Real Estate

Bankrolling the builders

by Rayya Salem
written by Rayya Salem

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 salesto 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 wealso 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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Arab spring warms a Kurdish winter

by Gareth Smith
written by Gareth Smith

Iran’s Supreme Leader Ayatollah Ali Khamenei was quicker towel come the ‘Arab Spring’ than United States President Barack Obama. While publicly comparing the unrest to its own “Islamic Revolution,” Tehran was weighing how the demise of two friends of the US in Egypt and Tunisia, and unrest in Yemen and Bahrain, might affect its struggle for influence with the US and its allies. The Iranian authorities meanwhile nipped in the bud February’s attempt by the opposition Green Movement to return to the streets, while the economy was buoyed by rising oil prices that passed $100 a barrel for the first time since 2008, due to the events in Libya and fears of unrest in Saudi Arabia.

Iran’s fiscal outlook suddenly looked rosier, easing apprehension over contentious plans to phase out $100-billion in annual subsidies of everyday items, such as gasoline. Then came unrest in Syria, a challenge to both Tehran and Washington. The US had tried for two years to entice Damascus into a “peace process” with Israel, and to weaken its alliance with Iran, buying into the Syrian regime’s argument that it acts as a bulwark against militant Sunnism and al-Qaeda. For Iran, Syria is far more strategic, its sole long-standing ally in the Arab world whose loss would mark a major setback. Of course Tehran would miss its most practical link to Hezbollah in Lebanon; additionally, Syrian unrest, along with protests in northern Iraq, has brought the ‘Arab spring’ dangerously close to home.

The concern here for Tehran lies in Kurdistan. Iran’s seven million Kurds have never shown love for the Islamic Republic. A military onslaught was deemed necessary after the 1979 Revolution to bring them into line, and while the main Kurdish party, the Kurdistan Democratic Party of Iran, ended its armed presence in Iran in 1997, it has been outflanked by the Party for a Free Life in Iranian Kurdistan, an active and militant group linked to the Turkey-based Kurdistan Workers Party. The 1997 presidential ballot was also the last time Kurds engaged in any meaningful way with the national electoral process, turning out in massive numbers for Mohammad Khatami.

A little more than six years ago, Nawsherwan Mustapha, who has subsequently led Goran (‘change’), the main opposition group in Kurdish northern Iraq, told me that future opposition in Iranian Kurdistan would not be armed struggle but non-violent street protests. His words may prove to be prescient. In Kurdish Syria, Bashar al-Assad’s decision to grant citizenship to tens of thousands of Syrian Kurds — originally from Turkey — has not stemmed unrest in the northeast. Many Kurds have been inspired by the autonomy carved out by the Kurds in Iraq, rousing in them the idea that, sooner or later, they will be able to assert their own rights.

In Iran’s Kurdish region, Tehran has a large security presence and military posts dot the borders with Iraq and Turkey, but even so many Iranian Kurds travel back and forth to Iraq. This is more often to smuggle goods than attend political meetings, but it still spreads contagion.  Opinions differ on the fragility of the Iranian body politic. John Bolton, former United Nations ambassador for the United States and a colorful expounder of influential views in US foreign policy, recently presented an op-ed to the Wall Street Journal depicting Iran as a regional hegemon bending the region to its will.  This caricature suits many political interests — including those of the Israelis, of the Saudis in denying domestic unrest in Bahrain or Saudi Arabia itself, and of certain factions in Lebanon — but it flies in the face of the military disparity in the Persian Gulf. Even excluding Israel or the formidable Bahrain-based US fifth fleet, the Gulf Cooperation Council countries spent 16 times as much on arms as Iran did between 1988 and 2007, and Saudi Arabia alone has more combat planes and tanks.

True, President Mahmoud Ahmadinejad and some cohorts, still enthused by their surprise election victory in 2005, often portray Iran as a superpower. But wise counsel within the leadership knows well that Iran is hugely outgunned, that the Shia are greatly outnumbered in the Islamic world, and that the Islamic Republic has therefore a greater interest in stability than in conflict.

Hence the Iranian leadership’s muted response to the March 14 intervention of Saudi-led troops in Bahrain to quell Shia-led protests; hence its nerves over Syrian unrest. As summer approaches, the ‘Arab Spring’ blows an increasingly uncertain wind toward Tehran.

Gareth Smyth is a former correspondent for the Financial Times in Iran

 

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Economics & Policy

Executive Insight – 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 devolvedtheir functions to the EU Commission or other supranational bodies:international trade, antitrust legislation, agriculture policy and visaregulation. The EU Commission issues directives through a  common legal charter, which can span virtuallyany field, to which all national legislation must adhere.

In case of controversy or lack of compliance with adirective, 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 intoeffect 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 Scancciavillani is chief economist at the Oman Investment Fund

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Press persevere in Yemen

by William Dubbs
written by William Dubbs

Tens of thousands of protestors throughout Yemen continued to demand the fall of President Ali Abdullah Saleh last month. This is a testament to the fact that the president and his ruling clique seem to have decisively failed in their draconian clampdown on the media, a clear bid to “monopolize the message.”

Throughout the last bloody three months, which have seen more than 120 peaceful protestors slaughtered by security forces and their gun-slinging loyalists, journalism has also been a major victim. Dozens of incidents of beating, kidnapping and censoring local and foreign media have run in parallel to the regime’s erratic bloodletting. The youth protest movement has been quick to notice that their cause desperately depends on conveying the behavior of President Saleh in its full horror, and have made obvious common cause with international outlets.

“Al Jazeera,” painted in bright white and broad calligraphic strokes, is emblazoned on the pavement of Yemen’s “Change Square” outside Sanaa University. Meanwhile, the government’s partisans have taken a full account of their detractors in the media, and predictably, they are not content to disagree civilly.

“We caught an Al Jazeera camera crew try to sneak up to ourprotest,” Saleh-supporter Nabeel Majid, said casually. Then, with a proud, deep laugh he proclaimed: “We beat them and sent them running!” A particularly memorable placard at the same gathering consisted of the Israeli flag, with the Star of David beside the Al Jazeera logo, a complement to the president’s assertion that unrest in his country was engineered in “the control room in TelAviv.”

After nearly 33 years of divide-and-rule politics and endemic corruption, Saleh’s power-hold is now in doubt; the regime is utterly incapable of countenancing the truth and will stop at no lengths to keep it away from a people gaining a new consciousness. First, the government deported Al Jazeera journalists, then plain-clothes thugs broke into the station’s downtown Sanaa offices and looted its camera equipment. Baffled by how the network kept managing to spirit correspondents into the country despite an official ban, security forces finally super-glued the door of their officeshut.

But the powers that be in Yemen will need more than super-glue to put their broken government back together again. A massacre on March 18th of more than 50 demonstrators, many of them just young boys, shocked the nation and led to a wave of official resignations from which the President is still reeling. Perhaps not a coincidence, the deportation of six foreign journalists, working for major outlets such as The Wall Street Journal and Time magazine, predated the atrocity by a matter of only a few days.

Poor Yemen, known in happier times as “Arabia Felix,” has never been a media darling.  Even in these heady days, the most revolutionary and hopeful in its millennia-old history of civilization, other current events in the Arab Spring, notably Libya and Syria, are stealing the headlines. And that’s just the way the president likes it. The media is something to be courted and coaxed, not welcomed and let free to do its work. Journalist visas, now non-existent, were granted with gusto by the government when Al Qaeda was the scoop and panicked western audiences promised dividends in military aid and development assistance.

The staff of CBS news documentary “60 Minutes” was even granted exclusive access to the president’s nephew, General Yahya Saleh, to discuss the much-exaggerated threat of terrorism. Now that the Central Security Forces, which Yahya commands, are busy shooting and tear-gassing protestors throughout Yemen, the General has suddenly become camera shy. Meanwhile, the many government news outlets are engaged in a race to the bottom. “Al Yemen” TV describes the perpetrators of March’s massacre as merely annoyed neighbors. “Nabanews” trumpets pictures of young men and veiled women together at protests as “proof” of shameful and impious “mixing” of the sexes.

A small group of international journalists, many of them poorly paid young freelancers, remain to document the struggle for the future of 24-million Yemenis to the outside world. But most promisingly, a whole generation has finally been inspired to unleash their creative potential and, for once, seize the means of defining their own identity. Countless young Yemenis now dedicate themselves to citizen journalism, blogging, and “facebooking” the progress of their movement, confident that the day the government can no longer dictate their lives is near.

William Dubbs is the pseudonym of a journalist based in Sanaa

 

 

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Economics & Policy

Transparency: lost in revolt

by Sarah Lynch
written by Sarah Lynch

 More than one million barrels of rebel-controlled crude oilleft the Libyan city of Tobruk on a tanker headed to Asia in early April. Libya’s National Transitional Council (NTC), the Libyan rebel’s interim government, received $129 million for the sale, according to the newly appointed head of Libya’s National Oil Corporation (LNOC), Wahid Bugaighis.

This was the council’s first, and at the time of writing, only sale of oil as the nation’s civil war drags on. The deal reached between the rebel government and Qatar stipulates that Qatar will market rebel-controlled oil abroad; the first shipment was bought by the Swiss company Vitol, one of the world’s largest independent energy traders.

But weeks after the shipment left from the rebel-held city, home to the only functioning export terminal in the oppositions’ hands, only afew knew where, how and when the money was (or will be) spent. The lack of transparency surrounding the $129 million deal leaves room for exactly the sort of corruption endemic within Libyan leader Colonel Muammar Qadhafi’s regime that the rebels seek to overthrow.

Roughly three weeks after the start of the Libyan uprising, the Arabian Gulf Oil Company, or Agoco, owned entirely by Libya’s National Oil Company, announced its support for the rebels. Under the umbrella of the NTC, the company is supplying oil to the interim government so as to carry out its deal with Qatar.

“For me, as of now, there is no transparency,” says Abdeljalil Mayouf, who manages the information department at Agoco. “Normally we have a big financing department, and there are many sections within this finance department that deal with our money, our budget. But as of now, I don’t have any information about this money.”

At an April 10 meeting in the de facto rebel capital of Benghazi, Ali Tarhouni, the opposition government’s finance minister, told Executive that the millions of dollars had not yet been allocated.

“But most of it is going to be for food and medicine and fuel — benzene, diesel, derivatives to fuel the power stations, fuel for automobiles,” he said.

Tarhouni then said a bank account had been set up in Qatar to hold the cash, but when asked about who has access to the account, Tarhouni walked out of the interview, citing that he was too busy to talk. He refused multiple subsequent requests for a follow-up interview and provided no additional reasoning for his refusal to comment.

LNOC’s Bugaighis says the money received in exchange for the oil shipment has already been spent. For weeks previous Qatar had already been shipping gasoline and supplies to rebel-controlled Libya, with the NTC claiming that payments for such items were deferred until a later date. Others suggest, however, that rebel’s $129 million in oil revenue went to cover some of the cost of these shipments. “It was spent in two days,” said Bugaighis. “Take a cargo of gasoline – 25,000 metric tons; that’s $75 million, so the money doesn’t last long.” He did not provide specific details about the allocation, however.

A right to information

Peter Bouckaert of Human Rights Watch (HRW) attributes one of the reasons for the lack of transparency to the council’s fear that Qadhafi will pressure foreign countries and companies not to deal with the transitional government. It’s an assessment reflected by Bugaighis. “We don’t need transparency,” Bugaighis said. “We don’t need to tell Qadhafi what we are doing everyday. And if the world knows or not — it really doesn’t change much.”

But many people argue that transparency is vital; authorities and civilians alike are aware of the potential for corruption. “We are afraid of transparency all the time,” Agoco’s  Mayouf said. “In the third world, there is none.”

 

For more than four decades, hydrocarbon revenues have fallendeep into the pockets of Qadhafi and his inner circle. Many Libyans feelembittered that their country’s natural wealth has not been invested in itspeople, says analyst Shadi Hamid of the Brookings Institute in Doha. He notesthat this gap between the people and the government was one of the factors thatinitially contributed to the uprising.

“Libya’s people have a right to information about a majornational resource,” HRW said in an April 5 report. The organization insiststhat transparency is crucial now, and should not be postponed for the future.

“The vast sums of revenue involved, if misappropriated,could lead to the entrenchment of a new, corrupt elite with the funds availableto put in place a new era of repression,” said Bouckaert. The human rights watchdog urges countries and companies entering into agreements with the temporary government to insist on public transparency, independent auditing and accounting for funds.

Some people in, or close to, the council are not concerned about the lack of transparency, saying that systems to prevent corruption are put in place. “We know the money is going in and out,” Bugaighis said.“Everything is accounted for in terms of invoices. Everything is documented.”  He claimed that no more than 10 people are involved in overseeing the transactions, and that multiple signatures are needed on any transaction made. When Qadhafi is ousted, these documents will be presented to the authorities in Libya and to those in Qatar, he said.

But the NTC vows that when, or if, a temporary government is created the council itself will dissolve. If the current authorities in eastern Libya are not in power following Qadhafi’s ouster, it is unclear how these authorities will be held accountable for any transactions made under their temporary supervision.

Vulnerable to abuse

“It is exactly at this moment of institutional weakness that the danger of ‘capture’ of oil revenues by ruthless elements bent on self-enrichment is greatest,” HRW’s Bouckaert says.

Some argue that “institutional weakness” goes well beyond the lack of transparency. Before NTC members were thrust to the forefront of national and international politics, they were professors, judges, doctors and lawyers. As there has been a lack of participatory state institutions and independent civil society in Libya for more than four decades, some are concerned that the lack of experience among the new governing members could be a threat in the years to come.

Still, amongst Libyans in rebel-liberated areas, there generally seems to be faith in the National Council and its ability to handle transactions responsibly; Bouckaert says the council has committed itself to ensuring that oil sales will be transparent in the future and that the oil revenues would be for the general benefit of Libyans. LNOC’s Bugaighis and Mayouf of Agoco said that, at the time of writing, no oil was being produced in Eastern Libya due to attacks on oil fields by Qadhafi forces. One field, called Messla, was bombarded in attacks on April 4, Mayouf said, and electricity to the nearby field of Sarir was cut off. But according to energy analyst and petroleum engineer Sherif el-Helwa, 20,000 barrels could be extracted daily as a result of natural flow from oil wells.

“I’m optimistic that [the National Council] will be honest, but I don’t know,” said Agoco’s Mayouf. “I have confidence in the young people. They are paying with their lives to liberate Libya. And it wouldn’t be fair if people who are opportunistic take advantage of the situation. This is the future of Libya.”

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The army and the people

by Jonathan Wright
written by Jonathan Wright

The shotgun marriage between the Egyptian people and the ruling military council has not been an easy ride. After many decades on the sidelines of traditional politics, the army has had trouble adapting to the demands of an open, modern government. It has acted slowly, mysteriously and at times in ways reminiscent of Mubarak’s brutal police force. Its public discourse has been aloof, cryptic and often illiberal.

Flying in the face of the political realities of the new Egypt it has issued decrees asserting a right to control all information published about the armed forces, and on April 10 a military court jailed a blogger for the first time, on charges of insulting the military establishment and spreading false information. Maikel Nabil Sanad, 25, whose gripe with the military predates the uprising against Mubarak, now faces a three-year prison sentence. Human rights organizations are also unhappy, citing the use of military courts for civilians and the abuse of detainees by military police, including compulsory physical inspections or ‘virginity tests’ for young female protesters.

The people, on the other hand, have behaved like the obedient but demanding bride who discovers that marriage to a powerful man is not always a bed of roses. “The people and the army, hand in hand” was one of the defining slogans of the Egyptian revolution. But many of them knew they were allying themselves with a great unknown whose agenda was opaque. Their only recourse has been to come back to Tahrir Square in central Cairo and bellow their demands loud enough for the army command in the distant suburb of Heliopolis to hear them. For the moment the trick seems to have worked.

Since a mass rally on April 8, the largest since Mubarak lost power and retired to the Red Sea resort of Sharm el-Sheikh, the authorities have taken to heart many of the revolution’s demands. Mubarak was interrogated and will be detained when he is well enough to leave the hospital. His sons, Alaa and Gamal, have joined the group of disgraced ministers holed up in Toura prison awaiting further questioning and possible trial, either for inciting the murder of protesters or for a variety of crimes of financial corruption, such as selling off state land to their friends and cronies at rock-bottom prices. Three other key officials of the Mubarak era — Shoura Council President Safwat el-Sherif, parliamentary speaker Fathi Sorour and presidential chief of staff Zakaria Azmi — have finally joined the detainees in recent weeks. A Cairo court gave the people a bonus prize on April 16 when it dissolved Mubarak’s National Democratic Party — the dominant political force  since the late 1970s — and assigned all the party’s assets to the state.

The army’s performance since Mubarak’s ouster has been a curious mixture — hypersensitivity about criticism and a conservative ‘law and order’ mindset, coupled with belated political pragmatism and constant reassurances that the generals do not want to stay in power any longer than is necessary. When the time comes for presidential elections, the armed forces will not nominate their own candidate or support anyone else for the top post, the military council says. So far the signs are that the generals are sincere and that their greatest desire is to go back to their comfortable and detached lifestyle as honored defenders of a country that has not fought a serious war in 38 years. Some accounts of the army’s sideline in lucrative economic and industrial enterprises have been ludicrously exaggerated, with wild estimates that it controls up to 40 percent of the national economy, for example. But army officers under Mubarak were definitely a privileged elite with access to well-equipped hospitals, sports clubs and subsidized holiday villas on the sea. Retired officers, as in many countries, could look forward to lucrative sinecures in state companies or in private firms that valued their contacts. They also received shiny new weapons regularly, thanks to the $1.3 billion a year in military aid from the United States.

A question mark hangs over the future of that aid when the new Egypt starts to formulate a foreign policy and takes decisions on how to treat Israel and Gaza. If the people can reassure the army on those two points, by the choices they make in parliamentary elections scheduled for September, the army and the people — at least those that didn’t suffer detention and molestation by the military — might be able to arrange an amicable divorce and go their respective ways with fond memories of their eight-month romance.    

Jonathan Wright is managing editor of Arab Media and Society

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Economics & Policy

Summer still to shine

by Karah Byrns
written by Karah Byrns

 

In 2010, the travel and tourism sector represented 22 percent of Lebanon’s gross domestic product, according to tourism minister Fadi Abboud, with the country witnessing an increase in tourist arrivals of approximately 17.2 percent on the previous year. While 2011 began with high hopes for tourism, regional unrest and internal turmoil has quickly unraveled that spirit of optimism and confidence. As one Arab regime after another came tumbling down or brutally clung to power, and as the Lebanese government collapsed and pushed the nation yet again into a period of uncertainty, bleak predictions for the tourism sector began to circulate.

In January 2011 the first hit came when STR Global announced that hotel occupancy rates in Beirut had hit 41.6 percent, a 20.9 percent drop on 2010 rates. Drops in tourist arrivals and airport traffic further fueled fears, along with the kidnapping of seven Estonians in an isolated incident in the Bekaa valley and stern travel warnings released by the United States, Bahrain and Saudi Arabia. As unrest continues to boil in Libya, Yemen, Bahrain and now neighboring Syria, the question remains as to what type of summer tourism Lebanon can realistically expect.

Of all the events in the region, it is the unrest in Syria that will affect Lebanon’s tourism industry the most. Many Western tour operators group Lebanon and Syria together as part of a Middle Eastern package; if travel to Syria is impossible then the Lebanese leg of the tour in most cases is also dropped. Western tourists also have a tendency to group countries in the Middle East together conceptually and may not be willing to vacation anywhere in the vicinity of what they perceive to be a ‘hot zone.’

Regionally, land travel to Lebanon through Syria will be cut off, which will lead to a decrease in tourists coming by road, particularly from Jordan and Iran. Last year, Jordanians were the top nationality to visit Lebanon. According to Pierre Achkar, president of the Federation for Tourism and the Hotel Association in Lebanon, most of these tourists were middle-class Jordanians arriving by car. If the security situation in Syria continues to deteriorate during the summer, then the number of Jordanian tourists will inevitably fall off compared to previous years. The number of weekend visitors from Syria will also come to a standstill.

Given the political complexities facing Egypt, the 60,000 Egyptian tourists that came to Lebanon last year may also be deterred. As for the Gulf tourists, Achkar predicts that they will continue to be hesitant, “but the moment we have a government in Lebanon — any government — they will comeback,” he said.

Although the figures released since the beginning of the year have been consistently negative, Director General of the Ministry of Tourism Nada Sardouk said, “Lebanon has seen a small drop compared to other countries in the region.” She also suggested that there is a need to place these numbers into perspective.

In an interview with Executive, Sardouk pointed out that while the number of tourists arriving in Lebanon in the first quarter of 2011(340,700) dropped by 13.36 percent compared to the first quarter of 2010 (393,200), the number arriving this year is still significantly higher than it was during the first quarter of 2009 (297,700), which at the time was considered to be a record year for Lebanese tourism.

The same logic can be applied to Rafiq Hariri International Airport figures, which registered airport passengers (arrivals, departures and transits) of 1.02 million for the first quarter of 2011, 1.07 million for the first quarter of 2010 and just 886,700 for the first quarter of 2009. While there has thus far been a year-on-year decrease of 4.5 percent in airport passengers, 2011 still reflects a significant increase over the last two few years.

While regional circumstances and internal instability have caused a slump, figures could be considerably worse than they have been thus far, given the serious challenges facing the country and the region. There is a definite slowdown in the growth of the tourism sector, but there are also constructive forces that are tempering the hit. One of these appears to be investment in the hospitality sector.

Private sector investors are largely adopting a positive stance; summer 2011 will see the opening of a slew of new restaurants, nightclubs, pubs and even an extreme sports theme park. Some of the biggest names in hospitality will be re-opening with new indoor and outdoor spaces, and an enticing set of trade shows, cultural performances and concerts scheduled.

Massive investments are also underway; the Phoenicia InterContinental Hotel invested $20 million for its 50th anniversary renovations, including re-designing its Eau De Vie and Mosaic restaurants, the Cascade tea lounge and opening the Whisky Mist nightclub; Edde Sands invested a reported $1.5 million in refurbishing its rooftop restaurant, an Italian seafood restaurant in the Byblos port and the first Beirut branch of the eCafe in the historic district of Sursock; Movenpick renovated its rooms and is opening a fusion ‘chill-out’ lounge, and Le Gray’s investments included a new Asian restaurant, conference facilities, additional suites, a new roof terrace lounge and a second bar targeting the young, cosmopolitan crowd.

Beyond the luxury hotel chains in Beirut, food and beverage concept creation and management company Add Mind, which manages trendy nightspots such as White, Rococo and Gem, will also be investing heavily in the summer. The company has scheduled openings for five new venues between May and June, from Batroun to Beirut to Damour. “No one knows what can happen in Lebanon but hopefully we will have a good summer,” said Add Mind Chief Executive Officer Tony Haber. “If nothing happens internally, this could be one of our best summers ever.”

Virgin Megastore Sales Director Abdo Husseiny, who is responsible for ticketing, also expressed high expectations for 2011, which he anticipates will see better sales than 2009. “We are expecting the best summer so far,” he said, citing projections of between $10 million and $12 million in ticket sales revenue. “We are planning even more events this summer than we did in 2009 and 2010,” he added. Who will enjoy the new facilities and events, however, is another question entirely, as convincing Western tourists to venture to the Middle East will be difficult, while Arab tourists will be both wary of regional travel and largely returning home for the full month of August, as Ramadan this year will fall in the middle of the busiest part of the summer.

Lebanese tourists drive the market

In reality, the notion that more than 1.5 million foreign tourists per year have been driving the tourism and hospitality sector in Lebanon is only partially true. Data gathered by the Ministry of Tourism only classifies visitors according to the passport they use to enter the country, which means that many diaspora Lebanese returning as tourists for the summer are not counted in the figures.

“Things aren’t looking good for non-Lebanese tourists this summer, but we can still expect a large number of Lebanese expats,” said Nassib Ghobril, head economist of Byblos Bank. “We should also see decent spending levels from this group, as they are the ones who truly move the tourism sector; they are the biggest group in spending. Maybe hotels will suffer, but that’s it,” he said.

Ghobril’s logic perhaps explains the heavy investments hotels are making to revamp or add venues that can benefit from local and summer expat crowds, and not just on foreign tourists occupying rooms. While many hotels may see a drop, it could well be a smaller one than expected given that 2010 Ministry of Tourism statistics indicate that the top nationality staying in hotels and furnished apartments were Lebanese.

Lebanese nationals accounted for 19.5 percent of the total number of clients for 2010, followed most closely by Saudi nationals, (12.3percent), Jordanians (7.1 percent), Iraqis (6.5 percent) and Syrians (5.5percent).

In the food and beverage sector, Haber confirmed that “70 percent of ourbusiness depends on local Lebanese, and nearly 30 percent depends on Lebanese expats visiting Lebanon.” Husseiny echoed similar expectations regarding entertainment sales, counting on foreign tourists to make up only about 5 percent of total ticket sales, with the vast majority allocated between local Lebanese (70 percent) and expatriates (25 percent).“The Lebanese are used to ups and downs, even the ones who are coming to visit from abroad,” Husseiny said. “They came when things were happening that were far worse than what we are experiencing now; they will come again this year.”

According to Nizar Khoury, head of the commercial department for Middle East Airlines, as of today, overall flights for the summer into Lebanon show no growth, but are equivalent to last year’s figures. For summer bookings, however, flights coming in from the region and the Gulf in particular are less full than they were last year, showing what Khoury referred to as “a substantial decrease,” while summer reservations on European routes have picked up, showing an estimated 5 percent increase from last year.

Given Western wariness toward the region at present, this pickup is likely due to an increase in the number of expatriates visiting Lebanon, not Western tourists. “Lebanon will fare better than other countries in the region in terms of tourism coming from abroad due to our expats,”Ghobril said. “Lebanon has the advantage of having expats who return frequently for a holiday, and Lebanese expats are going to float this season.”

Looking closer to home

While the tourism sector in Lebanon for the last several years has been driven by high-spending tourists, especially those from the Gulf, Lebanese Economic Association Founder and President Jad Chaaban suggested that it is time for a change in direction.

“This model drove growth for the last few years but this type of tourism was hit hard by the financial crisis and now the regional situation,” he said. “This model has proven too risky because it focuses on only one type of tourist, and I think now we can see that it’s time to diversify.”

According to Chaaban, the focus on big spenders from the Gulf led to unsustainable growth centering on investment in Greater Beirut without the creation of a significant number of jobs throughout the country. Leveraging other assets to appeal to different types of tourists is part of a diversification strategy that Chaaban suggests to mitigate risks, beginning with tapping the local population.

“Internal tourism is a huge, growing market,” Chaaban said. Although internal tourism is something that remains off the radar for the Ministry of Tourism, he explained that Lebanese in general enjoy day or weekend trips and would do so more often if more comfortable and affordable facilities were available for overnight stays. “Due to the increased price of housing, not all Lebanese families have a second residence anymore and many want to escape the city for a weekend to relax and enjoy a change in scenery,” he said.

Lebanese still constitute the largest numbers staying in hotels and chalets, and according to Ghobril, “these are not just expats, but Lebanese residing here who decide to go for a local holiday outside of the city.” While there are no figures quantifying the economic effects of local tourism, Ghobril insisted that “local tourism is underestimated for the value it generates for the economy.”

The recently opened five-star boutique hotel Byblos Sur Mercan bear witness to the importance of internal Lebanese tourism. The hotel is expecting high summer occupancy rates this year between 60 and 85 percent, but estimates that 60 percent of its guests this summer will be a mix of local residents and Lebanese expatriates. “Locals come to Byblos as an escape away from the busy capital,” said Sales and Marketing Manager Mona Mounzer. Given the rate at which Byblos is evolving as a relaxing destination for boutique shopping, fine dining and cultural activities, a cosmopolitan local following is sure to emerge.

Developing internal tourism not only makes the country more attractive for its residents, but also creates a form of sustainable growth that promotes rural economic development by bringing more visitors to areas outside of Beirut. A fresh example of this model at work is in Batroun, which is preparing for a booming summer season. Local beach resort Bonita Bay is being fully renovated and upgraded with a new restaurant, primping itself to be a more upscale, trendy resort venue of the north. With a 700-person capacity,it is aiming to lure more visitors to the area. “We are going to be re-branding Bonita Bay with a new logo and mood, and we will be advertising it all over Lebanon,” said Operations Manager Shadi Ayoub.

Not far from the beach resort is another newcomer to Batroun, a spacious restaurant and event venue called Batrouniyat, which was fashioned from a historic home more than 300 years old. The restaurant relies on nearby villages to supply its organic ingredients and traditional Lebanese preserves, and in so doing directly supports many farmers in the caza, or local district.

“No one was supporting the growth of this area, so we decided to do something to help,” said manager Charbel Faour. The venue also occasionally doubles as an exhibition hall for local artists, in addition to being a charming restaurant decorated with traditional furniture, candles and mosaic tile floors. Locals told Executive that it has already reinvigorated the town in the six months since its opening last winter, and Faour confirmed that it brings in approximately 600 people per Sunday for brunch. “Today, 95 percent of our brunch customers come from outside the area of Batroun,” he said. “I even have customers who come from as far as Saida.”

In the south, the Rest House Tyre and Al Fanar Hotel in Tyre enjoy relatively high summer occupancy rates but cater primarily to local tourists, as well as international workers with the United Nations who are stationed near the border. In the Bekaa valley, the West Bekaa Country Club also provides primarily local Lebanese guests with a comfortable place to stay for the night. However, according to Chaaban, there is plenty of room for more hotels. “The Dhiafee program [a United States Agency for International Development project] set up a chain of ecotourism destinations in Lebanon to create an interesting network of places to visit on a circuit… where visitors can stay overnight in quaint cottages and bed and breakfasts,” he said. “This is a growing market with a lot of potential that should not be overlooked.”

Even Casino du Liban thrives on local tourism. Ninety percent of revenues for Casino Du Liban are estimated to come from gambling activities, and the majority of players come from all over Lebanon. Marketing Manager Lara Hafez estimated that locals account for 64 percent of players, 26 percent are regional visitors and the rest from various international destinations.

“I think that the majority of the 2 million tourists we saw last summer were of Lebanese origin,” said Chaaban. “Relying on wealthy expats and Arabs… is a short-sighted way of developing our tourism sector.”

While expats may conceal the drop in tourism this season, continuing to depend on them will not help the tourism sector to move toward its full potential in the future. To develop foreign tourism will require a strategy that caters to different types of visitors from all over the world. By diversifying the sources of tourism, the country will not only shield itself from risk, but also maximize long-term return.

Where have all the Arabs gone?

While Arab tourists accounted for 42 percent of last year’s foreign tourists, 2011 is due to see a drop in this number, with land travel via Syria compromised as overall regional security deteriorates. Joe Yacoub,Country Manager of international VAT refund operator Global Blue told Executive that “tourist expenditures in Lebanon are stagnant,” explaining that there should have been an increase compared to 2010.

“The unrest in some Middle Eastern countries did have a negative impact on the overall tourist spending,” he said, as residents of Arab countries outside of Lebanon represented 52 percent of the total spending in the first quarter of 2011. “The unrest in Syria… affected total in-store sales coming from Syrian tourists, while incidents near the border with Jordan are affecting incoming tourists from Jordan as well,” he said. According to Yacoub, there was an 18 percent decrease in Jordanian spending in the first quarter of2011.

Despite the fact that the greatest amount of tourist dollars spent in Lebanon came from Saudi Arabia (18 percent) and the United Arab Emirates (12 percent) during the first two months of 2011, according to Global Blue calculations, it is not clear how much of this spending is from Lebanese expatriates and how much is from foreign nationals, as calculations are based on the country of residence and not nationality.

“It is worth mentioning that Lebanese expatriates are considered tourists in relation to the VAT refund scheme,” Yacoub said, emphasizing that many refunds typically attributed to Europe, the Americas and Australia are actually for Lebanese expatriates. Regardless of whether the majority of spending from the Gulf is coming from Lebanese expatriates or foreign nationals, and in spite of the regional unrest, relying too heavily on tourists from the Gulf can no longer fully sustain Lebanon’s tourism economy, as travel trends suggest that Gulf travelers are exploring different destinations and traveling less frequently to Lebanon.

“We have taken Arab tourists for granted in Lebanon,” said Ghobril, who underlined that there is now more competition on the market for Arab tourist dollars from Europe, Turkey and East Asia, which recently launched an aggressive marketing campaign targeting Gulf countries. “We should not underestimate the competition outside the region,” he said. “Turkey has already benefited significantly from the situation in the Middle East.”

With more competition vying for wealthy Arab tourists and Ramadan due in the middle of the summer for the next several years, a new strategy for keeping the Lebanese tourism sector going strong is in order.Signs of a strategic shift are already visible in the hospitality sector,where, in anticipation of Ramadan breaking the season in half, hotels have been actively promoting Lebanon as a destination for leisure and business tocountries outside of the region.

“We are trying to replace the Gulf tourists who will not becoming during Ramadan with tourists from Turkey, Russia and Eastern Europe, as they are not as afraid to come to Lebanon as Europeans and Americans,” said Achkar, referring to the strategy of his own two hotels, the Printania and theMonroe Hotel.

Le Gray, on the other hand, is striving to recuperate the losses from Middle Eastern countries with a steady flow of European and American tourists throughout the month of Ramadan. This year, the hotel invested significantly in promoting Lebanon as a destination through international exhibitions and sales trips in the Middle East, Europe and the United States. “We are initiating strategies to highlight new angles to promote Lebanon as a destination, mainly through art and culture,” said Public Relations Manager Rita Saad.

Even Casino du Liban has begun looking further afield for foreign players. Often viewed as an indicator of high-end tourism, the casino is expecting a good season across all of its business units, with gaming rooms expected to work at full capacity, as well as its restaurants, entertainment venues and banqueting facilities. However, according to Hafez, it is looking to diversify beyond the Arab market to make up its share of international players, and is investing in a strategy to target players from neighboring countries like Greece and Cyprus, as well as Turkey and Russia, where recent casino closures have left players looking abroad for more exciting options.

China is also on the list of international target markets.“This market holds huge potential, with a rising interest of Chinese gamblers to come to the Middle East. But we still need a few more years to start witnessing a regular flow of clients from the Far East,” said Hafez.

The Ministry of Tourism has also been very active, participating in international fairs and exhibitions in Russia, Europe and Turkey in addition to the Arab world. In Europe, the Ministry of Tourism is targeting France, the United Kingdom, Germany, Spain and Italy, and has launched a new website for leisure tourism for the French market.

“The Ministry of Tourism is very interested in Europe, but different countries require a different approach,” said Serge Akl, director of the Tourism Office of Lebanon in Paris, France, which is Lebanon’s only tourism office abroad. Country-specific websites are set to follow the French site. “The last step will be the Americas, as these markets will be challenging to reach because there are so many negative images to change,” he said. Back in Beirut, the Ministry of Tourism is also working to develop relations with the Iranian embassy to support more visits from Iranians, who represented 80 percent of non-Arab Asian arrivals in the first quarter of 2011, mainly because of the Persian Noruz holiday. But as 75 percent of these tourists came by road through Syria, further travel plans may well be on hold until the dust of the uprising settles.

More to offer than “beach and booze”

As the market for tourism becomes more competitive worldwide, a well-rounded tourism development strategy for Lebanon will need to rely on promoting the country by focusing on the diversity that differentiate sit from other places around the globe. Marketing Lebanon as a destination for sea, ski and nightlife not only overlooks some of the country’s greatest assets to attract tourists, but also limits the scope of its attractiveness to visitors from the Arab world.

It is unlikely European or American tourists will journey to Lebanon specifically for these things, given that they have other options for sea, ski, and nightlife far closer to home, most likely at cheaper prices. WhileLebanon is a glamorous destination for luxury shopping and services, fine dining, gambling and nightlife, focusing only on these aspects of tourism limits the growth of the sector and the country’s ability to attract more tourists from all around the world. In a country that possesses five ancient UNESCO World Heritage sites and a biodiversity of more than 1,500 species of flowers, plants and trees in just a 10,400 square kilometer space, there is much more to the country than is currently being promoted.

“When looking at the Western market, the target is an educated tourist,” said Akl. “An intellectual person wants to visit Lebanon as a destination of discovery where they can experience something enriching — from history, nature and architecture to a vibrant scene of contemporary art, cinema and design… in addition to our state of the art dining and nightlife,” he said.“It’s about marketing l’art de vivre that Lebanon is famous for, together with its rich heritage and fun-loving, hospitable people.”

When Akl organizes press trips for the French media, he notes that basic sun and sea tourism interests very few. “They become interested when I begin showing them that Lebanon has something more unique and interesting to offer,” he said.

In a special Milan Design Week 2011 edition of Elle Decor Italia, Beirut received a 10-page section featuring the capital not only as a party town but also as a sophisticated cultural destination.

“This type of exposure changes European views aboutLebanon,” Akl said. “Expressing the post-civil war era through things like cinema, music and art shows that Lebanon has something pertinent and intelligent to say to the world, and people want to come and experience that.”

Cultural tourism can also be highly lucrative. From July 13 to 16 this summer, art collectors from all over the world will be congregating in Beirut to experience the city as a cultural destination when they come to visit the first edition of the Menasart Fair, the first international art fair to be completely dedicated to contemporary art from the Middle East, North Africa and Southeast Asia. In the event’s regular newsletter, fair manager Laure d’Hauteville announced on March 24 that “the present stable situation of Lebanon offers a stunning contrast with its surrounding environment.”

Ecotourism could also be an attractive resource for Lebanon, given its abundance of natural treasures — the Qadisha Valley, the Cedar Reserves, the Jeita Grotto, the Balaa sinkhole, and the entire stretch of the Lebanese Mountain Trail (LMT), to name a few.

“Ecotourism is gaining market share,” said Karim el-Jisr, founding member of the LMT, which opened in 2006. “Ecotourism can easily cater to up to 100,000 tourists per year provided that the sector is better organized and there is a commitment to nature conservation,” he said. Last year the LMT welcomed 30,000 visitors and this year it anticipates approximately 50,000 visitors despite regional turmoil, as “ecotourism is more flexible than conventional tourism,” he said.

The LMT also helps to sustain businesses in villages alongthe trail, providing a much-needed injection of economic activity to the ruralareas through which it passes.

“Ecotourism is undervalued in Lebanon,” said Hana Hibri, author of the book “A Million Steps”, which recounts her 30-day journey along the LMT in 2009. “There are many misconceptions about ecotourism. It’s not only for low-budget travelers and it’s not competing with traditional hotel tourism.If anything, it complements it,” she said. If hotels organized packages for travelers to end their hike with a rewarding spa weekend in luxurious five-star surroundings, Hibri felt there would be plenty of hikers that would gladly signup.

Adventure tourism that goes beyond hiking and into extreme sports is also a new niche for Lebanon to explore, given the country’s 300 days of sunshine and temperate climate for most of the year. In 2009 the three-day cross-country Lebanon H.O.G. Tour brought more than 300 Harley Davidson ridersfrom Europe, Australia, the United States, Jordan, Syria, the GCC and beyond, in what became the world’s largest official Harley Davidson tour. A cap on the number of riders the event could accept had to be applied for the following year, due to a lack of sufficient accommodation facilities across Lebanon.“These are people who are brain surgeons, doctors, business owners, architects, engineers, you name it. The profile of a Harley Davidson rider is a five-star client, so we need to take them somewhere where they can all be hosted comfortably,”said Marwan Tarraf, General Manager of Harley Davidson Lebanon.

Turning up the speed a notch, Gilbert Khoury of High On Wheels, the exclusive distributor for Ducati and other elite motor sport brands in Lebanon, is launching an extreme sports theme park near Dbayeh in July. As Lebanon’s first such attraction, the park will offer a vast range of pulse-raising pursuits for an equally broad base of clients. “This park willmost definitely attract tourists from the region and Europe,” said Khoury, who is banking on Lebanon’s temperate year-round climate to attract visitors from more extreme climatic zones who want to enjoy exciting outdoor sports.

Taking care of business

In addition to being a diverse vacation destination, Lebanon also has potential as a destination for corporate travel. Being a gateway to the Middle East, a cultural bridge, and place where diversity of religion, thought and language coexist, Lebanon is a place where people from European and Eastern cultures can feel at ease, and for regional or international companies this accessibility is a great asset.

“MICE [Meetings, Incentives, Conventions, Exhibitions] tourism is very important for the tourism sector and the national economy,” confirmed Sardouk. “MICE provides jobs by creating a chain of value for different sectors, including agriculture, industry, transportation and hospitality,” she said. “The participants in the meetings, exhibitions and trade shows can also discover the country, and we see about 80 percent of them expressing a desire to come back for pure tourism.”

On the 2011 World Economic Forum Travel and Tourism Competitiveness Index (TTCI), Lebanon ranked third out of 139 countries globally for the frequency of business travelers who extend their trips. “High occupancy rates in Beirut are highly correlated to business travel for regional corporate meetings,” said Achkar.

For hotels, MICE also provides another revenue stream that helps to diversify their risk across other activities. The Phoenicia InterContinental has begun to rely more heavily on MICE, as this sector has recently begun to show significant growth. MICE has been the hotel’s strongest growth market for the past two years as a result of heavy collaboration with the Ministry of Tourism and local tour operators.

“We have seen high demand not only from Arab and neighboring Near East countries, but also strong demand from Turkey, Europe and even Latin America,” said Phoenicia Director of Sales and Marketing Daniel Weihrauch. “The second half of 2011 also looks very encouraging, with multinational companies booking regional events and global conferences with us,” he said.

Despite the challenges of 2011, MICE tourism in Lebanon still appears to be going strong. HORECA, a four-day international trade show for the hospitality and food service industry which took place in Beirut this spring was the most successful edition to date. “It’s confusing because this runs contrary to the overall situation in the country and the region,” said Joumana Damous Saleme, managing director of Hospitality Services, the company that organized the show. “We had last minute cancellations from Egypt and Iran, but the rest of our international exhibitors attended,” she said. HORECA attracted more than 25,000 visitors and 350 exhibitors, an increase over last year of 10 percent and 15 percent, respectively. 

International exhibition and conference organizer IFP remains optimistic about its summer trade shows. “I can say we are looking at a potential of 30 percent growth in revenues, maybe more if things in the region settle down soon,” said IFP Chairman Albert Aoun.

The popular trade show for yachts, Beirut Boat 2011, taking place this month, has already attracted more than 120 participants, among them the biggest names in the marine industry, making the show 30 percent larger than 2010. Furthermore, the upcoming real estate show in late May and Early June at BIEL, “Project Lebanon 2011” will be 25 percent larger than last year, withmore exhibitors and exhibition space. In addition to “Energy Lebanon,” a regional electricity trade show that will run from May 31 to June 3, IFP is also adding a new summer show, Outdoor Lebanon 2011, to its busy event schedule from June 22 to 26. The show will promote outdoor sport equipment for all types of activities, such as hunting, hiking, sea sports, ATV-riding and more. “We expect this event to be a success,” said Aoun. “We are expecting growth in this year’s shows.”

Based on 2010 figures, IFP expects summer shows to attract 3,000 to 4,000 international visitors. “We have to keep in mind that business visitors and high income tourists make a good impact on the country’s tourism and hospitality sector,” he added.

Message in a bottleneck

With much of the Middle East in the throes of revolution and Lebanon still trying to form a government, facing the indictments from the Special Tribunal for Lebanon and still recovering from the 2006 July War, tourism represents far more than an economic activity.

“We need to break the perception of Lebanon as a location of terrorism,” said Akl, pointing to the value of tourism as a form of public relations for a small country with what one could call a fairly negative world image. When measuring the tourism economy in Lebanon, the value of an individual tourist goes far beyond the number of dollars spent in the country. When that tourist goes back home and speaks positively about Lebanon, it creates a type of PR that the Lebanese are highly familiar with: word of mouth.

“Lebanon has been using tourism as a major international PR tool for a while now, but the brand image [that was] built was interrupted several times by political instability, which led to economic instability,” said KatiaYasmine, managing director of regional PR agency TRACCS.

Unfortunately, on the 2011 World Economic Forum Travel and Tourism Competiveness Index, although Lebanon ranked third in the region for human, natural and cultural resources, it ranked 113 out of 139 countries globally for how well the country manages marketing and branding.

Before worrying about branding, however, the country has greater issues to deal with. The Ministry of Tourism admitted last year that Lebanon is not prepared in terms of infrastructure — namely water, energy and transportation — to support more than 15 to 20 percent growth in tourism. “In the strategy of [caretaker] Minister Fadi Abboud over the last year the focus has been to look at how we can spread the number of tourists over the year and over the country,” said Sardouk. “More growth could be supported in the country if this happens,” she said. For such alternatives to work, however, better signage, roads, maps and accommodation facilities in other cities outside the capitalare required.

In 2011, the World Economic Forum concluded that “ground transport infrastructure should be further developed, and safety and security issues must be addressed,” in order for Lebanon to truly become more competitive. Even when the country experiences a period of relative stability, however, the media buzz that thrives on political propaganda and negative forecasting does not help to advertise Lebanon as a destination for tourism. Once stability and safety are relatively secure, this has to be proactively communicated.

“The basic starting point is security and stability,” said Ghobril. “People don’t care about politics; they care about safety.”

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Obedient Al Jazeera

by Paul Cochrane
written by Paul Cochrane

Since Al Jazeera’s launch in 1996 its slogan has been “the opinion and the other opinion.” Its objective of telling both sides of the story has won over many audiences, while at the same time making the channel more than a few enemies — namely Saudi Arabia, which set up Al Arabiya in response to the Qatar-based network’s regional and global rise.

Banned at one point or another in nearly every Middle Eastern country, Al Jazeera has for the most part lived up to its truth-seeking pledge, but its slogan is now in danger of being undermined by its lop-sided coverage of the Arab revolts. The year began all roses for Al Jazeera, credited with being instrumental to the overthrow of the Tunisian and Egyptian regimes due to its round-the-clock coverage of demonstrations and its ability to give the uprisings widespread visibility. As a result, Al Jazeera has been praised in the Western media and by the White House, which was apparently glued to Al Jazeera English’s (AJE) coverage of Egypt. British newspaper The Daily Telegraph gushed in April: “The ‘Arab Spring’ uprisings of 2011 are being hailed in Washington as the ‘Al Jazeera moment’,” and Australia’s Sydney Morning Herald trumpeted: “Al Jazeera is changing minds and hearts.”

Missing from these glowing accounts, though, was that the uprising in Bahrain was barely covered by Al Jazeera Arabic, with only slightly better coverage on AJE. Given Al Jazeera’s integral role in the  Tunisian and Egyptian revolutions, itsmuted coverage of the Bahraini uprising since it began in mid-February has comeas a slap in the face to the countless demonstrators there. Furthermore, AlJazeera gave the detention and alleged torture of hundreds of Bahraini demonstrators scant coverage compared to similar events in Egypt, while the channel also failed to air potentially damning footage of the demolition of the symbol of the uprising, the Pearl roundabout, and 16 Shia mosques — a silence that could only be called an abdication of Al Jazeera’s self-proclaimed duty to objectively inform regional opinion.

At the heart of the matter is Qatar’s membership in the Gulf Cooperation Council (GCC), established in 1981 as a security pact among the Gulf monarchies in the wake of the 1979 siege of Mecca. Qatar’s position in the GCC pushed Doha to deploy troops to Bahrain when martial law was declared on March 15, but a casualty of this military intervention has been Al Jazeera’s objective news coverage.

With regard to Bahrain, Al Jazeera seems quite clearly to be acting as an extension of the Qatari government’s foreign policy and leaves the channel vulnerable to accusations of “double standards,” politically acceptable uprisings in the name of democracy — in Libya, Egypt, Tunisia and Yemen for instance — are covered and supported; uprisings against the Qatari national interest — such as in Bahrain — are largely dismissed. Ironically, Al Jazeera was banned in Bahrain last year, which the channel suggested may have been because of a report it aired on the country’s poverty, but which Bloomberg suggested was related to Manama’s wanting to increase Qatar’s rent for use of the Hawar islands.

A 2009 United States diplomatic cable, released by Wikileaks, highlights the geo-political role of Al Jazeera, with US ambassador to Qatar, Joseph LeBaron, noting: “Al Jazeera’s ability to influence public opinion throughout the region is a substantial source of leverage for Qatar…Moreover, the network can also be used as a chip to improve relations. For example, Al Jazeera’s more favorable coverage of Saudi Arabia’s royal family has facilitated Qatari-Saudi reconciliation over the past year.”

Al Jazeera’s “objective coverage” should also come under greater scrutiny in regards to Libya given Qatar’s vested interests there, including Doha’s role in the NATO-led air strikes and the inking of an oil distribution agreement with the Libyan rebels the day before the strikes began. Uncritical coverage of Qatari issues has also been a hallmark of the station since its inception. Thus, while Al Jazeera has generally helped raise the baron network news coverage and pushed television reportage to a new level, those who’ve championed the channel as some sort of media Messiah immune to the failings of major Western news outlets should take heed — there is “the opinion and the other opinion”, and then there is the opinion of the Emir of Qatar.

Paul Cochrane is the Middle East correspondent for International News Services

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Q&A – Simon Cooper

by Vanessa Khalil
written by Vanessa Khalil

Simon Cooper is deputy chairman at HSBC Bank Middle East and North Africa (MENA). Herecently sat down with Executive to discuss the effect of the regional unreston business and investment in the MENA region, as well as growth opportunities for the future.

With all the capital outflows, the foreign investments that have been stopped, the people who have been laid off, the expectation that unemployment will rise rather than fall, the lost tourism and the fact that the government is not spending yet, it seems it will take a lot for Egypt to not to fall into a very vicious circle. Banks in general and HSBC are exposed to a lot of risks there. There’s a risk of default from corporate clients and absolutely from individuals for the retail banking division. How are you going to manage this crisis?

I think you’ve got to step back here. First there was the physical crisis that hopefully has passed. We were able to manage that through being part of a regional network so we were able to immediately support what was taking place onshore in Egypt with our infrastructure offshore. We were the first bank to re-open in Egypt.

In terms of the credit risk, we saw a short-term blip in delinquency in February when people on the retail side were not paid because businesses weren’t open to issue payrolls. But we’ve seen that reversing in March.

We as a bank are at the higher end of the economic spectrum in our client base so we have a natural advantage in terms of segmentation of our customer base. When you look at the corporate side, the central bank of Egypt was very disciplined for many years in terms of making sure that foreign currency borrowing was mirrored by foreign currency earnings. So again the impact of foreign exchange has been largely self-hedged by the regulations over many years.

There’s certainly going to be a short term impact on tourism. Hotel occupancy is definitely lower this time this year than it would have been this time last year. I understand that people are starting to book again for October-November, which will be the next peak season for Egypt’s tourism industry. It’s too early to say whether that will be successful or not. It will be a very important barometer to see how many people do come back in.

There’s definitely a bump in the road; exactly how long that bump will last is too early to say. To my mind, it’s probably a year or two to get back on its historic trajectory but I don’t think it will take 10 years, after a sort of downward spiral from where we sit today. We now need the constitutional reform to be moved forward; we need the government to come into place and hopefully it will be a sustainable one.

You were one of the first to be in Iraq along with Standard Chartered, but in the end it wasn’t really operational. What’s your prospect for Iraq and why there?

I can’t take credit or blame; it was done before I was in the region. But talking to Lebanese customers, there’s a huge amount of interest in business opportunities in Iraq. A number of people distribute their products into Iraq – all told me that their only constraint was in getting enough product into the market, whose potential they believe is significant. I think if you look at foreign investment coming into Iraq we’ve done a lot in terms of some of our multinational clients looking to establish or grow their business [there]. It’s not going to suddenly take over the United States as a top-five economy in the world, but in terms of growth potential it’s significant. Physical security remains a high operating cost of having a branch network in Iraq. But the business potential I think is significant. We used to manage the business predominantly from Jordan, and we increasingly put more and more people into Iraq as security becomes much more stable.

Bahrain’s image as a financial hub has been tarnished recently. Is doing business there at the moment such a good idea?

There are clearly a number of companies that ran regional businesses from Bahrain that had to move their operations very quickly elsewhere. So clearly that is a memory that people will retain for some time and it will cause people to think twice when they are looking to really invest. So yes, there has been some damage to its brand. But we’re absolutely staying there. We’ve been through a number of wars in the region and turmoil — we’ve seen it all before. So we’re very much here to stay and to continue to invest more.

How would you assess potential for Syria and Libya?

In Syria we have a representative office. We applied for a branch license last year, which we didn’t get. In terms of Libya, there’s a tremendous opportunity in terms of the economy and to be part of the economic growth. But I don’t know what’s going to happen in terms of the current conflict; that has to resolve itself one way or another before you can form a view as to where the economy is going and how long it’s going to take to get there. But the potential is absolutely huge. In Syria, I’m sure the economics are strong; but from a banking perspective, as an international bank doing business in Syria, given the US sanctions and everything else, it is too difficult. 

Will the‘Arab Spring’ provide new opportunities for the region?

Look at what’s been the reaction for a number of governments. There’s been an increase in infrastructure spending. There’s a renewed or heightened oil price. Both of those things are economic stimulants for much of this region, and that gives tremendous opportunities for employment, gives opportunities for bankers, for project financing. So, yes, I think there will definitely be some benefits coming from it.

Many of the countries’ infrastructure is not at as high levels as you would expect given these countries’ wealth. So as infrastructure investment comes in, it is a real sustainable investment and a real sustainable benefit to the economy. It’s not just the initial sort of cash injection; it’s what it does to enable businesses going forward.

Who benefited from the capital outflows within the MENA region?

There’s definitely a flow of capital around the region. While there’s been an FDI [foreign direct investment] outflow, some of it has come back into some of the other countries. The UAE [United Arab Emirates] has definitely benefited from some of the unrest that’s taken place around the region. It’s become a safe haven for some direct investors.

It’s also become a safe haven for tourists. Tourism numbers in the UAE have risen dramatically in the last few years…because perhaps people are more concerned than they were about holidaying in some of the other destinations they would have otherwise gone to.

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Real Estate

Venus towering over Phoenician past

by Karah Byrns
written by Karah Byrns

The threat that cultural heritage faces in Beirut as a result of rising land prices and the scarcity of empty plots is a familiar theme. There seems to be no shortage of fresh cases to highlight and local and international media, as well as local NGOs devoted to preserving national heritage, are doing their part to raise the issue.

Over the last several weeks, Venus Real Estate has been in the spotlight over the discovery of what local news media has claimed is an ancient Phoenician port on “lot 1398”, an approximately 7,000-square-meter sitewhere the company is preparing to construct a luxurious three-tower high rise complex called Venus Towers. 

“I haven’t seen the site; it is closed to the public and even to archaeologists — this is what happens every time there is an important discovery in the Beirut town center,” said Leila Badre, museum director of the Archeological Museum of the American University of Beirut. The Directorate General of Antiquities (DGA) has been carrying out work on the site since the discovery of the ruins by the Ministry of Culture nearly two months ago. At present, the ministry is consulting with local and international experts to determine the value of the site, and as of April 27 five reports had been submitted, signifying that a final decision is coming soon. “We found slopes going down toward the sea that can be interpreted in many ways,” said caretaker Minister of Culture Salim Warde. “It might be a port, a shipyard, or even a quay, but it is surely something very interesting, and we are seeing how we can work with the owners of the land to save this site,” he said.

Over the month of April, An-Nahar criticized Venus Real Estate in two reports that cited numerous experts on the potential archeological value of the site. On April 27, Venus Towers issued an official statement to “clarify” the situation to the general public, threatening media outlets with legal action for making damaging accusations. The statement contends that the plot is too far from the sea to have been used as a port, and too far above sea level, but did not address any historic changes in sea level since the period when the ruins are thought to have originated from.

“The coast of Beirut today is not as it was over 2,000 years ago,” said Warde. “We know for a fact that over the last century this area was covered by stones at least four times. Before then, we don’t know how many times this occurred.” The last time land reclamation like this occurred was by Solidere, whose damage of historic sites was notorious during the post-civil war reconstruction boom. Disturbed by the situation and what he referred to as yet another challenge between the national interest and the private sector, member of Parliament Walid Joumblatt expressed his concern to Executive following the issuance of the Venus Real Estate statement. “I don’t believe a word they say; it’s all rubbish. They will find any excuse for the sake of a few square meters,” he said.

Prior to the publication of the statement from Venus Real Estate, Venus Towers spokesperson Wajih al-Bazri told Executive on April 25 that there was a great difference of professional opinion from archeological experts about the importance of the site. Bazri claimed that while local experts believe the site is important, the international expert brought by Solidere ruled the site unimportant. “The Ministry of Culture and Solidere are working together to get more opinions,” said Bazri. “There is no final opinion yet, but they are working to finalize as soon as possible to be able to go ahead with the project.”  He added that the real estate company will abide by the ruling of the Ministry of Culture, whatever it may be. In the worst case scenario, “we will build around it,” said Bazri, explaining that the ruins only cover about 1,000 square meters of land, then adding: “The newspapers are making a bigger fuss out of this than it really is.”

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