quarterly Report gave for the first six months in 2011. However, the 14 percent claim will need to be corroborated by further analysis, the source said. “We have not reached 17 percent full-year growth in more than five years in the local market and 2011 is not supposed to be a bumper year for insurance in Lebanon.”

Even if reconfirmed by future analysis of sector data, being “gross written” means that the industry’s nine-month turnover figure does not account for the portions of premiums which primary insurance providers cede to the reinsurance companies as backup cover for the risks they accept; this safeguarding practice is the international standard in the insurance industry but while generating commission income for the primary insurers, the ceding of premiums constricts the potential for direct profits.

Written results technically also do not account for how much of these premiums insurers have yet to earn through the lifespan of the policies, which is commonly 12 months but often not aligned with a calendar year. On top of that, the sector’s reported growth rate of 14 percent is nominal and does not reflect the impact of inflation and some specific cost drivers on the insurers’ earnings. The cost increases of medical treatment that already dented the bottom lines of Lebanese insurers in 2010 have been reflected in the 2011 policy price hikes, which industry leaders said represent an important chunk of the industry’s overall premiums growth.

According to the Quarterly Report, medical insurance is the top generator of premiums in Lebanon at 29.8 percent of the total, ahead of motor insurance with 27.4 percent and life insurance with 25.1 percent. When reviewing the nine-month growth curve of medical insurance, sector companies have reported 14 percent growth in medical premiums, the same as the rate of total premiums growth.

However, the increase in policy numbers was minimal. Medical insurance contracts issued for expatriate laborers — which are low-value contracts with almost 42 percent in acquisition and administration cost for the insurer — have shot up by more than 26 percent. Yet these contracts consistently constitute low single digit percentages of total medical premiums and the growth of policy numbers in the higher-valued coverage of customers with individual and group policies was only 2 percent.

Life insurance and life insurance-linked savings contracts in Lebanon have a long-term record of vulnerability to consumer responses to the national economic situation and pressures on their personal incomes. Although life insurance investments by the Lebanese, at 0.7 percent of total gross domestic product (GDP) in 2010 according to research publication Sigma by Swiss Re, are far ahead of the shares of GDP one sees in most Arab countries, they are still farther below the world average 4 percent allocation to life insurance in global GDP.

Also in non-life insurance, the Lebanese market is situated generally ahead of the Arab averages for insurance share in GDP. It performs respectably when compared with economies in regions such as Latin America and Eastern Europe but the country remains underinsured when measured against global and developed market averages.

Market data in Lebanon for the past 10 years or so do not support the assumption that domestic take up of insurance or savings contracts with insurance will shoot into the skies — lest there were a sustainable economic miracle of the type that the country dreamt of in the first half of the 1990s when initiating reconstruction and development after the end of the Lebanese civil conflict and in, unfortunately vain, hopes of regional peace dividends.

Putting any epochal regional economic wonders aside, and noting that the more realistic regional prospects at the end of 2011 point with alarming firmness in the opposite direction for the Lebanese economy, there are other factors that in theory can benefit the growth of insurance in Lebanon. Pitifully, these are issues of legislation and political decision making. After 1968, when a 1955 sector law was replaced with new legislation, revisions of the country’s insurance laws have been batted backwards and forwards but with no real consequence.

This habit, to all stakeholders’ professed regrets, has held true over the past five years. The pernicious state of deadlock between the nation’s waring political gangs, who are hardly concerned with trifle insurance matters, means that 2012 is no more likely to celebrate a new national insurance law than 2011 was.

On a positive note to the current constellation, leading representatives of the political and supervisory camp as well as the sector players in insurance companies and brokerages attest to a much improved relationship between the two sides after high-level stakeholder meetings at the Ministry of Economy and Trade in November 2011.

The issues waiting for solutions with the ministry are not a new insurance law but no-less-important practical matters, including the creation of incentives for employers and individuals that would stimulate growth in life insurance and the resulting social safety network improvements, fairer conditions for marine insurers who are railroaded by the international competition because of cumbersome Lebanese tax requirements and better enforcement of the mandatory motor insurance and enforcement of traffic safety.

In the current positive climate between industry and ministry, progress on these matters would be genial for the growth of insurance in Lebanon. This however, will depend in the first instance on how long the current cabinet will be around.

December 3, 2011 0 comments

Society

Deck the halls with bling and baubles

by Executive Staff December 3, 2011

written by Executive Staff

Against a background of flatlining national economic growth, Lebanon’s retailers have suffered a double blow this year, with many big-ticket shoppers from Europe and the Middle East avoiding Beirut for their annual shopping sprees, put off by the regional unrest.

But these challenges have not checked the rapid expansion of the luxury retail sector, a vital element of Lebanon’s identity as a shopping destination. Instead, developing nuances in consumer behavior suggest increasing sophistication among buyers, subtly altering the strategies of luxury retailers.

“We can still rely on investor confidence in the Lebanese economy,” says Ziad Annan of AS Chronora, the local agent for Rolex, Girard Perragaux, Jean Richard and Tudor, among others. “Malls are still being built, and the national retail network is still expanding.”

Izzat Traboulsi, managing director at the Fashion Trading Company (FTC), which manages Hugo Boss Middle East, suggests that the national psyche plays a part in this buoyancy: “Lebanese in general are very competitive. They like to bring all the brands of the world to Lebanon, so even if people are not working in retail they want to bring this or that brand.”

Such confidence is necessary in a country where the commercial sector must always be prepared to rise and fall with the vagaries of domestic and regional politics, even in times of global plenty. At the Financial Times Business of Luxury Summit this year, Euromonitor International reported a slight improvement in global luxury retail sales, currently valued at around $210 billion, following the 2009 global recession. A key element of this growth is the sales performance of emerging markets, including the Middle East, with total luxury spending in these markets growing 43 percent in the last five years to a value of $30 billion, compared to just 6 percent growth in developed markets.

But Lebanon’s participation in this success is conditional on domestic and regional political stability, both in short supply in 2011. Few of the high-end fashion players interviewed by Executive would not admit to a very difficult year, especially in the first two quarters.

Barkev Atamian, the business manager of the Atamian group, which represents about 70 percent of the combined watches market in Lebanon at the fashion, luxury and exclusive levels, says that growth has been flat this year, affected by a change in the spending habits of visitors who are now “basically coming for business, for short periods”.

“If you don’t have a stable country you don’t have tourism. If you don’t have tourism, you cannot survive,” he says. Holding brands at a variety of market levels, Atamian can also clearly see the texture of the dips in profit. “It’s the medium-high which is suffering, because the people who [have been] spending maybe $1,000 are [now] spending $500 or $400. The [person] spending $10,000 on a watch is not that affected by the situation. It’s the $800 to $1,500 segment that is affected the most.”

Like the majority of retailers, Deemah Fakhoury of Fawaz Holdings (Shoebox, La Cave du Joel Robuchon and C&F, among others) notes that “it is only since October that the market has shown some potential growth,” giving some retailers hope for their numbers. But Karim Tabet of the Tabet Group, whose holdings include Frette, Zadig & Voltaire, Barbara Bui and Toywatch Middle East, expresses surprise that so many retailers are relying on December, even in a market defined by its seasonality. “Christmas… should be the cherry on the cake and not the most important month.”

It’s not all doom and gloom, though; Tabet’s fashion holdings performed beyond expectations this year, as have some other boutiques. Ziad Matta, chief executive officer of Boutique 1, which operates both a multi-brand store and mono-brand Missoni and Blumarine boutiques, reported “stellar performance” in some areas.

I dreamt I dwelt in marble halls

This uneven performance in 2011 follows an orgy of expansion in the retail sector in the last two years, with names like Chanel and Louis Vuitton only the most high profile of a “territorial expansion for all brands,” that is set to continue in 2012 and beyond, notes Fawaz Holdings’ Fakhoury.

Oliver Petcu, managing director of CPP Luxury Industry Management Consultants, has monitored the trend of big name international brand franchises in downtown Beirut. “Lebanon has been a battle ground, and I would even say [there’s been] a war of vanities between the three players [Aïshti, Luxury Clothing Company and Azadea] to secure franchising distribution,” he says. “This comes with a very high price and a business plan [that] makes it almost impossible for a store to break even earlier than four or five years from opening”.

Many retailers are thrilled with the developments, however, including W. Salamoon & Sons, who exclusively represent several high-end watch brands. Carole Salamoon describes the Beirut Souks enthusiastically as a “hub of fine Swiss horology.”

Rapid expansion and development outside the city center also continues apace, attracting its own fans and critics. Malls are popular with many local shoppers who want to avoid Beirut’s paralyzing traffic, and for brands like Hugo Boss, due to open at the new Beirut City Mall in Hazmieh at the end of 2012. But Alain Masri of J.M. Weston, a luxury shoe manufacturer that has maintained its store on Allenby Street in downtown since 2003, observes simply that “you have three malls coming in the next five years, and all of them are full of new brands. I don’t know if everyone will find a customer.”

This trend of expansion despite economic challenges is apparent across the Middle East. The annual research report by real estate organization CB Richard Ellis reported in November that “nearly three quarters of international retailers (71 percent) are planning to open more than five stores in the Europe, Middle East and Africa (EMEA) region by the end of 2012, with 20 percent of retailers looking to open 40 stores or more in 2012, compared to 18 percent in 2011.”

Beirut, however, is more politically vulnerable than the other Middle Eastern shopping destinations that make up these figures — Saudi Arabia, the United Arab Emirates, Kuwait and Qatar.

Seduced by Solidere?

Solidere and the Beirut Souks are the cheerleaders for much of this flamboyant expansion. “If any high-end shop wants to open in Lebanon, there’s no other gateway than Foch, Allenby and other subsidiary streets,” says FTC’s Traboulsi. “It’s like Avenue Montaigne in Paris or Sloane Street in London or Fifth Avenue in New York; it is really the prime location for high-end brands.”

But like the rest of the sector, development is uneven and a poor 2011 has left some retailers uncomfortable, with most seeing the Souks as having a long way to go. “The downtown area is an incomplete project,” says AS Chronora’s Annan.

“We’ve grown accustomed to the desert-like landscape of Martyrs’ Square and the seaside sector, but the emptiness causes discomfort in the customer’s mind, hence the lack of footfall. The overall Souks area has seen more footfall this year, but to the consternation of most tenants spending is still disappointingly low, while the overall expense of operating in the Beirut Central District alarmingly continues to rise.”

CPP’s Petcu, however, sees the enthusiasm of retailers to sign up for mono-brand boutiques as a mistake rather than something that will work itself out, calling it “completely unjustified from a feasible business perspective,” and predicting that political volatility and competition from European shopping centers will soon force retailers to rethink their strategies. “In the following two to three years I would expect most of these brands to shift from mono-brand to multi-brand, unless retailers will continue to be able to afford losing money.”

Many local retailers are placing their faith in the slew of recently opened and imminent cafés, bars, clubs, cinemas and restaurants in downtown. “When the cinemas and food courts open is when they will see a big growth,” says FTC’s Traboulsi.

In 2011, the uneven entertainment offerings limited the Souks, in particular, as a popular destination for middle-income shoppers — the sort of buzzing central destination that its developers are hoping to encourage with ever more programs of exhibitions, concerts and other events.

But as Solidere’s quarterly reports showed, more than 30 outlets opened or were due to open by September 2011, as confident investors continue to choose downtown as the location of the moment.

I like it my way

Shoppers in Lebanon have always been slaves to luxury, but subtle adjustments in consumer habits and retailers’ communication strategies are emerging as the market matures. Sophie Salameh, the founder of Sophie’s Choice multi-brand boutique and café, stocks her rails with the “chouchoux of the international press”, up-and-coming young designers previously little known in Lebanon and the Arab world. Many of her pieces are special orders and limited editions, reflecting a global trend toward customization and individualization. This, says Salameh, is “the top of luxury… to be able to do things according to your choice and your taste.” Wealthy and stylish young Arabs educated abroad, in particular, are beginning to buy “what they like themselves, not what [the brands] are imposing on them.”

Amal Berri, manager of high-end fashion boutique Reem Acra, also notes that “alteration is half the work in this shop”. As a Lebanese designer who has had some success as a novelty brand positioned against such well-known names as Elie Saab and Zuhair Murad, Reem Acra represents another trend suggested by CPP’s Petcu — that of the success of Lebanese designers. “They have a unique ability to understand the mentality, taste and preferences of Arab consumers, in ways that Western brands cannot,” he said. “Lebanese designers boast a unique versatility, which translates not only in their creative design but also in the way they process raw materials.”

Communication with customers, Petcu notes, is a key advantage in the market, and Lebanese designers are in an advantageous position for “events, testimonials with local celebrities,” and so on. But most boutiques are currently revising their approaches to marketing, as high-end brands work out how to maintain their exclusivity online while taking advantage of the opportunities offered by new forms of media. “The way we communicate to our customers has radically changed, as we all need to keep up with the times,” says AS Chronora’s Annan.

Lache my vitrine

Can Lebanon maintain its relatively recent luxury retail boom? As a vital part of the country’s identity and economy, the commercial sector is the ‘vitrine’, or store window, through which Lebanon — with its long history of glamour and commercial success — wishes to show itself to best advantage, and which gives it a bright confidence even in troubled times.

Traboulsi, for one, believes that there is a depth to the sector’s service and the minds behind it that makes Lebanon stand out from the crowd in the region. “Not in terms of shopping offerings, but in terms of concepts and culture and vision, definitely in retail, Lebanon will always be the window of the Middle East.”

And yet, sales in 2012 are no more certain than those in 2011, says Annan. “I expect a status quo as long as the situation in Syria doesn’t improve, and the government fails to take aggressive action in rectifying the various pending issues we’re all familiar with.” But although “the situation might certainly lead to greater challenges, and fewer opportunities,” it comes down to the fact that “Lebanese customers are a resilient bunch, and the retail industry is solid.”

Retailers in Lebanon speak from long experience, and have learned not to watch the political scene too closely. Berri echoes many when she says that in Lebanon “if you want to wait for the right time you will never open” — so open they will.

December 3, 2011 0 comments