Economics & Policy

Redialing discord?

by Sami Halabi
written by Sami Halabi

To describe Lebanon’s telecommunications sector as politicized would be an understatement on par with saying the summer of 2006 was eventful, or that Hezbollah and Israel enjoy a good game of tag from time to time. Since its heyday atop the pyramid of Arab telecommunication industries in the early to mid-1990s, the sector has become little more than a wounded lamb at the mercy of the packs of hyenas roaming Lebanon’s political plains. Today the sector has the dubious distinction of having the slowest average Internet speed in the world and the highest prices for those same services in the Middle East.

“We are lacking so many basic things and the entire root cause of our despair is the governance of the sector,” said Riad Bahsoun, telecom expert at the International Telecommunications Union (ITU) –– the arm of the United Nations that deals with information communications technology. “It’s the domination of politics over performance. It’s the subjection of intelligence to force and collective interests to individual will. This is called tyranny and despotic governance.”

This high-handedness was on full display in May, when the lack of reform and the hyper-politicized decision-making in the sector culminated in an embarrassing encounter between Charbel Nahas, then the telecom minister allied with the March 8 coalition, and hundreds of members of the security forces, who prevented the minister’s team from entering one of the ministry’s buildings in the Adlieh district to dismantle a non-commercial cellular network that had been operating in parallel to the country’s two commercial operators.

Submarine cables coming to and from Lebanon

The confrontation apparently came about when Abdulmenaim Youssef, who is allied with the opposition March 14 coalition and heads Lebanon’s incumbent fixed-line public operator OGERO, requested that the head of the Internal Security Forces (ISF), Ashraf Rifi, who is also allied with the opposition, guard OGERO’s property from the ministry’s prying eyes.

OGERO was created in 1972 and controls the country’s fixed-line services as well as its current Internet infrastructure. It acts under the “supervision of the telecom ministry”. However, it is also financially and administratively independent, in accordance with the law that created it, and answers to the directorate general of operations and maintenance at the ministry, which has also been headed by Youssef since 2007.

Immediately after the Adlieh incident, the political mudslinging began. The convoluted arrangement over who had authority to see, dismantle, own and operate the network descended into quarrelsome disputes over the constitutionality of the move, the civilian rule of the security forces, wiretapping, illegal phone lines and so on, until the issue finally faded into the background. Lebanon emerged from the fracas minus one favorably regarded and technocratic interior minister (Ziad Baroud, who resigned following the incident) and no further along the path to reform.

Legal arguments aside, the cellular phone network Nahas was attempting to confiscate from OGERO was given to the Lebanese government as a gift in 2007 by the Chinese government, through the multinational telecommunications company Huawei. At the time, Lebanon was preparing to liberalize the telecommunications market and introduce Liban Telecom, a legally mandated government-owned body with a corporate framework that would eventually replace OGERO and take on most of its assets. The gift provided the Chinese with an opportunity to enter the market as it was opening up and to prove that its companies were capable of running a high quality network. At the time, the technicalities of the donation were negotiated by OGERO under Youssef’s purview was director general of the company.

According to ITU’s Bahsoun, when questions were raised about whether the network should be monitored by the Telecom Regulatory Authority(TRA), Youssef said that it would be used solely for testing purposes and hence, as a non-commercial network, it would be overseen by himself and not the TRA. Youssef did not respond to repeated requests for comment.

The gift, however, did not arrive until 2009, when the current Energy Minister Gebran Bassil was heading up the telecommunications ministry and plans to set up Liban Telecom had effectively been scrapped due to political wrangling. By this time a row had erupted regarding a new wiretapping law that would take authority over such issues away from the Information Branch of the ISF and split it between the ministries of justice, telecommunications and the interior. In 2007, after the network had been pledged, the interior minster put in a request to the Council of Ministers, Lebanon’s cabinet, to allow the Information Branch to use the network for intelligence purposes. The permission was denied.

“In my opinion this was rejected in turn by the Information Branch,” said Bahsoun, though he stressed that he could not confirm such information. “The Information Branch probably decided to [use it] anyway without formal legal coverage,” he added.

Whether or not the network was used for intelligence purposes will likely be an ongoing source of bickering among Lebanon’s politicians, but the capabilities for such an operation were certainly there. The network was widely reported to have a capacity of 50,000 lines that could have been employed outside the two existing cellular networks. Speaking to the Lebanese Broadcasting Corporation last month, opposition Future Movement Member of Parliament Ghazi Youssef said the network contains a total of only 15operational lines.

 

“They say that the OGERO equipment is made up of 62 base stations [part of the cell phone network which handles communications between phones and the network] in addition to the core; the intelligence system that manages all of this is there,” said Imad Tarabay, secretary general of the Lebanese Telecom Association (LTA), which represents Lebanon’s private-sector data and Internet providers.

According to Bahsoun, a staunch opponent of Minister Nahas, this equipment was consolidated at some point at building in Adliyeh and this allowed for a more powerful network which he suspects played a part in uncovering some of the Israeli spy networks in the country over the past several years.

“If this network is operating 15 lines, why does it need 400 people to protect it?” he asked rhetorically, referring to the reported number of security forces present at the building when Minister Nahas tried to enter. “The truth is that the Information Branch could not accept in any way the minister of telecommunications or a team apart from theirs to inspect the equipment.”

3G connection

What ultimately emerged from the fiasco is that even if the minister was attempting to lift the lid on any alleged wrongdoing, he was also trying to speed up the implementation of the contentious 3G mobile Internet projects that he launched last January after the cabinet had collapsed, in conjunction with mobile operators Alfa and mtc.

As Executive reported in March, there have been numerous unanswered questions over the legality of the 3G project, due to the fact that it was launched while a caretaker government was in place, and neither the legally required licenses nor frequencies from the TRA and the cabinet have been granted to the companies that will conduct it. Moreover, the prospect of a faster, better service being provided by the public sector, without private sector access to the market, has fueled a campaign against the plan, spearheaded by Tarabay, chief executive of the private sector company Cedar comand distributor of the Mobi wireless Internet service. Tarabay co-owns the company with the son of opposition MP and former Telecommunications Minister Marwan Hamade, and contends that Nahas is attempting to nationalize the telecommunications sector.

He says he has prepared legal files against the telecommunications ministry and is prepared to submit them to the Shura council, Lebanon’s highest court. This comes after an unsuccessful attempt at arbitration through the TRA that, perhaps predictably, did not take action against the ministry it depends on for financing; the TRA spent several months this year without the money to pay its employees.  The TRA also did not respond to repeated requests for an interview.

Most of the controversy surrounding the legality of 3G stems from two contentious issues. The first is telecom Law 431, which states that licenses and frequencies must come from the cabinet and the TRA respectively. Second is unfair competition as a result of exorbitant tax discrepancies between public and private service providers, which would likely come about if the project moves forward.

With regards to Law 431, former Telecommunications Minister Nahas’s response has always been the law is not applicable, ostensibly because it has not yet been implemented in its entirety. His position got a boost last month when he announced that he had seen a Shura council decision stating that the law had been “suspended” because of Article 51, which states that “all applicable[previous] legal or regulatory provisions remain effective until the enforcement” of the law itself. Translation: the law and all the institutions created under its jurisdiction, such as the TRA and Liban Telecom, would also be technically suspended. As Executive went to print the ruling had not yet been made public.

“Law 431 is applicable and being implemented,” insisted Imad Hoballah, acting chairman of the TRA, at a press conference intended to respond to the minister’s statements last month. Hoballah went on to describe the licenses and frequencies that the TRA had given out over its four-year term, though he admitted that these had been handed out before the Shura council decision. Previously, the Shura council has ruled against the ministry and in favor of the TRA but there is speculation this ruling could be particularly pernicious for the TRA.

“We respect the decisions of the Shura council and we will follow them,” Hoballah said, insisting that the decision does not negate the entire law. Asked what the TRA would do if the telecommunications ministry issued 3G frequencies that the regulatory agency is legally mandated to allocate, he declined to comment, saying only that if the telecommunications ministry decides to go ahead without allowing the private sector to participate, “no one can stand in its way.”

“Fundamentally, the TRA has eight months left,” contended Antoine Boustani, an advisor to Minister Nahas, speaking to Executive last month. Boustani’s position, like that of Nahas, is that because the law that created the TRA is not fully implemented, “it’s already obsolete”.

“We don’t decide to implement the law; the Council of Ministers decides. We are moving forward on the basis of the authority of the ministry. When they say they want to implement the law [in full] we are ready,” he said, denying that the ministry officially seeks to shut down the TRA.

“I’m not stopping until I get my rights,” Tarabay snapped back defiantly, adding that he will file court cases against the ministry but is waiting to see the Shura council decision to “fine tune” his lawsuit in line with the status of Law 431. 

But according to Boustani, Tarabay will soon have little to complain about. Last month he told Executive that the ministry plans on leveling the playing field between the private sector and public sector by decreasing the taxes on the former by “50 to 55 percent.” Asked whether the private sector will be allowed to enter the market, he said “byiswa” — an Arabic word suggesting that something on this front could happen and would be a positive — though he couldn’t confirm or deny it. “We will ask for it [in thecabinet]; we don’t have a problem,” he said, adding that such a request “isliberalization, not privatization.” 

He also said that a long-awaited policy statement that waspromised by the minister one year after he took office would soon be issued.The issue has become a major talking point for opponents of Nahas, includingthe TRA, who say that he has no policy and works according to his own whims.Nahas’s response has always been that the ministry’s policy is a matter of“practice not paper.”

Of course, Boustani is not an advisor to the newly appointedTelecommunications Minister Nicholas Sehnaoui, but the latter is widely seen asNahas’s protégé and has already stated that he will follow the same course asthe previous minister. If he adopts Nahas’s purported policy — which Boustaniconfirms is “almost done” — and makes it public, it would mean that the sectorwill have a general set of rules mandated by the ministry under Law 431 for thefirst time since former Minister Gebran Bassil was in office from 2008-09. Thiswould be significant, as it would provide an indication of the minister’sintentions vis-à-vis the many contentious issues in the sector.

Money to make

Bickering aside, the ministry has been pressing on with the3G project, as have both Alfa and mtc. The attempted takeover of the telecomequipment by Charbel Nahas in May can be seen as part of this aggressive pushby the ministry to make the 3G project a fact on the ground as quickly aspossible, before legal issues potentially complicate such plans.

According to Bahsoun and Tarabay, the equipment at Adlieh can technically be upgraded and used as part of the 3G rollout currently being undertaken by Huawei and mtc. Huawei won the contract to build the new network for Mobile Interim Company 2, the state-owned cellular telecom company managed by mtc. The Chinese company’s winning bid was valued at $25.6 million (not including a $2.7 million control center that will be built by Nokia), $10.6 million less than their counterpart Ericsson, who won the 3G contract at Mobile Interim Company 1, the state-owned cellular telecom company managed by Alfa. Both Bahsoun and Tarabay estimate the value of the third network’s equipment, once upgraded, to be around $10 million, (thus making up the difference between the two bids).

Both Alfa and mtc stand to benefit greatly from the 3G project, on top of the revenues they already garner from the talkative Lebanese who pay 58 percent in taxes on all telephone services. Zain’s mtc, for instance, has increased their net earnings from $22.1 million in 2008 to $46.1million under their current management contracts. In January, under the caretaker government, Minister Nahas renewed their contracts for a year.

“We extended 12 months when the minister thought that if these two companies are going to go into the 3G project they need security. They said they need more than two to three months to do such things,” said Boustani.

India-Middle East-Western Europe III

So with the two companies locked in a yearly contract, the Shura council ostensibly on the ministry’s side with respect to Law 431, the TRA hobbled and toothless and Tarabay’s cases needing some time to come to fruition, there seems to be little stopping the 3G project from materializing sometime around the end of the summer. Except for one hitch.

In 2007 Lebanon entered an international consortium to construct a submarine fiber-optic cable from Europe to India —

called the India-Middle East-Western Europe 3 (IMEWE3). Lebanon has already invested some $53 million into the construction of the underwater sea cable to carry traffic and unclog the international bottleneck Lebanon has long suffered.

“Capacity has to be met at all levels,” said Ghassan Hasbani, chief executive of the International Operations group of Saudi Telecom Company (STC), which is part of the consortium and is using the cable. “If you have a high speed local connection network and clogged capacity on your international gateway, then access to international content becomes very slow. These have to come together and the more connectivity there is in the country the better the prospects of lower pricing, of routing for traffic, and the better accessibility you have to the rest of the Internet globally.”

According to a source from the consortium, who asked for anonymity because he was not authorized to speak to the press, the contract between Lebanon and the consortium was signed by “OGERO Telecom”, which is not the official name of OGERO. At the time, the creation of Liban Telecom seemed imminent due to political consensus under the Saniora government and then Telecommunications Minister Marwan Hamade. Director General Youssef and the minister were ensconced on the same side of the political fence, enabling them to lay the groundwork for their political camp’s control of the sector. By December of last year the cable was ready to go and all other member countries of the consortium had started to use it. But by then the political stars of the telecommunications ministry were anything but aligned.

Engineers at Alfa have already confirmed that the 3G project will need IMEWE3 to function. Currently Lebanon’s international connection is through the Cadmos cable connecting the country to Cyprus, through which Boustani admitted a bottleneck would occur if there was a large amount of traffic as would be the case if 3G were introduced. The Cadmos cable also leaves Lebanon at the mercy of Cyprus for international bandwidth.  This is ominous as trouble has been brewing between the two countries over a maritime economic zone agreement between Cyprus and Israel.

Official data is not available, but most estimates are that Lebanon is currently using 2.5 gigabits (Gb) of legal bandwidth. However, Boustani says that the Cadmos cable has 40 Gb available for use after its recent upgrade. IMEWE3 has an initial 30 Gb and can be updated to 1.4 terabits. Thus, according to Hoballah, Lebanon is currently blocking 97 percent of its international bandwidth.

In order to activate the IMEWE3 cable it is necessary to log onto the consortium’s system with a secret code, which according to a consortium source is something only Youssef has the details of.  Again Youssef did not respond to repeated requests for comment.

“We paid a total of some $53 million and we are not using[it] because one person [Youssef] says ‘I don’t want to’ and the collective interest becomes subject to one person,” said the ITU’s Bahsoun.

According to Boustani, the ministry sent a commencement order to OGERO to oversee the project and has since asked for the ownership of the IMEWE3 to be transferred back to the ministry; this is what Youssef has refused to do. “There were some people who were supporting him politically. It used to be former Prime Minister Fouad Saniora but I don’t think today that Saniora will cover him. We hope that this government will lift this political cover so we can work,” he said.

What will also need to occur is the negotiation of an agreement with a European operator to purchase capacity in order to transfer information from Marseille, France (where the cable ends), so that traffic to and from the rest of the world via Europe can come into the cable. The going price for such traffic is about $2 per megabit per second (Mbps) per month, which means that 10Gb of capacity would cost some $20,000 per month. Given that the cellular network alone generates some $3 million each day in Lebanon, this is a relatively trifling sum.

If Lebanon wants full redundancy, in case the European side is cut, they can also negotiate the same contract in India, at the cable’s other pole. Such negotiations take about a month to complete but again this would need to go through Youssef’s office at the ministry as long as he maintains control of the post of director general. Nonetheless, Boustani says the ministry is in direct contact with France Telecom discussing such an agreement.  

Since it was Youssef who negotiated and carried out theIMEWE3 project with the consortium, when the telecommunications minister contacted its management committee to try and wrest control of the cable, the consortium became predictably confused. In the end they decided to take a “hands off” approach, according to the source. Of course the fog of Lebanese laws, their seemingly inconsistent application, and the autonomy of public institutions, especially OGERO, has not helped.

“Youssef sent a letter to the consortium telling them not to hand [it] over to the minister, and he does not have the right to do so,” said Boustani.  He would not comment on whether the ministry would take legal action as a result.

Even if the consortium is convinced to transfer control, the procedure stipulates that when OGERO hands control of the cable over to the ministry it initially does so through the Directorate of Operations and Maintenance, whose head stamps the handover and transfers the asset to the minister’s office. As Youssef himself holds that post, there seems to be scant chance of that happening.

According to Boustani, at the meeting of Arab telecommunications ministers held in Beirut last month the ministry received important political backing that he thinks will see the IMEWE3 handover soon, although this could not be independently verified.  This would not solve Lebanon’s Internet woes outright, however. “Even if IMEWE3 is activated, what use will it have if the ministry of telecommunications sells the international E1 line [2 Mbps] to [private sector] service providers for $3,000, while costs on them is less than $30?” asked Tarabay.

“The Internet cost to the consumer will remain high,” he said, unless the price of E1 falls and Internet Service Providers (ISPs) have access to the bandwidth. Lowering prices requires a decree to be issued by the cabinet because the sector is still not liberalized as per Law 431. Bandwidth will then need to be handed out by the ministry under the directorate general of operations and maintenance — again Youssef’s office.

But while Youssef may be a major roadblock to better Internet, other projects will also need to be completed to see the sector reach an acceptable global standard. According to Jean Gebran, projects director at Consolidated Engineering and Trading Company (CET), the Court of Accounts, the government’s public sector auditor, gave final approval in May to a project to construct the telecommunications ministry’s $40 million fiber-optic backbone throughout the country. CET and Alcatel will carry out the project, which has already begun in the South and the Bekaa valley. It is expected to take 16 to 24 months to complete, according to Gebran.

Furthermore, the ‘last mile’ connection from the fiber to homes will also need to be completed. But in the short-term, even without these projects, 3G service can technically run and allow speeds in the range of 21Mbps, compared to the current average of 0.1, even if this may kill private sector participation in the sector.

Time for action

With a new cabinet and a new minster that are both technically on the same side, there is some renewed hope amongst those in the sector that the coming period will be less fraught with conflict. A government of a single color may be more willing to see off some of the old opposition guard (starting with Youssef), but who they choose as a replacement is entirely another matter, and what the market will look like after any reshuffle of institutions, laws and people may just end up resulting in the same stagnation that has plagued the industry for over 15 years.

“It is very difficult if you ride a donkey to reach a high summit, even if you choose the direction,” said Bahsoun, referring to Lebanon’s telecom policy decision makers. “It’s impossible to reach it if you let the donkey choose the way. However, if you carry the donkey you will die. We are still carrying donkeys and paying for their food.”

But today one side of the political divide can no longer blame the other for obstructing policy implementation. “You don’t have two sides anymore so you don’t have anyone to delay,” said Boustani. Thus, there are no more excuses.

 

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Society

Is that a no. 9?

by Paul Cochrane
written by Paul Cochrane

Demand for cigars is so strong that the sector is inundated with counterfeits. An estimated two thirds of cigars smoked in Lebanon are “fake”, with a Honduran, Dominican or Nicaraguan stogie attempting to pass itself off as the crème de la crème of smokes, the Cuban cigar.  It is not easy to notice the difference until one sparks up, as the counterfeiters are pros, switching the paper ring around the cigar for a Cuban brand and using real or counterfeit boxes.

The situation has become such a concern to the legitimate sector that leading distributor, La Casa del Habano, owned by Phoenicia Trading, spent $50,000 this year on a billboard and media awareness campaign to inform consumers about fake cigars, particularly the Cohiba brand.

“The Cohiba Behike is the most expensive and the most popular right now,” said Wael Zeidan, executive manager at Phoenicia Trading. “We classify consumers of fakes into two segments — one, a consumer that knows it is a fake Cuban but smokes it to show off and doesn’t care. The second is a beginner that is easily bluffed, so we focus on him.”

To ensure that fake Cubans are not being put in boxes as the container empties — a classic scam to bump the price of a $2 cigar up to, say, $30 — Phoenicia has undercover employees that go in to check for fakes at its 300 wholesale customers. They are also opening a new outlet to better distribute Cubans from its current five stores.

While Honduras and the Dominican Republic do produce high quality cigars, primarily for the American market due to the trade embargo with Cuba since 1962, such brands are more expensive in Lebanon than Cuban cigars. Hence the fake Cubans are lower quality and normally machine made. One to watch out for is the Cohiba Siglo no.9, as real Cohibas only go up to size six. “It’s so big, it’s crazy,” said Zeidan.

Cohiba is the number one brand around the world, and in Lebanon this is no exception. Top sellers are the Robusto size (50-54 ring gauge), which is ideal for a half hour to one-hour smoke. Cigarillos — the small, lean cigar just a centimeter longer than a cigarette — are also becoming more popular, with Phoenicia Trading bringing out its own brand, Phoenicio.

“Demand for cigarillos is starting to grow, and women are increasingly smoking cigarillos,” said Zeidan. As cigars have a somewhat “old man” reputation, every month Phoenicia holds a breakfast cigar event for women in Ashrafieh, and has introduced cigarettes into Casa del Habano “to get youngsters into the shop and to find out about cigars,” said Zeidan. Pushing sales further are the cigar lounges at some of the capital’s leading hotels. At Le Gray, cigar nights are coupled with tastings of single malt whiskeys. And awareness of cigars is rising, said Paul Atallah, wine and bar manager at Le Gray.

“Some 80 percent of people know what they’re smoking. The rest, it’s just to show off that they are cigar smokers while swallowing the smoke,” he said. “But the culture has changed, and we’re seeing more people go for [brands] Partagas and Hoyo instead of Cohiba; this shows a change in awareness.” Most of the hotel’s cigar aficionados are guests from out of town but it is increasingly attracting non-guests to come to enjoy a cigar, sip an Armagnac and relax.

The economic downturn in the country has affected sales but the 400 percent rise in people smoking cigars since 1980 has provided a loyal customer base. “People get used to smoking cigars, and they continue to buy them,” said Zeidan. Indeed, big spenders are still out there. On a recent Saturday at La Casa del Habano in downtown, a customer bought a whopping five boxes of Cohibas as well as several packs of cigarillos.

 

 

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Economics & Policy

Executive Insight – Booz & Co

by Bahjat el-Darwiche
written by Bahjat el-Darwiche

Developing a vibrant and innovative information and communication technology (ICT) sector would provide the Middle East and North Africa (MENA) region with a propitious opportunity to increase productivity and boost its national economies. However, the region’s innovation sector does not yet offer sufficient support to unlock entrepreneurs’ ideas and investors’ capital. It will take a concerted, collaborative effort from governments and the private sector to stimulate digital innovation and ensure that it is engrained in MENA countries’ future growth.

Why is ICT innovation important to the MENA region? Around the world, the ICT sector has transformed societies and economies over the past decade via a steady stream of innovative new products and technologies. These innovations have changed the way we interact with each other. They have helped entire sectors — such as transportation and utilities — to operate more efficiently and at lower costs. ICT has also spurred widespread modernization across national economies. The impact ICT has had in a relatively short period has been remarkable; the European Union, for example, credits the ICT’s multiplier effect with contributing 40 percent to Europe’s productivity gains over the last 10 years. 

Governments — both in developed and emerging markets — have recognized the potential of ICT and prioritized ICT innovation on their national agendas. Recent examples include the European Union’s Digital Agenda, Malaysia’s ICT Strategic Roadmap, Germany’s ICT 2020 Research for Innovation and the United States’ Strategy for American Innovation. These programs all strive to establish national environments conducive to the promotion of ICT innovation at all levels, through a comprehensive and well-coordinated agenda of government policies.

Poor performance

To date, the MENA region as a whole has shied away from promoting innovation. In 2007, the Arab world spent an average of 0.3 percent of its total gross domestic product (GDP) on overall research and development(R&D), compared to an average of 2.3 percent by countries within the Organization for Economic Cooperation and Development (OECD). In the last 13 years the MENA region filed a total of 3,224 patents, compared to some 1.7 million patents for Japan alone.

In terms of entrepreneurship, the MENA region also lags behind its global peers. According to recent World Bank data that measures the number of new firms created per 1,000 people, the five MENA countries included in the survey (Algeria, Jordan, Oman, Morocco and Egypt) averaged just 0.9startups. That figure trails by a significant margin countries such as France (3.08), Finland (3.37), Singapore (7.4) and the United Kingdom (8.05).

Software piracy has also had a deleterious effect on innovation in the MENA region; in 2009, software piracy accounted for more than $1.4 billion in losses, further reducing the attractiveness of the ICT sector for entrepreneurs. As a result, ICT generates approximately 2 percent of GDP in the MENA region. That number is far higher in truly innovative countries.  In Korea, for example, ICT accounts for around 8 percent of GDP.

If the MENA region were to address these issues, it would have an opportunity to become a significant global contributor to ICT innovation. Jordan, for example, has emerged over a relatively short period of time as a regional powerhouse in ICT innovation, mainly because of sound government policies and strong partnerships between the public and private sectors.

The country’s ICT sector now includes hardware, software, consulting, programming and installation, employs more than 11,000 people and can tap into a steady flow of more than 6,000 information technology graduates per year. Jordan’s King Abdullah II Fund for Development (KAFD) has established Oasis 500, an ICT seed capital fund for innovative startups.

This growth has attracted the attention of major international ICT companies. Intel Capital has invested in two Jordan-based ICT startups — Jeeran, a web-community platform, and ShooFee TV, which aggregates Arab satellite television listings and entertainment content.

To build an innovation environment geared to support the development of a local ICT sector, governments must play a leading role. They have an array of options at their disposal to help stimulate digital innovation, including the implementation of policies and regulations to support and protect entrepreneurs, the creation of and support for funding incentives, the development of an advanced, competitive and high-speed ICT infrastructure and finally, the promotion and development of young talent.

Working together

Governments, however, cannot alone provide the solution to creating a digitally innovative society. The private sector has a pivotal role to play, especially with regards to providing capital to entrepreneurs. To date, the MENA region has largely shied away from investing in innovation or entrepreneurship ventures in favor of lower-risk opportunities such as real estate or the stock market, where exit strategies are easier.

Without funding, neither innovators nor entrepreneurs in ICT can develop new products or commercialize their ideas. According to the Global Entrepreneurship Monitor 2009 MENA report, family members provided the funding for nearly 80 percent of all projects launched by entrepreneurs in seven MENA countries.

That same study revealed that approximately only 10 percent of entrepreneurs tapped into government programs for their funding. While government-subsidized programs are picking up across the MENA region, these funds are not enough to foster a globally competitive platform for innovation.

The private sector needs to step in and bridge the gap and provide funding to entrepreneurs. This will require accelerating the development of the region’s network of venture capital (VC) firms and angel investors. VC firms and angel investors are a critical component of any innovative economy because they provide entrepreneurs with access to “smart capital” — funding along with access to a pool of experts who can direct the growth of promising young companies. The VCs that set up shop early on will gain access to the most attractive investments at the lowest prices. An example of a successful investment is Jordan’s Maktoob, which was acquired by Yahoo in 2009 for an unofficial amount of $85 million.

The worldwide growth of ICT — and its impact on economies and societies — is showing little sign of slowing down. In recent months, the multi-billion-dollar valuations of ICT firms such as Facebook, Skype and Groupon send a strong signal that this sector will continue to generate value, even in the face of a potential bubble. Developing markets, such as China, Russia and Latin American countries, have also witnessed similar growth and high valuations for ICT companies, indicating that the industry is not constrained by geography.

We forecast that the MENA region’s ICT market will grow to reach approximately $120 billion within just four years; a sharp gain from its$90 billion level today. That 33 percent surge in business by 2015 presents entrepreneurs and investors with a significant opportunity.

The path to ICT innovation in the MENA region might take some time and it will  be smoother in some countries than in others — especially when it comes to finding the right balance between government and private sector involvement.

However, governments and the private sector can work together to clear major hurdles like funding, infrastructure, policy and talent development. That in turn would allow the MENA region to realize its potential as an incubator for digital innovation for years to come.

BAHJAT EL-DARWICHE and RAMEZ SHEHADI are partners at Booz & Company

 

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Society

Whisky: A popular cheer in down times

by Paul Cochrane
written by Paul Cochrane

Amid the current economic recession, there has been a general downward shift from luxury spirits to medium-priced bottles, while most distributors have put the launch of new brands on hold. With competition getting tougher, brands are working on revamping their image to appeal to the high-end drinker, while distributors are still paying eye-watering sums to get exclusive rights at the capital’s premier nightspots.

“The market always strives to go upwards, but it has been a difficult year globally and in the Middle East, and it is maybe not the right time to introduce new brands,” said Wadih Riachi, cellar manager at Vintage in downtown Beirut. “Yet the drinks sector has not reached a critical mass in Lebanon, by far, in terms of new products, spirits and packaging.”

The spirits segment has developed over the past few years, evident in the rise in premium vodkas, gins, brandies, rums and tequilas on offer. Vodka sales grew by up to 4 percent over the past year, above the120, 000 cases benchmark, but Lebanon is still very much a whisky market, with more than 450,000 cases imported every year.

It is in whiskies that there has been a maturing of the segment, with tipplers increasingly opting for single malts instead of reaching for the ubiquitous Johnny Walker Black Label. “Knowledge about single malts really started last year; we’re on the right track,” said Paul Atallah, wine and bar manager at Le Gray Hotel. “I think single malts will boom, and it is a great match with cigars,” he added.

Currently, imported fine and single malt whiskies average more than 8,000 cases per year, far more than cognac, at around 1,000 cases. Of those 8,000 cases, an estimated 70 percent are the 12 and 15-year-old single malts.

To differentiate the malts from the mass whisky market, companies are working on packaging. For instance, Glenfiddich, the biggest selling single malt label in the world, realized that the packaging for its 21and 30-year-old malts being the same as the significantly cheaper 12 and 15-year-old malts was detrimental to sales.

To make these older and super premium malts stand out,  Glenfiddich got rid of the cardboard tubes in favor of wooden boxes, first for the 30-year malt and later this year for the 21-year. There has been a corresponding 15 to 20 percent rise in the price, but the brand is banking on the improved aesthetic appeal.

The bottle has also changed, along with specific numbering on the labels, which has an appeal to collectors. “Some people want special numbers, such as one customer asking for the ‘600’, for example,” said Vintage’s Riachi.

Glenfiddich’s re-packaging seems to have worked. Vintage typically sold one to two bottles of the 30-year malt a month, but after the makeover they sold two cases in three days. “They got it right,” said Riachi.

Outlets are also emphasizing the range of whiskies a distillery offers. “People like collecting whisky in the same way as wine; instead of a 2001 or 2003 vintage it is a 12, 15, 17, 21 or 30-year-old malt. You drink less but better. And that is the magic of spirits; wine is drunk immediately [after opening], but spirits keep for ages,” added Riachi. 

Rising from the snow

Rare malts and varieties from specific years are also proving attractive.

“Scarcity is the best salesman of wine or spirits,” said Riachi. The Camus 1971 Armagnac, for instance, is likely to sell well this year as a lot of people will be turning 40. And in terms of a unique drinking experience, one of the most sought after this year by whisky connoisseurs is Glenfiddich’s Snow Phoenix.

The Snow Phoenix is a one-off combination of single malts that came about following  heavy snowfall at Glenfiddich’s distillery in the  Scottish Highlands in January 2010 that caused some warehouse roofs to collapse. With casks exposed to sub-zero conditions, the master distiller decided to bring together the whiskies from ex-bourbon and Oloroso casks that had aged for 13 to 30 years into a non-aged single malt. It is now being hailed as a cult malt; some websites selling the Snow Phoenix have already sold out, while in Lebanon only 250 bottles are to be available for sale and half have already been pre-ordered ahead of the July launch. 

The region’s window display

With the summer season not expected to be as dynamic as in years past due to a dearth of tourists, and Ramadan falling in August, drinks sales are expected to be down. But Lebanon still remains a top venue for marketing spirits, from the low to the premium level.

“Lebanon has become a Club Med destination, with two seasons, and the rest of the year having to survive on the Lebanese,” said Carlo Vincenti of Vincenti & Sons, distributor of St. James, Label 5, Glen Moray and Pitu Cachaca. “Lebanon is a window display for the whole region, as a big percentage of the profits from spirits sales in the United Arab Emirates and Saudi Arabia is spent on marketing in Lebanon.” Surprising though it may seem, Saudi Arabia is unofficially the fifth largest whisky market in the world.

Marketing is evident at Beirut’s infamous Sky Bar, where distributors have been spending ever-increasing sums over the past three years to target trendsetters. This year, according to distributors, some $630,000 was spent by Diageo for exclusive rights to sell its brands and by distributor Etablissements Antoine Massoud to plug its Russian Standard vodka at the rooftop bar.

“It is ridiculous, but more outlets are asking for money in advance to exclusively sell alcohol brands, despite the downturn,” said Nagi Hmouda, business manager at Fattal, distributor of Dewar’s, Grey Goose and Patron. “We are skeptical about the season as a lot of losses will be incurred.”

Fattal will not be introducing any new brands this year. Vincenti has launched the premium cognac Bisquit, but is focusing on faster moving spirits such as cachaca — the fastest growing spirits category in the world — rum and vodka.

Yet Vincenti also expects the upward swing in vodka to tail off. “Vodka was a discovery drink and many new brands were introduced to the market, but I think people will shift back to something less neutral in terms of taste, to whisky, rum and tequila, which are taking off.”

With sales down in on-trade — at bars, restaurants and hotels — the less glamorous supermarket has become an important point of sale. Indeed, supermarkets are now charging higher listing fees and investments to display brands.

“High-end brands are on supermarket shelves, but in terms of shelf off-take it is very weak,” said Vincenti. “Such brands shouldn’t be there as the consumers are not the type of people that go to supermarkets. There is a question mark on prestige if a bottle is on a supermarket shelf for months.” The supermarket as a high-end spirit venue may constrain the launching of new products and curb rise in consumption of single malts.

“Demand for single malts has risen over the last two years but I’m not sure it can go on. If on-trade doesn’t evolve, launching luxury spirits will not succeed. You can’t launch a 16-year old whisky in a supermarket, and you can’t sell more than one case per month,” said Vincenti.“But the downturn is not necessarily a bad thing. Lebanon was living in an imaginary world, as you never saw anyone in Europe paying $400 for a bottle in a club. It wasn’t healthy.”

 

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Economics & Policy

Executive Insight – Paul Naimeh

by Paul Naimeh
written by Paul Naimeh

When the tourism minister starts talking about how we should change the country’s strategy from attracting “land” tourists to “air” tourists you know that the industry, which props up around one-third of our economy, is anything but buoyant. 

Obviously, those who travel over land (as many coming from Jordan, Kuwait and Saudi Arabia do) will be put off by the prospect of driving by a Syrian rebellion on their way to a relaxing vacation on a Lebanese beach or mountain resort.

And because we don’t know how long the Syrian uprising will last, this year may just be the best time to stop resting on one’s laurels and chart a new course for investment in the industry, just like all those tourists who will be leaving their cars at home this year.

The alternative is to indirectly put over half a million jobs at risk as the sector also plays the role of a catalyst for construction and manufacturing and economic growth as a whole.

Last year, capital investment in the sector was estimated at $455 million, accounting for 12 percent of overall investments. According to ANIMA Investment Network, capital investment for travel and tourism is expected to reach $714.8 million, or 11.8 percent of estimated overall investments in 2016.

Golden days are gone

But gone are the days when Lebanon posted the highest growth rate in tourists arrivals in the world (39 percent in 2009). The current social, economic and political circumstances provide an entirely different reality.

This year tourism numbers have already fallen 18.6 percent. Hotel occupancy in Beirut fell by 20 percent in the first five months of the year, putting it near the top of the loser’s club among capital cities that have been rocked by revolutions, such as Cairo (-42 percent) and Manama (-44percent).

As bleak as all the above looks, the Lebanese investors, notorious for their resiliency and entrepreneurship, still move forward, spending millions this year in an industry that could come to a grinding halt.

From the perspective of the foreign investment experts, investing in Lebanon today would equal lunacy. However, as Lebanese, we think we know how the tides of change sweep across an economy and that those who hesitate and sit on the sidelines miss out on the profits reaped by the brave.

War, lack of government, assassinations, economic stagnation and fear have not been able to blow out the light of our determination to play by the rules that we create and only we understand.

This is the underlying truth of our culture and the promise every Lebanese citizen makes to the investor that chooses to launch a new touristic project in Lebanon.

Unfortunately, the speed at which investments must be made, and profits collected in this sector, have left us counting the change. 

Business in this industry has an average lifespan of two to three years and the effect of rising inflation, not the underlying fundamentals that would have any investor heading for the hills, are what we have to fear most at this point. A government without an inflation policy, coupled with an economy controlled by oligopolies, means prices go up and quality goes down.

Hence an industry which used to be showered with praises for its memorable service in the past has now begun to lose its shine and is sending heavy spending visitors to other areas of the world where they receive more ‘bang’ for their buck.

At this point, as investors in this sector, the question is not what to invest in and when to do it that plagues our minds, but rather “why” and “how effectively”.

Attracting scores of visitors is great; getting them to spend happily is another story. It is time for business managers and investors alike in this sector to choose the right “why” and capitalize on the “how effectively”; otherwise we will again fall in the trap of being held back by alack of government policy. We have learned to live with that in the past, but this time it may just be the difference between the black and the red.

PAUL NAIMEH is founder of Enologia, Route 69 and El Rancho

 

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Society

A prime selection from Lebanon’s vineyards

by Michael Karam
written by Michael Karam

Michael Karam, award winning author of Wines of Lebanon and Michael Karam’s Lebanese Wines 2011: A Comprehensive Guide, and associate editor-in-chief for executive, selects his favorite full-bodied Lebanese wines.

Note: These wines are not for what people like to call easy drinking. They can be drunk now but most won’t have reached their best for at least seven to 10 years after vintage if allowed to age properly. Aging allows the tannins to soften and give a silky structure to ‘carry’ the fruit and spices which the wines have in abundance. They should also be decanted at least three hours before serving. This gives them time to settle and breathe.

Château Belle-Vue 2006

A blend of Cabernet Franc, Syrah, Cabernet Sauvignon and Merlot. The wine has a reddish purple hue with notes of bell peppers, leather and stewed fruit, with a whiff of pork sausage. In the mouth, there is a lovely velvet texture with notes of plums and hints of cloves, leading to an outstanding finish. The winery makes only 18,000 bottles so these are not that easy to find.

 

Château Kefraya

Comte de M 2007

This behemoth of a wine is made from Cabernet Sauvignon and Syrah. It has a deep cherry hue with aromas of black pepper and thyme on the nose. In the mouth it has a wonderfully elegant structure and a smooth finish. One of Lebanon’s most famous reds, and deservedly so. 

Château Ksara

Le Souverain 2006

Made from Cabernet Sauvignon and the little-known Arinarnoa, it has a deep cherry hue with bell pepper and hints of figs on the nose. The Arinarnoa gives wonderful flavors of cassis and cured meats. Texture is silky, while the finish is dry and powerful.

 

Château Marsyas 2007

A blend of Cabernet Sauvignon, Syrah, Merlot and Petit Verdot. The color is a deep cherry hue. The nose is fruity if slightly toasted, but in the mouth this sumptuous wine is balanced with a superb tannic spine dressed in a cornucopia of ripe forest fruits. A newcomer to watch.

 

Château Musar 2003

A world famous wine made from Cinsault, Carignan and Cabernet Sauvignon. All vintages are aged for seven years before release. The 2003 tends have a deep garnet hue and aromas of oranges and cinnamon with hints of berry fruits. In the mouth, there is a heady combination of peppers and fruits with hints of chocolate. 

 

Château St Thomas 2006

A gentle giant made with Cabernet Sauvignon, Syrah and Merlot. It has an intense dark cherry hue. It is redolent of strawberries and cinnamon. The texture is soft and warm and the tannins are integrated to give a wonderfully balanced drinking experience. Older vintages age wonderfully.

 

Domaine de Baal 2007

Wine from a micro-winery (only 12,000 bottles are produced each year) in Zahle made from Cabernet Sauvignon, Merlot and Syrah. The color is dark purple and the aromas give off notes of black fruits with hints of soft peppers and licorice. In the mouth there are further flavors of black currants, cloves and cured meats. The finish is powerful.

Domaine des Tourelles

Syrah du Liban 2006

With a deep cherry hue it has pepper, eucalyptus and roast coffee beans in the nose. Possessing a robust texture with nicely integrated tannins, there is a lot of fruit on the middle palate and the finish is powerful and sustained. Good aging potential but ready to drink now. It won many plaudits at the recent London wine fair.

 

Domaine Wardy

Private Selection 2004

This elegant and suave wine is made with Syrah, Merlot and Cabernet Sauvignon. It has a dark ruby hue and an intensely smoky nose. Balanced in the mouth with a fruity finish. Good aging potential with well-integrated soft and velvety tannins.

 

Ixsir

Grande Reserve 2008

Ixsir is based in Batroun but has vineyards across Lebanon. Its top red is made with Syrah and Cabernet Sauvignon. It has a deep purple hue and a menthol nose with hints of black pepper. Forest fruits on the mouth herald a sustained finish that brings out the spices.

 

Karam Winery

Saint John 2004

South Lebanon’s only producer (and no relation to the author). This gloriously playful red is made with Cabernet Sauvignon, Merlot and Syrah. It has a black cherry hue with a nose of chocolate, peppers and other spices. In the mouth, the tannins have developed well and in no way obscure the abundance of fruits that dance around the mouth. The finish is sustained and memorable.

 

Massaya

Reserve 2006

Massaya’s senior red is made from Cabernet Sauvignon, Mourvedre and Syrah. It has an intense cherry hue and a complex nose of green peppers, cloves and cedar. On the palate the texture is velvety and elegant.The tannins appear gradually and the finish is smooth and underpinned with fruit.

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Lebanon’s subjective truths

by Nicholas Blanford
written by Nicholas Blanford

The recent bomb attack against the United Nations Interim Force in Lebanon (UNIFIL) and the outbreak of sectarian violence in Tripoli came as no surprise. UNIFIL itself was expecting to feel the backlash of the unrest sweeping the region, particularly the violence that is roiling neighboring Syria.

It is an uncomfortable fact of life for the peacekeeping force, with its European-heavy battalions, that it serves as a huge soft target for anyone that wants to send ‘messages’ to the international community at large. Indeed, since UNIFIL was expanded after the 2006 war from 2,000 peacekeepers, drawn mainly from Ghana and India, to more than 11,000 troops and a maritime component, force protection has dominated its agenda. There was a spate of actual and attempted bomb attacks against UNIFIL four years ago, most of them unprofessional and resulting in few casualties. The one exception was a highly-sophisticated bomb attack against the Spanish battalion that killed six peacekeepers, UNIFIL’s highest single day casualty toll since 1978, when it was established.

As usual, the perpetrators and motives of the latest bombing of an Italian UNIFIL convoy near Sidon remain unknown. But UNIFIL is expecting more attacks, especially if the regional situation deteriorates further.

The same applies to that perennial flashpoint between Jabal Mohsen and Bab Tebbaneh in Tripoli. The clashes that broke out on June 17between the Alawite community in Jabal Mohsen and the Sunnis of Bab Tebbaneh and neighboring Qobbe were widely anticipated.

The frontline between the two districts, marked by a string of raggedy bullet-pocked and unpopulated buildings, remains probably the most consistent and volatile flashpoint in Lebanon. There have been several bouts of fighting here over the past six years as Lebanon lurched from one political crisis to another. Who started the June 17 clashes that left six people dead, including a soldier and a 14-year-old boy, depends on whom you ask. The Alawites insist that the Sunnis shot first, while the Sunnis say the Alawites opened fire on a demonstration held to support the Syrian opposition movement.

Rifaat Eid, the convivial head of the Alawite community, accused leading Sunni politicians and clerics in Tripoli of fomenting anti-Alawite sentiment and distributing weapons to be used in street battles. He said that the Sunnis have been provoking the Alawites for months by firing occasional rocket-propelled grenades into Jabal Mohsen. “They want a war and they are preparing for it,” he said.

But wander down the hill into Bab Tebbaneh and you will hear the diametric opposite, with local residents claiming that it is the Alawites who have been firing the RPGs. During an earlier clash in 2008, one could hear Alawite combatants insisting that Saudi jihadists were fighting with their Sunni enemies in Bab Tebbaneh. But the Sunnis would insist with equal vigor that Iranians were taking pot shots at them from the heights of Jabal Mohsen.

There is a weary predictability about the fighting between these two communities, which consistently allow themselves to be exploited as pawns in a broader political struggle.

The formation of a new government after five months of bickering over the allocation of ministerial seats has already increased the levels of political vitriol.

Mouein Merhebi, a Future Movement MP from Akkar, recently accused Hezbollah of deploying 130mm artillery guns in the rugged and remote hills southwest of Hermel, specifically Wadi Fissane, Marjhine and Ayoun Oghosh. The suspicion, of course, is that Hezbollah could use the cannons against the Sunnis of Akkar and Dinnieh. Hezbollah dismissed the claim as fabricated and ridiculous.

Take a drive along the remote trails winding through the ochre-hued hills of Hermel, studded with dark green juniper trees, and no artillery guns are to be seen. If they exist, they are well hidden. Still, talk to Sunnis living on the western side of the mountain ridge that separates Dinnieh from Hermel and you will receive avid assurances that Hezbollah’s artillery guns are pointed at them. But cross over to the eastern side of the ridge and chat to local Shia farmers and the claims are dismissed out of hand.

Like all unproven and politically-charged accusations and counter-claims in Lebanon, truth lies in the eye of the beholder.

Nicholas Blanford is the Beirut-based correspondent for

The Christian Science Monitor and The Times of London

 

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Society

Book review: The End of Modern History

by James Reddick
written by James Reddick

Bernard Lewis’s new collection of essays, “The End of Modern History in the Middle East”, is an often fascinating, sometimes dull and endlessly frustrating continuation of the author’s 50-plus years of scholarly musing on the region. For those unfamiliar with Lewis, he is best known for coining the phrase “clash of civilizations”, which he introduced in a 1990 article in The Atlantic entitled “The Roots of Muslim Rage”. In that piece, Lewis presented his hypothesis that there was a deepening schism between Islam and the West — one founded in an inherent hostility toward Western values on the part of the Muslim world.

The events of 9/11 emboldened such thinking and Lewis’s ideology was espoused by the Bush administration in its hammerhead approach to creating ‘democracy’ in the Middle East (Lewis has criticized the implementation of the invasion of Iraq but has stood by its goals). This approach was largely discredited in the years following the Iraq invasion but it seems that Lewis continues to see the Middle East through the same lens, which pits democracy against fundamentalism in an epic struggle of progress versus regression.

The principal essay, which gives the book its title, is centered around the notion that the Middle East has reached a moment in history when it is free to charter its own course. Rid of the meddling superpowers (an arguable assertion in itself), the time is now to either move into the light —toward democracy, development and peace — or to revert further into the darkness of fundamentalism, autocracy and instability. If it is to move in the direction of the former, three catalysts would lead the way: Turkey, Israel and, most important of all, women.

Lewis asserts that, as the largest economy in the region and the first Muslim country to establish a democracy, Turkey could be the bellwether for development in the Middle East, depending on whether its own parliamentary system can withstand the Islamic leanings of the ruling party.

“It may choose… to turn its back on the West and return to the Middle East,” Lewis writes. “[Or] it may choose… to tighten its ties with the West and turn its back on the Middle East.”

In fact, Turkish Prime Minister Recep Tayyip Erdogan has done well in choosing both, maintaining strong economic and diplomatic ties with its eastern neighbors as well as with Europe, thus rebuking Lewis’s finite divisions between East and West.

Rightly, Lewis sees the Arab-Israeli conflict as the greatest impediment to development in the Middle East, “diverting energies and resources from creative to destructive purposes and preventing the progress of the region toward a new age of advanced technology and political freedom.”

But Lewis’s attitude toward the peace process, and his refusal to lay any blame on Israel, undermines the foundation of his argument. For him, the intransigence of Arab regimes that manipulate the Palestinian cause is the greatest impediment to peace; there is no mention of any stubbornness on the part of the Israelis.

“Dictatorships that rule much of the Middle East today will not…make peace because they need conflict to justify their tyrannical oppression,” he writes. “Real peace will come only with their defeat…and replacement by governments that have been chosen…by their people and that will seek to resolve, not provoke, conflicts.”

Omissions of Israeli accountability stand in stark contrast to Lewis’s strengths; his in-depth and lucid analysis of the linguistic and ethnic make-up of the Middle East’s states and the internal challenges facing each.  It is when he shifts to his trademark epic ideas of good versus evil that his credibility wanes. Take for example this passage from the title essay: “The war against terror and the quest for freedom are inextricably linked, and neither can succeed without the other.”

As any “Bush Doctrine” survivor knows, seductive as it maybe, such language should be met with trepidation.

 

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Society

The new connoisseurs

by Lauren Williams
written by Lauren Williams

 

On a Wednesday evening in downtown Beirut, Wadih Riachi is carefully explaining to an engaged group the fermentation and maceration process that goes into the Joseph Drouhin Beaune Greves Premier 2006 that they will shortly be tasting at this evening’s wine course. The intimate group of around 20 professionals, most in their thirties, consists mainly of regulars at the weekly tasting event; most have developed a sophisticated enough palette to detect the grape and smoky blackcurrant tones of the wine and they can wax lyrical about its vintage. Some even boast of their own private cellars.

Guests to Riachi’s course are part of what the owner of Vintage Cellars in Saifi believes is a growing class of wine connoisseurs. Increasingly sophisticated in their taste and selections, they are driving a move away from spirits and towards high-end wines.

Riachi, who distributes to major restaurants, hotels and bars across the country, says, “wine has been elevated to the status of a luxury product [in Lebanon]”. But with more information and better availability of a vast range of good wines he says, “for wine to be luxury, the product must be flawless.”

“People can now read consumer reports and wine critics and they understand their wines more and more,” he added. That sentiment is echoed by Henri Debbané, owner of Enoteca cellars and alcohol distributors, who says Lebanon’s traditionally consumptive wine culture is increasingly discerning, evident in the mushrooming number of private cellars in homes around the country.

Thirsty market

“Wine is becoming trendy — you find people have cellars now in boutique apartments,” Debbané said. “Drinking good wine is a sign of prestige — more than good spirits even —because of the connoisseurship.” Riachi agrees: “Lebanon until recently has been a purely consumption market; you buy,you drink, which is nice, but we are starting to see more people collecting wine like art.”

 

Wine sales in Lebanon have increased a solid 5 percent for both local and imported wine in the last year.  The market, now valued at close to $6.5 million per year ,according to Debbané, has seen Lebanese increase their consumption from around half a bottle per person annually in 1993, to two bottles per person today. Heargues that the Lebanese are increasingly willing to spend more on a good drop. Rampant Chinese demand for top-of-the-range “brand” Bordeauxs and Burgundys has driven global prices through the roof in recent years. Debbané says he has seen Lebanese connoisseurs increasingly opt for mid to high-end wines in the same category, as taste has developed.

Maturing tastes

“The demand for luxury is growing,” Debbané says. “For the Bordeaux wines especially, prices are going up in a consistent way. Mid-range to high-end is going up 20-25 percent on already high prices, so what you used to drink for $50 you now drink for $200.”

Budgets for high-end wines have remained about the same he said, “so we are varying the range to propose wines in the same category but not necessarily of the same prestigious brands.”

Unlike other luxury products, said Riachi, price has little to do with prestige. “When it comes to luxury we are able to say there is a best in each category,” he said. “Once you develop an accomplished taste for wine, it is difficult to go back. What may have been drinkable yesterday is not drinkable today. That’s what is happening to the market now — they are demanding better wines.”

As co-directors of vineyards Chateau Marsyas in the Bekaa valley and Domain Bargylus in northern Syria, Karim and Sandro Saade have witnessed the same trend. “People around the world are drinking better,” says Karim Saade. “And in Lebanon the prestige culture around wine comes from an increasing awareness of its convivial, cultural and scientific value.” With the Syrian Bargylus red wine selling well at around $28 a bottle, and the white around $17, he says the price reflects the cost of production. 

Michel Khoury of MK Holdings, distributor of Muscato Roseand premium 24-carat gold-plated Luxor Brut, rosé, and vintage from Champagne, came to similar conclusions when selecting his latest product range of Italian Barolos, which he will begin distributing through exclusive partnerships this year. Sales of the exclusive $1,060 to $3,000 Luxor Champagne are slowing, he admits, and while there is a “saturation” of alcohol in the market, “there is always room for a quality, well-priced wine.” The Barolos will retail for between $25 and $50 — a price deemed reasonable given the market’s willingness to spend the same on a quality Bordeaux.

“To tell you that sales of Luxor haven’t decreased would be a lie; even though we deal with the top-end clients, the top 5 percent of the market. Our private clients who used to order a case are ordering a bottle as a luxury gift instead. We used to sell about 150 bottles a year, so far this year we have sold around 35.”

Globally, demand for Champagne has taken a hit, although Debbané says Lebanon’s thirst for the bubbly, like wines, is also developing.

“In Lebanon we are seeing Champagne experience the same changes in consumption as wines; people are starting to see it as a wine that is not just consumed for the celebration of festivities,” he said.

Trouble ahead?

Increasingly discerning as Lebanese wine drinkers or collectors may be, retail alcohol sales are closely linked to tourism which, with political unrest around the region, is set to take a hit.  Expecting this summer’s peak season volume to be half of last year, Debbané says many of his hotel and restaurant clients are preparing for a downturn in wine retail sales.

Meanwhile MK Holdings’ Khoury says he has aborted plans to distribute to beach resorts in the troubled South Lebanon. “I am not going to invest a quarter of a million dollars and pay all the insurance when I have no guarantees — it’s all on hold,” he said.

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Southern Sudan’s baptism in blood

by Maggie Fick
written by Maggie Fick

The people of Southern Sudan ought to be celebrating on July 9 the culmination of their hard-won, long-fought and often extremely violent struggle for autonomy and respect on their own soil. On that day, the oil-rich but development-and-infrastructure-poor south is to break free from the oppressive yoke of Khartoum and officially declare itself as the world’s newest nation: The Republic of Southern Sudan. It ought to be a happy and optimistic time in a region that has had little reason for hope and few moments of sustained peace since Sudan, Africa’s largest country, gained independence in 1956.  

But disturbing developments along Sudan’s contested, militarized and resource-laden north-south border look set to undermine the elation of independence.  Throughout last month, aggressive military actions of the Sudanese Armed Forces (SAF), the northern army, severely undermined internationally-backed negotiations between Juba and Khartoum to forge a peaceful and cooperative relationship between the two Sudans after the country splits. In lieu of level-headed discussions with the Juba government, Khartoum is instead using its army’s superior military strength over its southern “brethren” and southern-aligned civilians living in northern border areas — including the Southern Kordofan state and the strategic zone of Abyei, which both governments claim.  

Chilling accounts are emerging from Southern Kordofan, home to the Nuba people, who practice several religions and allied themselves with the southern guerillas during the north-south civil war. The black African Nuba are northerners, and the Arab-led Khartoum government headed by President Omar al-Bashir — wanted by the International Criminal Court for atrocities committed in Sudan’s western Darfur region — has brutally lashed out against them in recent weeks, stirring local church leaders, international activists and diplomats alike to fear a repeat of the genocide perpetrated against the Nubas in the 1990s while the civil war raged. With restricted humanitarian access caused by insecurity and the government’s blocking of media access to the region in recent weeks, the impact of the SAF’s aerial bombing of civilian areas in Southern Kordofan is difficult to verify. But the United Nations said at the end of June that at least 73,000 people had fled their homes since fighting erupted between northern and southern forces in the state’s capital Kadugli on June 6. 

After winning praise earlier for accepting the near-unanimous results of the south’s independence vote held in January, President Bashir now appears to be attempting to undermine southern secession by tearing the north-south border asunder, a strategy that provides his government with the added advantage of a destabilizing “spillover effect” for the south.  Sporadic violence continues to dog the former southern guerilla movement — turned soon-to-be-national army, known as the Sudan People’s Liberation Army (SPLA) —as it confronts a range of rebel movements aiming to overthrow the southern government. The SPLA’s recent campaigns against these rebel movements have raised human rights concerns abroad — especially given the substantial Western support for the army — after civilian deaths in many oil-producing southern areas further stoked the south’s internal grievances.

The southern government blames Khartoum for backing these rebel militias, which is certainly possible, though hard evidence to support these claims is, again, difficult to come by. Rebels fighting the SPLA take issue with how it is governing, citing problems of ethnic exclusion and corruption in the soon-to-be-born state, and some of these complaints are merited. Building a state is a monumental task by any standard, not to mention creating a nation out of the scores of local tribes and sub-groups in the Afghanistan-sized south. If the Khartoum government’s deadly games in Southern Kordofan persist, July 9 will not be a day for celebration, especially given the plight facing the Nuba. The south will still likely get its freedom, though, and be saddled with the new challenges it will bring.

A saying I’ve often heard repeated by southerners in discussing successive regimes in Khartoum is a quote from former Vice President Abel Alier: “Too many disagreements dishonored.” The broken promises of Khartoum at the eleventh hour of a painstaking and years-long north-south peace process are a bitter but fitting note with which to mark the division of Sudan.

 

MAGGIE FICK is a freelance journalist based in Southern Sudan writing for the Associated Press, Foreign Policy and the Christian Science Monitor 

 

 

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