The Buzz

MEA’s dysfunctional family

by Zak Brophy
written by Zak Brophy

The dismissal last autumn of cancer-stricken Captain Joseph Ayat from the nation’s cedar embossed carrier, Middle East Airlines (MEA), reignited a history of discord that has been simmering at the company for more than a decade. This most recent incarnation of the dispute saw much of the fleet grounded for five days, with shards of acrimony among the workforce embroiling the upper echelons of the political establishment. What ostensibly started as a battle of principles between the pilots and their employer has rapidly escalated into a duel of much greater import regarding the integrity of management, the maturity of the union and where power really lies within MEA.   

The spark for the fire

Captain Ayat had served at MEA for 38 years, but with his license to fly temporarily suspended on October 21 due to his illness, MEA immediately terminated his position. According to the Lebanese Pilots Association (LPA), the manner in which this was done was in flagrant breach of the law, while the management counters that it was both in line with decades of precedent and, if not the letter, at least the spirit of the law.

Fadi Khalil, president of the LPA, says, “We want a sense of security for everyone. They have breached the labor law in this case.” The union argues that when the Director General of the Civil Aviation Authority (DGCAA) issues a temporary loss of license on medical grounds — as was the case for Captain Ayat — the pilot is entitled to a period within which he can carry out further tests and then have the case reviewed by the DGCAA. If this concludes with a final loss of license then the pilot is entitled, under Lebanese labor law, to two and a half months full pay and a further two and a half months half-pay before his employment is terminated.

Khalil claims, “In [Captain Ayat’s] case they didn’t give him time to do his medical checks to see if he could regain his license or not — as soon as they found out he had a medical problem they fired him.” What’s more, they contest that he was not granted the five months sick leave.

Captain Muhammad Aziz, who has been with MEA for 40 years and is advisor to the chairman, Muhammad Hout, argues that it was precedent that dictated when the management ended Captain Ayat’s service with MEA. “For the past 40 or 50 years, whenever a pilot was sick and his license was stopped, his service as a pilot was immediately terminated,” he says. And from a financial perspective he argues the company has paid what is due to Captain Ayat as dictated by the labor law, but that it was not delivered as a set severance agreement.    

See how deep the rabbit hole goes

Khalil argues it is actually this attitude of management that is the crux of the problem, with inflexible bosses the primary cause of labor actions that have struck the company over the past decade. He gripes that “management has had a practice for the past 10 or 11 years where they change things and they don’t tell you. Everything is by force.”

He stresses that the company cannot dictate, on what he considers to be a whim, how much and on what grounds severance payments will be made. “They said [the money] the company has paid is not because of the law but because they are nice… If this applies to Captain Ayat, what happens if another pilot falls ill? Do they want us to come and beg? No, we want them to apply the law.” 

Pressing their case, the LPA soon set about putting in motion the wheels for an industrial action — one that would quickly escalate out of their control. At a meeting of its general assembly on November 25 the LPA voted overwhelmingly in support of delaying by two hours all flights leaving Beirut Airport from 2pm that afternoon to 7pm November 27. When this did not push the management in the desired direction they escalated the action to a full 48-hour strike for all MEA flights leaving Beirut, starting at 10pm November 28.

With planes sitting idle on the runways, passengers seeking service elsewhere and losses racking up by the hour, the management’s ears were pricked. Within the first 24 hours of the strikes the two camps were back at the negotiating table and before the 48 hours were up the management had agreed to renege on their previous decisions regarding Ayat’s severance payments. However, according to the union, Hout insisted that this was pegged on three conditions: First, the pilots would have five days docked from every month’s salary until all losses incurred during the labor actions were recouped; secondly, they would have to promise not to threaten further strikes, and finally they would not present any further demands for benefits and concessions.

“[They] gave me three conditions to apply the labor law — I could not accept,” says Khalil. The union then embarked on an open-ended strike, pushing the altercation into intensified brinkmanship with both sides accusing each other of dirty dealings. In the end it took the intervention from the highest political echelons to bring a cease-fire to the labor war and the strike was ‘indefinitely postponed’ after five days, but not before the company was left with some $4 million in direct losses and the union frayed at the edges.

A soured past

While the emotive case of Captain Joseph Ayat’s dismissal was the kindling that ignited the latest firefight, the roots of the conflict stretch back more than a decade.

A grossly bloated company hemorrhaging losses, MEA was effectively nationalized in 1996 in a purchase by Lebanon’s central bank, Banque Du Liban (BDL), with the airlines’ losses peaking in excess of $86 million the following year. To this day the central bank owns 99.37 percent of MEA shares, though it remains registered as a private company and as such is governed by private company laws. 

Under the direction of BDL Governor Riad Salameh, a new management team was forged in 1998 with the current chairman, Muhammad Hout, at the helm. With the stability and authority that came with Salameh’s steadfast backing, Hout was tasked with devising and enforcing a fierce program of restructuring that won him few friends at the company. It is reported around 1,600 members of the inflated workforce were let go, and for the approximately 1,200 that remained contracts were redrawn and benefits slashed. LPA’s Khalil claims that, in total, around 42 privileges were affected including the pension, leave and loss of license schemes. And so it was that a new era at MEA was born, and with it the pilots’ strikes of 2004, 2008 and 2010 — all of which have led to negotiations in which the pilots have clawed back some of their lost benefits.

In this latest conflagration sparked by Ayad’s dismissal, the union has accused management of pressuring pilots by threatening to punish and even dismiss family members, though management ardently denies this charge. Conversely, the LPA has also been accused of forcing its members into line by threatening to remove union benefits, such as the medical cover offered by the LPA after their pilots’ insurance with MEA expires when they turn 60.

Khalil says that most of the pilots who broke ranks during the strike and flew for the company will be expelled from the union. He justified this saying, “The pilots who broke the strikes prolonged [them]. It gave the management the margin to negotiate for longer and it pushed it further to the point where people almost lost their jobs. There should be a penalty for this.”

He claims 23 of MEA’s 180 pilots took to the air during the strikes, which Aziz calculates kept the airline at around 43 percent capacity. Khalil says leeway is being granted to about half a dozen pilots, however, as the union permitted them to fly due to the pressure they accuse the company of putting on their families.

MEA is only too happy to extend a welcome to any pilots who leave or are expelled from the union, promising, in a circular seen by Executive, “The management of the company agrees to provide all the benefits to a pilot which may be lost in the case of his resignation from the syndicate or from any decision by the syndicate to arbitrarily expel him.”

Some pilots are now saying they don’t want to to fly with their colleagues who crossed the picket line. Furthermore, with the management courting pilots who have either left or will be pushed from the union, Khalil claims there is a battle underway for the loyalty of the pilots. “It is clear now who is with the syndicate and who went to the management,” he says. “It is 160 pilots who have stuck together, against around 20 who went.”

As a parliamentarian for the opposition Future Movement party who mediated with the unions back in 2001 and now serves as chairman of the Middle East Airport Services, Ghazi Youssef has a long-running and intimate relationship with Lebanon’s aviation industry. He eyes the industrial action initiated in late 2011 as a cynical maneuver by the LPA to extract more concessions: “The strike went on taking [Ayad’s case] as an excuse for further demands that they did not get in 2010. So they reopened the file that was meant to be done with. It was used as a pretense.”

Khalil denies this, saying: “In 2004, 2008 and 2010 there were strikes with pilots asking for better pay or rights but in this case the strike is just to support a colleague. It’s a humanitarian case. We don’t want any more money, just job security.” He then concedes, however, that “the trigger was Captain Ayat but it was an accumulation of actions from the management from 2001 to 2011.”

Demands on the table

The union is calling for an airport conditions of service manual, which lays out the rights, privileges, obligations and duties for the pilots. As things stand their employment criteria are scattered between a manual from before 2001 and a series of circulars and agreements since then. Khalil complains that the lack of a single reference means that management can act “on its whims”.

The management style of Hout and his “whims” has been a recurring bone of contention among staff and the unions, but it is something the chairman is unapologetic about. And to his credit, he has turned the company around. From net losses in 1997 of nearly $87 million, he had MEA back in the black by 2002 and by 2010 net profits had soared to $83 million. However, his obdurate and bullheaded style of management has drawn criticism from several quarters, where he is accused of not taking heed of his staff’s interests.

Aware of the censure leveled against him, Hout has been resolute in his role. During the recent strikes he refused to give any one-on-one interviews, but when caught in passing by Executive at the company’s headquarters he said, “We are all one family at MEA but everyone must know that I am the father of the family.”

Nabil Nicolas, a long-time MEA critic and a member of the Free Patriotic Movement (FPM) — party to the current coalition government — claims “the management style at MEA is dictatorial,” and whilst the LPA’s Khalil uses somewhat more diplomatic language, he says “they implement things by force, whether we like it or not.”

But, understanding the nature of management at MEA necessitates more than a personality assessment of Hout and his patriarchal disposition. He is ultimately responsible to, but enjoys the strong backing of, Salameh and the board of directors at the BDL.

“The problem is that Riad gave Muhammad Hout more power than he should have,” says Nicolas. “There is no general manager so Hout is both the chairman and the general manager. Is he supposed to make the decisions, implement the decisions and then hold himself to account?”

As for the board of directors flanking Hout at MEA, there are divergent claims about how informed and involved they are. “The board members rarely meet and don’t know anything. It is a one man show and everybody knows this,” quips Khalil.

Captain Aziz concedes that in the early days of restructuring this rang true, but he now sees the company as having moved from being in a “big war” into a period of “peace-times”. He argues, “[Hout] explicitly asks people to give their honest opinions and he doesn’t want people to just say yes, he thinks these kind of people are useless. Saying he is putting in place ‘yes men’ is one thing but saying he is putting in place people who believe in what he is doing is something else.”

Getting the fleet to fly again

With Hout still enjoying the unwavering support of the central bank, the security apparatus at the airport and significant political parliamentary blocks, he remained characteristically defiant as the labor action pushed on into December 2011. While the union appeared equally unprepared to beat a retreat it was, by Khalil’s admission, “looking for a way out”.

Despite the fact that the settlement for Captain Ayat had been resolved the two sides remained at loggerheads. With the management maintaining that it intended to penalize the strikers for the losses incurred during the strikes, the pilots refused to return to their cockpits. Both Minister of Labor Charbel Nahas and Minister of Public Works and Transport Ghazi Aridi then tried to bring the two sides to the table and broker a deal, with both attempts failing to bridge the impasse.

Further muddying the waters are accusations from the Future Movement’s Youssef that General Michel Aoun’s FPM party has been manipulating the LPA in a turf war with Hout. “There has been quite an underlying war going on between the Aounist movement and Mr Hout and MEA. It has been there for the past three years. Between now and then they [have tried to] take advantage of problems that occur in order to try and dislodge Mr Hout,” he says.

The LPA’s Khalil dismisses the accusations as “ludicrous”. Captain Aziz supports the LPA’s assertion that they are free from nefarious political motivations, but goes on to claim that they have been naïve for thinking a dispute of such considerable national importance could be kept isolated from Lebanon’s notoriously expedient politicians.

“Even if you start with a non-politicized action, it becomes politicized. I told the president of the syndicate before they started, ‘you have to go and see the politicians before you start’,” he says. However, as events unfolded it was the politicians that ultimately came to the union.

Entering the fifth day of the open-ended strike, the management threatened to fire 35 pilots if they refused to return to their posts. As pressure mounted on all sides to find a solution, Khalil was called for an urgent meeting at Aoun’s office. With the meeting ending and Khalil about to leave, Aoun took a message from one of his colleagues and then simply said, “It is over.” According to Khalil the FPM leader promised him, “You stop the strike and I guarantee you will not pay anything. Stop the strike and don’t worry about it.” Reassured by this pledge, the pilots announced they would resume flying as normal on midnight December 3.

So with the planes back in the air, the pilots still in employment and Ayat guaranteed his legally entitled severance package, it appeared the case was closed, but alas, few things are so simple in Lebanon.

With flying resumed as normal Captain Aziz distances the management from Aoun’s guarantee: “According to my knowledge, General Aoun said that he would speak to the company and ensure that the pilots would not be forced to pay for the damages incurred during the strike. But this is his promise. The company is still evaluating this to see [if it will meet it].”

But FPM parliamentarian Nabil Nicolas passes the ball back into the company’s court: “Michel Aoun took this decision based on a promise from Riad Salemeh… We will wait to see if Riad Salemeh honors his promise.”    

Still extracting punishment

As Executive went to print, half of the pilots had received deductions ranging from $300 to $1,500 from their most recent paychecks, according to Khalil. The pilots were not informed on what basis the calculations were made or if it would be a one-off occurrence. Furthermore, the union claims some pilots were still receiving letters threatening dismissal if they take part in further industrial action. While these actions are cause for consternation among the pilots, Khalil assures that this alone will not instigate a return to strikes or other industrial action.

With the fundamental tensions between the pilots and management still unresolved, Minister Aridi has invited the two sides back to the table. The pilots are still demanding a conditions of service manual, while the management remains stuck on “evaluating” the punishment to administer for last year’s strikes. Thus, whether Lebanon’s flag-bearing carrier can keep its fleet aloft is far from assured. As the Future Movement’s Youssef explains, “The embers are still burning and if you fan them the fire will start again.”

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Society

Q&A – Antoine Abi-Heila

by Ellen Hardy
written by Ellen Hardy

It all started with a 10-franc copy of “Madame Bovary”. Now Antoine Abi-Heila is ensconced at Bibliopolis, his appointment-only Aladdin’s cave of literary treasures in Beirut’s Ashrafieh neighborhood. A dealer, restorer and polymath, he spoke to Executive about his life surrounded by rare and historical tomes.

How did you succumb to the charm of the first edition?

It’s simple. In the 1970s, at the age of 18, I discovered that a contemporary edition of Madame Bovary by Gustave Flaubert was 10 French francs, and a new edition was the same price. So I preferred to buy the nineteenth century edition in a nice leather binding. I discovered [collecting] early. Books… can’t be compared to other antiquities or antiques. [They] concern the spirit, and the spirit is universal and timeless.

So the content is as important as the material value of the edition?

I compare this to — this is a stupid comparison, but anyhow — when a lady is very nice, beautiful and everything. She puts on makeup, she dresses herself elegantly. But when she makes love, she will be nude, so no use for jewels or makeup. The book is the same. The cover, the illustration, the binding are very important to give attraction, but the most important [thing] is the text in itself. I understand people who only want the text, but I don’t want an e-book. I want shelves, and I want to hold the material, to feel it, nice illustrations. This is to look for perfection.

You specialize particularly in ancient Arabic manuscripts. Are these the most popular items on the regional market for antiquarian texts?

Lebanese bibliophiles are in three classes. You have the people who are fanatic about their country and they want everything related to Lebanon, and [those] who want really landmark universal literature. The third category is the Islamic manuscripts and illuminated Qurans. I have discovered that Saudi businessmen, if they want to make a corporate present, can buy a manuscript for 10, 20 or 30,000 dollars. It expresses something as a social ritual. It means I am an intellectual, I am offering you a book and I consider you as an intellectual person.

You’ll soon be publishing your own historical discovery…

‘The Perfumed Garden’ [by Sheikh al-Nafzawi] is an erotic treatise written in early 15th century Tunis, in Arabic. Four hundred years later, in 1850, a young French officer discovered this manuscript and he translated it into French. He didn’t dare put his name on it, he used a pseudonym, ‘Baron R’. Five years ago, I discovered who Baron R was. I bought the original handwritten manuscript draft in Paris, and I found his name in Arabic. I went to the archives of the Defense Ministry in France with a name: General Jean-Baptiste Campenon. In his file I compared his signature, the script and his background. He was really courageous — it took 10 years for him to translate this from Arabic.

Is there anything in your collection that you’ll never sell?

I had a collection that I said I’d keep, but I sold it two weeks ago. This is a scoop for you… They are very important original documents relating to the conflict of 1860 in Lebanon between the Druze and the Maronites. [A French General] came here with instructions to punish the Druze leaders who committed massacres. This is the whole correspondence he had; for example, the petition sent to him by the widows of Deir El Amar.

For this period [there were no] original documents [in the public domain]. So I sold this to FNB bank [as part of the national] patrimony.

Are there any books or documents you still long to get your hands on?

I am particularly attracted to hand-written historical documents. Right now I am looking for [documents by] Stalin and Hirohito, the previous emperor of Japan, to complete [my collection of] all the antagonists of the Second World War. And Bin Laden, if I can find something by him, is important.

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Economics & Policy

Q&A – Fadi Abboud

by Executive Staff
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.

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Tourism

Fadi Abboud

by Executive Editors
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.

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Real estate

Business talk

by Executive Editors
written by Executive Editors
Zardman: Guy Manoukian, CEO

“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.”

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Banking & Finance

Markets review

by Executive Editors
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.  

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Banking & Finance

Banking Talk

by Executive Editors
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.”

Bank Audi: Freddie Baz, CFO

“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.”

Banque du Liban: Riad Salameh, Governor

“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.”

BLOM Bank: Saad Azhari, Chairman

“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.”

BLF: Walid Raphael, Chairman

“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.”

FFA: Jean Riachi, Chairman

“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.”

AFS: Sami Akhras, CEO

“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.”

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Editorial

Pride, if nothing else

by Yasser Akkaoui
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.

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Comment

Banking on diplomacy

by Paul Cochrane
written by Paul Cochrane

It has been a difficult year for the Lebanese banking sector. While deposits are only marginally down on 2010, Arab uprisings have affected banks’ regional operations and the Lebanese economy is feeling the ongoing global financial crisis. But by and large, these are the sorts of issues Lebanese bankers are used to handling; risk management is a hardwired Lebanese specialty. What has presented unusual concern this year is the black cloud lingering over the sector following the listing in February of Lebanese Canadian Bank (LCB) by the United States Department of the Treasury as a “financial institution of prime money laundering concern.”

The designation left LCB’s reputation in tatters and, after a limited run on the bank, shareholders opted for LCB to merge with Société Générale de Banque au Liban (SGBL) rather than to appeal the charges. For the banking sector, the LCB designation was a well-aimed kick to the nether regions. Banks are still “paranoid” 10 months later, a senior member of Banque du Liban (BDL), Lebanon’s central bank, recently told me.

The concern is that other banks could find themselves in the US Treasury’s sights — a worry compounded by the apparent political motivation of Washington’s decision, as LCB was accused of laundering money on behalf of Hezbollah, the steward of the current Lebanese government and designated as a terrorist organization by the US. The US decision looked on the surface to be a warning to the banking sector — and Lebanon generally — to play ball. Not helping the sense of paranoia is the failure to release results of the investigation into any wrong-doing on the part of LCB by either Washington or BDL.

There was an upside from a regulatory point of view, however, to the taking down of LCB. Due diligence has suddenly taken on special importance, compliance officers’ voices are better heard in the board rooms and those in need of screening software to detect suspicious transactions have quickly placed orders.  Rumors of further LCB-style designations have persisted, while additional pressure has been heaped on Lebanon following multiple rounds of US and European Union sanctions on Syria in response to Damascus’ crackdown on protestors. For the sanctions to have bite, Lebanon cannot be a financial conduit for the Syrian regime; Lebanon is not required to abide by US and EU sanctions — only United Nations resolutions are binding — but it has pledged to cooperate.

With around 60 percent of Lebanese banks’ deposits in American dollars, and the lira pegged to the greenback, Lebanon, as the BDL source put it, is effectively part of the US financial system — Beirut must respect US decisions whether it likes them or not. Indeed, Beirut’s compliance on this matter is so crucial that it was the first item on the agenda in talks between Prime Minister Najib Mikati and US Secretary of State Hillary Clinton in September. In November, Daniel Glaser, the Treasury Department’s assistant secretary, visited Beirut to push the issue further. Yet while bilateral meetings were underway in late September, another black cloud loomed on the horizon. A second bank — which shall go unnamed — was suspected of money laundering, according to sources in the financial sector and within BDL, although officially BDL would neither confirm nor deny this.

Yet what seems to have happened behind the scenes is an arrangement whereby in exchange for Lebanese cooperation on Syria there would be “no more LCB surprises,” as the BDL source put it. Beirut is in a form of “partnership” with Washington, and BDL is under pressure to deliver by making sure no money laundering or terrorist financing (by American definitions at least) is occurring within the banking sector. If another bank is in the firing line, the US may point its finger, and BDL will investigate rather than merely getting a day’s warning from Washington — as happened with LCB.

Some may call it a Faustian pact, and it goes against the grain of supposed transparency in the financial sector that is being pushed worldwide, but as a diplomatic move it suits both Washington and Beirut nicely, for the time being at least. Lebanese banks are right to be paranoid and to keep in line with US regulations in order to avoid the devastating blow to the sector’s credibility that an LCB redux would mean.

Paul Cochrane is the Middle East correspondent for the International News Services, and a regular contributor to Money Laundering Bullettin

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Economics & Policy

Sun goes down on a destination

by Executive Staff
written by Executive Staff

While 2011 may yet prove to be a good year for democratic ambitions in the Arab world, it was most certainly not a good one for tourism in Lebanon.

Put bluntly, it was “the worst year in 20 years for the Lebanese tourism industry,” according to Paul Ariss,  president of the Syndicate of Owners of Restaurants, Cafes, Night Clubs and Pastries in Lebanon.

Following three years of consecutive growth, the number of foreign arrivals dropped by 24 percent in the first nine months of 2011, while across the board, room occupancy rates plummeted by 15 percent.

Regional turmoil, especially in Syria, is regarded as the main factor affecting the figures but internal political bickering at the beginning of the year and the negative travel advice issued by many Western embassies also had an effect.

That cold spring wind

As the Arab uprisings lit up one regional capital after another, it gradually became clear during 2011 that Lebanon was not to break the tourist arrival record again.

According to the Ministry of Tourism (MoT), 1,276,100 foreign visitors entered the country in the first nine months of 2011, compared to nearly 1.7 million during the same period in 2010. In 2010, Lebanon set an all-time high of nearly 2.2 million tourist arrivals, contributing an estimated $8 billion to Lebanon’s gross domestic product.

The fairy tale was not to be repeated in 2011. Even if the last three months of the year were to attract the exact same number of arrivals as in 2010, the total number of tourists would not exceed 1.7 million, a decrease of 22 percent. In reality, the end-of-year result is likely to be worse, as until October every single month of 2011 recorded a decline.

Traffic in July was particularly affected, with a decrease of no less than 39.3 percent on 2010’s figures; summer months are traditionally Lebanon’s high season.

As in 2010, most tourists in 2011 came from the Arab world, followed by visitors from Europe and Asia. According to the MoT, some 430,000 Arabs flocked to Lebanon during the first nine months of 2011, compared to 710,000 during the same period in 2010, down 39.4 percent.

Around 374,000 Europeans arrived by October, a smaller relative decrease of just 10 percent. By October, 206,000 people from non-Arab parts of Asia had entered Lebanon, a decrease of some 28 percent.

Industry professionals agree on the causes of the downturn. “The Arab crisis, especially in Syria, reflected badly on the Lebanese tourism sector,” said Pierre Achkar, head of the Association of Hotel Owners in Lebanon (AHOL). “A lot of Arab tourists, especially Jordanians and Arab families from the Gulf, come by car. With the political situation in Syria, that was virtually impossible.”

A closer look at tourist arrivals reveals that only 99,000 Jordanians entered Lebanon in the first nine months of 2011, compared to 217,000 by October 2010, a decrease of over 50 percent. During the same period, some 84,300 Saudis, 46,000 Kuwaitis and 22,600 Emiratis visited the country, a decline of 46 percent, 41 percent and 37 percent, respectively.

The vast majority of Asians visiting Lebanon in 2010, some 65 percent, were Iranians. By October 2011 only 119,000 had entered the country, a decline of 37 percent. This too was largely due to the regional situation, as many Iranians visit Lebanon by bus following a pilgrimage along the many Shia religious sites in neighboring Syria. Interestingly, the number of Iraqis and Turks visiting Lebanon remained more or less the same, while African visitors were the sole group to show an increase, up 16 percent to some 44,100 by October 1.

Ariss of the restaraunt owners’ syndicate also pointed to regional turmoil for the decline, yet blamed domestic factors too. “The absence of a government during the first four months of the year and the accusation issued by the Special Tribunal for Lebanon also played a role. What’s more, we had Ramadan in August and people generally travel less during Ramadan,” he said.

Falling revenues

As a consequence of the drop in tourist arrivals, Ariss said the overall turnover of Lebanese restaurants in 2011 will decline by some 30 to 40 percent. While there are no reliable figures available, he estimated there are more than 6,000 restaurants of all types in Lebanon, 70 percent of which operate all year round. They employ more than 50,000 persons on a permanent basis and up to 70,000 at peak times. Ninety percent of employees, Ariss claimed, are Lebanese.

The Association of Car Importers in Lebanon estimated that car rentals in 2011 were some 40 percent down. Many retailers, particularly in the heart of Beirut, had a rough year as well. “We cannot complain,” said Frank Luca, owner of souvenir and artisan store Orient 499. “Of course we had a reduction in sales, but I have many friends in retail, and they had a year much worse than me. Overall, we still had a good year, with fewer visitors buying more. Some 50 percent of our clientele are foreigners, half of whom are Arabs, while the other half are Lebanese.”

“The whole market has been affected by the regional situation and the Beirut Souks are no exception,” said Joseph Asseily, chairman of the Beirut Hospitality Company (BHC), a Solidere subsidiary founded in 2010 with the aim of bringing Downtown Beirut to life by establishing restaurants, cafes and hotels. So far it has opened Momo, Café M, Relais Foch and STAY, while L’Atelier is set to open next year. “What 2012 will bring is anyone’s guess, but we are determined to make Beirut the food capital of the Middle East.”

“Ramadan cut the 2011 summer in half, but that was calculated,” said Suzan Bou Dargham director of public relations at the Four Seasons Hotel in Beirut. “We expected 2011 to be at least as good as 2010, but with the political situation in the region constantly changing, we had to have a plan B.” She declined to give specific figures regarding turnover or occupancy rates.

AHOL’s Achkar estimated that, as a result of lower occupancy rates, hotel revenues in 2011 have declined by some 38 percent. According to the MoT, the average room occupancy rate for five-star hotels in Beirut during the first six months of 2011 amounted to 48 percent, compared to 63 percent in 2010, while the average bed occupancy rate was 52 percent, down from 74 percent.

The average room occupancy rate for four-star hotels in Beirut decreased from 62 to 50 percent. Outside the capital, average occupancy rates across the board hovered between 20 and 40 percent.

In its most recent survey of the Middle East hotel sector, Ernst & Young concluded that despite a decrease of 15 percent year-on-year, the average room rate at Beirut hotels amounted to $222 in the first 9 months of 2011, which made the capital’s hotels the seventh most expensive in the region. The regional average amounted to $183.30.

Hotels

According to Achkar, there are some 400 hotels with a total of 21,000 rooms in Lebanon, employing some 18,000 people, with another 3,000 rooms under construction.

“In 1975, Lebanon had around 475 hotels, yet the average size in those days was much smaller. For example, here in Broumana alone there were 36 hotels, yet most had an average size of only 14 to 18 rooms. Today there are 7 hotels. Over the years, the trend has been to grow bigger and bigger, and today a hotel with 300 rooms is no exception.”

Among the more noteworthy planned newcomers on Lebanon’s hotel scene is the Grand Hyatt, Beirut. Scheduled to include 351 rooms, it is expected to be the biggest hotel on Lebanese soil after the Phoenicia InterContinental.

The Kempinski chain also has plans for two five-star outlets in Lebanon. Set to open in 2012, the Kempinski Hotel Beirut is a resort hotel located at what once was the famous Summerland Hotel. The hotel is in the final stages of construction and will have 151 rooms and 56 luxury apartments, as well as a marina with up to 60 berths. Between Aley and Bhamdoun, the German hotel chain is currently constructing Al Abadiyah Hills, which is set to open in 2013 featuring 74 rooms, 12 villas and 181 apartments.

Ending up, but slopes ahead

Tourism in Lebanon picked up slightly toward the end of 2011. The Eid Al Adha holiday in early November saw hotels and restaurants fill up across Beirut, while according to Achkar, meetings, incentives, conferences and exhibitions (MICE) tourism showed an increase. “It sounds ironic, but Lebanon in 2011 was one of the most stable countries in the region,” he said. “Beirut and Dubai proved popular destinations for business meetings and conferences. Let’s hope that trend will continue next year.”

That said, “The political turmoil in the region prevented many Arabs from choosing Lebanon as their final destination,” said the restaraunt owners’ syndicate’s Ariss. “2012 is going to be worse, as the causes of the crisis prevail and Syria will remain politically instable. In addition, the raise in wages, not only the minimum ones, will have disastrous consequences on the tourism industry. Companies have started lay-offs. Expansion plans have been halted. New investments are being postponed. Many restaurants in 2012 will shut down or change owners.”

“Political stability in the region, and especially Syria, will be essential for a full recovery of the Lebanese tourism sector in 2012,” said Achkar. “In addition, it does not help that Lebanon is still haunted by the negative image created by the international media, which seems to only report on negative events. This does not really affect Arab tourists and Lebanese expats, but it does make potential Western visitors think twice.”

With the aim of countering Lebanon’s negative image abroad and attracting more western tourists, the cash-strapped Ministry of Tourism in 2010 proposed to introduce a LL 5,000 airport tax to be used exclusively for promotional activities, yet the proposal never made it through parliament.

“If I look at the stands of neighboring countries, such as Syria, Jordan and Egypt, I honestly feel ashamed to participate at tourism fairs,” said Lebanon’s Minister of Tourism Fadi Abboud. “At such events we look like the poor cousin. Tourism represents 22 percent of our GDP and we should invest in it. Yet you cannot create an industry if you do not promote it.”

More visitors from Europe would surely help diminish Lebanon’s over-dependency on Arab tourism. “It would be great if Lebanon in the near future could attract more tourists from the US and Europe,” said Bou Dargham of the Four Seasons. “But how do you do that in the short term? Today, when you type in Beirut or Lebanon, Trip Advisor shows you in red letters: ‘Travel Alert: Safety and Security Concerns.’”

Following the kidnapping of seven Lithuanian cyclists in the Bekaa Valley and attacks on United Nations Interim Force in Lebanon (UNIFIL) troops, the British and French embassies warned their citizens to avoid or be cautious when traveling to the south or east of the country. Following alleged incursions by the Syrian army into Lebanon, the British embassy in October advised against “all but essential travel to within 5 kilometers of the Syrian border,” while it “continued to advise against all travel to Palestinian refugee camps and against all but essential travel to the Bekaa Valley and south of the Litani [River].”

The French Embassy furthermore warned against the danger of kidnapping in the Bekaa Valley, potential attacks of French UNIFIL troops in Saida and further south and called on travelers to avoid certain suburbs of Beirut and Tripoli. Seeing the events which occurred in Lebanon in 2011, such specific and carefully worded warnings do not seem unreasonable.

The same cannot be said about the travel advisory issued by the US State Department, as it urges “all US citizens to avoid all travel to Lebanon due to current safety and security concerns.” The statement edges on the hysterical, warning, among other things, that “public demonstrations occur frequently with little warning and have the potential to become violent” and “family or neighborhood disputes often escalate quickly and can lead to gunfire or other violence with little or no warning.”

This is almost ironic coming from a country enamored with firearms and that boasts an annual homicide rate twice as high as that of Lebanon. Issued on April 4, 2011, following the fall of the pro-American Hariri government and with negotiations over a new cabinet in full swing, some people claim the travel ban to be politically motivated. The US travel warning is particularly harmful, as the red alert on the popular site TripAdviser is directly linked to it.

“In 2011, we had hoped to attract an increasing number of Western expats living in the Gulf, yet the opposite happened,” said Achkar, who despite everything remained positive about things to come. “We’ve seen much worse. We’ve had the 2006 war, an 18-month blockade of downtown Beirut and months without a government or president. But we’ve always overcome. And we will overcome again.”

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