Banking & Finance

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by Executive Editors
written by Executive Editors

Lebanon’s newest bank receives  BDL approval

Banque du Liban (BDL), Lebanon’s central bank, granted its final approval for the establishment of the country’s newest specialized private bank, Cedrus Invest Bank, after the new enterprise fully covered its $44 million paid-up capital. During Cedrus’s general assembly held in June, Ghassan Ayyash, BDL’s former vice governor, was elected as chairman of the Board Of Directors (BOD), while Fadi Assali and Raed Khoury were appointed general managers of the bank. Other BOD members include Georges Atik, Ghazi Youssef, Ibrahim al-Jammaz and Elias Abou Farhat. Following BDL’s approval, Cedrus Invest Bank’s management issued a statement in which it explained that launching the bank at a time of domestic and regional political and economic distress was a vote of confidence from the bank’s investors and shareholders. The latter include around 30 Lebanese residents and expatriates, as well as investors from the Gulf Cooperation Council  countries. Lebanon’s newest bank aims at creating an office for high net-worth individuals and families alongside its other business lines, which include wealth management, capital markets, asset management and private equity. Cedrus Invest Bank will soon raise its paid-up capital to $50 million due to high demand for its shares, the statement added. The bank aims at expanding beyond the Lebanese market in the foreseeable future and will tap into the Levant region, with a focus on Syria and Iraq, as well as into the Gulf.

Lebanon performs well on The Banker’s list

Nine Lebanese banks ranked amongst the top thousand commercial banks in the world, seven of which improved their rankings since 2010, according to a recent survey by magazine The Banker. Taking into account only the core of a bank’s strength — the shareholders’ equity that is readily available to cover actual or potential losses — the survey ranked the banks based on their 2010 end of year tier one capital as per criteria set by the Bank for International Settlements. Bank of Beirut made the biggest leap among Lebanese institutions, rising by 120 places to reach 663rd while recording a 45.3 percent yearly increase in its tier one capital. Byblos Bank followed, ranking at 448th, jumping 58 places from its standing a year earlier and posting an 8.83 percent rise in its tier one capital-to-assets ratio. Recently acquired Lebanese Canadian Bank ranked 912th, a notable jump of 57 spots from the previous year. Meanwhile, both Bank Audi and BankMed saw their positions fall, dropping by 29 and 21 notches to the 355th and 659th spots, respectively. The aggregate tier one capital of the nine Lebanese banks totaled $8.67 billion by the end of 2010, a 15 percent yearly increase, compared to a 10 percent increase in the top thousand banks’ tier one capital, while their profits-to-tier one capital ratio reached 19.9 percent in 2010, also more than the 13 percent ratio for the top thousand banks.

Premiums land high in MENA rankings

Lebanon ranks first in the Middle East and North Africa (MENA) region and 52nd globally in terms of insurance penetration, or total insurance premiums as a share of gross domestic product (GDP), according to global reinsurer Swiss Re’s latest “World Insurance in 2010” report. Compared to 3.1 percent in 2009, Lebanon’s insurance penetration stood at 2.8 percent of GDP in 2010, above the MENA average of 1.3 percent for the same year, but still below the world average of 6.9 percent. Cover premiums in Lebanon totaled $1.1 billion last year, accounting for 0.02 percent, 0.17 percent and 3.2 percent of global, emerging markets and Middle East and Central Asia premiums, respectively. In terms of nominal premiums, Lebanon dropped two spots on the year before to 66th among 147 global markets, and slipped one place, to sixth, in the Arab world. Also included in Swiss Re’s report were estimations of the average amount spent per capita on insurance premiums, or insurance density, which placed the United Arab Emirates first in the MENA region, at $1,248, followed by Qatar at $619, Bahrain at $527, Oman at $261 and Lebanon at $253.

Cypriot banks’ deposit and debt ratings downgraded

A day after it had downgraded Cyprus’ long-term debt rating from A2 to Baa1, just two notches above junk, international ratings agency Moody slashed the deposit and debt ratings of the two main Cypriot banks, Marfin Popular Bank (MPB) and Bank of Cyprus (BoC), from Baa3/Prime-3 and Baa2/Prime-2, to Ba2/Not Prime and Ba1/Not Prime, respectively. Moody’s said the island’s high level of exposure to Greek Government Bonds (GGB) was the primary reason behind its ratings announcement, as it considered all rated Cypriot banks likely to take part in the Greek debt exchange.  MPB and BoC exposure to GGB is $4.9 billion and $3.5 billion, respectively, according to the European Banking Authority, constituting 95 percent and 55 percent of their tier one capitals, respectively.

Lebanon still a draw for FDI

Among 18 Arab countries, Lebanon was the fourth major foreign direct investment (FDI) recipient in nominal terms and posted the fifth highest FDI growth rate for the year 2010, according to figures released by the Arab Investment and Export and Guarantee Corporation (AIEGC) last month. Lebanon attracted $4.96 billion of FDI in 2010, a 3.2 percent rise from $4.8 billion a year earlier, making it one of five Arab countries to have witnessed an increase in FDI last year, in contrast with a 23.4 percent yearly decrease in aggregate FDI to Arab economies in 2010. Lebanon ranked highest in the Arab world in terms of FDI inflows as a percentage of gross domestic product (GDP), which stood at 12 percent, followed by Jordan at 6.2 percent, Sudan at 5.4 percent and Qatar at 5.1 percent in 2010. Lebanon’s FDI inflows accounted for 7.7 percent and 8.7 percent of total inflows to Arab countries and to West Asia, respectively, and for 0.44 percent of global FDI in 2010, which increased by 0.7 percent for the same year.

Foreign currency flight from Syria exaggerated

Many an eyebrow was raised at the end of June when The Economist cited that an estimated $20 billion had left Syria since protests began to sweep the country in March. “There is obviously capital flight, but it is impossible that $20 billion left the country,” said Jihad Yazigi, editor of the economic newsletter Syria Report. With the World Bank pegging Syria’s overall economy as worth $52 billion at the end of 2010, and total deposits in private and state banks close to $30 billion, such capital outflows would have disemboweled the country’s finances. “The $20 billion figure is ridiculous, as the deposits of private banks are $11 billion and the deposit base of the whole banking system is $29.8 billion,” Freddie Baz, chief financial officer at Bank Audi, told Executive. “Estimates range between a 15 percent to an 18 percent drop in the deposit base of private banks, so there has been a decline of around $2 billion.” Lebanon’s Bank Audi, which operates Bank Audi Syria, is the second largest private bank in Syria with some 18 branches. However, in an effort to contain foreign currency deposit flight and alleviate pressure on the Syrian pound, the Central Bank of Syria (CBS) issued in early July a set of rules to implement new measures it had announced in May to control foreign currency purchase and withdrawal transactions. The measures include authorizing Syrians to open savings accounts in US dollars and Euros up and equivalent to $120,000, granted the amount is blocked for a minimum of six months, while also allowing foreign currency purchases of up to $60,000 for accounts with a minimum six-month maturity, with the maturity extended by one month for every additional $10,000 purchased. CBS governor, Adib Malayeh, said they had closed about 30 foreign exchange bureaus suspected of conducting illegal operations, with reports of the Syrian pound having been traded at between 10 and 15 percent lower than its official exchange rate. Malayeh said the Syrian pound was still rock solid despite the political unrest, with bank deposits up 4 percent for the second quarter of 2011 relative to the first.

Lebanese banks receive a Moody downgrade

Lebanon’s top four alpha banks, Bank Audi, BLOM Bank, Bank of Beirut and Byblos Bank saw their standalone Bank Financial Strength Ratings (BFSR) and Global-Local Currency (GLC) deposit ratings downgraded by Moody’s Investors Service. On July 19, Moody’s cut all four banks’ BFSRs and GLC deposit ratings to D- and Ba3, respectively, from a previous stable rating. It also reduced Byblos Bank’s B1 subordinated debt to negative. The international ratings agency mentioned the slowdown in the Lebanese economy and political tension, along with instability in neighboring Syria, as factors for increased domestic credit risk and weakened asset quality and profitability for rated banks. Both Bank Audi and BLOM Bank’s extensive operations in Syria suggest a great deal of material exposures to the country, which Moody’s estimated ranged from 70 to 125 percent of the banks’ tier one capital at the end of 2010. Moody’s ratings announcements also raised concerns over the four banks’ exposure to sovereign risk due to their low-rated Lebanese government securities portfolios, which equal several times their tier one capital levels and reflects the banks’ continuous funding of Lebanese public debt. By contrast, Moody’s said the banks’ long-term foreign currency deposit ratings remained unchanged, as those deposits are capped by Lebanon’s B1 ceiling. Lebanese bankers downplayed public concerns in response to the ratings announcement, asserting that Lebanon’s financial institutions have enough liquidity to overcome what is a temporary situation.

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Feature

Portraits of freedom

by Executive Editors
written by Executive Editors

Images from Cairo’s Tahrir Square have become iconic symbols of the struggle against oppression and have helped inspire the fight for human rights across the Middle East and beyond; But many goals of the Egyptian Revolution are yet to be fulfilled. Repressive laws remain in place, the military continues to detain its critics and prosecute them in military courts and the torturers of the old regime have gone unpunished, prompting thousands to return to the streets to demand greater reforms. For a look at some of the Egyptians who helped begin the process of change in their country, Executive presents in the following pages portraits of men and women from all walks of life who joined the movement to end Hosni Mubarak’s 30 years of repressive rule. All photos taken by Platon in April 2011, commissioned by Human Rights Watch.

1) April 1, 2011: Egyptians return to Tahrir Square in Cairo for a rally to “save the revolution” and protect their right to demonstrate.

2) Ahmed Seif al-Islam, 60, is a veteran Egyptian lawyer, activist and former political prisoner and founder of the Hisham Mubarak Law Centre, which since 2008 has been the leading Egyptian NGO providing legal assistance to protesters.

3) Heba Morayef, the Cairo-based researcher for Human Rights Watch, covering Egypt. In the middle of the demonstrations and violence during the Tahrir protests, Morayef visited hospitals and morgues to document the civilian death toll from government attacks and sniper fire. 

4) Sama Lotfy, 2, Neama el-Sayed, 26, Yassin Lotfy, six months, the children and widow of a protester killed by Egyptian security forces during the Tahrir Square demonstrations.

5) Hossam Bahgat, 31, is the director of the Egyptian Initiative for Personal Rights, which he founded in 2002. He has long played a prominent role in exposing human rights violations in Egypt, including the government’s failure to prosecute sectarian violence against Coptic Christians.

6) Muslim-Christian unity youth organizers, from left to right: Moaz Abdel Kareem, 28, from the youth wing of the Muslim Brotherhood and a participant in the Tahrir Square protests. Sally Moore, 33, psychiatrist, feminist and Coptic Christian youth leader. Mohammed Abbas, 26, a member of the Muslim Brotherhood’s youth movement and a leader in Tahrir Square who worked with secular counterparts and the April 6 movement in planning protests. Mohammad Abbas and Sally Moore drafted a “birth certificate of a free Egypt” shortly after Mubarak’s resignation.

7) Wael Ghonim, 30, the Google regional marketing executive who administered the “We are all Khaled Said” Facebook page after the young Alexandria man’s brutal killing by police. Ghonim’s passionate appearance on Egyptian television after being detained for 12 days by the security police helped energize the protest movement.

8) Nawal el-Saadawi, 80, an Egyptian writer, veteran women’s rights advocate, psychiatrist and author of more than 40 fiction and non-fiction books, many of which address the persecution of Arab women. Saadawi’s decades-long struggle for women’s rights and against female genital mutilation helped pave the way for the adoption of a historic 2008 law that banned the practice in Egypt.

9) Sondos Shabayek, 25, a writer for independent Egyptian newspapers and magazines and a “citizen journalist” who participated in and tweeted the story of the Tahrir Square protests.

10) Sarrah Abdel Rahman, 23, a social medi activist who reported from Tahrir Square with her popular “sarrahsworld” YouTube commentaries.

11) Laila Said, the mother of 28-year-old Khaled Said, with influential Egyptian activist Wael Ghonim. Speaking out about the torture and murder of her son by Egyptian police in June 2010, Laila became known as the “Mother of Egypt” and as an emblem of the consequences of endemic police torture and impunity.

12) Alaa al-Aswany, an Egyptian writer born in 1957 and author of acclaimed novel The Yacoubian Building. He was a founding member of the political opposition movement Kefaya (“Enough”).

13) Ramy Essam, 23, a charismatic singer, guitarist and songwriter who  became famous during the Tahrir Square protests as “The Singer of the Square”, was detained and tortured by the Egyptian military after  President Hosni Mubarak fell.

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Editorial

One pillar is not stability

by Yasser Akkaoui
written by Yasser Akkaoui

If Riad Salameh were no longer driving the bus that is Lebanon’s economy, many of us would feel differently about being on it. Faith in the lira, confidence in the sanctity of our savings and a belief, if fragile, that Lebanon can withstand internal and external economic shocks are thanks to him. But as we breathe a sigh of relief at his re-appointment to a fourth term as governor of the Banque du Liban (BDL), Lebanon’s central bank, we must also look at the precedent being set: It is true that through times of siege from without and sabotage from within he has kept us from tumbling off the road to prosperity… But nothing gold can stay.

It is no coincidence that the banks have kept Lebanon’s economy (relatively) on course during Salameh’s tenure. In fact it is no less than obvious; a well-tended garden makes for better flowers. If other ministries took their cue from the BDL, they too might discover the wondrous results diligence, conservatism and foresight can produce.

 Manufacturing, industry, agriculture — long neglected by the state as unviable oddities in Lebanon’s gross domestic product — are precisely the sectors in need of investment to help broaden the foundation upon which our prosperity is based.

As it takes many pillars to support a temple, the government must give the Lebanese a reason to believe that this varied and vibrant country can have a varied and vibrant economy.  

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A Cairene cacophony

by Josh Wood
written by Josh Wood

Tahrir Square of late has come to resemble an Egyptian version of the famed Speakers’ Corner in London’s Hyde Park; the difference being, perhaps, that it is ringed with barricades of barbed wire and those gathered here are actually somewhat relevant to their country’s future. Ever-multiplying platforms are scattered around a central encampment where speakers take to the podiums to espouse their political ideas and demands. But, unlike the days of the revolution when the masses gathered at Tahrir with one booming voice to chant the clear and simple demand for the regime to fall, the political demands and aspirations of protesters today range from Islamism to socialism and beyond, and when one stops and attempts to listen, the voices of the pontificates seem to blend into an earnest white noise, with nary two among them expounding a complementary vision for a direction forward.

Egypt’s “second revolution”, as the protesters are calling it, has stemmed from the frustrations with the way the country’s interim military leaders — the group of generals known as the Supreme Council of the Armed Forces (SCAF) — are running the country. There is a feeling that the revolution is not in fact over and that to bring additional changes they must continue the struggle.

After protesters reoccupied the square on July 8,  SCAF quickly began to offer partial concessions in an attempt at appeasement; the cabinet was reshuffled, more than 600 police officers were fired for offenses committed during the revolution six months ago, and while the protesters were not asking for it, elections were delayed, ostensibly to give political parties more time to better organize. Cynics would say that such overtures are aimed at creating additional discord between the protesters, and if such is the case, SCAF would be employing tactics similar to those of the Mubarak regime, just much more refined, subtle and perhaps successful. Whether intended or not, by going halfway on some issues — such as firing police officers as a response to the initial, basic protesters’ demand of bringing policemen to justice for crimes during the revolution — SCAF has placated some and further agitated the debate over what should be demanded from them. The delay in parliamentary elections will let more parties crowd into Tahrir Square and give even more time for the already disunited platforms of the protesters to drift farther apart.

The latest episode of disunity came with the debate among protesters over whether or not to march on SCAF. While at the start of their reoccupation of the square protesters first feared that the military might once again try to forcibly clear them, this was not to pass; instead, SCAF let the protesters come to them. And on July 23, Egypt’s national day, several thousand of them did, marching to the Ministry of Defense only to find themselves confronted by the army, which watched them battle for hours with angry local residents and SCAF supporters wielding stones, sticks and other weapons.

As the clashes — some of the worst violence Cairo has seen since the revolution — kicked into high gear, few spoke of it on the streets downtown. Shops remained open, families ate dinner, traffic was as bad as ever, oblivious to the chaos just miles away.

This is perhaps not surprising. The disunity of Tahrir Square has driven away many who, despite being present in the square during the 18-day-long uprising that toppled Hosni Mubarak and still strongly against SCAF, no longer readily see the value in showing up to the square, let alone marching to directly confront SCAF. During the daytime heat, the square is quiet. At night, the numbers swell, but it is difficult to tell who is there for a protest movement and who is there for the food vendors and carnival atmosphere.

Many Cairenes are just plain sick of conflict and yearn for stability rather than more days of broken curbstones and Molotov cocktails. Although they may also oppose the way SCAF is running the show, for them to rejoin the protesters in Tahrir and strengthen the movement, those in the square will first have to agree on what they are fighting for.

JOSH WOOD is a contributor for The International Herald Tribune

and Esquire Magazine

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Neither justice nor stability

by Sami Halabi
written by Sami Halabi

In the past, other Arab countries have looked to Lebanon as a model of democracy and free expression in a region submerged in autocracy and monarchism. But the Arab Spring has put us Lebanese in awe of the feats we thought our brethren were incapable of achieving, and has highlighted the systemic flaws within what we once believed to be the most representative system of government in the Arab world. 

As much of the region’s citizenry fight to determine their political future, the matter of debate in the wake of the Special Tribunal for Lebanon’s (STL) indictment of four Hezbollah members is whether justice or stability is preferable in Lebanon. But instead of referring back to our own political reference books, we should be looking to those who are currently rewriting their history.

The latest round of protests in Egypt in July have come more than half a year since the pharaonic figure of Hosni Mubarak was ousted — plenty of time for any military council to hand power over to a civilian body that is already in place. The notion of genuine justice has become the mantra of the protestors, who want to see those who ordered and carried out killings during the uprising held to account. They are not concerned with the tired excuses that have helped to stunt the evolution of a truly representative Arab society and preserve a “stability” laced with corruption and inequality, and neither should the Lebanese.

The difference between the Egyptians and the Lebanese, however, is not only that the justice they seek follows a true overhaul of their political system, but also that they seek it on their own terms, not on those of foreign institutions. Egypt, and to a greater extent Tunisia — which has largely fallen out of the international media’s attention — have realized that revolution is a constant struggle and that they can rely only on themselves to direct its course. They understand that they must shatter the bedrock on which the previous system sat so comfortably, one institution at a time, before they can achieve what they initiated back in January.

Here in Lebanon, on the other hand, such a self-reliant fervor is not evident. Many seem to think that it is the international community that will deliver justice in Lebanon. But anyone who has taken even the most cursory look at our history and our current affairs knows that Lebanon is the playing field where conflicts and assassinations are carried out, as opposed to being resolved, in the game of nations.

A bona fide contribution to the country from the international community would have been to make good on one of the STL’s first promises: to focus on reforming the judiciary so that it could try its own cases. Perhaps if that had been a priority, six and a half years after the assassination of former Prime Minister Rafiq Hariri, Lebanon could have managed its own affairs rather than being swept up in the geopolitical wave of the tribunal.

As for those who propound stability over justice, the predication itself constitutes an insult to our collective intelligence and a means by which to point fingers and inflame sectarian conflict. By suggesting that stability will be harmed by the indictments because they pit Shia Hezbollah against the Sunni Future Movement automatically infers that the indictment amounts to a conviction in the minds of the latter, which it most certainly does not; many Sunnis are not about to swallow whole the STL pill given its grievous legal mishaps over the years. Trying to frame it as such only serves to add fuel to the fire of extremists, whose purpose is served by viewing every action or accusation by a sectarian party such as Hezbollah as representative of an entire sect, which again, it most certainly is not.

Thus the polemic that has emerged between justice and stability is just another testament to how susceptible we are to the pitfalls of sectarian rhetoric and the goading of international powers. We continually miss the point in the truth and stability equation: the two are inseparable. But if we allow our politicians to formulate their tired old narratives at a time when even the nations closest to us will not listen to the same old jazz, then perhaps we should expect to get exactly what we deserve: neither justice nor stability.

SAMI HALABI is deputy editor

at EXECUTIVE

 

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Economics & Policy

Forging steel from ash

by Zak Brophy
written by Zak Brophy

Toufic Dalal had spent 20 years building his firm into one of the largest steel manufacturers in the region, specializing in pre-engineered buildings and pre-fabricated houses. He had become a rare success story in Lebanon’s heavy industry sector.

Then on 23 July, 2006, Israeli fighter jets left his factory a smoldering wreck of ash and twisted metal.     

When Dalal heard his steel works factory in the Bekaa had been bombed he rushed straight to the site. Where he had stood the day before in a 22,000 square meter (sqm) factory full of heavy industrial equipment he found nothing but ruin. 

While most people would have been enraged, panic stricken or crushed, Dalal said without a hint of false modesty, “It bothered me some.”

“On the ground in the factory we had eight holes, 30 meters in diameter by 15 meters deep,” he said, calmly recounting the first scenes he saw. “So imagine what was left:  Nothing. All of the machinery was destroyed.”

The value of the damage came to a total of around $25million. 

At the bombed-out site, groups of employees had also gathered, many in tears. Unlike Dalal, they believed their livelihoods were ruined with the factory.

Surveying the damage, Dalal said he was struck by a simple wisdom that determined his next steps: “You know in this life it doesn’t matter if you have $20 or $100, or $20 million or $100 million. You come to a point where you are just playing with numbers.” 

Emboldened by this philosophy, it was clear to him that he had to rebuild. “I said to myself I want to start a new factory now as if I didn’t have anything before. It is much easier to build it now than when I did it 20 years ago. I have the money; I don’t have debt; I know the business; I have the experience, and I have a market.”

And build he did.

The next day he was on a United States Navy ferry to Cyprus from where he flew direct to Chicago. He immediately bought the machinery he needed to get back in operation and flew it to Lebanon. And so it was that within three days of being bombed that Dalal was rebuilding the foundations of his new factory.

Free from any debt burdens, he was able to make an initial investment in the range of $3 million dollars from his own savings. Once he was back up and running, the orders began to flood in, providing the finance for the full redevelopment of the factory; within three months he was back at pre-war production capacity.   

Fruits of war

Ironically, Dalal’s biggest client would emerge from the political settlement to the very same war that had leveled his facility. When a ceasefire was finally reached under the auspices of United Nations Resolution1701, the UN Interim Force in Lebanon’s (UNIFIL) troops in the south mushroomed from some 2,000 peacekeepers to nearly 13,000. “We ended up selling to UNIFIL in the south so many prefabs and so many buildings. We were earning between $3million and $5 million per year, and that actually compensated most of our losses,” he said.         

In no small part due to Dalal’s ingenuity, boldness and creativity, the bombing actually boosted the Dalal Steel business. The rapid turnaround from demolition to production won a lot of customer loyalty and trust, not to mention prestige.

“People liked to work with us, perhaps to help us out, or perhaps they felt more secure working with us, because even though our factory was bombed we were still there so they knew we could guarantee our work whatever happens,” he said, before adding with a wry smile, “It was like marketing for us. People know who Dalal is now.”

The plan was never just to return the company to where it had been before. With business thriving and a blank canvas to work with, Dalal built a far superior factory to take Dalal Steel Industries forward.  

It was expanded from 22,000 sqm to 32,000 sqm and it will soon be expanded to 50,000 sqm. Furthermore, the machinery has been upgraded and is now fully computerized with a much more efficient production system.

The economic crisis in America has graced Dalal with a golden opportunity to recapitalize his factory at discount rates. With many fabricator firms in the US going bankrupt, Dalal Steel is snapping up at auction virtually brand new top-of-the-line equipment “for peanuts”. Reflecting on life and work, he said, “It makes you feel happy that at least you have work while other people are closing down.”

Five years on and Dalal is boasting a substantially more successful business than the one that was leveled to the ground in the war. He said his assets are at least twice what they were in 2006, and his turnover is perhaps 10 times what it was before the war. What is more, he continues to be a significant employer in the Bekaa region, with his workforce having expanded from around 220 to approximately 350. Dalal said his team was “essential” to the resuscitation of the business in 2006.

The past five years have also made Dalal a rejuvenated captain at the helm of his new and improved vessel. “When I rebuilt my factory it gave me so much power, and I’m much more dedicated to the work and I… love it so much more than before,” he said.

In the drive to expand the company he has been developing new production lines while tapping into new markets and developing existing ones. On home turf he continues to win large contracts.

“Lebanon has been good until now,” said Dalal, before rolling off a list of contracts his company recently won, including an 84,000sqm shopping center in the Bekaa, 44,000 sqm of steel construction in a shopping center in Beirut and 600 prefab houses for the Lebanese army.

The US army used to be their principal client, but the scaling back of its presence in the Middle East means there is now less business coming from that corner of the world. Nonetheless, Iraq remains an important country for the company, with three large projects in Erbil currently underway. Dalal also anticipates good business developing in southern Iraq as investment in the oil industry picks up pace. It is with an eye on this market that he will be courting new clients at a trade fair in Basra in two months time. 

African prospects

However, the real growth area for Dalal Steel Industries lies to the south.

“Our replacement market is Africa now. We sell a lot of goods to Nigeria, to Angola, to Kinshasa,” said Dalal. The continent now comprises around half of the company’s business and they are months away frombuilding a new factory in Nigeria.

With sights set on these expanding horizons, Dalal’s children have joined him to play central roles in the firm. Three of his children have followed in their father’s footsteps and are now engineers, with his daughter running the engineering department in the office, one son running the big projects and operations in Africa, while another son is in his second year of studies in the US. Another daughter is a business graduate and takes care of the firm’s accounts. But he is quick to clarify, “You know I still get involved in everything.”

With the steel business going from strength to strength, the Dalal family are diversifying into the real estate game. After all, “It’s easy,” said Dalal. They have been buying land since 2004 and intend to start building a 24-story tower in Hamra in three months. The real estate projects are within a different company but one that is still very much a family affair.   

Looking back to 1987, a young Toufic Dalal decided to leave his job of four years with Proctor and Gamble because “an employee’s life was not the one for me.” He risked his lot to buy a machine and go solo before he even had a workshop or any land to use it in. 

Twenty years later, this audacious spirit served him well; after rebuilding his pulverized factory, in 2011 his entrepreneurial thirst remains unquenched. 

“In 10 years I suspect we shall be twice as big,” he concluded confidently.  

 

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Economics & Policy

Back in flavor

by Zak Brophy
written by Zak Brophy

Liban Lait had established itself as a leading competitor in the Lebanese dairy industry by the time bombs began to rain down in 2006. Considering it had only been formed in 1997, and built its own factory in 1999, the company was brimming with confidence.  

But on July 17, 2006, two Israeli missiles demolished their processing plant in the Bekaa valley, throwing Liban Lait’s very existence into doubt. Five years later, the business has finally returned to capacity, and it is intent on fighting its way back onto the winners’ podium. 

Production Manager Houssam Zein-Eddine has been working at the Bekaa plant since day one. “I saw our dream underground. For all of us here, Liban Lait was like our baby. We had grown little by little and, once we were stable in the market and we had developed everything, it was bombed,” he said.

Along with many of the other staff, Houssam did not believe they would be able to rebuild the plant. Fatima Ghosn Dirany, head of human resources, said: “We were convinced that we would no longer be working for Liban Lait.” According to her, ex-general manager Michel Waked –— who passed away in August 2009 — helped the staff believe there was a future for the company. “He was a very strong man with a strong personality. A special one,” she said.

While touring the factory with staff four days after it was bombed he told them he intended to rebuild. “At first, we said ‘how can he be serious?’ It was a hard idea for us all to accept,” Dirany said. “He wanted to get started while the war was still going.”

Waked, and the rest of the board, did follow through on their decision to rebuild, but it eventually took them seven months to get back to a reduced level of production.

Zein-Eddine said all hands were on deck during this difficult period; “Managers, operators, everyone was working like a [laborer].We sorted through all the debris and got rid of everything that was completely destroyed and fixed what we could and when necessary imported from outside.”  

The shareholders made an initial investment in the range of $1 million to $2 million to get the plant to a level where it could produce fresh milk, Laban and Labneh, though at less than half its previous capacity. A plethora of product ranges, including flavored yoghurts, cheeses and deserts had to be dropped altogether.

Ultra Heat Treated (UHT) milk was a core product that could no longer be produced in the eviscerated factory. To maintain a presence in this market, Liban Lait imported its UHT from its franchise partner company in France, Candia. “It was important to keep a market share here but it was difficult to compete with high transport costs and high customs duties compared to imports from Arab countries,” said General Manager Youssef Massoud.

Time to rebuild

From early 2007 to January 2011, Liban Lait was operating on this reduced framework to keep a foothold in the market while working in parallel to build its new factory. “This allowed [us] to completely review the financial and technical aspects to make sure the job was done right. We did not stop completely and wait. That would have been a complete disaster,” said Massoud.

Around $25 million was invested to rebuild the whole factory, furnishing it with new and improved production lines. Having invested around $20 million in the original factory more than seven years earlier, there was initial uncertainty as to whether or not there would be the funds available to recapitalize the business. However, having proved that it could not return to production after the bombardment, nor could it service its existing debts, Liban Lait was eligible for a subsidized loan arrangement from Banque du Liban (BDL), Lebanon’s central bank, created specifically through a circular in 2007to assist businesses directly affected by the war. 

Under the agreement, the BDL effectively provided 60 percent of the replacement costs through the company’s commercial bank, which Liban Lait was exempt from having to repay. The way this worked was the bank was given soft loans from the BDL, which it then invested in treasury bonds, on which the interest accrued would cover their costs.

In a roundabout way it amounted to free money for Liban Lait. The remaining 40 percent was covered by their own sources, half by increased capital input from the shareholders and half from standard bank loans. 

The new plant manager, Abed Khoder, has overseen the transition to the new production lines, which has been underway since January2011. “We have improved productivity and quality with the new technologies… I can say operation costs will be around 40 percent less than what they were before.”

On the filling side, the plant has roughly the same capacity as it did before the war but as Khoder explained, the processing capacity has been considerably increased.

“Now our processing capacity is five times our production capacity. It is much easier to increase production capacity so this gives us room for expansion,” he said.

Liban Lait boasts of being the only large dairy processing plant in Lebanon that has its own milk source on tap. “Top quality milk as the first step is the most important thing and I am very confident in this,” said Massoud. On site next to the processing plant, the company has around 1,000 milking cows who tirelessly rotate on and off the milking machines three times a day, seven days a week. The farm, which was not struck in 2006, provides the plant with 25,000 liters of milk every day. 

Back in form

With the move to the new facilities, Liban Lait is finally re-entering the market for a whole range of dairy products, some of which it was producing before 2006 while others are completely new to the company. Earlier in the year a new milk range was launched including UHT and flavored milks and the first batches of new flavored yoghurts were leaving the factory as Executive went to press. Test runs on feta cheese have also been sampled and a new desert range will be launched in the coming months.

 

For each product there has been an extensive research and development process, which Khoder said costs on average around $200,000. “We do tests, retests and retest it again to be satisfied before we accept its launch into the market,” he added.

After four years, Liban Lait is now back in a position where it can compete in scale and range with the other major Lebanese dairy firms. “Many competitors have taken our place in the market. It is now our strategy to kick them out and get our place back again,” said Khoder.

But Massoud conceded that clawing back their market share, which he estimates to have declined by around 50 percent, will not be an easy task. Earlier in the year they ran a large advertising campaign for the new milk range and he said they will be “aggressively” marketing all the new products. But sparkling new facility aside, damage from the war continues to exact a toll. “It will be difficult to recapture the market share. This is the challenge. Of course nothing is a given.”  

 

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Economics & Policy

An uphill struggle

by James Reddick
written by James Reddick

Having shut down operations when the Israeli bombing campaign began on July 13, 2006, Abbas Safieddine had the disconcerting experience three days later of seeing the smoldering ruins of his plastics factory outside Sour broadcast on France 24. Despite sitting on an isolated plot of land, far from any military, or even another civilian, establishment, PlastiMed’s facility was destroyed entirely by several direct hits; for days the plastic-fueled fire raged, while the site continued to billow smoke for weeks.

“That Sunday [July 16] was when they started bombing [manufacturers]; that was the ‘industry day’ when they hit all the factories for some reason,” Safieddine said. Theories have abounded as to the rationale behind the targeting of independent, apolitical businesses, with some accusing Israel of attempting to wipe out regional competitors. But in the case of PlastiMed, which manufactures and supplies to “filling companies” intravenous pouches for medical use, no such competition exists, neither from Lebanon’s southern neighbor, nor from anywhere else in the Middle East and North Africa region.

Today, the company operates administratively out of an office in Beirut‘s southern suburbs, while its factory is being rebuilt on the original site (after an attempt to buy land in Mount Lebanon fell through). It plans to reopen, with “a soft start” in the first quarter of 2012. But the difficulties encountered to get to this point, exactly five years later, demonstrate the immense challenges that faced all businesses affected by the war and the cumbersome process of procuring assistance from the Lebanese government. Initially, indications were good that the company would receive support from the Ministry of Industry. In early August 2006, he was  contacted by the ministry and by the Association of Lebanese Industrialists (ALI). “We had a few meetings with the minister at the time. They wanted acquisition of some data — anticipated losses, stuff like that,” he said. An appraisal of damage that excluded losses of stock came out to around $16 million, nearly four times the budget of the entire United Nations Industrial Development Organization relief program for affected industries and well beyond the means of Hezbollah’s cursory assistance for select businesses damaged in the war.

Diminished hope

“At the time, the association, as well as industrialists in general, were really hopeful. But it didn’t take long for the optimism to fade as most assistance was coming up for residential apartments. There was no mention of commercial assistance. So after two or three months we started to realize that nothing was going to happen,” Safieddine said. “The government really pulled out of this. Their excuse at the time was that there wasn’t enough money to go around to residential areas, much less to commercial. Plus, their argument is that the government has never assisted in commercial or industrial losses due to civil unrest or war or whatever.” Eventually, Safieddine got word that a proposal was in the works to implement a loan program through Banque du Liban, Lebanon’s central bank, though he says the process of appraising his losses, negotiating the loan and signing off on it has taken until this year to finalize. As with all of the central bank loans addressing industrial damage from the 2006 war, the conditions stipulate that 20 percent of the money for rebuilding must be put up by the factory owner, meaning that PlastiMed had to provide $3.2 million.

“These are big losses,” said Safieddine. “If it’s $1,000 you make the decision immediately. But you’re talking millions of dollars. The bank is very strict in making you conform to the 20 [percent] deal.”

Regaining trust

Even with the assistance (of which a total of $9.3 million will be forgiven), the company remains in a precarious position. Before the war, the operation was running 24 hours a day, with nearly 100 employees. When the factory finally reopens, the workforce will be at most 35 to 40 people, with as yet no intention of expanding. Repairing contracts with clients is one of the largest hurdles. When the factory was bombed, its entire supply was destroyed.

“We had two main customers here, and all of a sudden all their supplies were lost so they had to buy from Europe, because remember we have no competition regionally,” said Safieddine. “We had to assist our customers at least in a way to assure them that we have a warehouse somewhere in a neutral area of Beirut with a confirmed supply of their demand for six months or so. And we’re in the process of doing that.”

But regardless of these offerings to potential clients, building up a customer base is no small task.

“Our customers restart on an annual contract. So we sign off for the whole year,” he said. “If we miss, the customer has to wait another year. Then he may or may not sign with you. So in our case it takes time to acquire a customer. It’s difficult to lose a customer, but it’s hard to get one.”

But these are concerns for the future, when Safieddine and his staff can ditch their office in Ghobeiry and begin production once again.

“Our primary concern is to rebuild and launch,” he said. “After that, we’ll cross the other bridges when we get there.”

 

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