Executive Magazine

Merrill Lynch’s 2012 forecasts

by Maya Sioufi January 3, 2012

written by Maya Sioufi

The view for 2012 is cautious rather than catastrophic, according to Bill O’Neill, chief investment officer for Europe, Middle East and Africa (EMEA) at Merrill Lynch Wealth Management. “One of the potentially good news stories in the coming year is a stronger domestic United States economy. The worst-case scenario would be a run on European sovereigns leading to a run on the banking system.” He forecasts 3.7 percent global GDP growth in 2012, down from 3.9 percent in 2011, led by emerging markets.

O’Neill believes that decisions by policymakers will lead the markets in 2012 and he expects central banks to be more aggressive in terms of monetary easing, particularly in the Eurozone, and quantitative easing will become a global phenomenon. He stresses that “Europe needs to see itself increasingly as a single political entity and proper union.”

O’Neill is less compelled to buy into emerging markets than he was in previous years, as he believes that one needs to “dig beneath the surface to some of the sectorial stories”. He expects China to have a “soft landing” in 2012 and grow 8.6 percent down from 9.2 percent in 2011, but O’Neill won’t be buying Chinese equities as he finds more interesting emerging markets ideas elsewhere. He would keep an eye on China’s monetary policy and if it were aggressively eased, he would look to play that by buying into Russia, “despite politics issues and setbacks linked to presidential elections”, or Brazil, “which has been substantially de-rated”.

Regarding the Middle East and North Africa region, O’Neill believes that although it will be affected by the weaker global growth in 2012, the region will be more resilient as it enjoys high oil prices and big investment programs, such as those initiated in Saudi Arabia and Qatar. The Arab revolutions have “sensitized governments to the need to enhance social and communication infrastructure and get money out to the population. I think Qatar, Saudi Arabia and to a lesser degree Kuwait are the areas to focus on.”

Looking at Lebanon

On Lebanon, O’Neill is predominantly concerned with the high leverage. He is forecasting 3.8 percent GDP growth in 2012, up from 2.5 percent in 2011 but he warns that there are downside risks to the 2012 figure. O’Neill is concerned about the impact that the turmoil in Syria will have on Lebanon and whether it will also be slapped with sanctions. “What would affect my view on Lebanon in the coming year is… the knock on impact in Syria and the withdrawal of support from European banks and the effect it would have on the real estate sector,” he says.

When asked about investor sentiment, O’Neill’s view of global investor confidence differs from what Tamer Rashad, Head of Middle East wealth management at Merrill Lynch, says is the prevailing sense among MENA investors. O’Neill says global confidence has severely deteriorated. “Investors are worried about the outlook as they are not convinced with the incredible actions taken by policymakers. There is a lot of emphasis on capital preservation. The loss in faith in equity markets is very significant, and will take time to rebuild.” Rashad, on the other hand, tells Executive that, “Interestingly enough, confidence is very high relative to what is happening in Europe and the US. It is very high in the [Gulf Cooperation Council] and we have not seen a lack of confidence or decrease in confidence as a result of what is happening on political scenes across the region. Obviously for investors in Egypt or Tunisia it’s a different thing, but overall in the GCC confidence is very stable.”

As for his top areas of investments, O’Neill stresses on the potential surprise from the US domestic market. For exposure to this potential upside, he recommends the US dollar and large cap quality stocks that enjoy strong cash flows and that are exposed to secular themes such as emerging markets consumers. He favors the technology, consumer staples and consumer discretionary sectors. For a more risk-averse investor, he would recommend US investment-grade credit.

He sees limited upside to gold price in the first half of 2012, as he forecasts a price of $1,750 per ounce by June 2012, rising to $2,000 by December 2012. As for the oil price, he forecasts limited change in the first half of 2012 with Brent oil at $112 per barrel by June 2012 and then rising to $126 by December 2012.

For a more long-term investment, he would look to Africa although he acknowledges it is not for the faint-hearted. He likes their improvement in governance from a low base, the young demography with an increasing life expectancy and their access to natural resources.

January 3, 2012 0 comments

Finance

Q&A – Maroun Mourad

by Maya Sioufi January 3, 2012

written by Maya Sioufi

Zurich Financial Services Group (ZFSG), an insurance conglomerate with global reach, has been increasing its activities in the Middle East as part of an expansion strategy focused on emerging markets. Now one-year after the Swiss-based multinational acquired Compagnie Libanaise d’Assurances (CLA), a Beirut-based insurer with licenses in several countries in the Gulf region, Executive sat down with Maroun Mourad, chief executive of ZFSG’s insurance arm in the Middle East.

What is your approach to the Lebanese market? Do you see potential for Zurich here? How much was the local market a consideration in buying CLA, as opposed to acquiring the licenses held by this company regionally?

Lebanon is an important market in its own right. If you look at the Gulf and Levant territory, Lebanon is effectively the third largest market after the United Arab Emirates and Saudi Arabia. It closed last year at $1.1 billion and Lebanon also has probably the most progressive and open attitude vis-à-vis insurance, given that penetration stands at over 2.5 percent, versus an overall Arab regional penetration of, grosso modo, one [percent], if not lower. Lebanon is part of the Middle East expansion plan and it so happened that there was a company that is based here and which owns the licenses in the Gulf. But we would have come here anyway. Our entry into the market is part of a much bigger plan for the region and globally.

As you said, the Lebanese insurance market reported $1.1 billion in gross premiums in 2010 but is very fragmented, with more than 50 operational insurance companies. What are your aspirations in terms of local market share and product mix?

We have none in terms of market share, that is predetermined. We don’t come in and say we will grab 5, 10 or 1 percent of the market. In the segments that we like, in the products that we can service and in the areas where we can actually be transparent, fast, easy to deal with, and honest — if we can dominate in that segment [then] we will. We recognize the fact that we are just starting here and we have to approach the opportunity with a bit of humility. There are household names in this market, good companies that have been operating here for some time. But this doesn’t mean that a new entrant with new ideas and top-notch local teams cannot succeed and cannot become one of the leading players. In the markets where we play we want to be as good as, if not better, than the leading local insurer.

Could you specify which segments of the Lebanese market are most interesting to you?

We are still in the process of finalizing our deep market studies, in order to not have one specific segment and miss out on the others that could potentially be areas where we could add value. [We will address a] few areas such as the higher-end affluent personal segment, where definitely the high net-worth area is neglected, not only in Lebanon but in the region. The corporate segment is a very interesting one, because companies have complex risks, they have high-value assets, and they have potentially big liabilities. They need very strong financial security, which is what Zurich can offer here in the market.

Is the high-end segment the most under-served area in the market?

From a claims servicing and proposition point of view, yes. Not just the highest end but in the affluent side of the market as well, there are a lot more things that this market deserves that are not being offered. I will not delve into the details [of what we plan to offer] now.

Insurance is still largely considered a luxury in Middle Eastern markets. Some people have, perhaps wishfully so, predicted that insurance is moving from a luxury consideration toward wider acceptance. Are you seeing evidence that this is happening?

We certainly see the year-on-year growth in the industry. According to the IMF [International Monetary Fund], the Gulf Cooperation Council’s economic growth projections, on a compounded annual growth rate between now and 2016, will be 4.5 percent. The insurance industry is estimated to grow at nearly double that — at 9.5 percent. Does that really mean that penetration will effectively go from 1 to 3 percent so that we are at par with Southeast Asia and Latin America over the next five years? Probably not. A big push should come from compulsory insurance but compulsory insurance is directed at the areas that are most competitive: medical and motor.

…and least profitable?

Yes. Most competitively priced and least profitable. So what we would love to see more of is a combination of compulsory insurance and more awareness through cooperation between non-profit organizations and industry representatives like ACAL [the Lebanese insurance association], the media, publishing houses as well as the industry, be it the distribution side of the industry or the risk-taking side of the industry. The awareness is not there. People probably still look at insurance as an unnecessary expenditure but I am not entirely aware that people do a proper assessment of pros and cons of buying insurance.

Is insurance awareness better in the high-end market versus the general consumer segment?

Awareness is [better] but it is not where it should be. You come across discussions where folks, taking a high-net worth [individual] for example, have a couple of pieces of art, a jewelry collection, and perhaps a few high-end rugs in their house and a lot of these properties are not insured. They should be insured as a financial protection mechanism… This is where insurance, besides being a financial management tool, can be a lifestyle support — if you have a piece of art you probably need to continue to be appraised of its market value. Through our network you can have access to events that talk about these things.

How are you investing yourself into awareness building on the high-end or the general level?

In a lot of ways. We work closely with the regulators in every jurisdiction that we work in, to see which areas we can support. We participate in market studies whenever we are invited; we submit ideas, try to contribute to the publishing houses in terms of [specialized] pieces on insurance or general discussion of insurance.

How strong is awareness in the corporate segment and where do you see a need to enhance awareness in the corporate market?

In the middle market and corporate segment the awareness is there. It could grow faster but it is there for basic products. But even with property insurance, you don’t find that companies always buy [coverage of] business interruption, which is a real risk subsequent to a [catastrophe]. I think a bit more education there would help. Then professional liability; a doctor or lawyer or accountant or auditor may buy life insurance and maybe workers’ compensation for the employees and car insurance for the drivers. But the areas that are crucial, which are professional liability and also general liability, are neglected. Overall, in certain products we see a higher take-up in penetration in the commercial segment where the policy holder is a company rather than an individual. What we don’t find enough of is the higher density per customer.

Meaning companies do not buy different types of insurance beyond what they absolutely have to have?

Exactly. I think if there is increased awareness — even without acquiring new customers, although you have to do this — if there is more density, this would spur growth.

How much financial power is Zurich allocating to the Middle East? Any numbers that you can give our readers?

A lot [of power]. Just take a look: [Zurich has been positioned] in four countries through opening either a [Joint Venture], a greenfield or an acquisition. This is strategically important for us. The acquisition or expansion monies are not the only investments. When you come in, you have to integrate and expand and enhance. We are here for the long-term in multiple countries at the same time. We are pretty invested in the Middle East.

How large is your regional team today?

On the general insurance side we have over 250, including life we have over 350 people.

January 3, 2012 0 comments

Finance

Executive Insight – Master Capital Group

by Henri Chaoul January 3, 2012

written by Henri Chaoul

Europe needs to move from demure to decisive. It is hard for any bystander to rationalize the tepid and timid moves proposed by either the European leaders or the European Central Bank (ECB) regarding their sovereign debt crisis.

While the Americans’ prefered solution to the financial crisis is quantitative easing — flushing the markets with fresh liquidity and injecting capital into the financial institutions — the Europeans want to follow a fundamentally different path: Treating the root cause of the problem rather than its immediate after-effects. The European approach is similar to treating a patient dying from acute asthma with a long-term steroid treatment rather than prescribing a couple of puffs from an inhaler that will keep him alive long enough to see the long-term. Their approach — even if executed and implemented in its utmost detail — will lead to a collapse of financial markets, not only infecting Europe but also having spillover effects throughout the global system.

Peripheral European countries have unacceptably high levels of debt compared to gross domestic product, with that of Greece at more than 160 percent and Italy nearing 120 percent. The weakest links — Greece, Italy and Spain — together have accumulated more than $3.5 trillion in debt. Greece is effectively bankrupt and illiquid, while Italy and Spain are on life support. In its most recent effort to raise debt, and despite historically high yields, the German government was not able to place a third of its issuance last month — a historical first and a testimony to the fact that investors consider all such debt toxic — while, despite frantic calls by the French and the German tandem, the last European Union Summit to tackle the crisis came up horribly short.

Against this very negative landscape, there is still a way out. European leadership needs to act swiftly and decidedly to reignite the confidence of financial markets and address the root causes of the problem.

In the short-term, both the ECB and national governments in Europe need to ensure that liquidity is available in the markets. First and foremost, Italy and Spain need to be “ring-fenced” to stop contagion and enable them to remain solvent and get necessary help to finance their debts at affordable yields. The ECB has a major role to play here by standing as the lender of last resort and effectively guaranteeing all such debts. Second, a serious recapitalization program of the banks is required, similar to the US Troubled Asset Relief Program in 2008. Finally, Europe needs to help Greece through an orderly default of its debt. None of those points can be left to individual nations to decide upon; instead a coordinated and common approach is required.

In the longer-term, Europe needs to deal with the root causes of its paralysis. At the heart of it is the fact that individual nations are clasping to sovereign rights at the expense of the stability and longevity of the Eurozone.

Europe needs to strengthen the monetary union by changing the mandate of the ECB. It cannot act as an independent monetary authority as long as it does not have the financial wherewithal and weapons to deal with the financial crisis without going back to all its member nations. Its mandate has so far been to ensure price stability and nothing else, a purpose deeply rooted in the history of hyperinflation that hit Europe at the end of World War One. But the mandate now needs to reflect the reality of today’s financial markets: Adding an economic growth objective to its line of fire and becoming the lender of last resort thus allow it to instigate programs of quantitative easing without resorting prior authorization from France, Germany and the parliaments of all remaining nations. Second, the European monetary union is facing a serious fiscal dis-union. As long as different Eurozone nations have structurally different fiscal needs and objectives, monetary union will be cracking at the seams. Authority and decision-making will have to move away from Paris, Berlin and Rome towards Frankfurt and Brussels.

The stakes are too high to let the Europeans test whether their long-term approach would work. Decisive actions are needed. They were due yesterday.

HENRI CHAOUL is the general manager of Master Capital Group in Lebanon

January 3, 2012 0 comments

Finance

Executive Insight -Nada Safa

by Nada Safa January 3, 2012

written by Nada Safa

In times of deep uncertainty, we are often overwhelmed with information and use mental shortcuts to arrive at snap decisions and judgements. Sometimes, such assumptions work, but this approach can also lead to biases, errors and confusion, especially when it comes to investment decisions.

A year of indecision

Under ordinary circumstances, the world has time to catch its breath between major news events. The sheer speed at which history happened during 2011, though, created deep market uncertainty, from Japan’s earthquake cum tsunami to a tragic nuclear disaster, from war in Libya to escalating political turmoil across the Middle East and North Africa, from limited concern over weaker Eurozone members to widespread fears of single currency break-up.

Not since the Second World War have investors had to navigate such a barrage of events. Many fell into a trap that rendered their rational capacities useless, with financial markets driven instead by fear, short-termism, stop-losses and political instability. By the third quarter, many had resorted to cash, waiting for a meaningful United States recovery, for eurozone “leadership”, for signs of Middle Eastern entente. We might as well have been “Waiting for Godot”.

The year started relatively well, as markets continued to benefit from the 2010 year-end rally. Investors were looking forward to strong growth in the US and continued buoyancy from the emerging markets. By spring, though, reality was breaking through. America’s recovery was paltry and Western Europe’s largely unforeseen sovereign debt crisis was coming into view. Rapid Asian growth was also stoking inflation.

The response to all three problems was fiscal constraint, which stoked fears of recession in the Western world and culminated in a rather vicious August sell-off, with global markets giving up their year-to-date gains in a single, wicked week. By the end of 2011, investor sentiment had yet to recover with global markets still locked in a deep malaise. As a new year dawns, opinion is divided between adherents of “risk-on” and “risk-off”, with neither side completely convinced, but the more cautious definitely holding sway.

A Japanese tragedy

In December 2010, Goldman Sachs placed Japanese equities in their list of “favorite” 2011 investments with a 12,000 target for the Nikkei, based on a strong macro backdrop. As the world’s third-largest economy was struck by an earthquake and tsunami in March, killing thousands, Asian markets dropped severely and continued their descent amidst ever-worsening news, not least the Fukushima nuclear disaster. Alongside the ghastly human impact, the shutdown of car plants and oil refineries imposed vast economic costs, as global supply chains seized. The Japanese government suggests the bill could ultimately reach an astonishing $320 billion.

Black gold

Despite a sluggish global economy, world oil demand reached 89.3 million barrels per day in 2011, according to the International Energy Agency. That’s an all-time high, up from 84.1 million in 2009 and 76.4 million in 2000. This growth was driven by spiraling Asian consumption. China consumed almost 15 percent more oil in 2011 than in 2010. As the emerging markets continue to grow, and their massive populations adopt more energy-intensive lifestyles, the IEA foresees global crude use of 93.4 million barrels a day by 2015.

In 2011, the price per barrel of Brent crude reached $110, up from an average of $79 in 2010. This was driven by relentless Asian demand and from MENA-based supply concerns fuelled by the Arab uprisings. Libya is still pumping nowhere near the 1.7 million barrels it supplied daily to world markets in 2010.

US deficit

The tortuous negotiations between Congress and the White House over raising the US debt ceiling made the markets take notice of America’s $14 trillion of public debt. The Federal Reserve made the unprecedented announcement that base interest rates would be nailed to the floor until 2013. As the end of 2011 came into view, global markets finally accepted that the US could be in for a much longer period of weaker growth than previously expected.

With a budget deficit standing at 10 percent of gross domestic product, America’s fiscal situation is dire. The Congressional “super committee” seems unable to fulfill its remit of finding $1.2 trillion of spending cuts and new revenues by January 2013. As Uncle Sam’s debt continues to spiral, heading for $18 trillion by 2016, even the seemingly impossible spending cuts may not be enough. For now, as the euro suffers, the dollar looks strong. But America’s fiscal woes will inevitably come back to hurt the markets.

The Eurozone debacle

Throughout much of 2011, the European Central Bank (ECB) took a relatively aggressive interest rate stance, as Germany’s inflation aversion prevailed and higher borrowing costs exacerbated the creeping austerity across the Eurozone. While Greece took center-stage, the other PIIGS (Portugal, Italy, Ireland, Greece and Spain) also began to squeal due to their high-debt burdens and spiralling sovereign bond yields. Several member states are effectively insolvent, which suggest default and debt rescheduling is inevitable, something policymakers seem determined not to accept.

As 2011 comes to an end, the PIIGS government yields are reaching new euro-era highs. A previously unthinkable default is threatening the ECB due to the refusal of member states to sufficiently raise the bailout to stop the contagion. The infection of Europe’s “core” (France, Austria, the Netherlands and even Germany) is now a fact, and could spell systemic disaster for the Eurozone.

Golden horizons

Gold maintained a broadly upward trend and crossed the $1,900 level before reversing course. The strength of the gold price has been supported by soaring gold coin sales, America’s debt ceiling debacle and Eurozone worries, together with almost unprecedented gold stockpiling by central banks. The trend has been marked by bumps stemming from margin calls, liquidity constraints, hedge fund liquidation, profit taking and investors’ capitulation.

Popular pennies

Angst about US and European economies led the Swiss franc and the yen to benefit from “safe haven” flows. Strong currencies often are not welcome though. Switzerland’s central bank pegged the Swiss franc at 1.20 to the euro to boost its local economy. The Bank of Japan remains undecided with regards to the yen, leaving it at relatively strong levels.

Persistent pains

As 2011 comes to an end, Europe is in the midst of many changes. Mario Dragi, an Italian banker, replaced Jean Claude Trichet as ECB governor. In Greece, former ECB Vice President Lucas Papademos replaced Georges Papandreou as prime minister; in Italy, having failed to charm parliament due to fiscal problems and a long history of sex scandals, Silvio Berlusconi resigned as prime minister, leaving Mario Monti, an economist, to shoulder Italy’s burden. During the “make or break” Brussels summit in December, Europe’s leaders threw the kitchen sink at the Eurozone conundrum, unveiling a new European Stability Mechanism and promising fiscal union. Yet again, the bond markets remained unimpressed, with many still pricing-in a ‘Eurozone break-up’.

With presidential elections in the US and France in 2012, challenges remain to be tackled whether with new blood or new reforms, but investor sentiment looks set to remain unchanged, with rattled nerves playing havoc with both investor psychology and asset prices.

NADA SAFA is a private banker

January 3, 2012 0 comments

Economics & Policy

Q&A – Fadi Abboud

by Executive Staff January 1, 2012

written by Executive Staff

As minister of tourism, Fadi Abboud has seen Lebanon through the heyday of visitor arrivals in 2010 to the more barren roads of 2011, as well as the change in government from last year to this. At the helm of one of the most underfunded ministries in the government while overseeing an industry accounting for nearly a quarter of the country’s gross domestic product, Abboud pulled no punches when laying out the challenges for tourism in Lebanon as he sat down for an exclusive one-on-one with Executive.

E Following a fantastic 2010, how bad was 2011 for tourism?
We broke all records in 2010. Some 2.2 million tourists visited Lebanon, with total tourist spending up to an estimated $8 billion. In 2011, I think we will be down by some 300,000 tourists, most of whom come by road. Because of what happened in Syria, we lost roughly some 100,000 Jordanians, 100,000 Iranians and 100,000 Gulf Arabs. However, total spending in 2011 seems up, though I should add that buying residential property is included in tourism spending. What may also play a role is the fact that we are a dollar-based economy, and the euro went down.

E What has been done or what could have been done to counter the negative consequences of the Syrian crisis?
In all honesty, we should have taken some measures much earlier, but we did not do anything to compensate what we lost by road. For example, we could have had planes to Jordan for $50 a flight. Most Iranians only come for 24 to 48 hours, as part of a trip to Syria, and they do not spend much. But I think we could work harder in attracting the some 1.5 million Iranians who visit Turkey. In other words, we should attract more Iranians flying to Lebanon. Generally speaking, we are not taking advantage of what is happening around us. We should grasp the opportunity to, for example, build a civil airport in the Bekaa Valley, or use the existing airport to create a regional hub for so-called low-cost carriers. I just came back from the World Travel Market in London, where I had a word with Monarch, which is one of the smallest low-cost carriers in the world. Still, with 34 jets and a turnover of some $1.3 billion, it is twice the size of MEA (Middle East Airlines). On average, they offer a return ticket from London to Cyprus for some $450. Compare that to flights to Lebanon. Also, open the travel section of the Sunday Times and you can fly anywhere in the world on a package deal. But not to Lebanon. As long as we have a monopoly in Lebanon, or a duopoly between MEA and BMI (British Midland International), which is technically bankrupt, prices will not come down.

E External factors aside, what do you think is the main internal problem facing the Lebanese tourism industry?
I’d say a lack of professionalism. Lebanon is like a mezze. You eat a bit of everything but you never get full. For example, we have a casino, but we are not a gambling destination. Our casino is more like a hospital to treat the locals. We have ski slopes, but are not a skiing destination. Do you know any skiing destination in the world that does not have snow cannons? With all due respect, these days we can no longer rely on God alone. Another problem is that the owners of the separate ski stations do not want to cooperate. Yet to create a true ski destination we need lifts from Faqra all the way to the Cedars and snow cannons. Then, and only then, can we become a ski destination.
Likewise, we are not a Mediterranean destination. We need a coastal resort, where you have all the facilities in one place not to get bored for a few weeks. We are not a serious religious destination, even though we have all the sites in the world and no less than four saints. We are not even a serious destination in terms of nightlife. I’ll be frank, a lot of people come here for prostitution, yet the Emirates have much more to offer. In terms of diving we have the Victoria, the only ship in the world in a vertical position, and underwater archeology at Tyre, yet we are not a diving destination. Even when it comes to hiking, we do not take things seriously. There are a lot of jacks-of-all-trades anywhere in the world, yet people want professionalism. We do not take anything seriously. And that is what I’m trying to change. In Arabic we have a saying ‘you do not drink from a well and throw a stone.’ I am embarrassed to say what we throw in this well. It is not just stones. It is rubbish. Tourism represents 22 percent of our GDP. We should invest in it. You cannot create an industry if you do not promote it.

E Talking about promotion, what happened to the LL5,000 ($3.33) airport tax you suggested in 2010?
It did not happen. It was refused as usual. It was meant to be an extra LL5,000 departure tax, which would have enabled us to promote Lebanon. But the whole 2010 budget was refused, including the extra tax. It was not even debated properly. The Ministry of Finance always emphasizes the unity of the budget, but, personally, I don’t see what a LL5,000 promotion tax has to do with the budget of, say, the CDR (Council for Development and Reconstruction).

E What is the budget of the ministry?
It’s ridiculous. It’s less than $20 million, which includes all wages. It is by far not enough to promote the country. But suppose they give me $30 million, even then I cannot spend them. If I tell the World Travel Market I want to participate and ask if I can pay six months later, they will ask me politely to f*** off. For a stand at a fair you pay up front, regardless of what is the official way of doing things in Lebanon.

E Will attracting more Western tourists be difficult considering travel warnings issued by many Western embassies?
Usually, we are not in the market of mass tourism. We cannot compete really. That does not mean we only want jet setters staying in 5-star hotels in Solidere. I love them, don’t get me wrong, but we cannot only rely on them. Fortunately, most educated people in the West know that these travel warnings are political. For example, why did England not issue a travel ban when earlier this year two young Britons were massacred in [Florida]? Is Beirut more dangerous than Bogota? I feel safer in Beirut with an expensive watch than in London, Paris or any city in the United States. Now, I don’t think these bans and warnings are working, but is it making our life any easier? No, not at all.

E In a few words, how would you describe 2011?
2011 was not as good as 2010, yet it could have been much worse. Overall, certainly seeing what is happening in countries around us, I’m happy.

E What to expect for 2012?
Of course, security is very important, but all things being equal, 2012 could be a good year. But, unfortunately, we are experts in losing opportunities. We have an excellent opportunity to build our position. We are currently one of the safest countries in the region. We should grasp this opportunity.

E What are the main challenges?
Well, regional politics of course. Look, if I were responsible for Israeli security I would have only one thing on my mind: a Shiite-Sunni war. Israel is usually very good at studying our weak points, and that is one of our weak points. Today, with the rise of Sunni fundamentalism everywhere, it is very feasible to instigate such a conflict. And the US would be happy with that, as they need a market to sell their weapons. If this scenario becomes reality, all hell will break loose. Closer to home, we really need to redefine tourism in Lebanon. We really need to become a serious destination for the hiker, the religious tourist, the diver, etc. We really need world-class facilities. In addition, I strongly believe that monopolies, and the sisters and brothers of monopolies, are still controlling the Lebanese economy. This has to stop. I don’t believe that Lebanon should have just one casino, one airport and one port. We have to free the travel market, especially when it comes to flights. If you talk to tourism professionals in Jordan and Egypt, they will tell you that they could only break their records once they broke the travel monopoly. If we don’t free the market, we will never substantially expand.

January 1, 2012 0 comments

Tourism

Fadi Abboud

by Executive Editors December 25, 2011

written by Executive Editors

A s minister of tourism, Fadi Abboud has seen Lebanon through the heyday of visitor arrivals in 2010 to the more barren roads of 2011, as well as the change in government from last year to this. At the helm of one of the most underfunded ministries in the government while overseeing an industry accounting for nearly a quarter of the country’s gross domestic product, Abboud pulled no punches when laying out the challenges for tourism in Lebanon as he sat down for an exclusive one-on-one with Executive.

Following a fantastic 2010, how bad was 2011 for tourism?

We broke all records in 2010. Some 2.2 million tourists visited Lebanon, with total tourist spending up to an estimated $8 billion. In 2011, I think we will be down by some 300,000 tourists, most of whom come by road. Because of what happened in Syria, we lost roughly some 100,000 Jordanians, 100,000 Iranians and 100,000 Gulf Arabs. However, total spending in 2011 seems up, though I should add that buying residential property is included in tourism spending. What may also play a role is the fact that we are a dollar-based economy, and the euro went down.

What has been done or what could have been done to counter the negative consequences of the Syrian crisis?

In all honesty, we should have taken some measures much earlier, but we did not do anything to compensate what we lost by road. For example, we could have had planes to Jordan for $50 a flight. Most Iranians only come for 24 to 48 hours, as part of a trip to Syria, and they do not spend much. But I think we could work harder in attracting the some 1.5 million Iranians who visit Turkey. In other words, we should attract more Iranians flying to Lebanon. Generally speaking, we are not taking advantage of what is happening around us. We should grasp the opportunity to, for example, build a civil airport in the Bekaa Valley, or use the existing airport to create a regional hub for so-called low-cost carriers. I just came back from the World Travel Market in London, where I had a word with Monarch, which is one of the smallest low-cost carriers in the world. Still, with 34 jets and a turnover of some $1.3 billion, it is twice the size of MEA (Middle East Airlines). On average, they offer a return ticket from London to Cyprus for some $450. Compare that to flights to Lebanon. Also, open the travel section of the Sunday Times and you can fly anywhere in the world on a package deal. But not to Lebanon. As long as we have a monopoly in Lebanon, or a duopoly between MEA and BMI (British Midland International), which is technically bankrupt, prices will not come down.

External factors aside, what do you think is the main internal problem facing the Lebanese tourism industry?

I’d say a lack of professionalism. Lebanon is like a mezze. You eat a bit of everything but you never get full. For example, we have a casino, but we are not a gambling destination. Our casino is more like a hospital to treat the locals. We have ski slopes, but are not a skiing destination. Do you know any skiing destination in the world that does not have snow cannons? With all due respect, these days we can no longer rely on God alone. Another problem is that the owners of the separate ski stations do not want to cooperate. Yet to create a true ski destination we need lifts from Faqra all the way to the Cedars and snow cannons. Then, and only then, can we become a ski destination.

Likewise, we are not a Mediterranean destination. We need a coastal resort, where you have all the facilities in one place not to get bored for a few weeks. We are not a serious religious destination, even though we have all the sites in the world and no less than four saints. We are not even a serious destination in terms of nightlife. I’ll be frank, a lot of people come here for prostitution, yet the Emirates have much more to offer. In terms of diving we have the Victoria, the only ship in the world in a vertical position, and underwater archeology at Tyre, yet we are not a diving destination. Even when it comes to hiking, we do not take things seriously. There are a lot of jacks-of-all-trades anywhere in the world, yet people want professionalism. We do not take anything seriously. And that is what I’m trying to change. In Arabic we have a saying ‘you do not drink from a well and throw a stone.’ I am embarrassed to say what we throw in this well. It is not just stones. It is rubbish. Tourism represents 22 percent of our GDP. We should invest in it. You cannot create an industry if you do not promote it.

Talking about promotion, what happened to the LL5,000 ($3.33) airport tax you suggested in 2010?

It did not happen. It was refused as usual. It was meant to be an extra LL5,000 departure tax, which would have enabled us to promote Lebanon. But the whole 2010 budget was refused, including the extra tax. It was not even debated properly. The Ministry of Finance always emphasizes the unity of the budget, but, personally, I don’t see what a LL5,000 promotion tax has to do with the budget of, say, the CDR (Council for Development and Reconstruction).

What is the budget of the ministry?

It’s ridiculous. It’s less than $20 million, which includes all wages. It is by far not enough to promote the country. But suppose they give me $30 million, even then I cannot spend them. If I tell the World Travel Market I want to participate and ask if I can pay six months later, they will ask me politely to f*** off. For a stand at a fair you pay up front, regardless of what is the official way of doing things in Lebanon.

Will attracting more Western tourists be difficult considering travel warnings issued by many Western embassies?

Usually, we are not in the market of mass tourism. We cannot compete really. That does not mean we only want jet setters staying in 5-star hotels in Solidere. I love them, don’t get me wrong, but we cannot only rely on them. Fortunately, most educated people in the West know that these travel warnings are political. For example, why did England not issue a travel ban when earlier this year two young Britons were massacred in [Florida]? Is Beirut more dangerous than Bogota? I feel safer in Beirut with an expensive watch than in London, Paris or any city in the United States. Now, I don’t think these bans and warnings are working, but is it making our life any easier? No, not at all.

In a few words, how would you describe 2011?

2011 was not as good as 2010, yet it could have been much worse. Overall, certainly seeing what is happening in countries around us, I’m happy.

What to expect for 2012?

Of course, security is very important, but all things being equal, 2012 could be a good year. But, unfortunately, we are experts in losing opportunities. We have an excellent opportunity to build our position. We are currently one of the safest countries in the region. We should grasp this opportunity.

What are the main challenges?

Well, regional politics of course. Look, if I were responsible for Israeli security I would have only one thing on my mind: a Shiite-Sunni war. Israel is usually very good at studying our weak points, and that is one of our weak points. Today, with the rise of Sunni fundamentalism everywhere, it is very feasible to instigate such a conflict. And the US would be happy with that, as they need a market to sell their weapons. If this scenario becomes reality, all hell will break loose. Closer to home, we really need to redefine tourism in Lebanon. We really need to become a serious destination for the hiker, the religious tourist, the diver, etc. We really need world-class facilities. In addition, I strongly believe that monopolies, and the sisters and brothers of monopolies, are still controlling the Lebanese economy. This has to stop. I don’t believe that Lebanon should have just one casino, one airport and one port. We have to free the travel market, especially when it comes to flights. If you talk to tourism professionals in Jordan and Egypt, they will tell you that they could only break their records once they broke the travel monopoly. If we don’t free the market, we will never substantially expand.

December 25, 2011 0 comments

Real estate

Business talk

by Executive Editors December 25, 2011

written by Executive Editors

“Beirut is reaching its normal prices, but it’s still undervalued compared to Jordan, Syria and all the countries around us, although not as undervalued as the Metn [area]. The most undervalued area for me is the Mechref area [south of Beirut]; it’s nicer than Rabieh and Faqra, and I think it’s on the way up.”

Capstone Investment Group: Ziad Maalouf, CEO

“We have only seen a slowdown in sales but it has not affected prices of land, which remain high. Expectations of landowners keep increasing despite new realities in the market today. If I were to buy land today in Ashrafieh, I would have to sell at a starting price above $6,000 per square meter, which should not be the case… The owners have to readjust their expectations to market realities. Since 2005, land prices have increased exponentially per year, so they assume that this will continue. But that was when Lebanon was underpriced in the region; it’s not true anymore. Growth of land prices and apartment prices should be around 5 percent per year, if there is any at all.”

Seven Invest Developers: Fawaz Sawaf, Director

“The biggest problem in Ashrafieh is parking. The government is trying to improve roads in Ashrafieh, but it wasn’t originally made for this many cars, if all the buildings come up in the area.”

FFA Real Estate: Mireille Korab Abi Nasr, Head of Sales and Marketing

“While prices have generally risen for the past several years, in 2011 we have noticed a standstill in the market in some areas which has caused some developers to resort to giving discounts to sell their apartments. This is all due to the mismatch between the market needs and the supply. This has been the case especially with large-scale apartments. The market will always correct itself, and this is very healthy in order to regain the balance between supply and demand.”

Ramco Real Estate Services: Karim Makaram, Director

“A couple of years ago, a project would have sold half 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. But if you’re selling the right size in the right area, there is still demand.”

Benchmark Real Estate: Zina Dajani, Managing Director

“Last year you could get a 5 percent or 10 percent discount at best, if you are a serious buyer, except at the launching of new projects where discounts were more substantial. This year, buyers are expecting around 20 percent and 25 percent discounts and are making counter offers to developers before they accept a deal. Given that the sales momentum has slowed down, these numbers may have been achievable in some projects.”

Prime Consult: Massaad Fares, General Manager

“Clients tend to be more selective; they know what they are looking for… the ones interested in city living tend to require mostly smaller sizes but very sophisticated buildings. Being environmentally friendly is very important [and] tall buildings are becoming more and more interesting as views of the city can be guaranteed, and as you know this is not always available. Environmentally friendly projects and gated communities will be more and more in demand.”

December 25, 2011 0 comments

Banking & Finance