Real Estate

Boardwalk Empire

by Rayya Salem
written by Rayya Salem

“The world over, everyone is talking about Beirut today, especially in creativity and entertainment,” boasted Samer Bsatt at the June 9 launching of Zaitunay Bay. Beirut Waterfront Development (BWD) held the launching of this residential and retail mega-project — inviting their 22 restaurant and retail tenants, the contractors, investors, shareholders and members of the media — to announce the “first and only [commercial] boardwalk in Lebanon” according to Bsatt, the group’s general manager.

The 20,000-square-meter waterfront project along Beirut’s hotel district coastline aims to cater both to Beirut’s tourists and ‘fun in the sun’ seekers and strategically position the bay as the meeting point for yacht-coasters who sail the Mediterranean during the summer months, perhaps as new members of the upcoming exclusive yacht club.

Farouk Kamal, chairman at BWD, a joint venture that began in 2004 between Solidere and the London-based Stow Development, said that throughout Lebanon’s political upheavals and project delays, the budget has grown to $200 million, which reflects in part the constant upgrades made over the years. Overlooking the construction site from a nearby hotel restaurant, he offered Executive his take on the movers and shakers who are revamping the bay, as well as who stands to reap the rewards.

The first of two phases will see the promenade (starting near St. George Yacht Club to just in front of Marina Towers) and its 17 local and international restaurants open to the public by September of this year, where the space will also host concerts and exhibitions to attract maximum foot traffic.

The main contractors are Mouawad-Edde, on the restaurant side, with MAN Enterprise and Hourieh Enterprise also working on phase two, while project manager Interior Design, Engineering and Architecture (IDEA) oversees work on the site.

The second and final phase will see the yacht club and 53 ‘club residences’ delivered in the spring of 2012. “We have a list of 120 who will be founding members of the yacht club, but not confirmed memberships, ”Kamal said. “We need a harmonious mix, including expatriates living in Europe.”

The club will feature a ‘seven-star’ level of service for the 53 units, part of the reason for the significant price, which can easily be described as the most exorbitant Beirut has ever seen. For the smallest size unit, at 85 square meters, the asking price runs at around $2 million, which translates into $23,500 per square meter, but it can only be bought after one becomes a member of the yacht club.

“For a family of three or four, [membership will be roughly] $50,000 initially and then $4,000 to $5,000 annually,” Kamal said. Of course, since the residences are expected to be used for just a few months a year by their owners, one of the included services available is to rent out the clubhouses throughout the year. All in all, the owners of the project stressed the Lebanese character of the journey to create what they hope will become the region’s glitziest boardwalk. “The [man power] on this project is mainly Lebanese, except for the [architectural] concept, which was done by New York’s Steven Holl [the executive architect supervising the design is Lebanon’s Nabil Gholam]. All are Lebanese who have succeeded in their own fields. Lebanese can deliver beautiful things when they work together,” said Kamal, who originally approached Solidere with his vision for creating an entertainment and lifestyle venue on the boardwalk that would reincarnate Beirut’s dolce vita lifestyle of the 1960s.

Just enough cooks

“We had 150 applications from [commercial] tenants, mostly from Lebanon, and we had to pick carefully so that the mix would create a range— not all high-end — and so as not to create too much competition,” said Kamal. MyWaterfront, the big brother of Beirut sushi joint, Mybar, will occupy the largest space among the 17 restaurants, and will feature an outdoor terrace overlooking the bay. A possible competitor, Hakkasan, a world-famous Chinese restaurant with its main outlet in London, was denied a request for a 900-square-meter outlet at BWD due to size limitations.

Mybar Manager Haytham Nasr didn’t hesitate to sign the nine-year rent contract with BWD. “Once I saw the actual development, it was a no-brainer… It’s prime real estate,” he said. “[And] we are looking at events at the waterfront to make sure there is a lot of foot traffic, especially in dead periods of the year.”

Mybar’s crowd funding concept is structured a little higher the second time around, with buying options at $10,000, $20,000 and $50,000,with the payback period guaranteeing money back within two years, and doubling it after four. “[The funding cycle] was nothing short of remarkable,” said Nasr. “A lot of people have trust in this development. We launched our website a month and a half ago and it took us less than five weeks to raise $1.5 million, all from Lebanese investors.”

Lebanese furniture designer Nada Debs, one of the five non-food and beverage outlets, signed for the lease on the June 9 launch day. Her store, which will sell home items and gifts, will be situated amid the 17 restaurants. The designer seems to be betting that a destination within the hotel district, with the added traffic from sea visitors will pay off, even if she is paying more in rent there than at her Saifi village boutique.

Not so crazy

“When [Stow Development] did Marina Towers [a development overlooking Zaitunay Bay], people thought we were crazy, but it pulled all these projects after us,” said Stow’s Kamal.

Though the yacht club’s sales are dependent upon high-net-worth clients, it is projected the expansiveness of the entire real estate development, once complete, will benefit all levels of the tourism industry.

With the global flare of the many expatriate yacht club members, and the mix of international food and beverage brands such as the Indian restaurant Moti Mahal, the Italian tastes of Signor Sassi and America’s glamour steakhouse Cro Magnon, among others, the new waterfront will surely add spice to Beirut’s reputation for sophisticated cuisine, nightlife, and marine activities. Perhaps the ‘la dolce vita’ is soon to return after all.

 

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Society

Hospitality: Where everything is possible

by Zak Brophy
written by Zak Brophy

 

The job of a concierge in a five-star hotel is a portal into the stratospheric world of the super rich, a front-row view of how the ultra well-heeled live. Sometimes it is amusing, sometimes shocking and sometimes downright weird.

When paying top buck for service, guests can, and often do, expect everything on a platter. “I cannot say no to any request. Everything is possible, as long as it is legal,” said Reda Chaiban, senior head concierge at the Habtoor Metropolitan.

Chaiban exudes a genuine passion for his job. Having spent his working life striving to be at the top of his game, he sees himself as someone who can organize just about anything. “A concierge’s contacts are his toolbox. He needs to know everyone in town so he can fix any request,” he explained. 

Organizing a spot at the top table in town or a day out on a mega yacht is routine business for Chaiban, but sometimes he really has to go the extra mile to keep the guests happy. On five separate occasions a returning female guest has had him fly over from France one of the most desired hairdressers in the world. “Like I said, nothing is impossible,” he joked. But what about requests from guests with more illicit designs in mind for their stay in Beirut?

Walking on the wild side

 Chaiban was adamant that none of the staff at the five star hotels would get involved with organizing drugs or prostitutes for visitors.  However, the lines of distinction can become a little blurred.   A concierge from another five-star hotel told Executive, on condition of anonymity, that “there is normally someone in the hotel that knows someone outside who can arrange these things, but it is true we don’t fix it ourselves.” It’s a simple case of passing on a phone number.

The same concierge spoke about a party of men who booked the penthouse at a cost of more than $20,000 per night to throw private parties. “Every night they would bring between 30 to 40 prostitutes, and even if they didn’t sleep with them they would pay them several hundred dollars just for coming,” he said. “People pay up to $5,000 a night for a prostitute; some will pay more for a virgin,” he added.

Official policy is to inform the police if staff members are aware of illegal activity going on in the hotel. But the anonymous concierge smirked at this suggestion. “Even if we suspect illegal things are going on in people’s rooms, we don’t get involved. Quite simply it’s none of our business,” he said.

There is a prince from Saudi Arabia who is infamous amongst Beirut’s hotel staff for his outlandish requests, which have earned him the soubriquet “The Golden Boy”. A receptionist, again speaking anonymously, explained how the prince always books the same penthouse at one of Beirut’s most prestigious hotels. “He has all the windows blacked out, the whole floor carpeted in sheep’s fur and he will only wash in Perrier water or laban,” he said.

Tips are what makes the often-demanding job worth it and are an integral part of the hotel staff’s income. “If I told you how much I earn you would cry,” lamented a senior concierge at a high-end boutique hotel. “But in a good month in high season I can take $12,000 in tips,” he added with a wry smile. Tips don’t always come as notes greasing palms either. “The tips can come as gifts such as perfume, an iPad or an iPhone. Sometimes the guests come to see you as a friend so they want to give you a gift,” said Roxanne, a concierge at the Four Seasons.

 

 

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Editorial

Arabs and advocacy

by Yasser Akkaoui
written by Yasser Akkaoui

Search Amazon for books on lobbying and advocacy and you will find more than 9,000 on the subject. It does not take 60 years to understand the American system of checks and balances. All you need is a cause, conviction and the tenacity to keep pushing your message until it is heard and repeated by congressmen, senators, the media, influential personalities and the president. Mobilize networks of mutually-interested individuals to muster electoral money and resources for candidates that supports your cause, and, voila! Welcome to influence.

To have the world’s strongest economic power as an ally, learn the local vernacular and the ideological concepts that resonate. A little bit of democracy and a whole lot of fiery advocacy for a few decades or so should earn the leaders of your cause a regular spot to speak at congress and, if you’ve manage to scare the politicians enough about their dependence on you for reelection, expect them to jump to their feet and offer 29 standing ovations for a 45-minute speech.

This is the prism through which the Middle East and North Africa needs to assess Obama’s ‘Arab Spring’ speech, in which he outlined a new era of America engagement within the region; undoubtedly he supports the concept of Arab democracy, but this will extend only so far as it does not conflict with his reelection, and at the moment it is not the Arab lobby whom he feels beholden.

For Arabs to ever be the primary consideration and beneficiaries of American policy in the MENA, they must create an energized and expansive lobbying network — not just in Washington, but in every major US state. Then, perhaps, when another American president unveils a new US policy direction for the Arab World, it will be to the Arab American Political Action Committee that he offers his justifications.

For this we would need real leaders, and leaders we have none.    

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Economics & Policy

The GCC expands

by Fabio Scacciavillani
written by Fabio Scacciavillani

The ‘Arab Spring’ is yielding some unexpected and exotic political fruits. The proposal to accept Jordan and Morocco into the Gulf Cooperation Council is certainly among the most intriguing, and it was followed almost immediately by Palestine’s request to join.

GCC Secretary General Abdul Latif al-Zayani announced that the current six members (Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Bahrain and Oman) would welcome Jordan and Morocco into the bloc, saying that meetings “to complete procedures” are to be initiated soon.

Given the swift response by an institution not known for the timeliness of its decision-making process, it is likely that there were earlier discussions on this matter at the highest level (although Kuwait, Oman and Qatar reportedly expressed reservations about the move, preferring a limited membership, like that of Iraq and Yemen, confined to cultural and sporting events).

Previously, Jordan had shown interest in joining the bloc, but its requests had been politely turned down. Yemen’s request for membership has stalled for years but the country, though currently embroiled in political unrest, hopes to join by 2016. On the other side of the region, Morocco has apparently been invited to join.

This development could mark the coming of age of an international forum with ambitions to be a sort of Arabian version of the European Union, but which has been marred by a weak institutional framework and erratic procedures. Created in 1981 as a bulwark against a perceived threat from Iran, the GCC’s original agreement was ambitious in scope and covered vital areas with the potential to reshape and modernize the economies of the Gulf, while fostering a common foreign and security policy in a region endemically at risk of destabilizing crises. These included:

  • Harmonizing regulations in economy, finance, trade, customs, tourism, legislation and administration
  • Promoting scientific and technical progress in industry, mining, agriculture, water and livestock
  • Establishing scientific research centers
  • Setting up joint ventures
  • Establishing a unified military presence (the Peninsula Shield Force)
  • Encouraging cooperation of the private sector
  • Strengthening ties between populations
  • Establishing a common currency by 2010

Within the GCC framework the six countries have undoubtedly made some progress, for example in creating a Customs Union, in freeing the movement of citizens (but not of foreign residents), in establishing a joint military force (which was deployed recently in Bahrain), in cross-border investments and capital movements and in a number of other minor fields.

However, there are two fundamental differences between the GCC and the European Union. First and foremost, the members of the EU have transferred national powers to EU institutions. The most visible, influential and famous of these is the European Central Bank, which exercises its monetary authority in full independence from any political interference, as enshrined in the Amsterdam Treaty.

In several additional key areas member states have devolved their functions to the EU Commission or other supranational bodies: international trade, antitrust legislation, agriculture policy and visa regulation. The EU Commission issues directives through a  common legal charter, which can span virtually any field, to which all national legislation must adhere.

In case of controversy or lack of compliance with a directive, the European Court of Justice can rule to force national governments to conform to EU legal provisions. Often pieces of national legislation are struck down by the EU Courts, which in some cases can even overturn the verdicts of national Tribunals.

Furthermore, one of the main achievements of the EU, the single market, allows for goods and other services to be traded freely across the EU and removes customs and passport controls between most member countries. One can travel from the Arctic to the Mediterranean without encountering a single frontier post. In essence the EU is a super-state with institutions that exercise powers even against the will of national governments, an elected Parliament and a body of laws and principles (the so called acquis communautaire), which is valid for all citizens and all the 27 countries. More recently the EU has adopted a Constitutional Treaty that establishes the fundamental principles guiding its actions and the decision-making rules.

By contrast, so far the GCC has been mostly a permanent structure of regional diplomacy, facilitating the exchange of views at the highest level. The implementation of decisions made by the GCC is the responsibility of national governments, not of common, independent institutions. The only (limited) exception is the Monetary Council, which is the precursor of the Gulf Central Bank to be established when, or if, the GCC issues a common currency. This will be the first genuinely independent supranational institution in the Arab world. But the plans for the monetary union, which was supposed to go into effect at the beginning of 2010, are proceeding slowly, with two countries (Oman and the UAE) out of six having declared their intention not to join.

The accession of the Jordanian and Moroccan monarchies to the GCC could help inject new life into the integration project and would mark a historic step forward, so long as it is conducive to an institutional framework modeled on the EU, with a devolution of powers at GCC level.

A major goal could be the establishment of a true single market, styled on the EU, with completely free movement of capital, goods and labor, plus an antitrust authority with pervasive powers.

At present, border controls, trade barriers and protectionist measures among GCC members are still very much in place (even to transfer a used vehicle between two countries requires a dose of patience and money which could be put to better use). This hampers the development of industries and economic activity that could create the several million jobs needed to absorb an increasing youth population, which, as recent events clearly show, is ever more restless and impatient.

On the other hand, the proposed enlargement might turn out to be just a political card played on an increasingly shaky table. It could very well be that the GCC’s newfound hospitality is intended to raise the six nations’ profile in the region and is more of an internal security pact by which member states would intervene in the case of internal unrest. If this is the case, the GCC would merely gain a front row seat to events unfolding in Algeria and Syria (as it already has in Yemen).

But for the GCC to limit itself to merely preserving the political status quo of its member states would be a missed opportunity: United States President Obama delivered a major policy speech on the Middle East last month, which foreshadows an unprecedented involvement in the region outside the security arena, and a clear indication — underlined by the explicit mention of the pre-1967 borders between Israel and Palestine as a natural negotiation platform — that the wind has dramatically changed.

The enlargement of the GCC could either constitute a myopic move for preserving the status quo (and another form of diplomatic jostling) or the means to address the roots of the economic malaise in the region by following a cooperative approach along the lines of the EU. The next few months will tell.

FABIO SCACCIAVILLANI is chief economist at the Oman Investment Fund

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Economics & Policy

An accelerating descent

by Executive Editors
written by Executive Editors

The failure of a government to actually govern can be overlooked, and even ignored, when a country’s economy somehow manages to independently cook up growth, as Lebanon’s has, churning out annual increases of gross domestic product in the range of 7 percent for half a decade. During these years many seemed to regard the economy’s continued subscription to miraculous performance as assured by God while the fundamentals needed to sustain this growth, such as infrastructure, were rotting beneath their feet.  

Today, however, the boardrooms’ belief that Lebanon’s soaring growth is immune to the laws of gravity that apply to the rest of the world has disappeared, as first quarter results for 2011 clearly show that the country is entering an economic downturn. And now — with the fiscal forecast inclement and a government necessary to navigate the storm — it becomes painfully apparent how the intransigence of the competing political camps has left the Lebanese on a quickly sinking ship. Lebanon’s sectarian political divisions and the grinding stalemates they produce are at the root of the vast majority of the nation’s tangled shortcomings.

Executive does not pretend to have the formula to resolve the impasse and get a government formed and functioning again. Instead, the following report examines the most critical issues facing the economy, and if those whose responsibility it is to govern do manage to form a government that is actually empowered to enact and follow through on policy and reforms, what some of these should be in order to cushion the current fall and restart growth.

Counting in the dark

Typically, the International Monetary Fund issues its annual forecasts for the Lebanese economy around October, but this year it waited an extra six months to come out with a figure of just 2.5 percent real growth for 2011, down from an estimated 7.5 percent last year, signaling the end of the country’s economic honeymoon. The finance ministry has also signed off on the 2.5 percent estimate.

At a press conference last month, IMF Resident Representative in Lebanon Eric Mottu explained to Executive that the estimate took into account that, even if a cabinet was formed by the second half of the year, it would not be enough to cover the losses incurred during the first half of the year. The IMF’s growth projection for Lebanon is much lower than the fund’s regional estimate of 4.1 percent. However, not everyone agrees with them.

“The IMF have been wrong a number of times in their predictions,” said Marwan Iskandar, economist and chairman of Banque de Crédit National, before predicting that growth would be between 4 and 5 percent. “They used to tell us five or six years ago to reduce the burden of public debt because otherwise we [would be] in dire straits, and then they changed their tune to reducing the debt-to-GDP ratio,” he said.

One reason for things being better than the predictions could be Lebanon’s sizeable informal economy, which is not factored into IMF statistics. Iskandar said that staff at the fund’s sister organization, the World Bank, told him that they estimate the ‘informal’ economy to be around 30 to 35 percent of the size of the formal economy, though World Bank officials have denied to Executive making such assertions.

“They don’t want to say it publicly because it would make what they are saying irrelevant,” said Iskandar. “It would make the public debt something close to the [size of the] economy.”  Currently Lebanon’s debt-to-GDP ratio is widely believed to be somewhere over 130 percent. Jad Chaaban, acting president of the Lebanese Economics Association and professor of economics at the American University of Beirut explained that developing countries usually have an informal economy at about 20 to 30 percent and Lebanon was “above average.”

“The problem is we are not [even] measuring the formal economy,” he said.

Indeed, to make an accurate forecast one would need to know the base from which that forecast is being made. As Executive went to print official GDP figures were only available for 2009, which saw 8.5 percent real GDP growth. Because economies naturally evolve between periods of positive and negative growth or contraction, until the end of last year Lebanon’s economy appeared to be experiencing what economists call a “soft landing”, a pseudonym for the graphical representation of cyclical economic slowdown resembling a plane coming into land; if the IMF and the finance ministry are now to be believed, it looks instead like the country is going into a nose-dive.

“The IMF uses official government figures and they don’t contest them,” said Nasib Ghobril, head of economic research at Byblos Bank. “It might be optimistic; we still don’t know.”

The level of uncertainty has fueled speculation and has understandably resulted in a lack of confidence in the system. Reforms purportedly underway include a program, aided by the European Union, at the Central Administration for Statistics (CAS) to transfer the job of comprising national accounts away from the prime minister’s office and to the CAS. Yet how long that will take is anyone’s guess. In the meantime “it’s all a walk in the dark,” said Chaaban.

Without accurate and timely statistics, especially during times of political transition, those with an interest in using the economic situation to their own advantage — and there are many — have the upper hand. “People who want to make the numbers look bad, lower GDP growth and those who want to make things look good, make the numbers high. GDP growth becomes a signal for confidence in government and the country; same goes for the banks and financial sector,” said Chaaban.

Thus it is hardly surprising that public officials and the media from across the political spectrum have been eager to comment on the economic situation without having any real indication of just how bad things are, or could become. Those on the side of the recently deposed March 14 coalition have been quick to point out that March 8’s stalled efforts to form a cabinet have destroyed the economy, while the latter camp has accused the former of over-reacting to make the situation look worse that it actually is.

In fact, both camps are relying on the same scattered indicators that economists have come to depend on when trying to gauge Lebanon’s performance, due to a lack of national accounts which are themselves “the best available estimates”, according the CAS’s document explaining the national accounts reform program.

Adding to the hodgepodge of numbers and forecasts, the International Institute of Finance (IIF) — a global association of financial institutions — estimated that growth in Lebanon would reach 4 percent at the unveiling of their Middle East regional overview forecast in Beirut on May 15. When questioned by Executive about why the estimate was so different from the IMF’s, Garbis Iradian, deputy director of the Africa Middle East Department of the IIF, said the forecast was “probably optimistic” and assumed there would be cabinet in place in “a few months.”

Lebanon’s central bank is currently well positioned to defend the lira, at least in the near-term

The debt: the elephant in the room

So while there are scant reliable means to measure the latter half of the debt-to-GDP ratio, there is ample documentation regarding the former, and it is soaring; currently the Lebanese public debt is pegged at $52.6 billion. In the first quarter alone the deficit rose almost $1.1 billion, nearly double that of the corresponding quarter in 2010, taking the primary balance from surplus to deficit. Revenues are also dropping, particularly in excise taxes on gasoline and property taxes, which are expected to fall by 57 and 17 percent, respectively, according the IIF’s forecasts, given a slowdown in construction and cuts to the gasoline excise tax this year.

This has caused jitters about the government’s ability to finance the debt, and if real fears caught on in the market then borrowing to continue funding public services would become more costly, which could in turn erode confidence to the point that the currency’s stability would be put in question, though Banque du Liban (BDL), Lebanon’s central bank, is currently well positioned to defend the lira, at least in the near-term.

Additionally, the previous government’s mantra — that the debt was sustainable due to a decreasing debt-to-GDP ratio — has now gone out the window.

“The economy is not growing as fast; when it was growing strong, we saw a big improvement in debt-to-GDP,” said Saad Azhari, chairman and general manager of BLOM Bank. “Now I don’t think we can see this improvement because of the situation. We hope that [it] does not last long and we can have again stronger growth.”

Freddie Baz, chief financial officer and strategy director at Bank Audi, remarked: “If at 185 [debt-to-GDP ratio] we were not really concerned about the ultimate outcomes, its not at 130 or 140 that we will start being concerned.”

The relationship between the banks and the debt has seen worse days and even with the current economic downturn, and the expected rise in debt-to-GDP, Lebanese government debt still appears marketable, though at a somewhat more costly rate.

Last month the government rolled over $1 billion in Eurobonds in two tranches: the first for $650 million expiring in 2019 with a yield of 6 percent, and the second valued at $350 million maturing in 2022 and carrying a yield of 6.475 percent. The last Eurobond rollover in November 2010 carried yields carrying a weighted coupon average of 5.44 percent and an average time-to-maturity of 9.21 years, the lowest ever, indicating new upward pressure on debt financing. 

“It’s not us who decide the government will pay 6 or 7 or 8 percent, it’s the market,” said BLOM Bank’s Azhari.

Even if private demand for government debt dries up, it is likely that the BDL would itself step in as it has done in the past to buy up debt and keep the market stable. “Their goal is to ensure stability so they do what is needed. But this is something the IMF is totally opposed to and it’s a burden on the central bank’s income statement, which no one sees except the IMF,” said Ghobril.

“They will do it and of course this is not the best way,” added Iskandar. “It is the most inflationary way but under duress it is the one way to [keep] the government running.” 

At present BDL does not release its total holdings of government debt but instead a number of different figures that include vague statements such as “claims on the public sector”, which do not represent the actual debt. According to the Association of Banks in Lebanon, treasury bill holdings of the central bank, which it also issues, stood at $9.67 billion or 18.4 percent of the total debt at the end of the first quarter. Using a crude method of subtracting the central bank’s foreign currency holdings from its foreign assets, one can get an idea of the bank’s Eurobond holdings, or debt in foreign currencies, which came to a further $1.9 billion, bringing the total to $11.57 billion by the first quarter of 2011.

The governor’s office of the central bank did not respond to requests to disclose the total holdings of the bank’s public debt.

Another method used by economists is to assume that the “securities portfolio” of the central bank is comprised of only Lebanese debt, which would mean they hold $10.3 billion of public dues.  “The whole way it is managed is ridiculous,” said Chaaban. “We are selling ourselves. The banks are over exposed so the central bank buys T-Bills from their own portfolio but where does the money come from? From the [commercial] banks’ 15 percent required deposits! You are buying from yourself and giving from one pocket to the other.”

“The whole way it is managed is ridiculous…You are buying from yourself and giving from one pocket to the other”

Subsidies — popular but pricey

Compounding the debt problem has been the recent debacle over gasoline prices, which hit a historic high of 37,300 lira ($24.74) last month for one jerrycan (20 liters) of gasoline, even after a tax cut that will cost an estimated 1 percent of GDP, according to the IMF.

Last month the finance minister announced that a “temporary solution” was found one day before public transport workers were planning a major nationwide strike over the price of gasoline. The agreement between the finance ministry and the drivers is set to cost the government a further $15 million each month, for which it will take out another loan to finance the subsidy.

Proposals to cap the price at a level more acceptable to all consumers were deemed too expensive by the finance ministry, something many economists and consumer rights groups dispute.

“In all cases it is having an effect on the fiscal revenue, so at least do something tangible. Now you are not winning on any side,” said Ghobril, adding that even though this would eventually increase the amount of public debt, that was somewhat “more long term.”

“If revenues are going to fall at least let the citizens benefit,” he said.

Inflation picks up steam

Realistically, there are no short-term solutions to the debt or the deficit, but these are not what impacts their day-to-day lives. Headed in the opposite direction of GDP figures, inflation rates are expected to rise from 4.8 percent last year to 6.5 percent this year, according to the finance ministry.

Even this may be an underestimate as the figures which go into determining the Consumer Price Index, the CAS’ major indicator of inflation, only go back to December 2007, meaning that it does not cover price fluctuations of even one full economic cycle. Then there is the difference between what people feel in terms of rising prices and what the actual overall inflation rate is.

“An index [shows] an average, which is not necessarily indicative,” said Chaaban.

Still, the CPI published by the private Consultation and Research Institute showed an increase in March alone of 1.33 percent, and increased 1.95 percent in the first quarter of the year, well on pace to surpass the 6.5 percent full-year estimate.

According to most estimates, some 70 percent of the price increases come from import inflation — the increase in the price of imported goods. What’s more, during the first three months of the year the trade deficit increased 8 percent to $3.6 billion, due to a drop in exports of 7 percent and a rise in imports of 4 percent to total $4.5 billion.

The bill for “mineral fuels and oil” was 8 percent higher due to an average oil price of $105 per barrel during the first quarter compared to $76 per barrel last year. Trying to bring the price of oil down internationally is impossible for Lebanon but what is possible is to address the cartel that imports oil into the country.

“If you are a retailer and the material price is increasing you cannot really reflect this change to the consumer unless you are a monopolist. That’s why the [price of] gasoline has been rising because there is a cartel of importers,” said Chaaban. “We call this asymmetric price transmission because if the prices of imports rise you throw it out on the consumer, but if prices fall you don’t necessarily do so because your margin decreases.” But dismantling the oil-importing cartel will be complicated, as political heavyweights own the energy companies that operate the port and distribution, according to Iskandar.

Another option to decrease real inflation would be to de-peg the lira from the dollar and re-peg to a basket of currencies in line with the composition of imports, instead of the current practice where the central bank buys and sells US dollars in the market to keep the currency steady.

“Because the central bank has so much in reserves they don’t want to change the model now because no one feels the heat to do so,” explained Chaaban.

During the first quarter, some 30 percent of imports came from countries using the Euro, 8 percent from China and only 12 percent from the United States. The exchange rate between the dollar and the euro also remained relatively high. “When the price of the euro goes up 40 percent and we import 30 percent of goods in that currency then the cost of business goes up 12 percent,” said Iskandar.

“The [price of] gasoline has been rising because there is a cartel of importers”

Instead of governance

So with the first quarter of 2011 summoning the horsemen of the apocalypse to ride down on Lebanon’s economy, how have the policymakers reacted? Well, last month Lebanon’s caretaker Finance Minister Raya Hassan, a member of the March 14 camp, made a comment that shook confidence in the country even further, saying that her ministry may be unable to pay public sector salaries due to the refusal of Telecom Minister Charbel Nahas, from the March 8 coalition, to transfer the remaining telecom revenues in his ministry’s account at the central bank to the treasury’s account.

In the past, revenues from the telecom sector — one of the few cash cows of Lebanon’s public sector — were transferred every month, providing the finance ministry with a steady cash flow to make payments to its two top expenditure items: the local banks who hold the majority of the public debt and public sector salaries.

Now, under the pretext that the money will be squandered and that the amount is in dollars, not lira, the telecom minister decided that he will not transfer the money to the treasury, which the finance ministry controls, citing the legal principle that a part of the money from cell phone revenues must go to the ‘Independent Municipal Fund’ to be distributed to different municipalities according to the amount of telephone calls made from their respective jurisdictions.

In any case, only the finance ministry can distribute these funds, so the money looks like it will be staying put until perhaps another finance minister closer to March 8 is in place. (In the first quarter transfers to municipalities decreased from $5 million to $4.5 million.)

The telecom revenues issue has highlighted the long-stated but yet unabated problem of not having a single account for the government at the central bank, which allows each ministry to work independently of central finances. This also creates a situation where municipalities rarely get the dues they are owed and public finances are left exposed to political debacles. So when Hassan said that if the situation continues the government would not be able to pay public sector salaries or retirement dues, panic ensued.

“The statement by the minister of finance was very unwarranted and inaccurate. This is absolute hogwash,” said Iskandar, a generally pro-March 14 economist. “Most of the public policy is political instead of being tied to objectives that serve the economy at large.” 

Eventually, the central bank governor said he would pay the salaries and the finance minister clarified that the scenario would not come to pass.

“The central bank is not going to pay [the salaries] but [Governor Riad Salameh] said it to reassure people,” added Ghobril. “It would be the equivalent of the government defaulting.”

Nonetheless, this does not take away from the fact that, on paper at least, the economic downturn is hitting public finances hard.

According to the IIF’s Iradian, if the telecom revenues were transferred to the treasury then the deficit in 2010 would have fallen from 7.5 percent to 5.5 percent. In any case “from an accounting perspective [the money] is not lost,” said Chaaban.

Securing growth

Even while the deficit increases and public debt mounts, there are some alternatives to dealing with the debt while at the same time implementing key infrastructure projects in areas such as water, electricity, roads and telecommunications, to create a framework for economic growth.

On average Lebanon spent only 2 percent of its GDP on government investment between 2003 and 2009, a figure well below many other countries in the region, including Syria, which spent 10.1 percent during the same period, according to the IIF.

For starters long-awaited public-private partnership (PPP) projects could be implemented, but only after a law is passed in parliament, which requires the formation of a government.

That law will have to be good enough to define the risks and obligations of both the public and private sectors. Even then it might not be enough. “In the current political climate no one is going to be believe a PPP law or any other law,” said Ghobril.

Supposing enough confidence is built after a government is in place, banks will also have to be interested, and perhaps incentivized, to finance such schemes for them to work. But since banks in Lebanon are usually more interested in short term profits to stay safe, the idea has not rubbed off well on everyone.

“I don’t think it’s a function of the banks to really take part of those PPPs; it’s not our business,” said Azhari “Since our sources of funding are short-term deposits, we should really fund the working capital, because those types of project are usually very long-term lending and this is not a function for a commercial bank.”

But as the banking sector’s deposit-to-loan ratios have grown to rates that place them well out of the range of most reasonable risks, there are some in the industry who may take the plunge of dealing with the government directly.

“We are risk takers, our duty is to buy risk; this is what we do [as] bankers,” said Audi’s Baz in relation to PPP projects. “Provided those projects are economically viable we don’t have a negative position — but don’t ask us, please, to finance non-viable projects which you know as a government are not viable because you want us to do political lending.”

Another option is to securitize public infrastructure projects, which would also develop the currently minute capital markets in the country. A securitization law already exists for this purpose so in theory the process is already one step ahead of PPP. However, even the law itself is not clear according to Chaaban, who noted that there was still uncertainty regarding the policy on reselling such securities, and issues relating to timeframes have yet to be ironed out.

“With its sectarian administrative structure and facilities, [Lebanon] is not destined to be a modern country”

The need for government to govern

It is evident that if confidence is to return to Lebanon’s economy, reforms implemented or mitigation measures exercised, then a cabinet will need to be formed. As Executive went to print, the country had been four months without a government and still the different political parties appeared no closer to a resolution over how to divide the cabinet posts.

“It is time to do so many things different but this country, with its sectarian administrative structure and facilities, is not destined to be a modern country,” said Iskandar. “It can be a place where people dance, play musical events, a university destination or maybe even technological nation one day; but as a society, it cannot be an advanced one.”

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Economics & Policy

For your information

by Executive Editors
written by Executive Editors

Money talks

Figures published last month by the Kuwaiti-owned Zain Group, which operates Lebanon’s mobile phone network MTC, indicated that it generated a net profit of $27.1 million in 2010 under its management contract with the Lebanese government. The profits constitute a 42 percent rise on the previous year. According to MTC, it had 1.5 million customers at the end of last year, a 14 percent increase on 2009. Pre-paid customers made up 84 percent of total subscribers. Accordingly, the firm estimated mobile penetration in Lebanon to be 67 percent in 2010. Last February the telecom ministry renewed the mobile operator’s contract for a period of one year for a management fee of $2.5 million per month and 8.5 percent of revenues. The contract was markedly different from the previous two renewals, which were for a period of three months each under the current caretaker government.  In related news, the telecommunications ministry, MTC and Alfa (Lebanon’s other mobile operator), are planning to launch 3G services in Lebanon by September. The networks will operate without infrastructure sharing between the two government-owned companies, something telecom experts estimate would have saved the government $40 million. Advocates of the structure say that the measure will create redundancy in case one of the networks goes down.

Lebanon’s trade deficit hits $3.62 billion

Lebanon’s trade deficit widened 8 percent year-on-year to $3.62 billion during the first quarter,  on the back of an increase in imports and a fall in exports, according to figures published by the Customs Department at the Ministry of Finance. The cost of imports increased 4 percent to $4.8 billion. The value of several import categories accounted for the rise, including “mineral fuel and oil”, which rose 8.5 percent year-on-year due to the spike in crude oil prices, which rose to more than $115 per barrel compared to $76 per barrel a year earlier. The value of exports fell 7 percent to $955 million, mainly because of a reduction in exports to other Arab countries, which saw a $22 million plunge due to regional unrest. Imports of all types witnessed a fall in volume with the exception of non-durable consumer goods, which rose 6.3 percent to 718,000 tons. The latter can be explained by the purchase of cereals by the Lebanese caretaker government in anticipation of rising international wheat prices.

Transfers to EDL steady despite rising oil prices

Treasury transfers to Éléctricité du Liban have remained relatively stable in the first quarter of this year, despite an ongoing row between the ministries of finance and energy over payment to Egypt for natural gas. The steadiness of transfers to cover EDL’s deficit is mainly attributed to the supply of cheaper natural gas via pipeline from Syria, even though it fuels only one power station in the north. EDL has contributed only 5.4 percent of a total $341 million so far to Lebanon’s two major oil contractors, Kuwait Petroleum Corporation (KPC) and the Algerian energy conglomerate Sonatrach.

Measuring Lebanon’s inflation

The official Central Administration of Statistics (CAS) revealed a modest rise in the regular price of a Lebanese consumer goods basket. The consumer price index (CPI), a measure of inflation, rose by 6.94 percent year-on-year to 136.29 in March 2011 from 127.45 in March 2010. Lebanon’s CPI increased by 1.33 percent in March, after a 1.97 percent drop in February and a 2.63 percent appreciation in January. CAS’s figures have been debated by most economists because of their late base month being December 2007 and the weights they place on different product categories. The Consultation and Research Institute, which sets the CPI, has stated that average prices increased in March alone by 1.33 percent and in the first quarter of the year by 1.95 percent, at a much faster rate than the 6.5 percent yearly estimate.

Radiation ban hits sales of Japanese cars

The Association of Automobile Importers (AAI) reported a decrease in new car sales of more than 50 percent year-on-year. A total of 3,182 cars were sold in April 2010 while only 1,585 cars were sold in April 2011. This was partially attributed to Lebanon’s recent ban on the imports of Japanese products following fears of contamination from radiation following the country’s nuclear crisis. Lebanon lacks the technical equipment needed to determine imported goods’ radiation intensity. As a result, Korean models topped the list in new car sales with a market share of 42.03 percent, while Japanese cars sent over before the ban accounted for only 28.86 percent, followed by European (22.68 percent), American (5.77 percent) and Chinese (0.66 percent). 

Eurobond rollover success

The Ministry of Finance rolled over $1 billion worth of Eurobonds late last month as confidence in the Lebanese economy plummeted. The new issue was divided into two tranches, one worth $650 million maturing in 2019 with an interest rate of 6 percent, and the second worth $350 million, maturing in 2022 with an interest rate of 6.57 percent. The last Eurobond issue by the government was in November 2010 when it refinanced more than $800 million, of which some will mature in 2018 with a yield of 5.5 percent, signaling the beginning of upward pressure on debt interest rates. Lebanon’s gross public debt reached $52.6 billion at the end of March, unchanged from levels at the end of 2010, while domestic debt increased by 4.8 percent to $31 billion and external debt fell 1.6 percent year-on-year to $20.9 billion. Local currency debt was 60.3 percent of gross public debt at end of March 2011 in comparison with 58.8 percent last year. Moreover, foreign currency debt represented 39.7 percent of the total at the end of March compared with 41.2 percent the year before.

Finance ministry sees sunny days ahead

Despite the dark clouds many see hovering over Lebanon’s fiscal future, the Lebanese finance ministry is still anticipating an increase in real gross domestic product in 2012, 2013 and 2014 of 4 percent yearly, compared to its projection of 2.5 percent in 2011. According to a ministry report, infrastructure improvements will encourage investments and economic growth while improving Lebanon’s primary balance by decreasing borrowing needs and debt servicing. Government expenses are projected to fall from 29.2 percent to 27.7 percent of GDP by 2014. This prediction is based on a lower cost of debt servicing, which the ministry expects to decrease from 9.4 percent of GDP in 2012 to 9.2 percent in 2014. State deficit-to-GDP ratio is also expected to decrease from 6.9 percent in 2012 to 5.1 percent in 2014, raising the primary surplus from 2.5 percent to 4.1 percent of GDP.

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Real estate

Bankrolling the builders

by Executive Editors
written by Executive Editors

Though Lebanese real estate has always carried its weight as a prime investment tool and a win-win sector for both suppliers and end-users — even during the uncertainty of the civil war years — the cracks are finally beginning to show as both internal and external factors are affecting (former) market strongholds.

Banks, the middle-men who keep the property market in swing, are now in an unfamiliar situation and may be left with little option but to rein-in loan offerings to the real estate sector;  its profit harvest has diminished compared to healthier years and its expected contribution to gross domestic product has weakened. The trickle-down effects of the financial crisis on Arab wallets (residential sales to foreigners plunged 31 percent this quarter), combined with sticky top-dollar prices that stem from the high cost of (limited) land, have come into play simultaneously, with the result a whopping 21 percent fall in transaction volume in the first quarter, compared to this period last year.

According to Hani Haddad, managing director at A&H Construction and Development, although the debt-to-equity ratio “has definitely decreased due to banks being more conservative given the weak performance of the real estate sector in the past year,” tightness of lending is expected to only have an effect on the financing of new projects. However, this likely won’t hit end-users, as banks are remaining aggressive in providing home loans to households.

At the end of 2010, loans to the sector reached $13.6 billion when taking into consideration loans to contractors and developers to build projects, to businesses to rent real estate and to individuals for home loans. Thus, lending to the sector made up nearly 35 percent of total lending, but the percentage is closer to 16 percent ($6.3 billion) if one only considers loans for construction, according to data from Banque du Liban (BDL), Lebanon’s central bank.

Though the number reflects a steady, mutually beneficial relationship between banks and real estate professionals (following a period of growth whereby loans to real estate increased 59 percent from the beginning of 2008 to February 2010), it can be attributed to what many say was the culmination of a real estate high note that saw an unprecedented wave of mega-launchings such as District S, the Landmark, Beirut Terraces and Damac Tower in Beirut’s central district last year.

Freeze over funds

According to Samer Kahil, vice president of finance and administration at MENA Capital, “definitely more than three” alpha banks have already frozen funding to developers in the last three to four months. “It could [last] a year, it could be a couple of months… it depends on their risk management department, their allocation of funds to real estate and the developer’s track record and location” of their upcoming projects.

“If you are talking about lending to projects, we have less than 10 percent [relative to total] lending,” said Saad Azhari, chairman and general manager of BLOM Bank. “We have about another 8 or 9 percent for housing loans for those with domiciled salaries. So in total… it comes out to 16 or 17 percent [of total loans that go towards the real estate sector].”

But Kahil said that banks were still funding nearly 50 percent of the equity in MENA Capital’s developments, due to the company’s strong reputation in the market. The company is expecting approval on financing for an upcoming residential tower. “They are providing more than $20 million, out of $45 million of total equity for the project [because] we had a good feasibility study, prime Ashrafieh location and they have the allocation,” said Kahil, though he declined to name which alpha bank.

Indeed, Hani Haddad of A&H affirmed that, “Banks are more concerned about who to lend to rather than which project to lend to,” placing a magnifying glass over developers’ financial statements.

Of course, banks are also betting on builders outside the country. With the unprecedented public infrastructure spending in Saudi Arabia, and the slew of projects lined up to build Qatar into a world-class destination fit for hosting the FIFA 2022 World Cup, the strategy makes for a strong game plan. Walid Raphael, general manager of Banque Libano-Francaise (BLF), added that financing contractors, even outside of Lebanon, remains a large part of the business. “We have three large markets [for contracting]: Saudi Arabia, Qatar and Algeria.  And then we also have the Emirates.”

We the people

Unless you’re one of the big players, it seems the tide has receded and bank loans to developers have reached a steady drift that mirrors the current sales volume in Lebanon.

“I don’t think that we are going to see real estate lending increasing but I see that housing loans [to individuals] are still healthy… and are going to increase,” said BLOM Bank’s Azhari. 

“Banks still seem to have a big appetite for home loans,” added Haddad, as evidenced by an increase in housing loans from $2.8 billion in December 2009 to $4.5 billion in December 2010, according to the Central Bank. And since banks and developers had to get creative in order for individual households to afford homes when prices leapt in the last two years, providing home loans to residences still under construction created a new definition of risk. When a physical home cannot be secured as collateral, banks secure a simultaneous agreement with a project’s developer (or contractor) and end-user to diminish risk.

“So we know whether the funding is available to finish the house… In a way you are guaranteeing [its completion] because you are financing the building,” said Azhari. It is only to be expected that banks ask for additional security and hold the land as a mortgage, with all sales proceeds funneled to their accounts first in order to pay off the principal and interest.

“When you are financing the promoter, you’re already taking the risk of the project and you’re going to make sure that the project will be achieved and delivered, so you have less risk,” said BLF’s Raphael. However, many banks have buckled under pressure and frozen subsidized loans to individuals, according to MENA Capital’s Kahil, a move that acutely impacts developers building mid-range residential projects.

But the real risk hovering over our rooftops needs to be viewed from a regional perspective — not only does uncertainty plague the MENA region but Lebanon remains without a government and thus contributes to a wait-and-see stance from buyers.

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Real estate

For your information

by Executive Editors
written by Executive Editors

Hold on Latakia

Mass protests and domestic unrest in Syria have caused investment company Qatari Diar, the real estate arm of the Qatari Investment Authority sovereign wealth fund, to temporarily cease its projects in the country, including the $350 million Ibn Hani Bay Resort project in the city of Latakia, according to a May 8 press release. Construction on the resort began in January 2010 and covers more than 244,000 square meters along the Syrian seaport. Qatari Diar’s Chief Executive Officer Mohammed bin Ali al-Hedfa, told Doha’s Al Arab daily newspaper on May 5 that the company remains committed to its projects and plans to resume production on the resort and its commercial and residential real estate project in Damascus once the situation stabilizes. Meanwhile, United Arab Emirates retail builder Majid al-Futtaim told Executive in a May 19 email that the first phase of its fully-owned, $1 billion investment in Khams Shamat, its largest project in the region, is still due in 2014 after breaking ground late last year, and that, “The master plan is being approved by the ministry of tourism and all staff and consultants have been chosen.” The hospitality section of the project will include the Kempinski Hotel, Crowne Plaza and Novotel Hotel.

Seafront and BCD in demand

Property advisory firm RAMCO’s May 1 report announced that 22 new residential buildings are being constructed on the Beirut seafront, extending from Ain Mreisseh to Ramlet El Baida, with a total sale expectation of $850 million. The individual apartments average 525 square meters (sqm) in size, with the smallest at 310 sqm. Prices on the first floor start at $7,000 per sqm and increase to $10,000 per sqm on upper floors, with 65 percent of projects already sold. In the Beirut Central District (BCD), five sizeable projects are being built at a value of $1.7 billion and are slated to start delivery in 2014. The report noted that the gap in prices between the BCD and other in-demand locations in Beirut has decreased due to strenuous competition between the suppliers of residential units.

Illegal construction crackdown continues

On May 5, Military prosecutor, Judge Saqr Saqr, charged 12 individuals with obstructing the police after they responded “violently” to a police campaign to curb illegal construction on public property in the southern Beirut suburb of Ouzai. According to Agence France-Presse, 130 illegal constructions had been demolished in Beirut’s southern suburbs and further south of the city by May 10. Particular focus has been put on the area that borders on Rafiq Hariri International Airport. Caretaker Interior Minister Ziad Baroud told An Nahar that illegal construction by the airport constitutes an “encroachment on aviation safety”. Hezbollah and Amal officials have publicly supported efforts to curb illegal construction, despite the fact that the majority of targeted areas are within their political strongholds. Caretaker Speaker of Parliament and Amal official Nabih Berri told As Safir newspaper on May 3, “As long as I am alive, building violations won’t be legalized anywhere. The issue can’t be solved through a settlement or compromise.”

Saraya still building in Jordan

In a retaliatory press release on May 4, Dimah Khalili, senior manager of corporate public relations and investor relations of Saraya Jordan (a subsidiary of Saraya Holdings), refuted an article published by Al Bawaba the day before which claimed that Saraya Jordan had dismissed all its staff and would discontinue operations, including its 634,000 square meter tourist and mixed-use project, Saraya Aqaba. She confirmed that the parent company, Saraya Holding, would complete its projects in Jordan and Oman, after ceasing other developments in Sochi, Russia and Ras al Khaimah in the United Arab Emirates in the last two years. Khalili said: “The company has undertaken additional measures aimed at ensuring its continuity under prevailing conditions, including the re-organization of the company’s operations and the reduction of its operating expenses.” However, the initial completion date of the first quarter of 2011 has passed and a new date is yet to be announced. Saraya Jordan signed an agreement a year ago with the Social Security Corporation, Arab Bank and the Aqaba Development Corporation to build the touristic project. Lebanese caretaker Prime Minister Saad Hariri is chairman of Saraya Jordan and his family’s firm, Saudi Oger, is the developer-contractor.

Humbling indicators

Confirming the salon-chatter around town that real estate has taken a u-turn since its skyward rise in the last two years, the number of transactions in the first quarter showed a 21 percent fall compared to the same period last year, to 17,373 sales. Sales to foreigners, the backbone of the luxury residential component, have fallen more than 30 percent in the first quarter, which many attribute to civil unrest in the region and the lack of a government in Lebanon. The figures released by the General Directorate of Real Estate Registry and Cadaster, and published in a Bank Audi report, show that the value of sales fell only 14.5 percent. The price-stickiness is largely due to the fact that developers keep prices high even if demand withers, in order to cover the high cost of land, especially as the number of available plots diminishes. On the supply side, contractors seem to be ordering less cement, as deliveries fell 6.7 percent in the first quarter of the year compared to the same period last year, reducing tonnage to 1,035,000, according to figures from Banque du Liban, Lebanon’s central bank.

Toward the sky

Lebanon-based construction giant MAN Enterprises officially signed the main construction contract, worth over $100 million, to build what will become Lebanon’s highest residential tower, Sama Beirut, developed by Antonios Projects. Chairman of MAN Enterprises, Michel Abi Nader told Executive that there were 10 other firms involved in the tender, most of which were Lebanese along with four from the United Arab Emirates. He predicts construction will take 33 months. At the May 17 press conference announcing the contract, founder of Prime Consult Massaad Fares said that the 50-story, $200 million mixed-use tower has already sold a fourth of its units, though there were no sales in the last three months. For financing, Prime Consult has partnered with BBAC to provide loans, but so far none of the buyers have utilized a home loan on the offered apartments, which range in price from $5,600 to $9,000 per square meter. CCC ordered to pay up, again

In the latest installment in the largest and longest contempt of court procedure in the Commercial Court at Brick Court Chambers in London, a final judgment was handed down on May 5, whereby $75 million was ordered to be paid to Jordanian businessman Munib Masri by Athens-based construction giant Consolidated Contractors Company (CCC). Masri had accused CCC and its majority-owner, Palestinian billionaire Said Khoury, of failing to deliver his portion of an oil concession in Yemen that the two parties were involved in. Litigation has also been ongoing in Lebanon, where CCC is incorporated. CCC has attracted controversy since a British high court labeled it a “complete disgrace” for failing to pay court-ordered fines in 2010. Marwan Salloum, vice president of CCC and a close associate of Saif al-Qadhafi, son of the embattled Libyan leader, was also scrutinized in a May 15 article in the Daily Telegraph for controversial business dealings on behalf of CCC. In related news, Masri revealed on May 16 that his grandson, Munib Masri Jr, a 22-year old student at the American University of Beirut, had been shot and injured during the Nakba (catastrophe) day clashes between Israeli forces and Palestinian protestors at the border in Maroun Al Ras the day before. Six unarmed demonstrators were confirmed killed by Israeli forces and more than 100 others were wounded.

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