Business

Q&A – Tarek Sadi

by Executive Staff
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.

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Finance

Lebanese securities performance 2011

by Maya Sioufi
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.”

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Business

Sources of inspiration

by Executive Staff
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

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Economics & Policy

Executive Insight – Public-private partnership

by Ziad Hayek
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.

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Economics & Policy

Clearing the smoke

by Executive Staff
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.

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Finance

Performance of Lebanese banks in 2011

by Maya Sioufi
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. 

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Business

A name you can trust

by Executive Staff
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.

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Economics & Policy

Theory of evolution

by Executive Staff
written by Executive Staff

Telecommunications in Lebanon has come to embody the fault line along which Lebanese business and government split. While the people who use the communications networks try to progress and join the information age, the sector has lain dormant for years because of both publicly-owned, ineffective infrastructure, and political scuffles over who should control Lebanon’s most profitable public service. In 2011 the plates on either side of this fault shifted, sending economic shockwaves, both positive and negative, throughout the economy.

It all started in January when the then-caretaker Telecommunications Minister Charbel Nahas announced that third generation mobile Internet (3G) would be introduced to the country. 3G technology is a means of incorporating high-speed Internet with mobile devices such as smartphones or using a ‘dongle’ to enable users to access the service on their computers the way they currently use other wireless Internet products, such as the pervasive Mobi and Wise Box. In September, Nahas (by then labor minister) promised speeds averaging 7 megabits per second (Mbps) and up to 21 Mbps. That would equate to 27 times faster than the speed available at the time via a digital subscriber line (DSL), 70 times faster than those available using the general packet radio service and 500 times faster than those available to ordinary cell phone subscribers, according to Nahas.

The initial deadline set by the previous minister was missed. But by mid-November both of Lebanon’s mobile networks had introduced the service to the public. Even so, the average speed of 7 Mbps was not to be.

“It is a work in progress,” said Claude Bassil, general manager of MTC Touch, one of Lebanon’s two mobile telephone operators, owned by the Kuwaiti telecoms giant Zain. “I cannot promise you that the wireless transmission network, meaning the microwaves, will be capable of providing the maximum capacity [21 Mbps] that the sites can handle,” he said in an interview with Executive. Bassil admitted that it will take a year for the network to reach the promised speeds because the transmission networks between the cell towers that correspond with phones and the Internet network are not optimized. 

In the interim, mobile operators will have to connect to existing fiber-optic cables, a process that will take months, according to Bassil. Even when that happens, without a complete fiber-optic network installed in the country — something only the government is legally allowed to do — the full potential of 3G will not be reached.

Ogero and Ministry of Telecoms

The 3G project was made possible by an undersea Internet cable dubbed the ‘India-Middle East-Western Europe 3’ (IMEWE3), which has finally been opened up to Lebanon. It was originally been scheduled to come online in March 2010. 

The IMEWE3 cable has a total capacity, shared between the many countries connected, of 3.84 terabytes per second. Lebanon’s allocation is 120 gigabits per second (Gbps), up from around 2 Gbps before the IMEWE3 opened up, with the potential to be upgraded to some 300 Gbps at a later stage. The problem with the cable was, perhaps predictably, politics.

Abdulmenaim Youssef, the head of Lebanon’s publicly-owned fixed line operator Ogero, refused to hand over administration of the cable to Minister Nahas in 2011. Ogero is financially and administratively independent of the ministry and has, for the past several years, been at loggerheads with telecommunications ministers, who have been members of the Free Patriotic Movement, which opposes Youssef. Conveniently, Youssef also occupies the post in the ministry that is supposed to oversee Ogero, something also granted by a previous cabinet headed by the opposition. Speaking to Executive in September, he argued that this is not a conflict of interest because the ministry has annulled all contracts with the company because of a dispute over the way invoicing and receipts were conducted; this, however, was not always the case. 

According to Youssef, Ogero was appointed to carry out negotiations on the IMEWE3 project by the Council of Ministers. The ministry rejects this as they claim that ‘Ogero Telecom’ — the company listed on the contract with IMEWE3 consortium — was never a commercial company and thus control of the cable should have been returned to the ministry. Even so, Youssef said that while the cable may have been ready for operations in December 2010, a commercial agreement had to be worked out by Ogero in Marseille (where the cable ends) to transfer data from there to the rest of the world, something that was completed in May. 

Youssef, who in the past was close to the current opposition and is now believed to be supported by Prime Minister Najib Mikati, is in charge of doling out the necessary international capacity to companies such as service providers MIC1, MIC2, the digital signal processors (DSPs) and the Internet service providers (ISPs) at the telecom ministry. This is done by distributing 2 Mbps bandwidth packages to those who request them.

The ministry recently decreased the price of such packages from $2,700 to $420, ostensibly to facilitate the expected consumption increase and sell them to private sector providers. According to the current telecom minister’s advisor Firas Abi Nassif, 10 Gbps of extra capacity have already been opened up through the IMEWE3 cable. This freed up a major bottleneck in Lebanon’s Internet infrastructure and allowed for the telecom minister to announce a new pricing and capacity structure that would be implemented on October 1.

Fixed and constant problems

The date came with mixed results. Some people benefited from the increase while others were still waiting as Executive went to print. The reasons for the delay are many and technical, but the heart of the matter is that, while the ministry decides to implement, Ogero actually carries out the implementation. The ongoing row between the two government bodies has in effect left people waiting and the promises unfulfilled.

Habib Torbey, president of the private sector Lebanese Telecommunications Association (LTA), explained that many of the problems are related to the transmission network between cabinet offices   — equipment in each neighborhood that connects users to the system. “The users that the [Internet Service Provider] has put on the Ogero [infrastructure] have a problem and this is where things get stuck,” he said. “We see a huge delay in the upgrade and we don’t have a lot of visibility as to when this upgrade will occur. Even when it happens, it’s up to 1 Mbps. They are not giving us 2 Mbps and 4 Mbps.”

“Every few days they upgrade four or five [cabinet offices],” he said, adding that he estimated the upgrade to be around 25 percent complete.

Based on current rates, Torbey estimated it will take around six months for the private sector to be let into all the cabinet offices.  Private sector entities have only been allowed into more cabinet offices since November 2010. According to a statement issued by Minister of Telecommunications Nicholas Sehnaoui, the process aims “to break the grapple hold over the private sector by a political group represented by people in the [ministry’s] administration,” a clear reference to Ogero and Youssef, whom the minister has not met with since taking office.

The problems between the two sides also manifested themselves in a lack of modems for new Internet subscriptions and call cards for payphones because of the dispute over Ogero’s budget, which comes through the ministry. The minister has now found a way to issue both through the postal office but, if history is anything to go by, the row seems far from resolved. ­­

The structure

The telecoms industry is still the only public service that is partially privatized, but only on the retail end. This is because the law that is supposed to govern the sector is not fully applied, resulting in a market landscape where the regulator, the Telecom Regulatory Authority (TRA), cannot fulfill its prerogatives or be financially sustainable because it cannot sell the infrastructure licenses that the private sector seeks. Thus, at the end of the day, the TRA and the private sector remain dependent on the ministry, as do public finances. In February 2012 a new board of the TRA will have to be appointed by the cabinet, something that took five years the first (and last) time around.

Give me my cash cow

By August the revenues of the telecom ministry had reached $961 million and the finance ministry’s telecom revenues are predicted to hit $1.2 billion this year, even after it pays off all its contracts and dues. Making sure that the ministry keeps raking in the money for Lebanon’s cash-strapped government has been the driving force behind sky-high prices for telecom services.

Now there has been an agreement between the finance minister and the private sector to keep government revenue stable in order to decrease prices. “Basically what they agreed with us is that they can reduce their prices, and we are for it,” said Finance Minister Mohamad Safadi in an interview with Executive. “In the end we feel that the revenues are not going to be less and there is a very big chance that they will [rise]… because of increased usage. The intention is to open the market [to the private sector] at the end of the day.”

What that will require is that the minister issues his ‘general policy’ so that the TRA can exercise its right to issue long-term licenses to the private sector, which can then start investing in long-gestation infrastructure projects and bring prices down. The law also stipulates the formation of a corporatized company called Liban Telecom that would replace Ogero and would be able to set prices and standards according to business realities and circumstances.

If this does not happen, the progression of government-run 3G, the inclusion of a new fiber-optic backbone due to arrive in September 2012 and a large discrepancy in operating costs due to government-imposed measures (such as a 20 percent revenue share) will likely box-out the private sector because they will not be able to compete.

One company, Cedarcom, jointly owned by Minister of State Marwan Kheireddine and the son of a former telecom minister, has already submitted a case in Lebanon’s highest court over the government’s 3G project because they claim it will destroy their business. The court already ruled that the government had to stop 3G for one month in 2011 to adhere to a request for information. Now the 3G project is back on and the clock is ticking. Other private sector companies are also worried but are looking for a compromise in the form of a Mobile Virtual Network Operator (MVNO) contract, an industry term for a company in agreement with the owners of a telecom asset that performs services ranging from complete resale to merely offering back office services. LTA’s Torbey confirmed that he was still in negotiations but refused to comment on the level of progress. In the end, no matter what the outcome of the case or the MVNO, if the law is not applied, the direction the telecom industry takes in 2012 will likely remain subject to the political winds of change rather than any plotted economic course.

“I sincerely hope that we put new polices and regulations in place to allow the private sector to play,” said Bassil. “The private sector needs to play a lot in this area and the infrastructure is coming. We are not pretending it’s up to scratch, but it’s coming.”

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Economics & Policy

Q&A – Vrej Sabounjian

by Executive Staff
written by Executive Staff

Vrej Sabounjian took the reins at the Ministry of Industry in June, taking his experience from the business boardroom to the political cabinet. It has been a bumpy ride for industrialists in 2011 and demands for government leadership and support are high. Executive sat with the minister to find out how he has dealt with his first months in office.

E  You told Executive back in July that you were confident that this government was pro industry, yet there was not a single mention of industry in the draft budget. What positive actions or proposals by the cabinet have shown support for industry?
I think we can say anything we have presented so far has not met any objection at all.  That’s sign enough for me that I have enough support from this government to push ahead with our industrial programs and we are going to sign a lot of bilateral agreements with other countries; it’s coming. We are going to make agreements with Sudan and Armenia and other countries and these agreements will help industry in Lebanon. 

E  The negotiations for these agreements are already underway?
Two are already ready… they will be signed very soon.  

E  With these agreements there will presumably be a decrease in trade barriers. Is this a trend you see developing?
The barriers to trade have already come down as we have moved into a global economy for some time. But the bilateral agreements help facilitate the relations between the two countries and their business people [with] measures such as visa agreements, more flights, accreditations and tax deals so there is no double taxation.

E  Is Lebanon still en route for accession to the World Trade Organization?
Yes.

E  Is that prudent in the troubled and uncertain global economic environment we are currently in?
Prudence is always good but I think we have also to understand we are living in an environment where all borders are opening and trade should be easy and accessible to all parties. But it has also to be fair in the sense that there are some countries which are bigger and stronger and others smaller and weaker, so we have to note those details in the agreements.

E  Can you provide details of the draft proposals you submitted to the minister of finance in relation to the tax exemption on exports?
The answer is very simple: if you manufacture a product in Lebanon and you export it you will be eligible to get a 50 percent tax credit on your profits, [depending] of course on whether the law passes the cabinet. Our tax rate is 15 percent so on your exports you would only pay 7.5 percent. 

E  Is there a time limit on this or would it be indefinite?
No.  It would be indefinite.

E  And how confident are you that this is going to get passed in the cabinet?
I’m pretty confident and I’m also relying on the support of our prime minister [Najib Mikati] and the minister of economy [Nicolas Nahas]. He’s my good friend and we have discussed this issue, and I am also sure the minister of finance [Mohamad Safadi] will not object.

E  Have the committees tasked with creating the nation’s industrial zones been created, as was promised in the ministerial statement?
We are almost finished. There are still some little details, and in a few weeks it will be ready.

E  The plan will be ready or the creation of the committee will be ready?
Both. On the plan we are doing some modifications and the committee is already under study.   

E  There is going to be a committee, or there is a committee?
There is going to be. There is not now. We are forming a committee. We will have a banker, an accountant, an engineer, an auditor and these kinds of people who can bring the maximum contribution for this project.

E  In the draft budget there was no mention of this project.  How do you envisage it being financed?
There are a few ideas which I don’t want to elaborate on now, but I would like to give a chance for the committee to come up with some ideas. We have ideas at the ministry and I have my ideas and I would like the committee to add on those ideas and bring their own.

E  Is the industrial sector able to absorb the blow of the proposed minimum wage increase?
I don’t think the industrial sector is waiting on the increase in minimum wage. I think all business people have already done the necessary adjustments related to inflation. 

E  But there are employees in the industrial sector whose pay would be affected by the proposals…
There are certainly people working close to the minimum wage, and that’s why it is the government’s responsibility to look at it, which we did in a responsible way. The increases are acceptable but I don’t want to elaborate on the percentages because there are differing views.

E  So in theory you support an increase in the minimum wage but not explicitly these figures?
I supported the increase in the minimum wage but I would also say I am not with the idea of increasing wages [other than] the minimum wage. It is the government’s duty to help minimum-wage workers but it should not get involved in any other kind of wages. However, this is my personal opinion and I will support my government whatever its decision is.

E  When you came into office you told Executive you were going to get an additional 25 percent added to your budget. Have you?
There is a problem in all of the ministries concerning their budgets. It’s a fact that we have a problem with the budget. So I guess we will still try to help the ministry of finance but at the same time we have to find a way to help our ministry because we really need the increase in budget.

E  But as of yet you have not received the 25 percent you were hoping for?
Not yet, no. The budget has been put to the cabinet and each minister is looking at it and is going to go back with his comments.

E  And yours will be?
I will stick to my plan. I will definitely ask for my 25 percent. 

E  How have the events across the border in Syria impacted Lebanese industrialists?
I’m sure some sectors or companies that had large business with Syria will have been impacted, but if that is the case then I advise them to take this opportunity to find new markets. They should not consider this as a setback but as an opportunity to find other markets.

E  With regards to the proposed electricity law, does it go far enough in addressing Lebanon’s energy infrastructure crisis and can industrialists be assured that there is the political will and ability for it to be delivered?
I think Lebanon has stability now. I think you could say we are one of the most stable countries in the Middle East. 

E  You’d hope so!
[Laughs] As for electricity, we have passed this law and, yes, we will have a much better electricity situation a year and a half from now.

E  You have encouraged industrialists to establish their businesses in the north, south and Bekaa, outside of the industrial heartlands. What incentives exist for them to do so?
If you move to the north or south the land is much cheaper and you can find lots of minimum-wage workers in those areas. You have more space…

E  Does the government have a role to play in the regionalization of industry or is it something that has to happen naturally?
It has to happen naturally. It is natural to expand.

E  How will the industrial sector have to adapt over the coming years if it is going to remain internationally competitive?
Governments don’t make companies competitive. I advise every chief executive officer or president or owner to have a good vision and be flexible. Times now benefit those who are flexible. Drop things that are not profitable, keep your ego away and be objective. I encourage Lebanese business people to be open-minded with regards to merging, which is still not much in the culture of the Arab world.

E  How would you sum up your first several months in office?
I am working hard but I will leave the assessment to others. I am working hard to finish my ideas. I am trying to finalize licenses and encourage people to come and do whatever they need from the ministry as soon as possible. We’re finishing their requests in a very short period of time… One more thing: we are planning to bring to the schools and the colleges [a program] which will give the students a chance to know more about industry in the country. I want the Lebanese to have trust in their industries and to have faith in a productive Lebanon and not just commerce. Look at some of the countries in Europe that depended too much on services and tourism. Shouldn’t we learn from that?

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A myriad of moving pieces

by Nicholas Blanford
written by Nicholas Blanford

The tumultuous start to 2011 with the collapse of the Saad Hariri government in Lebanon and the establishment, after several months of hard bargaining, of a new administration headed by Najib Mikati did not bode well for stability and economic improvement. But as the year draws to a close, the Mikati government has fared better than its detractors predicted.

The Tripoli businessman took a gamble by accepting the premiership in January, something of a poisoned chalice for a Sunni given the acrimonious manner of the ousting of Hariri, the leader of Future Movement and the pre-eminent Sunni political leader. Although Hezbollah engineered the downfall of the Hariri government and remains the quiet power behind the current government, Mikati has shown that he is no puppet of the Shiite party.

He has a reputation and international contacts in his own right, which in some ways make him a more useful partner for Hezbollah than an obedient drone.

One example is the debate over Lebanon's share of the funding for the Special Tribunal for Lebanon (STL), which has dogged the political debate since the summer. Hezbollah has consistently said it opposes Lebanon paying its 49 percent share of the funding, a rejection echoed vociferously by the party's allies, especially Michel Aoun. Mikati, however, has assured the UN that Lebanon will honor its obligations and pay its share, going so far as to threaten resignation over the matter, and eventually fund it through a government body under his authority.

A Mikati who retains international credibility and is allowed to win some political tussles is not a threat to Hezbollah. On the contrary, Hezbollah is likely to pick its battles with the STL with care.  Hezbollah clearly will stick to its stance of rejecting the STL funding, but that does not mean the government will follow suit.

Still, the STL funding issue is a mere hiccup compared to the historic events roiling Syria. There is a feeling in Lebanon that if Syria continues its descent into violence, it will inevitably spill across the border into Lebanon. Barely a day goes by without the local press reporting rumors of assassinations or militants arriving in the Palestinian refugee camps plotting nefarious deeds. The government faces the dilemma of juggling its loyalty toward the Assad government and accepting the reality that the regime may well founder in the coming months. The former stance will spare the government Assad's wrath but the latter will reshuffle the political cards in Lebanon in potentially dangerous ways.

Generally, international and regional players recognize the dilemma facing the Lebanese government and cannot be surprised when Lebanon is one of only three countries to vote against an Arab League proposal to suspend Syria's membership in the organization. Burying one's head in the sand is an essentially Lebanese means of dealing with unpalatable problems. But the influx of Syrian refugees escaping the violence and the prospect that some Sunni-populated areas in Lebanon near the border could become small-scale staging grounds for Syrian opposition fighters and activists will complicate Lebanon's ability to distance itself from the upheaval next door.

It is inevitable that Lebanon will feel some of the shockwaves emanating from Syria in the coming months, particularly if the struggle develops further into a sectarian conflict. But the real earthquake for Lebanon could occur if and when Assad is toppled, especially if the next regime better reflects the Sunni majority in Syria and aligns itself further from Iran and closer to Saudi Arabia and Turkey. Such a development will give a boost of adrenaline to the March 14 movement, especially Future Movement. Would it sufficiently embolden them to make a fresh play at confronting Hezbollah, which, after all, will still remain Lebanon's strongest military and political player even without the strategic depth provided by an Assad-led Syria?

Hezbollah has a habit of reacting forcefully and decisively against any moves that threaten its resistance priority and the party will already have made plans to counter a reinvigorated March 14. Much depends on the tenacity of Assad to remain in power and how a deteriorating Syria will impact more broadly on the region. But 2012 appears to be shaping up to be a most interesting — and potentially unsettling — year.

 

NICHOLAS BLANFORD is Beirut correspondent for The Times of London and The Christian Science Monitor.

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