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

Business

Q&A – Tarek Sadi

by Executive Staff December 3, 2011

written by Executive Staff

Entrepreneurial fervor among the Lebanese is well established, though the proper support systems to encourage and assist entrepreneurs are only recently improving. Endeavor, a non-profit nongovernmental organization (NGO), which supports high impact entrepreneurs in emerging markets, set up shop in Lebanon at the beginning of the year. It has helped create more than 156,000 jobs worldwide since its establishment in 1997 and now aims to do the same in Lebanon. Executive sat down with Tarek Sadi, managing director at Endeavor in Lebanon, to discuss how to discover the best entrepreneurs, how to help them and what is in it for him.

E What are the main challenges that entrepreneurs face in Lebanon?
One challenge they face is finding the right talent to build up their team. The difficulty in hiring people that are dedicated and motivated consistently comes up in our discussions with entrepreneurs. This is partially due to the brain drain in the country and partially due to a cultural preference to build careers in established and stable businesses.

Another challenge in Lebanon is that entrepreneurship is still not viewed as a viable career choice and failure is perceived negatively. Globally, it is accepted that most entrepreneurs fail a number of times before becoming successful, and the failures are viewed as valuable learning opportunities. In Lebanon we view failure negatively, not as a stepping-stone to success. This is reflected in our laws as Lebanon lacks laws protecting entrepreneurs from failure and encouraging them to start again, such as Chapter 11 in the United States. As they say, the US was built on the back of Chapter 11.

The third challenge is that the economy is not geared towards helping and supporting small and medium enterprises (SMEs), and as such the cost of financing the partnership is still high. Kafalat, which provides loan guarantees to help SMEs, is a very successful pioneer in increasing banks’ support to SMEs and it is a great example of how effective the right programs can be.

Finally, there is a disconnect between the investment industry and entrepreneurs in Lebanon. Venture capitalists tell us that they are not seeing the volume of opportunities to invest in that they would like to see and entrepreneurs tell us that there are not enough investors in Lebanon. There is a schism between the two that needs to be bridged.

E Who do you think is right; the entrepreneurs or the venture capitalists?
I think both are right. From what I see, there are a lot of very exciting businesses and great startups in Lebanon being funded informally by friends but not by the venture capital (VC) industry. Entrepreneurs do not fully appreciate the value VCs bring to the table and prefer to go to sources of capital that are within their comfort zone. A couple of great successes out of the VC industry in Lebanon will do a lot to correct that misconception.

E Since you launched Endeavor in Lebanon at the beginning of this year, you have selected four companies to offer your support to. How did you go about selecting them?
We selected Eastline Marketing, Mobinets, Nada Debs and Printworks. We look for companies that are already in business, and we identify as many companies as possible that are innovative, have high growth potential, a good track record and above all that are headed by entrepreneurs who are ambitious, trustworthy, perseverant and who want to give back. We look for businesses that can be regional and global. These companies then go through a rigorous selection process which culminates with a global event, during which an international selection panel, made up of professionals from different backgrounds, selects entrepreneurs presented by our 13 countries. Historically over the past 15 years only 3 percent of companies around the globe identified by Endeavor offices became Endeavor entrepreneurs.

In Lebanon, we look to select about four companies a year and give them a tremendous amount of support. Our focus is not how many we can select but how many we can support and help create value which translates into new jobs and economic growth for the country. As we build up our capacity, we build up the amount of companies that we select.

E What makes it so attractive to be selected?
First of all, the rigorous selection process is incredibly valuable. Even if the entrepreneurs are not selected, they are still sitting in front of some of the brightest business minds in the world giving them feedback on their businesses. Entrepreneurs that have been through the selection process have told us this is extremely valuable as they have a rare opportunity to have a 30,000 foot view of their business. For entrepreneurs that have their nose to the steering wheel every day, this is a great opportunity to gain perspective.

Secondly, once entrepreneurs get selected, we distill all the feedback we get throughout the process into very clear actionable points that we help them overcome through our global networks.

There are several other attractions to being selected, such as access to international markets, access to a peer network of over 600 Endeavor entrepreneurs from around the world and access to mentorship. Through our relationships with top business schools, we help entrepreneurs secure bright interns from schools such as Harvard Business School, MIT, Insead and Stanford. We also have global partnerships with the top four professional services and consulting firms that help us support our entrepreneurs.

E What is in it for Endeavor?
We have three goals in Lebanon: create jobs, grow the economy and help identify and promote top entrepreneurs to stimulate our entrepreneurial sector. We have a small ‘give-back’ program, which is designed to make sure our entrepreneurs see us as service providers and not as a freebie. In the more mature Endeavor offices such as Mexico, Brazil, Chile and Argentina, the give-back program covers at most 30 percent of the budget so it is not something we will live from. The idea is that as entrepreneurs become successful and exit their businesses, they start sitting on the board of directors and fund Endeavor locally themselves for future entrepreneurs. Our work will also help promote global best practices and the right corporate cultures, giving proper incentives to employees and building meritocracies, which we believe will also help reverse the brain drain. We are part of a global world; we need to think in global terms and act in global ways.

E Booz recently published a report calling for accelerated entrepreneurship in the Middle East to tackle the surge in labor force numbers expected in the region. How crucial is entrepreneurship in helping to create jobs?
Entrepreneurship is the only way we are going to create the 80 million jobs in the next 10 years that are needed in the Middle East. Otherwise where will these jobs come from? The public sector can’t create that many jobs and the large companies are consolidating their workforces in the face of uncertain economic times. There are a lot of great institutions and NGOs helping start-ups and early stage entrepreneurs in Lebanon. And we are starting to see some great stories come out of them.

December 3, 2011 0 comments

Finance

Lebanese securities performance 2011

by Maya Sioufi December 3, 2011

written by Maya Sioufi

For the Beirut Stock Exchange (BSE), crises at home and abroad made 2011 a predictably rough year. A five-month government deadlock in Lebanon left the country in a bind, and Lebanese securities priced in this uncertainty. Revolutions in the Arab world and the unresolved European sovereign debt crisis took their toll on the Lebanese stock market as well. Lebanon’s fixed income market, on the other hand, is looking increasingly attractive to investors in comparison to troubled markets on the other shores of the Mediterranean and beyond.

The nascent year

At the beginning of 2011, just weeks before the fall of the previous cabinet, the BSE’s market capitalization stood at $12.6 billion. Six months later, immediately following the formation of the current cabinet, it had fallen to $11.3 billion.

Although Lebanon’s political situation stabilized after the formation of a government in June, the BSE was not immune to regional turmoil, nor the European sovereign debt crisis. The BSE witnessed consistent monthly drops in its market capitalization throughout the year but these accelerated into double digits from June through October as political troubles in Syria and economic woes in Europe escalated.

In addition to the turbulent regional and global markets, the BSE has its own structural problems, such as a lack of liquidity, a deficiency of listed companies, a now two-year void in its presidency and no independent authority to oversee the exchange. The capital markets and insider trading law approved by parliament in August is expected to tackle this last issue by providing Lebanon with an independent authority to oversee the exchange and protect investors.

According to Riad Salameh, governor of Banque du Liban (BDL), Lebanon’s central bank, the law would attract “substantial” investment in Lebanese companies.

Good-looking Lebanese… debt

As Lebanese equities suffered steep losses in 2011, Lebanon’s credit default swaps (CDS) — a proxy for sovereign default risk — performed relatively better. In the third quarter of 2011, Lebanon’s change in CDS spreads was one of the best performers globally, along with Venezuela, Qatar, the United States and Ireland. Lebanon’s CDS spread widened by only 22 percent in the third quarter to 430 basis points. The widening of a CDS spread means it is more expensive to insure a country’s credit and it reflects an increased perception that the country is more likely to default. Relative to the widening of the CDS spreads of 68 countries monitored by CMA Vision, a provider of market pricing data, Lebanon fared well. Italy, Germany, the Netherlands, Denmark and Austria, meanwhile, all saw their CDS spreads widen by more than 150 percent in the third quarter.

Lebanon’s credit is classified as non-investment grade or “junk” by the three rating agencies Moody’s, Standard & Poor’s and Fitch, though all three have a stable outlook on Lebanon.

Lebanon’s gross public debt stood at $54.4 billion as of September 2011; Finance Minister Mohammad Safadi expects this figure to reach $60 billion by the end of 2012. Lebanon’s gross public debt to gross domestic product (GDP) stands at an astounding 134 percent, according to the International Monetary Fund. By comparison, Greece’s ratio, the highest in Europe, stands at 142 percent.

Freddie Baz, chief financial officer at Audi Bank, likes to compare Lebanon’s debt profile to that of Japan and not Portugal, Ireland, Greece or Spain (PIGS), as 95 percent of the debt is held by local investors, as opposed to only 30 to 40 percent in PIGS. Indeed, Jean Riachi, chairman of FFA Private Bank, says, “Although rating agencies classify Lebanon’s debt as low grade, many investors around the world and not only in Lebanon are quite confident because of the technicalities of the Lebanese debt whereby it is 95 percent held by Lebanese.”

There are restrictions imposed by BDL requiring local banks to acquire investment grade bonds only and, according to Khaled Zeidan, general manager at MedSecurities, yields on these bonds are very low and thus government debt becomes attractive for local banks. “Most banks have few options in deploying their liquidity and with all the restrictions that the central bank has put in place, banks generally go back to Lebanese republic paper whether in USD [dollars] or LBP [Lebanese pounds],” he says.

Lebanese bankers are not the only ones recommending Lebanese debt as an investment. International banks are doing so as well. Merrill Lynch upgraded in October its rating on Lebanese Eurobonds to “Overweight” from “Marketweight,” while Barclays, which has kept its “Marketweight” recommendation, raised the allocation of Lebanon’s debt in its emerging markets portfolio.

The 10-year yield on Lebanon’s sovereign debt has dropped by 40 bps this year and stands at around 5.8 percent as of mid-November, which bodes well in comparison to those in floundering countries in Europe like Italy, which has its 10-year yield at over 7 percent, a 2 percent rise from the beginning of the year, and Spain, which stands at 6.3 percent, a 1 percent rise year-to-date.

Alain Wanna, deputy general manager at Byblos Bank, notes changes in the approach to Leban-on’s sovereign debt. “For the last two years, we had a strategy at Byblos of reducing our exposure to the government as a percentage of equity. But today, when we compare the sovereign debt of Lebanon to the sovereign debt of some European countries, we see that Lebanon is still performing extremely well,” he says. “At the end of the day, we need to make a choice on where to place our money.”

The attractiveness of Lebanon’s debt is reflected by the successful refinancing and issuance of Eurobonds this year. In May, Lebanon refinanced $1 billion in Eurobonds: one issue of $650 million maturing in 2019 at a yield of 6 percent, and a second issue of $350 million maturing in 2022 at 6.1 percent. And in July, Lebanon launched a $1.2 billion two-tranche Eurobond composed of a $500 million issue of bonds maturing in 2016 with a 4.75 percent yield, and a $700 million issue of bonds maturing in 2022 with a 6.2 percent yield.

“If you look at rates paid on the Eurobonds and the rate in the latest issued tranche, you can see [it] has dropped and not increased,” says Francois Pascal de Maricourt. “That's really a sign of confidence in Lebanon.”

The rosy picture painted by the attractive rates of Lebanon’s debt will likely be shaken if the government does not take action and implement the reforms necessary to tackle the debt. “A lack of reforms in the budget is very dangerous because they don’t realize the dangers if things go wrong,” says Byblos’ Wanna.

“Today there is excess liquidity in the sector, money is coming into Lebanon. But what if the banks stop investing; what if deposits don't flow?” he added. “The government should start to think about that and take corrective action. And it is time today to initiate reforms because money is available. It is more difficult to initiate reforms under pressure; look at Greece.”

December 3, 2011 0 comments

Business

Sources of inspiration

by Executive Staff December 3, 2011

written by Executive Staff

DERMANDAR

The concept:
Meaning ‘all around’ in Lebanese slang, Dermandar specializes in digital image technologies. The concept is simple: pictures taken with a normal camera can be turned into a panorama picture within seconds using the online tool that Dermandar has created. It was co-founded in January 2010 by Elie Grégoire Khoury and Elias Fadel Khoury and launched as an iPhone application in June 2011.

Sources of revenues:
The iPhone application is priced at $1.99 in the Apple store, of which Apple takes 30 percent commission. This revenue now covers five to 10 times Dermandar’s expenses, rendering the company “very cash-flow positive,” according to Khoury.

2011 accomplishment:
1.8 million downloads since the launch of its iPhone application on June 8 2011 (97 percent of Dermandar usage is on the iPhone app and not the website). These downloads are mainly coming from the United States (21 percent of downloads), China (12 percent) and Germany (11 percent). As Dermandar is an offshore company, it is not allowed to sell the application inside Lebanon.

Future plans:
Dermandar is developing an Android app and will eventually develop a Windows 7 app, but it has no plan for a blackberry app as “that is the segmentation of the worldwide market,” says Khoury. Dermandar is also preparing new apps for 2012 based on digital image processing using what has been learnt so far to “provide more fun and sexy apps.”
More on www.dermandar.com

BUTTERFLEYE

The concept:
ButterflEye produces swimming goggles with integrated electronic monitors that track the heart rate of an athlete during activity. A tiny bulb at the top of the lens goes green if the swimmer is in his target zone, yellow if he needs to speed up and red if he needs to slow down. It was founded by 23-year-old Hind Hobeika and was officially registered in September 2011. It is still at the prototyping stage and the product should be ready for sale in 2012.

Sources of revenues:
The price of the goggle is expected to be north of $100 and the primary market will be the United States. However, the revenues will not only be based on the sales of the products but also on the licensing of its US patent, which has already been filed and is expected to be reviewed in a couple of months.

2011 accomplishment:
“Opening ButterflEye, focusing full time on its work and securing $100,000 in funding from Berytech, one of Lebanon’s most important venture capital [funds],” says Hobeika.

Future plans:
First, Hobeika has to start selling the product and secure a license for the patent. In order to do that, ButterflEye might need another round of financing. She also wants to develop other products related to sports and biomedical technologies.
More on www.butterfleyeproject.com

CINEMOZ

The concept:
Cinemoz is a video-on-demand platform providing videos from the Arab world. It was set up by 27-year-old Karim Safieddine and will be fully accessible to the public in December 2011, with a diverse library of 250 titles, from feature films to TV series to documentaries and shorts. As an Arabic content provider, the direct geographical target of Cinemoz is Egypt and the Gulf Cooperation Council (GCC), while still remaining strongly Pan-Arab and globally competitive.

Source of revenues:
Cinemoz generates its revenues through premium in-video advertising. “The model has proven to be viable and meets all the interests of different parties involved, whether it’s content owners, advertisers or ourselves,” says Safieddine. By the end of 2012, Cinemoz expects advertising revenues to reach $500,000.

2011 accomplishment:
“I believe our most outstanding achievement for 2011 was to actually build a strong team and keep it together. Finding talented individuals who are willing to fully immerse themselves with a start-up and get them to build something from the ground with you is a major obstacle in Lebanon,” says Safieddine.

Future plans:
Cinemoz’s future plan is to have a second round of investment (after securing a $200,000 loan from Kafalat), add premium content, develop state-of-the-art technologies and deliver a groundbreaking product.
More on www.cinemoz.com

December 3, 2011 0 comments

Economics & Policy

Executive Insight – Public-private partnership

by Ziad Hayek December 3, 2011

written by Ziad Hayek

In order to grow our economy and provide a better standard of living for our people, we need to invest in modern infrastructure urgently. We need roads that are well maintained, renewable energy projects that reduce our fuel bill, dams and waterworks that harness our most precious natural resource, fiber-optic networks that allow us to be part of the global knowledge economy and water and solid waste treatment plants that preserve our environment. We need projects that create a large number of jobs to help stem the emigration of our best and brightest. Everyone can agree that investing in infrastructure is investing in our future.

For more than a decade now, public sector salaries, the servicing of the public debt and the subsidizing of electricity have consumed our national budget and left little money for development projects. To finance infrastructure today, the government has three options. Firstly it could borrow money — a frightening prospect considering our dangerously high level of debt. Secondly it could raise taxes — a politically unpalatable and economically inadvisable course of action in the context of declining real incomes. Or thirdly, it can look to the private sector to invest in infrastructure that can later be transferred to the government. It is obvious that this last option, i.e. that of a public-private partnership (PPP), is our only viable way forward.

Lebanon already has two of the main elements that are needed to execute successful PPP programs. First, we have the know-how and the human resources. Lebanese companies and individuals are investing in and managing PPP projects in the Arab world, in Africa and beyond. Many have repeatedly expressed their readiness to invest in Lebanon. Second, we have the financial resources. Our banking system is flush with some $115 billion in deposits. Short-term deposits to be sure, but more than enough to fund the $3 billion or so for the immediate infrastructure required in sectors such as electricity, water, rail and many others.

So what else do we need? What is stopping us from embarking on this road to social and economic development? We need a legislative framework that safeguards the interests of the government and people of Lebanon while providing sufficient comfort to investors. It must also impose transparency, for serious investors do not participate in the often-complex PPP tenders if there exists the possibility of a minister or official manipulating the results. Finally, the legislative framework must establish, on the government side, an inter-ministerial organ that has a capable team who are able to speak the language of the private sector and help structure a bankable deal.

This is what the current planned legislation, drafted by a multidisciplinary group of experts and will hopefully be approved by the Council of Ministers before long, aims to do.

I have proposed and championed the enactment of a PPP law since I took office in 2006 because I truly believe that it is the most important factor in our future economic development. I am disappointed that we have not been able to see it through until now. Draft legislation was approved by the Council of Ministers in 2007 but was not taken up by Parliament. It was again proposed in Parliament in 2010 but the Council of Ministers wanted to approve it first. A new draft was then prepared and discussed in several ministerial meetings but discussions were unfortunately not finalized by the time the government resigned in January 2011. In the meantime, we have lost many opportunities to invest in our country’s infrastructure, to grow our economy, to increase our productivity and to raise our income per capita. Instead of sharing in a bigger pie and comparing the size of our portfolios, we are sadly left to argue about the minimum wage and fight over the crumbs.

It is high time that our government and our Parliament get their act together and do the right thing by our people.

December 3, 2011 0 comments

Economics & Policy

Clearing the smoke

by Executive Staff December 3, 2011

written by Executive Staff

Little has improved in Lebanon since Executive’s last year-end report on the environment in December 2010. Air quality continues to deteriorate, urbanization advances almost totally unchecked and water resources remain poorly managed; and these are only a few of the steadily growing ecological problems the country faces.

For years, one of the major problems present in addressing Lebanon’s many environmental issues has been the near total lack of reliable and current data.

It has been more than a decade since the last comprehensive report on the environment here was released, so perhaps the most substantial development of 2011 was not an innovative field project or the passing of new environmental regulations, but rather the publication of a 355-page report titled “State and Trends of the Lebanese Environment 2010”.

The report, released in July by the Lebanese development firm ECODIT, was compiled with the assistance of the Ministry of Environment (MoE) and the United Nations Development Program (UNDP). It includes data culled from the Central Administration of Statistics, local and international non-governmental organizations, as well as various news reports. Together, this will add to the ability to clearly analyze the successes, failures and neglected areas of the environment in Lebanon. It can also serve as a platform from which to promote the adoption of new environmental laws.

Environmental governance

Any substantial changes to existing environmental laws in Lebanon must ultimately gain approval from the top — no easy task considering the epic bureaucratic hurdles of government. Najib Saab, secretary general of the Arab Forum for Environment and Development (AFED), says Lebanon’s biggest environmental issues, “such as air pollution, land and water degradation and coastal zones’ deterioration, can be easily solved in the presence of adequate governance, professionalism and vision.” He adds that “environmental matters are managed by amateurs.”

And not only are government agencies highly inefficient — in the case of the MoE at least, they are also understaffed. More than two years ago, the MoE was given approval to hire an additional 23 staff members for various positions, and salaries for an additional 20 contracted technicians were to be paid in part by a grant from the Italian foreign ministry’s local outreach arm, Italian Cooperation for Development in Lebanon. With government bureaucracy a chronic problem in Lebanon, on the surface, adding more staff to a ministry seems like an unwise decision. But adding analysts, technicians and other specialists to a long neglected ministry could be of great benefit in the future. To date, most of these positions have not been filled. [See Q&A with Minister of Environment Nazem Khoury on page 216]

Another urgent problem is the lack of an environmental law enforcement body. Without one, the task of enforcing regulations, cracking down on violations and monitoring and carrying out court rulings falls on municipal police departments and the Internal Security Forces — both of which have other priorities. The addition of even a modest environmental police force in Lebanon could begin a process of changing people’s attitudes toward the environment. “If the government would enforce laws, say, against throwing trash on the side of the road, I think Lebanese people would stop doing this because they don’t want to pay fines,” says Capricia Chabarekh, an environmental and air quality specialist at ECODIT.

The MoE has sought assistance from a broad range of NGOs in Lebanon, as Rayan Makaram, Greenpeace Lebanon campaigner, says: “When the new minister of environment was brought in this summer, right away he asked for feedback from civil society, NGOs and the media. This push toward greater cooperation with the government was a good success. But, it’s just a first step.”

Shortsighted land management

According to Rita Stephan, environmental and land management specialist at ECODIT, one of Lebanon’s most pressing issues is the poor management of its land resources. Given the country’s size, having responsible policies that curb urbanization and regulate land use is all the more urgent.

“We don’t have land for public gardens; we only have land to build towers and big commercial centers,” she says. “We are destroying our land heritage.”

An October 2011 report from the AFED, ‘Arab Environment: Green Economy,’ offers a blunt assessment of the region’s overall disregard for environmental sustainability: “Arab economies continue to unsustainably deplete renewable natural resources, motivated by short-term profits, causing environmental impoverishment of scarce land and water resources while discounting the value of these resources of future generations.” While meant to address the region as a whole, this statement could be used to describe practices in Lebanon alone, too.

And the figures are staggering: “The average annual cost of environmental degradation in Arab countries has been estimated to be $95 billion, equivalent to 5 percent of their combined GDP in 2010,” the AFED report adds. The last time a thorough cost analysis of environmental degradation in Lebanon was performed — 12 years ago by the World Bank — estimates put the cost at roughly $500 million, or 3.4 percent of Lebanon’s GDP.

Seeing potential in solid waste

According to data from the MoE, solid waste management, or the lack thereof, is one of the fastest growing problems for Lebanon. One possible solution, supported by both the UNDP and ECODIT, is the construction of four waste-to-energy (WTE) incinerators in Lebanon. ECODIT’s Stephan points out the positives — increased energy production for Lebanon’s ailing power grid and less solid waste piling up in landfills, among others — but acknowledges some activists and NGOs are against it. Building and maintaining incinerators “is costly and they need to strictly regulate it,” she says. Among the problems is to dispose of the ash produced from burning waste, which can contain highly toxic chemicals and heavy metals that are dangerous to water supplies.

Beginning in 2006, the government was expected to begin the construction of treatment plants and landfills as part of its WTE “master plan”, but it has so far failed to act. And it is not just a matter of building WTE facilities, it is about changing people’s habits, as Stephan explains: “You have to sort the waste well before incinerating it. So we need to reorganize our waste. We should be separating it in our homes.” She adds that “there is no public awareness for separating waste, and this is a major problem in Lebanon.”

Government stalling will cost Lebanon dearly in the near future. According to the ECODIT report, “waste generation in Lebanon is expected to increase by 1.65 percent annually to reach 2.3 million tons by 2030, notwithstanding potential waste recovery from sorting and composting facilities.” It adds, “Waste disposal is particularly difficult in Lebanon because of its rugged terrain and limited surface area.”

According to Saab of AFED, “Waste-to-energy is just one possible component in an integrated solution to the waste management challenge. Until now, the principles of reduction and re-use are totally absent. It’s as if consumers are encouraged to generate more waste. In this context, waste-to-energy is one option. But what is being considered by the ministry is restricted to generating energy through incineration. When up to 80 percent of municipal solid waste is composed of organic material like in Lebanon, many doubts are raised on the efficiency of combustion, how much energy it produces and how many pollutants. High content of wet organic material is not good for burning, will need addition of fuel to blaze and generates minimal energy.”

“We haven’t seen a study of an option comprising generating energy from organic waste, utilizing digestion to obtain methane. This might be the better option in the Lebanese case. Environmental affairs, including waste, are run by pretentious amateurs or shrewd salesmen,” Saab says.

The issue of waste-to-energy incinerators is highly divisive, with NGOs and activists who are against incinerators pitted against the Ministry of Environment and UNDP who support their construction. According to Makaram of Greenpeace Lebanon, “Our stance is that incinerators are still incinerators — they encourage the production of waste rather than the reduction of waste. Around the world, countries are shutting these incinerators down, and now we want to build them in Lebanon? The global trend is to close down. If we build these in Lebanon, we’re going against science and global trends.”

Additionally, the AFED report estimates that “greening the waste management sector would save Arab countries $5.7 billion annually.”

On the horizon

While there were significant steps taken to improve the environment in 2011 (such as the passing of the National Water Sector Strategy in April), tangible improvements have yet to be seen.

With assistance from the UNDP and NGOs, the government has several major environmental projects on schedule to begin in 2012. Jihan Seoud, environment and energy program associate for UNDP in Lebanon, says that a program with the ministry that will work toward reducing ozone-depleting substances will start next year.

The water sector strategy will be looking at options for renewable sources of water for Lebanon, as well as studying the effects of climate change on supply. “It’s quite comprehensive,” Seoud says. “Of course, implementing the strategy and finding the funding to do the work required is another story.”

The World Bank, in its June 2011 Country Environmental Analysis states that Lebanon is set to meet five out of eight Millennium Development Goals (MDG) set out by the United Nations by 2015. Among the three that are predicted to fall short is the reversal of environmental degradation, or as the report calls it, the Ensure Environmental Sustainability MDG.

So, while there is always more that can be done to improve environmental conditions across Lebanon, 2011 could be looked back on as a turning point in the understanding of the most crucial issues. Now it is up to the policymakers to act.

December 3, 2011 0 comments

Finance

Performance of Lebanese banks in 2011

by Maya Sioufi December 3, 2011

written by Maya Sioufi

Lebanese banks had to prove their resilience once again in 2011, though instead of dodging a global financial crisis, this time around they had to navigate a five-month government stalemate, the undoing of Lebanese Canadian Bank (LCB) and the continuing Arab revolutions.

For the first nine months of 2011, assets, deposits and profits all grew, albeit at much lower rates than those enjoyed in previous years. The total assets of the Lebanese alpha banks — the 12 banks with deposits in excess of $2 billion — stood at $143 billion, a 6 percent year-to-date growth, but a slowdown on the 11 percent growth in 2010 and 22 percent growth in 2009.

In February, the United States Department of the Treasury designated LCB as a “financial institution of prime money laundering concern,” accusing the bank of laundering hundreds of millions of dollars for a Lebanese-Colombian drug baron with links to Hezbollah, which Washington has designated as a terrorist group.

LCB was eventually bought out by Société Générale de Banque au Liban (SGBL) for an undisclosed amount, although banking sources in Lebanon put the figure at around $500 million.

The ordeal shook Lebanon’s banking sector, but several leading industry officials with whom Executive spoke said they were optimistic that there would be no recurrence of incidents of this sort.

“Definitely LCB was a big event, which was a concern for the market, but it was handled and now hopefully it is behind us,” says Walid Raphael, general manager of Banque Libano-Française (BLF).

Indeed, the general consensus is that the LCB debacle has nurtured, by necessity, a new culture of accountability on the road to transparency. “I think it was an individual case, and I think most banks have learnt a lesson,” says Jean Riachi, chairman of FFA Private Bank. According to Freddie Baz, chief financial officer at Bank Audi, “Important banks in Lebanon know their responsibilities and duties in terms of compliance.”

“LCB is an event that triggered some kind of extra focus,” he adds. “These crises can happen and they can quickly be resolved without collateral damage.”

But the Lebanese banking sector remains on the fence with regards to Syria, where the outcome of the uprising is still far from certain. While most in the industry say the impact on Lebanese banks has been contained thus far, they remain concerned going into 2012.

The US is also monitoring the Lebanese banking sector’s cooperation with Syria, and its official warning came during the visit in November of Daniel Glaser, the treasury department’s assistant secretary focused on illicit financing. He cautioned the Lebanese monetary authorities that banks in Lebanon were at risk of being blacklisted if they helped Syria dodge international sanctions.

“I think in 2012 the predominant local theme will be the Syrian situation. The impact has been contained so far,” says Khaled Zeidan, general manager at MedSecurities.

“The issue is you never know what might happen tomorrow in terms of sanctions,” BLF’s Raphael says with regards to Syria.

According to Baz, Bank Audi’s assets in Syria shrunk by one third due to withdrawals of deposits but he casts doubt on an assertion made in a November Financial Times article stating that a continuous flow of Syrian money is being smuggled into Lebanon. “Audi is the largest bank in Lebanon, with the largest deposit base, and we have not seen any material deposit from Syria over the last nine months,” he explains.

But aware of the potential for further sanctions, banks claim they are taking measures to protect themselves. Francois Pascal de Maricourt, chief executive officer of HSBC Lebanon, said: “When we can not have a proper assessment of the origin of the funds and when [they] could put the bank at risk, we have to turn down some business and I believe most of the banks in Lebanon are very careful and are doing the same.”

In fact, deposits, which stood at $118 billion at the end of September 2011, only grew by 5 percent year-to-date, compared to the 2010 rate of 12 percent and the 2009 rate of 24 percent. Profits grew by a marginal 1 percent to reach $1.2 billion, which fades in comparison to the staggering 25 percent increase in profits in 2010 and 18 percent in 2009.

The three largest Lebanese banks with branches in Syria — Banque BEMO Saudi Fransi, Bank of Syria and Overseas (member of BLOM Bank) and Bank Audi Syria — saw their assets fall by an average of 24 percent and deposits drop an average of 29 percent through the first three quarters of 2011.

Beyond the region

Looking beyond Syria and other regional turmoil, the European sovereign debt crisis has dominated headlines throughout the second half of the year and severely shaken the global markets. However, its impact on the Lebanese banking sector has been minimal. Banque du Liban (BDL), Lebanon’s central bank, has strict regulations on local banks which, “In normal times restrict our capacity to originate profitability but in difficult times act as important buffers,” says Bank Audi’s Baz. For example, banks are forbidden from investing more than 50 percent of their equity abroad and require that only investment grade fixed income be held in banks’ portfolios.

“Banks are very conservative when it comes to investing customer deposits. We do not speculate… so we didn’t see a major impact from the European debt crisis,” said Alain Wanna, deputy general manager and head of Group Financial Markets at Byblos Bank. In addition to imposing stringent restrictions to minimize volatility, BDL maintains stability through its stash of foreign currency reserves, $31.3 billion as of the end of July 2011, and its gold reserves, which reached $17 billion as of mid September, the second largest in the Middle East and North Africa region after Saudi Arabia. BDL governor Riad Salameh, whose term was renewed for a fourth time in July, has said he intends to keep the gold reserves to protect the economy from regional unrest.

“Lebanon is immune to what is happening in Syria and worldwide because of the model we have, which is a highly liquid, prudent approach to credit and low leverage,” said Salameh at a September meeting of Arab central bank governors in Doha, Qatar. Loans provided by banks in Lebanon still increased despite the challenges faced in 2011. In fact, lending at alpha banks increased by 13 percent year to date, a slowdown relative to the 25 percent increase in 2010 and 16 percent in 2009, but still a strong rate given the obstacles encountered this year. In spite of the continuous increase in lending, a survey completed in July by The Banker magazine revealed that Lebanese banks had the lowest loan to deposit ratio among the 1,000 commercial banks analyzed globally. “Who would you lend [to] in the absence of growth in the economy and a real government program to promote entrepreneurship?” asks Zeidan.

According to Saad Azhari, chairman of BLOM Bank, the figure that should be looked at is loans to gross domestic product: “Usually in underdeveloped countries, the ratio of loans to gross domestic product varies from 40 to 60 percent. In developed countries, it is between 80 and 90 percent.” Lebanon’s loan-to-GDP ratio is just over 90 percent. Furthermore, Byblos’ Wanna argues, loans to the public sector should be factored in to the loans-to-deposit ratio, noting that, “all banks have large portfolios on the government, whether in local or foreign currency.” According to the most recent report by the Association of Banks in Lebanon, claims by commercial banks on the public sector as of the end of August stood at $28 billion and claims to the private sector at $39 billion.

Of potential consequence to deposit flows is a measure within the pending draft budget proposed by Finance Minister Mohamad Safadi in October, which calls for a raise in the tax rate from 5 percent to 8 percent on the interest of deposits. The probable impact is not clear but it has sparked heated debate within the banking sector.

FFA’s Riachi is not concerned about the proposal. “I don't think it will affect flows, and I think people will think in terms of net interest and see where their advantage is relative to other banks.”

But some are worried about the measure’s timing. “We are [already] witnessing lower growth of deposits and lower capital inflows. It is not a disaster but it is not the right time,” says Azhari.

“I think fresh capital will remain hesitant for some time. You don't introduce something like this during difficult times, particularly when there appears to be many challenges ahead, and when investor and consumer confidence are in a period of retracement globally,” says Zeidan.

The road ahead in 2012

The International Monetary fund has projected 2011 growth in Lebanon to be 1.5 percent. The prospects for limited growth can be further reflected through low consumer confidence. Household spending accounts for 79 percent of Lebanon’s GDP, according to Byblos Bank, and a recent consumer confidence survey undertaken by Byblos and Olayan School of Business reveals that consumer confidence has been consistently falling since 2007 and reached a low in August 2011.

Looking towards 2012, and with excess liquidity sitting idle on banks’ balance sheets, the banking sector is hungry for growth opportunities. The prospects of deploying further capital in Lebanon seem poor, as expectations for 2012’s GDP are dim. The IMF is forecasting a pick-up to 3.5 percent but banking experts are concerned as many obstacles still lay ahead, namely political uncertainties such as disputes over STL funding, approving the draft budget and unresolved turmoil in Syria.

“The real issue for the banks will be how to continue on growing after the exceptional period they have been enjoying for the past years. Further expansion in other markets may be one of the solutions to be explored,” said Zeidan. Case in point: Bank Audi’s new license to operate in Turkey. According to Baz, it is the first bank in 14 years to acquire a banking license in Turkey.

Despite riding the challenges of 2011 relatively unscathed, it is critical for the banking sector in Lebanon, which still sits on big piles of cash, to hunt for future growth opportunities — a precarious task in an environment of political instability both locally and regionally.

December 3, 2011 0 comments

Business

A name you can trust

by Executive Staff December 3, 2011

written by Executive Staff

The role of branding products to increase their value and profitability is given serious import in the commercial world. Building familiarity, trust and loyalty to brands is at the core of every marketing team’s role. But what value is there for producers in branding a whole economic sector or even a whole nation?

According to independent Policy Advisor Simon Anholt, it is “fundamental.” As a pioneer of the idea of nation branding, he now advises governments, civil society and private corporations on reputation, investment promotion and national identity. Talking about the importance of a nation’s image in attracting investment from abroad he says, “Even very serious, practical-minded professional investors are influenced by these so-called ‘soft factors’ to a considerable degree.”

Government and business both share responsibility in the quest for a more commerce-friendly countenance. Charles Arbid, president of the Lebanese Franchise Association, argues that Lebanese industrialists need to develop the concept of branding on an individual and collective level. “We cannot sell anymore in the local market or export if we don’t work on the quality assurance in our products, and this has to be done through branding,” he says.

Government, meanwhile, is involved, both implicitly and explicitly, in promoting the image of Lebanon as a serious industrial player.

Diana Menhem, an economic officer with the United Nations Development Program in Lebanon says, “When you are dealing with the reputation of an entire industry it is very different than dealing with the reputation of a particular product… It is the responsibility of the government and the stakeholders to increase the visibility of the entire sector.”

Quality control

With this comes an understanding that it only takes one rotten apple to ruin the barrel. That is to say, if the respect and recognition of Lebanese industry is to be developed and maintained, there has to be quality assurance across the board. It is incumbent upon organizations such as Libnor, the Lebanese standards institution, to ensure that the quality standards for Lebanese products are rigidly enforced. “If you have one product that is substandard, the reputation of the entire industry will go down with it,” says Menhem. “It is the responsibility of producers to realize that if they don’t adhere to the quality standards, the reputation of their products will really go down and they won’t be able to export anymore.”

It is not just the reputation of an industry’s products but also the image of the whole country that determine both the allure of Lebanese industry as a viable investment destination and the desirability of its products in the marketplace. Anholt argues that expensive branding strategies are almost always a complete waste of money when it comes to developing a national image. The trends in his survey, the Anholt-GfK Roper Nation Brands Index, reveal that the inestimable billions of dollars spent by nations trying to change their global image have absolutely no correlation with the perceptions of ordinary people around the world.

“Grand strategy is infinitely more important than brand strategy: the country needs to know where it’s going in the world and how it’s going to get there,” says Anholt.

Lebanon’s failings in this regard are cause for considerable disquiet for Nassib Ghobril, head of economic research at Byblos Bank, who laments that the economy is subordinate to politics. “The economy has been suffering from the political challenges but [it] is secondary to the political crisis,” he gripes.

While Anholt is dismissive of branding campaigns as tools to enhance a nation’s image, he is emphatic on the importance of political and social stability. With upheavals ripping through the political and social fabric of several nations in the region, and not without significant economic consequence, his advice is particularly pertinent.

“Unstable countries should worry more about becoming more stable and less about how to convince people that they are stable,” Anholt says. “Unequal countries should think about how to create more equality, not how to persuade the world that they are equal.”

Industrialists and government-related agencies, such as IDAL and Libnor, share in the task of increasing visibility, improving standards and building trust in Lebanese products. As for the nation’s lawmakers, perhaps the best way they could support ‘Brand Lebanon’ would be to engage in a little less talk, a lot more action and dedicate themselves to some steady and stable governance.

December 3, 2011 0 comments