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AutomotiveSpecial Report

Samir Homsi

by Executive Editors March 27, 2011
written by Executive Editors

Samir Homsi, president of the Automobile Importers Association, the industry representative of car dealerships in Lebanon, recently sat down with Executive to discuss possible alternatives to conventional gas-fueled vehicles.

  • What do you think of the Ministry of Energy and Water’s proposal for compressed natural gas (CNG) vehicles?

There has been a lot of talk to make new rules, which we need badly. The subject of what to use as fuel has been discussed by the association and also in the parliament with [head of the Parliamentary Energy and Public Works Committee, Mohammad] Qabbani there was a lengthy discussion of what kind of fuel should be used. Our opinion is that while the use of [CNG] cars may be economically beneficial to the user it will be a dangerous alternative, especially in Lebanon. In France — the pioneers — they were using [CNG] fuel in cars but today we see the French getting out of that by using Euro 4 and Euro 5 standard gasoline instead. At any rate, our opinion is to use cleaner gasoline. Obviously our gasoline should be better quality and [we] should import better gasoline with less sulfur for modern vehicles with high Euro-grade standards.

  • Iran, India, Pakistan and Egypt have all adopted CNG. Why not here?

We need to check with what Europe is using. We do not need to copy Egypt or anyone else. For CNG there have to be re-filling stations, but what about being stationed in the middle of Beirut? In Europe they are outside of the cities, far from houses and living places. Can you imagine this in Ashrafieh?

  • What is your stance on the proposed law to allow for the importation of hybrid vehicles?

Hybrids are definitely the future; we expect within two years to have at least half of the members of the association importing hybrids. They are very expensive now and should be less expensive in two years because battery costs will go down slightly. This is where the Ministry of Finance had a good idea for the environment to reduce taxes on four-cylinder hybrid cars.

  • Do you think the government should financially assist consumers to trade in old pollutive vehicles for newer, more fuel-efficient cars?

Part of the plan is to do what Europe is doing but it is not in the government’s budget to pay for cars to be scrapped, as the United States has also done during a certain period. This could be done here with aid from Europe and was proposed directly by us and they were ready to participate in the program. We had a meeting a long time ago with the finance minister and together said, ‘Why don’t we do this with the European Commission?’ It also could be done by asking for aid from USAID [United States Agency for International Development].

  • Do you think the proposed law to allow for the import of environmentally friendly diesel should be expanded to include private vehicles?

I am for the import of clean diesel but not for passenger cars or taxis. The new law is conditional on the proper distribution of diesel, as otherwise, in one year, cancer rates would be up, you will have hell and not see Beirut from any point due to the smog.

  • What more can be done to rein in pollutive vehicles?

I have recommended to [now caretaker] Interior Minister Ziad Baroud, as he took a very positive step to limit accidents and speeding with radars, to also have the same system applied to photograph polluting cars and give them fines. Implementation of force on roads is practically nil so maybe an alternative is to have cameras.

  • Catalytic converters removed from used cars before importation to Lebanon is one cause of unnecessary fuel emissions. What do you think of this legal requirement?

The law that a catalytic converter should be removed before import should end. I’m not sure how this stupid law came into effect.

March 27, 2011 0 comments
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Finance

Banking Special Report, 2011

by Executive Staff March 26, 2011
written by Executive Staff

A word with leading Lebanese banking luminaries: Bank Audi’s Chief Financial Officer Freddie Baz, Byblos Bank’s General Manager François Bassil and Saad Azhari, chairman of BLOM Bank discuss the state of the country’s banking sector amid a gloomy economic outlook

March 26, 2011 0 comments
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AutomotiveSpecial Report

Unlocking The grid

by Executive Editors March 21, 2011
written by Executive Editors

Congestion in Beirut has reached the point of crisis. Traffic levels have become intolerable, with jams and “road rage” a part of everyday life. There is little public transport and, as a result, no feasible initiatives to encourage people to give up driving. The situation is clearly unsustainable.

Oil prices are hovering around $100 per barrel these days and the cost of fuel has soared in Lebanon over the past year. Consumers are feeling the effects on their wallets, compounding the hurt on their lungs from the amount of pollution generated by the 1.6 million cars in the country, some 76 percent of which are more than 10 years old, and 50 percent more than 20 years old.

In a recent study by the American University of Beirut’s Air Quality Research Unit, “fine” air particles in the capital were found to be three to four times higher than World Health Organization standards, while the unit noted that carbon emissions from vehicles posed a “serious risk to public health” and have “proven to be carcinogenic.” Indeed, environmentalists estimate that 60 to 70 percent of air pollution in the country is generated by vehicles.

So what is to be done? The traffic is detrimental to people’s health, mentally as well as physically, while with roughly 100,000 new and used cars sold every year, more and more carbon emitting vehicles are hitting Lebanese roads. Despite the rising costs of gasoline people have not been discouraged from driving, although there has been a noticeable shift over the past few years in the car market toward more fuel efficient compacts over larger vehicles.

There are options on the table but, in typical Lebanese political fashion, no common policy toward a workable solution. The plan proposed in 2010 by the Ministry of Energy and Water to introduce compressed natural gas (CNG) vehicles has been opposed by the Parliamentary Energy and Public Works Committee, ostensibly over safety concerns.

“There are options on the table but, in typical Lebanese political fashion, no common policy toward a workable solution“

A draft law to allow four-cylinder hybrid cars to be imported tax free has yet to be passed, the previous parliament having been too occupied with the Special Tribunal for Lebanon to enact it and now, with no cabinet in place, the bill is gathering dust. In any case, the energy ministry is more pro-CNG than hybrid, citing CNG’s questionably better safety record than hybrid technology and dismissing hybrids as not suitable for Lebanon’s topography.

Meanwhile, car dealers are waiting in limbo over whether the draft laws will be passed and what this will mean for their business strategies. Dealerships, such as the industry’s representative body, the Automobile Importers Association (AIA), have serious objections to CNG and query the feasibility of introducing hybrids without financial incentives to encourage consumers away from cheaper traditional models. They also view the law as limited — it does not include, for instance, six cylinder hybrids.

On both sides there is ignorance of the way these alternative fuel technologies work, in some cases confusing CNG with Liquefied Petroleum Gas (LPG) and in others reiterating the myth that all hybrids need to be plugged into electric mains to charge up.

There is also an expectation that the free market will compel consumers to take up either CNG or hybrids despite the global precedent of government-assisted incentives to encourage citizens to switch to more environmentally friendly vehicles.

Executive takes a look at the proposed policies, the pros and cons of CNG and hybrids, the investments needed and what is being done elsewhere in the world, and offers some realistic solutions to help clear the air and roads in Lebanon and change this unsustainable status quo.

The ministry’s case

In November 2010, the Ministry of Energy’s proposal for CNG was shot down by three out of four parliamentary experts, with the head of the Parliamentary Energy and Public Works Committee Mohammad Qabbani deeming the fuel un-safe, despite the ministry’s call for a re-evaluation of the criteria used.

“Our proposal was [for] CNG cars, which has not been accepted across the board,” said Cesar Abu Khalil, advisor to Gebran Bassil, caretaker Minister of Energy and Water. “I’m not sure why Qabbani took such a hostile position; the proposal is to allow the use of CNG — it is not obliging people to. We wanted to create an alternative fuel for consumers. Fuel costs have been increasing very fast, by $4 for 20 liters in less than six months, and has become unbearable for those on minimum wage and everyone else. We’ve been urging the Council of Ministers since 2009 to reduce taxes on fuel gasoline but to no avail.”

The ministry’s proposal is based on socio-economic and environmental grounds. CNG is some 40 percent cheaper than gasoline, which would help consumers financially and reduce the amount of gasoline fuel the country would have to import. Environmentally, CNG emits carbon dioxide levels that are 10 to 30 percent lower than gasoline, while emitting 27 times less nitroxide pollutants. CNG has been discussed in Lebanon over other natural gas options such as LPG or newcomer gas-to-liquids (GTL) due to its more extensive adoption worldwide.

In terms of safety, the ministry dismisses concerns that CNG is dangerous and not suitable for Lebanon, citing the fact that there are 12.5 million natural gas vehicles (NGVs) in use today worldwide, with the biggest users in Pakistan, Iran, Argentina, India and, slightly further down the list, Egypt.

“CNG is lighter than air, which means any leakages rise in the air; there are no spillages, and if ever this gas catches fire it burns high in the air, unlike LPG,” said Abu Khalil. He added that CNG cylinders undergo rigorous testing, are capable of withstanding penetration by a 30-caliber bullet without rupturing, are designed for a specific life span and only need to be inspected every three years or 58,000 kilometers.

According to documents given to Executive by the ministry, data from the United States showed the vehicle injury rate of the 8,331 natural gas vehicles surveyed was 37 percent lower than gasoline vehicles and that there were no reported fatalities, compared with 1.28 deaths per 100 million miles for gasoline vehicles.

“For over three months we were searching for an accident related to CNG, but all accidents were due to gasoline and hybrids,” said Minister Bassil’s advisor Michel-Ange Medlej. “We are not against hybrids but want all the alternatives available for the consumer. The Lebanese consumer should be able to choose what they want their vehicle to run on.”

Rolling out CNG

The ministry is keen to emphasize CNG as an alternative fuel choice. They feel that market fundamentals will provide the incentives for consumers to convert vehicles to CNG and that fuel distributors will make a return on investment from installing CNG pumps at stations.

“The real subsidy is the fuel, as it is cheap and a retro conversion [of a car’s engine from gasoline to CNG] is around $2,000. The return on investment would be very quick,” said Abu Khalil. The advisors cited service taxi drivers as prime target users of CNG, given an average monthly fuel bill of some $600.

“The encouragement comes when you commercialize CNG. Service taxis, light vehicles and special vehicles are the users we want to attract to CNG,” said Medlej. “Most private owners will not opt for a change to CNG but if the fuel bill increases it will give the [impetus] to switch to CNG,” he added.

In terms of infrastructure, CNG would come from the Arab-Mashreq Gas Pipeline that enters Lebanon from Syria. With the prospect of Lebanon having gas in its territorial waters, this could be a further incentive for adopting CNG. “Why did Pakistan reach 2.5 million CNG cars? [Because] it is a natural gas producer and an oil importer,” said Medlej. “If we become a gas producing country, why not use CNG?”

Lebanese natural gas will not be coming anytime soon, however, and in the meantime gas stations would have to offer imported CNG to consumers if the law is passed. “It is around $300,000 in investment per pump to install CNG at an existing fuel station. That is nothing compared to the amounts of money paid by companies to build new gas stations, and as CNG is cheaper there will be a higher profit margin,” added Medlej. Others in the private sector, however, have cited concerns over the costs, saying that they can reach up to $500,000.

While the advisors concede that demand will be related to the availability of CNG, they expect a gradual uptake of the fuel.

“It will take time. You can’t just flip a switch and change to have 500,000 CNG cars,” said Dany Samaha, advisor to minister Bassil. “CNG roll out will need quality control, procedures, employees and mechanics, but the law needs to [be passed] first and then we can address the private sector for investment. It will not take more than a year.”

With no incentives to consumers or financial assistance for fuel companies to install CNG pumps, the adoption of CNG will not impact the government’s financial budget, nor will the treasury lose out on taxes generated from CNG, confirmed Abu Khalil. While no parliament has been formed as of Executive going to print, the expected dominance of the upcoming cabinet by the former opposition March 8 coalition is considered a green light for the ministry’s plan, especially as it is in the hands of the Free Patriotic Movement (FPM). “We are optimistic [that] with the imminent change in government we will have the upper hand and not face all the hurdles faced in the last government, and that should be reflected in many other projects,” said Abu Khalil.

“When we were asked by the AIA whether we were interested in gas cars…we said it was not for us”

Opposition to CNG

CNG has been opposed not only by the parliamentary committee but also by car dealers. The AIA has opposed the move on safety grounds [see Q&A page 118] and dealerships are keener on introducing hybrid technology.

Opposition to the plan is also seen as politically motivated, with opponents even suggesting, off the record, that the energy ministry, which is in the hands of March 8’s FPM and allied to pro-Iranian Hezbollah, is pushing for CNG because of the Islamic Republic’s widespread adoption of the alternative fuel. If Lebanon hitched onto the CNG wagon, so the argument goes, this would result in preferential business deals with Iranian companies for gas conversion, infrastructure installation, rollout expertise and even importation of Iranian-made CNG vehicles. Indeed, Syria recently asked for Iran’s guidance in implementing CNG — Iran has converted 1.9 million vehicles to CNG and in the next four years aims to be a global leader in CNG stations and consumption.

On the other hand, sources close to the energy ministry say that the parliamentary committee’s decision was due in part to “ignorance” about CNG, confusing it with LPG. It is also said that the committee was influenced by car dealers and oil companies, both of which oppose CNG for commercial reasons; leading manufacturers do not produce CNG cars and the conversion would render many marketable attributes essentially obsolete, such as engine size and sound damping technology. It would also affect vehicles’ overall design, with CNG typically increasing a vehicle’s weight due to the tanks fitted in the trunk (although other options are available such as cylinders made of composite materials).

Oil companies would, of course, have less gasoline to market, even though they could sell CNG instead, but margins would be lower due to the limited options of where suppliers may obtain it. Costs are also cited as being prohibitive. On top of the cost of new pumps, CNG would also have to be far better regulated than gasoline, requiring more work by the fuel companies and regular governmental inspections.

The dealerships’ stance

Nabil Bazerji, managing director of GA Bazerji and Sons, the dealer for Suzuki, Lancia and Maserati, said, “CNG is something unrealistic for a country like Lebanon. Automotive sales will not be affected as mass production is not available at the majority of automotive brands, while adaptation of vehicles is done by specialized companies.”

Other dealers oppose CNG on similar grounds, citing market fundamentals.

“When we were asked by the AIA whether we were interested in gas cars and [which] manufacturers produced them, we said it was not for us,” said Anthony Boukhater, deputy general manager of ANB Boukhater, dealer for Mazda and Aprilla, Vespa and Piaggio motorbikes.

“Mazda will never produce special cars just for Lebanon as it is such a small market. This needs to be thought about market-wise. For India, Pakistan and Egypt these are large markets [with] over one million vehicles [sold] a year. Not the new and used 100,000 vehicles a year market like in Lebanon,” he added.

But the car dealers’ primary opposition is on safety grounds and the feasibility of investing in the necessary infrastructure.

“Countries that have adapted vehicles to natural gas do so under severe controls. This will never be the case for Lebanon. [That’s] where the danger comes from,” Bazerji said.

On concerns over safe implementation of CNG, dealers do have a point, which has been echoed by environmentalists.

“In principle I am not against CNG but we need the infrastructure and rigorous standards as it is dangerous. In Lebanon, it is a pity to say, we cannot rely on law enforcement to make sure the laws are respected,” said Hassan Jaber, vice president of the Lebanese Association for Energy Saving and for the Environment (ALMEE). “At the méchanique [annual vehicle inspection], they are supposed to have checked 1.1 million vehicles since 2009 but so far only checked 160,000. Some people are even using additives in the fuel to get their car passed. The checks should be continuous, not [every other year].”

Indeed, consistency is a major concern. When the previous government started cracking down on reckless driving and introduced speed cameras last year, road accidents dropped by 10 percent in October and November, with the death-rate down 43 percent and injuries down 12.5 percent. But once the parliament dissolved in January, the police crackdown tailed off, as it has in the past when enforcing seat belt laws, stopping drivers using mobile phones or ensuring that motorbike riders wear helmets and refrain from driving the wrong way up one-way streets. “Motorbikers are like motorized pedestrians — they drive on the sidewalks and go through red lights, right in front of the police and they do nothing,” said Bazerji.

Furthermore, there are an estimated 20,000 cars that have been converted to run on natural gas canisters — the kind found in most kitchens. “Nobody is stopping these vehicles and there are no regulations or controls. If the government cannot stop this illegal usage, who will guarantee that this parallel production will not grow and put the country into real danger?” said Bazerji.

While the ministry claims that they have scoured the world for cases of accidents related to CNG and failed, there have been several cases of CNG-related accidents and even deaths. The potential hazards are illustrated by two examples from India this year, one where 15 passengers on a CNG bus were lucky to escape unscathed when a leakage in a fuel pipe caught fire, the other in February when a New Delhi woman was killed after the CNG vehicle she was in hit a divider and burst into flames.

With that said, properly regulated CNG vehicles are, according to expert analysis cited earlier, less dangerous than combustion engines.

There are an estimated 20,000 cars that have been converted to run on natural gas canisters – the kind found in most kitchens

The diesel disaster

A further reason dealerships are wary about the proposed introduction of CNG is over the government’s prior handling of diesel fuel. In the 1990s, the government encouraged the use of diesel over gasoline, with a high percentage of cars switching to diesel due to its lower costs and the efficient mileage attained. But after a few years it became apparent that many cars were running on substandard diesel that was highly pollutive. In 2002, the government banned diesel for private vehicles, limiting usage to buses and vehicles over a certain tonnage. This volte-face by the government caused havoc in the sector as consumers had to change back to vehicles powered by gasoline.

“We had to make the diesel switch possible to drivers as there were protests outside our showroom. That government policy put us in a bad situation,” said Rachid Rasamny, marketing manager of Century Motors, a dealership for Hyundai.

As of January, a parliamentary committee approved the import of new cars and vehicles that run on “green diesel” that complies with Euro 5 standards and banned the import of regular diesel vehicles, although the law still has yet to be passed. It appeared to imply that private diesel vehicles would be allowed but this was in the end not the case, provoking confusion at dealerships.

“I don’t understand this non-diesel policy. A comprehensive car policy has not been thought through. It is more short-term fighting over current high oil prices,” Rasamny said.

“A comprehensive car policy has not been thought through. It is more short-term fighting over current high oil prices”

Hybrids

While the ministry is not against hybrids per se, it cites the same concerns the parliamentary committee voiced about CNG: safety.

“We don’t understand proposing hybrids and opposing CNG on safety, as hybrids are the real threat,” said the ministry’s Abu Khalil. “Hybrids are an alternative but [are] not as safe — a 400 volt battery alongside a gas tank… any spark would very easily ignite it, making it a car bomb.”

The car dealers dispute this claim, highlighting the awards hybrid cars have received and the billions of dollars spent on research and development that have gone into producing dual gasoline and electric powered vehicles.

“The Toyota Prius has been on sale in Japan since 1997, before even Google and Facebook were around,” said Philip Fred Boustany, managing director at BUMC, exclusive distributor of Toyota and Lexus. “As of September 2010, Toyota has sold 2 million units globally. The fact that hybrids run on electricity as well as gas is completely irrelevant when it comes to their safety. For example, Toyota designs its hybrids to withstand the same crash specifications as normal cars.”

Dealers also dismiss the ministry’s claim that hybrids are not suitable to Lebanon’s mountainous topography. “Hybrids are based on filling up the battery when running, but when climbing uphill the electric battery doesn’t work, so you have to use the regular engine, which doesn’t resolve the problem environmentally or economically,” said Abu Khalil.

Boustany counters that “the biggest misconception about hybrids is that they are not powerful cars.”

Equipped with three different modes, Boustany said, the Prius is a very efficient car regardless of topography. “When climbing uphill, the regular engine will be doing its main job of power transfer to the wheels but at the same time recharge the batteries which will be used downhill, or further recharged through regenerative braking. In addition, if you end up stuck in traffic or at a standstill, your Prius will shut off its gas engine, saving you gas and protecting the environment from harmful emissions.”

He added that it was a “myth” that all hybrids need to be plugged into a charger on a daily basis, or that the batteries require replacement every three years.

The major obstacle to introducing hybrids in Lebanon is the high costs of the vehicles themselves due to high customs and registration fees. Boustany says the gas and environmental savings justify the price and he foresees 50 percent of all models offered by BUMC in 2015 will be hybrids or fully electrical vehicles.

To Charles Tarazi, assistant general manager of Porsche, the cost of a hybrid — 7 to 8 percent more than a conventional vehicle — is a deterrent to consumers unless there are substantial tax incentives.

“Why would you buy a hybrid in Lebanon? There is no point; you are paying more just to make a statement: ‘I’m driving a hybrid.’ It won’t save the world [if] a few guys drive hybrid cars,” he said, adding: “The main issue is tax advantages, yet in Lebanon there is no plan for the six-cylinder hybrid engines.”

Tarazi cited the tax advantages introduced in other countries for the six-cylinder Porsche Panamera, which has helped bolster sales: in the US, tax benefits reach up to $2,200, in Spain a 5 percent registration tax reduction was implemented and in France there is a $2,500 one-off tax reduction on car registration. “I think Syria was clever in changing the laws to promote hybrids, offering 50 percent less tax than on normal cars,” added Tarazi.

In Lebanon, it is the opposite; taxes are actually higher for hybrids than conventional vehicles, with the registration fee of a Toyota Prius 1.8L hybrid around $2,600, whereas a non-hybrid Corolla 1.8L is some $1,800.

A further impediment to hybrid adoption is that there has not been a big uptake throughout the Middle East and North Africa, with Lebanon’s small car market particularly susceptible to regional trends.

“The trend toward hybrids in the region has not really been successful. It is something we’ve discussed with the Hyundai Motor Company in South Korea,” said Rasamny. “I’m not sure we could get hybrids even if the law passes as there is not enough demand for it, especially since the high demand markets of Saudi Arabia, Syria, Egypt and Iraq are not buying hybrids. If there’s no demand in the more populous markets, Hyundai will not send us hybrid vehicles.”

With the law still pending, the nation’s dealers are reluctant to even come up with a marketing strategy.

“When I approached Hyundai about hybrids I had to give demand figures, but due to the draft law being unclear I couldn’t give adequate figures,” said Rasamny. “Once the law passes, we will see how it will alter our sales strategy.”

In Lebanon, registration fees are higher for hybrids than conventional vehicles

The road ahead

With the car industry backing hybrids (especially if taxes were lowered), it would seem a sensible option for the government to promote a technology being rapidly adopted around the world. To ensure its uptake, the Lebanese government should follow the lead of other countries by reducing or even scrapping taxation on the vehicles to make the cost difference between hybrids and conventional cars more attractive to consumers.

If the difference were, for instance, $5,000 between the two, hybrid consumers would get a return on investment over a few years given a much lower fuel bill, with hybrids able to cover  on average some 450 kilometers per 20 liters of fuel. The proposed law allowing hybrids should also be expanded to include six-cylinder hybrids, made by luxury car manufacturers such as Porsche  and Lexus.

As to which is cleaner for the environment — CNG or hybrids — it is a tough call. The technology is continuously being updated, as exemplified in the American Council for an Energy Efficient Economy’s “Greenest Vehicles of 2011” listing, which put the natural gas powered Honda Civic GX in first place, followed by the all-electric Nissan Leaf.

What the ministry did not discuss, nor did car dealers, is that the development of ultra-layered sulfur fuel and associated engine technology has narrowed the gap between CNG and other alternately powered vehicles in terms of meeting many countries’ national motor vehicle standards. The improvements have come so far that the mayor of London recently proposed replacing the city’s “Alternative Fuel Discount” — an exemption from fees that covered fully electric vehicles, hybrids and the cleanest gas powered cars — with a “Greener Vehicle Discount,” as some modern cars with conventional engines emit less carbon dioxide than most hybrids.

Lebanon will have to come up with a solution that is more environmentally friendly on one hand and, on the other, conducive to the particularities of the country. If only a limited number of consumers purchase hybrids, CNG or electric cars, the positive effects on the environment would naturally be minimal.

A high degree of realism is certainly needed to ascertain what is best for Lebanon, given the constraints and issues enumerated above. Hybrids, for instance, would  cut down on fuel consumption without requiring installation of CNG infrastructure throughout the country. Furthermore, with the major brands manufacturing hybrids this would keep both dealers and car enthusiasts happy, as they wouldn’t have to retrofit vehicles for CNG.

“We should have buses run on CNG as it would solve two problems in one”

The wheels on the public bus

The argument for CNG seems strongest when applied to service taxis, commercial vehicles and buses as a more limited roll out would enable better regulation to prevent CNG-related safety accidents and would limit the required number of fueling stations. Such a policy could also help revive public transport, with the number of blue and white public buses on the roads — as opposed to the private clunkers that do cover some parts of the city — dropping from 271 in 2008 to less than 15 today, according to Jaber of ALMEE.

While the cash-strapped government might oppose investing in public transport, the long-term benefits for the populace and the environment would be enormous. Alternatively, the government could enter into public-private partnerships to roll out a reliable bus network.

“We should have buses run on CNG as it would solve two problems in one: a new public transport with very low emissions and low cost of adaptation, as gas would be limited to stations owned by the transport ministry. Interfering with the daily life of the citizen and adding an alternative gas to the system is nonsense,” said Bazerji of GA Bazerji and Sons.

Improving the overall quality of fuel imported into Lebanon is a further solution to the country’s environmental woes, with imports, according to a source familiar with the issue, frequently substandard, highly pollutive and not well regulated by the government. Yet even if the green light is given to both CNG and hybrids it will do little to clean up the country’s air unless a comprehensive transport policy is developed.

“CNG will help reduce pollution and the cost of fuel, but CNG will not be the alternative,” said Yasmine Mahdi, senior transport engineer at SETS, a specialist engineering solutions firm. “Instead of technology, I’d think of alternative modes of transport for people to reduce the number of cars on the roads, the congestion and pollution. A feasible solution is to have a regulated bus transport network and get competitive companies to operate it. Other solutions are a congestion charge and increasing parking fees. There are many ideas that can be implemented by the government with no costs.”

“The media and TV talk of socio-economic problems, but transport is not discussed…We are way behind other countries”

Other alternatives

Further ideas floated by interviewees include car pool lanes to reduce the number of vehicles on the roads and the promotion of motorbikes to curb congestion, with hybrid bikes now available and, in any case, two-wheelers polluting far less than cars. “Putting in motorbike lanes would be very easy to do, and then people would want bikes and not take a car if on their own,” said Boukhater, the dealer for Mazda, Aprilla, Vespa and Piaggio. “It would also make insurance cheaper, while getting rid of all the cars parked on highways and big streets. Also, a motorbike can be bought on credit for $60 a month, whereas a car is $200 plus.”

“When I suggest this to people they say it is not in our mentality. But CNG is? It wouldn’t cost the government anything and they could do a test for a few months that limited the coast road [north from Beirut] to bikers,” he added. The idea could be taken further to restrict certain roads to vehicles with more than one person, buses and motorbikes.

Congestion in itself poses a significant environmental problem. According to the International Organization of Motor Vehicle Manufacturers, test-drives in the Stuttgart area of Germany “showed that a car’s fuel consumption can be 60 percent higher with congestion compared to driving the same route when there is free flow.”

Encouraging consumers to trade in old vehicles for more fuel efficient new models is also one option on the table, although this would require financial incentives from the government to do so, which is unlikely given the country’s poor fiscal health.

 Implementing higher taxes on large vehicles such as sports utility vehicles (SUVs) — which emit 30 percent more carbon dioxide and 75 percent more noxious gases than a normal car, depending on the fuel used — is a further option to limit environmental pollution. Such a policy would meet resistance from dealerships, but if higher taxes were levied on SUVs the revenues could be used to finance the trade-ins of old cars for new cleaner vehicles.

Financial assistance from the European Union or the United States Agency for International Development could also be sought as well, as suggested by the AIA.

All options should be reviewed and considered objectively by the government for implementation — perhaps while stuck in traffic on the way to and from their parliamentary offices.

Ultimately, the traffic problem and the associated environmental pollution is not going to abate unless consumers are encouraged to switch to more eco-friendly vehicles and a viable public transport system is made available to lower the number of cars on the roads.

“The media and TV talk of socio-economic problems, but transport is not discussed in its own right. We should keep asking officials about transport solutions,” said Mahdi from SETS. “We are way behind other countries and need to catch up.”

March 21, 2011 0 comments
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Economics & Policy

For your information

by Executive Editors March 21, 2011
written by Executive Editors

World’s worst Internet

There is no country in the world with a slower download speed than Lebanon, according to the website Speedtest.net, which carries out global broadband speed analysis. Of 185 countries ranked (there are some 195 countries in the world), Lebanon placed 185th, with an average download speed of 0.47 megabits per second; in first place was South Korea with an average download speed of 39.26 megabits per second. That means the average South Korean Internet user can download files roughly 84 times faster than the average Lebanese user. In terms of upload speed, Lebanon clocked in at a humiliating 0.1 megabits per second, ranking 184th out of 185 countries and ahead of only the South Pacific island nation of Vanuatu; in first place again was South Korea with an average upload speed of 20.99 — almost 210 times faster than Lebanon.

Mooting devolution

The constitutionally mandated process of administrative decentralization could receive a boost following the release of a new document by the Ministry of Interior detailing the process required, obstacles faced and questions surrounding the issue. Last month, Caretaker Minister of Interior Ziad Baroud released a 231-page research paper that addresses the “fears” that some harbor about the process, plots a course by which decentralization could take place in Lebanon and includes 100 questions and answers on the subject. Many in Lebanon are opposed to such a process, believing it would lead to the federalization of the nation, adding further division in a country already split along sectarian lines. “The book provides a summary of the research,” said Baroud to the press at the unveiling. “We do not claim that it is a comprehensive approach, or that it provides comprehensive questions, but it triggers discussion.”

A little more humane

Lebanon is one step closer to becoming a nation that treats its workers equitably. A new draft law proposed last month by the country’s labor minister aims to improve the lot of the estimated 111,000 migrant domestic workers registered with the ministry. The draft legislation proposed last month by Caretaker Minister of Labor Boutros Harb addresses the lack of regulation in the relationship between business owners and their foreign staff. The new law would limit the work week to a maximum of 60 hours and would require nine continuous rest hours and a mandatory day off per week for domestic workers. The law would also require employers to pay end-of-service indemnity to their employees, which would total one full month’s salary for every year of service for the first five years of employment and 65 percent of a month’s pay for every additional year after that point. The draft law also aims to ease the application process for all foreigners seeking employment in the country and proposes a computerized system that will automatically accept or reject applications in order to “increase transparency.”

Egyptian revolution affects market

While the Egyptian revolution may have been a boon for freedom of expression and a testament to the collective will of the people, it has had negative repercussions for farmers in Lebanon’s rural areas. As a result of the revolution, the export of Lebanese apples to Egypt, the crop’s main market, was severely affected. According to the Lebanese Farmers Association, Egyptian traders bought the crop on credit but delays in processing the apples, occurring mostly at Egyptian borders, left the industry with around 8,000 tons of stocked apples and little prospect of finding an alternative market.  Electricity supply has also been affected by the uprising, given that Egypt exports power, via transmission lines through Jordan and Syria, to Lebanon. Électricité du Liban stated that there had already been a 120-megawatt decrease in power imports before Jordan, on February 20, suspended all electricity flows exiting its territory due to natural gas shortages from Egypt. Before the suspension, supply cuts had already led to an average increase in existing power blackouts across Lebanon by more than two hours.

Growth is not development

Lebanon’s recent gross domestic product growth figures tell little of how the country has been sliding backward in terms of the real development of its economy. According to global investment bank Goldman Sachs’ Growth Environment Scores index for 2010, released last month, Lebanon ranks 140th out of 179 countries assessed in terms of economic development. The result represents a rise of seven ranks on the previous year but points to the fact that, since 1997 when Lebanon was placed 87th, the country has been outpaced across the globe. Among the 21 countries looked at by the investment bank in the Middle East and North Africa, Lebanon placed a dismal 18th, narrowly beating Mauritania, Yemen, Sudan, Iraq and the occupied Palestinian Territories. In terms of upper-to-middle income countries, Lebanon ranked behind Gabon, Venezuela and Cuba. The results are based on a wide range of indicators, among them technological capabilities, political stability, education quality, debt levels and macroeconomic stability.

Yearly debt round-up

“The more things change, the more they stay the same” may well have been the sentiment of Lebanese debt market watchers  after the end-of-year results of Lebanon’s public debt were released last month. With no plan to reduce the principal, the debt rose another 2.8 percent to hit $52.59 billion in 2010, with the gross domestic product estimated by Lebanon’s central bank at some $40 billion. The level of domestically held debt — which for the most part is in the hands of local commercial banks — rose 7.3 percent year-on-year to $32.02 billion by the end of 2010. Foreign-held debt fell by 3.5 percent to $20.57 billion. Since the end of 2004, the average yearly growth rate of Lebanon’s public debt has been 5.33 percent. Financial inflows to the country over the course of 2010 also took a hit, falling 17.5 percent year-on-year to $17 billion, which is still more than the five year average (2005-2010) of $13.2 billion per year.

Bottoms down

The Lebanese have long been known for their partying habits but, according to the latest figures from the World Health Organization’s (WHO) Global Status Report on Alcohol and Health, they seem to be a little more sober these days. Lebanon ranked 149th out of 193 countries surveyed in terms of average per capita alcohol consumption and third in the Middle East and North Africa-Pakistan region, averaging 2.21 liters of pure alcohol consumption per year per adult (15 years of age and over), behind only Sudan (2.6 liters) and Bahrain (3.6 liters). Of Lebanon’s total adult population, 47.1 percent were classified as abstainers, with 43.3 percent marked as lifetime abstainers and 3.8 percent as former drinkers. Only 28.5 percent of male students and 12.3 percent of female students drank at least one drink every 30 days. Those who do drink tend to prefer spirits, wine second and beer last. Officially, Lebanon does not permit the sale of alcohol to persons under 16 and entrance to establishments serving alcohol is prohibited for those under 18, though neither law is widely enforced.   

Port gets more for less

Despite a decrease in activity for the port’s red and blue cranes, the Beirut Port Authority reported a 5.8 percent gain in revenues from $2.8 billion in 2009. Direct port revenues rose year-on-year by 1.4 percent to $165.8 million, customs revenues took the lion’s share at $1.7 billion (up 4.3 percent) and value added tax brought in $1.1 billion, representing 9 percent growth on 2009. The decreased activity could be seen in the number of ships entering the port, which fell 4.6 percent to 2,395 as reflected in the 1.8 percent fall of imports to 5.7 million tons. Exports, however, which make up a much lower portion of total activity, rose 22.6 percent year-on-year in 2010, mirroring the total export growth for the year. Beirut port activity also rose year-on-year during the first month of 2011 by 10.5 percent, with 561,000 tons processed and a 15.31 percent rise in the number of containers.

March 21, 2011 0 comments
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Real estate

For your information

by Executive Editors March 21, 2011
written by Executive Editors

Emaar’s mixed pie

Emaar Chairman Mohamed Alabbar said in a February 10 statement, “We see 2011 to be a signature year for Emaar with significant revenue streams from international operations kicking in.” In Syria, Emaar is developing The Eighth Gate mixed-use project, and the offices in the project’s commercial center, which will feature the Damascus Stock Exchange building, are already functional. Alabbar’s statement highlighted the firm’s expansion outside the UAE, mentioning that its residential projects in Saudi Arabia, Egypt and Turkey are progressing, while adding that The New Istanbul Project in Turkey would feature an extensive shopping mall. The firm’s growing retail and hospitality sector has paid off:  the proportion of revenues from this segment reached 24 percent, or $3.3 billion in 2010. Though Emaar posted a 31 percent increase in net profits in 2010, reaching $826 million, its fourth quarter results were gloomy in comparison to analysts’ expectations. Net profits of $74.6 million fell 62 percent compared to the fourth quarter of 2009.

From Beirut to Mumbai

Beirut-based contractor Arabian Construction Company (ACC) has signed an estimated $98.7 million contract to build India’s highest skyscraper, World One, in a joint-venture partnership with Indian contractor Simplex Infrastructures. When complete in 2015, the 117-story Mumbai tower, at 442 meters high, will be the second tallest residential tower in the world. ACC is currently building two others in Dubai Marina, The Princess Tower and the Pentominium, which will break world records for the highest residential towers. Gassan Merehbi, chairman of ACC, said in a February 6 press release, “This is our first venture in India, and we are very pleased to be working on such a prestigious project with India’s leading developer. We are proud to contribute our resources and expertise in high-rise construction that we have developed in the Gulf.”

Builders feel the pinch in Jordan

Local contractors in Jordan had a dismal year in 2010, as the value of non-residential construction, such as roads, bridges and shopping centers built by local firms has dropped 80 percent to $1.068 billion, according to Ahmad Tarawneh, president of the Jordan Construction Contractors Association. He told the Jordan Times in February that although the government’s capital expenditure budget was raised for 2011 to $1.7 billion from $1.4 billion in 2010, contractors believe this amount will not salvage the country’s construction industry. Contractors say the government has not been active in attracting foreign investment or enabling public-private partnerships in the field. “Local contractors used to benefit from foreign investments coming to the country but last year the government did not implement development projects and it failed in attracting new investments,” said Tarawneh. The newspaper noted that 130,000 people in Jordan work indirectly in this sector, which spans some 240 professions.

Construction increases in Lebanon

Construction permits given out in 2010 covered 17.6 million square meters of land, 22.7 percent greater than the amount in 2009, according to the Order of Engineers of Beirut and Tripoli. In December of 2010, however, newly issued permits fell 34 percent in comparison to December 2009. Cement deliveries were 25.2 percent higher in December of this year than they were in December 2009. Overall in 2010, cement deliveries increased by 6.7 percent year-on-year, hitting a total of 5.2 million tons, according to Byblos Bank.

CCC do good….

An intensive course offering Leadership in Energy & Environmental Design (LEED) certified specialized training will be available to engineering students at the American University of Beirut (AUB) starting in April thanks to a grant by Consolidated Contractors Company (CCC), which has employed more than 700 AUB students and contributed to the Scientific Research Building on campus. The university signed a memorandum of understanding with CCC’s Area General Manager Yusuf Kan’an, whose firm will finance the year-long Green Building Training Program, according to a university press release.

…and CCC do bad

Consolidated Contractor’s Company (CCC), the multinational construction firm founded by Said Khoury, is facing contempt of court over a failure to pay a $64.5 million liability settlement to  former partner Munib Masri. As one of the largest contractors in the Middle East, CCC made revenues of $4.2 billion in 2010, according to British daily The Guardian. A British high court judge called the construction firm “a complete disgrace,” after CCC did not align itself to the court’s orders to pay Masri for his share in a joint project involving Yemeni oil revenues. Masri was a joint venture partner of CCC in Yemen, where he was promised to receive 10 percent of the oil concession profits from an oilfield the firm had developed in the south of the country. The court had approved orders to freeze the assets of CCC in the United Kingdom, Bermuda and Switzerland, in addition to a January order to freeze its assets in Nigeria, Palestine and the Cayman Islands. Khoury and his sons could face imprisonment if they fail to deliver the liability payments.

Khartoum takes off

Sudan awarded a $1.2 billion contract to the China Harbour Engineering Company, a subsidiary of state-owned China Communications, to build its new international airport in Khartoum. The move further sweetens state-level transactions between the two nations, as Chinese firms are heavily involved in Sudan’s hefty oil production. The airport will have a runway long enough to land an Airbus 380. The project will see the construction of control towers, terminals, runways and other facilities and will replace Khartoum’s existing central airport. “Upon completion, the new airport will greatly upgrade (the) internationalization of Khartoum,” said the firm. China, which reaps a steady flow of oil from Sudan, is the largest investor in the northeastern African nation. 

Skyscraper fire sale

Following Syrian businessman Simon Halab’s fall into bankruptcy in April 2010, the last of his nine office towers has been put up for sale at $456.4 million. CB Richard Ellis listed the Aviva Tower in London on February 14 and suggested that the 23-story property may appeal to pension funds and overseas buyers, who bought 54 percent of the property deals in central London in the fourth quarter of 2010. CBRE said in its statement, “This quoting price is intended only as a guide to the level of offers that may be taken seriously in the sales process and should not be taken to represent the expected sale price for the Aviva Property, which may ultimately be higher or lower than the quoting price.” In July, the United States-based Carlyle Group paid $1.08 billion for six of Halab’s office properties, which CBRE loan servicing had displayed on the market to raise money for the creditors that Halab had defaulted on, according to the website PropertyEU.

March 21, 2011 0 comments
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Banking & Finance

Excess Instability

by Executive Editors March 21, 2011
written by Executive Editors

In search of the stronger credit ratings brought by more stable markets, Lebanese banks have long been conquering new territories and Egypt is no exception.

While only Bank Audi and BLOM Bank have their own franchises in the recently revolutionized country, many of Lebanon’s other banks have correspondent relationships with existing banks in Egypt. Where others have not, Audi and BLOM have dug in deep and the effects on their operations there from the recent upheaval and its resulting power shift and are worth more than a passing glance.

Of the two Lebanese banks operating in Egypt, Bank Audi has the largest presence by a long shot, though both made relatively similar entrances into the market. Audi, the biggest bank in Lebanon by assets and market capitalization, has 30 branches in Egypt, which is set to become the bank’s number two location after Lebanon.

Audi entered Egypt in 2006, outbidding four other regional competitors to acquire complete ownership of Cairo Far East Bank for $94.4 million. At that time, Cairo Far East had three commercial banking branches and one Islamic branch.

BLOM Bank was the first Lebanese bank to enter the Egyptian market, but has taken a much more measured approach, provisioning all of its lending and taking its time with expansion. BLOM came into the Egyptian market through a 99 percent acquisition of Misr Romanian Bank in 2005 for $97.8 million. It is also active on the securities and insurance fronts, having acquired Investia, a brokerage firm, in 2006 and having begun an Egyptian arm of the bank’s insurance company, Arope Insurance, in 2008. BLOM Egypt currently has 26 branches in the country.

According to Nassib Ghobril, head of research at Byblos Bank, Bank Audi brought in $24 million in profit from its Egypt operations while BLOM brought in approximately $5 million.

In the chaos

During the protests, BLOM Bank’s Egypt general manager, Mohamed Ozalp, was in the office by day and defending his home with a baseball bat by night. He spent his days in the closed bank staying in contact with his 720 staff members as best he could, until February 13 when he was able to open nine of the bank’s 26 branches.

“There was orderly conduct of business. Even exchange rates — maybe the first day they edged slightly higher, but then by day two [they] came back to more or less the level before January 25,” said Ozalp.

He continued, “I think it was really a confirmation of confidence in the banking sector when we opened,” Ozalp said over the phone, as the hubbub of his newly returned staff could be heard in the background. After that Sunday, the Central Bank of Egypt (CBE) decided to close the banks again for three days due to protests by employees of Egyptian banks, which conveniently bookended the holiday of the Prophet Muhammad’s birthday. Now, the banks are open and by all accounts functioning normally.

Ozalp said security staff were present at BLOM’s branches throughout the protests. “Except for one branch that had minor damage, most of our assets, if not all of [them], had no problems. At the downtown Cairo branch glass was broken,” he said.

The financial toll

With investment comes risk; no doubt right now international banks with regional outposts are tallying their potential losses. Moody’s’ Mardig Haladjian, general manager of the ratings agency’s Cyprus operations, named Bank Audi and BLOM Bank as some of the regions most significantly exposed banks to fluctuations in the Egyptian economy, along with National Bank of Kuwait and Arab Bank.

“Depending on how their Egypt loan portfolios perform, especially with respect to delinquencies, these banks’ group net profits for 2011 may be negatively impacted,” said Haladjian.

But Egypt remains generally under-banked and with lending ratios low across the board a quick economic rebound could give this dark cloud a silver lining. According to Haladjian, the loans-to-gross domestic product ratio is 30 percent, compared to 77 percent on average in the Gulf Cooperation Council.

“The very low loans-to-GDP ratio in Egypt is an indication of the potential for lending in the country, subject to a well-functioning economy and legal system,” Haladjian said.

Byblos’ Ghobril said that loan delinquencies could well prove a problem for Lebanese banks whose growth strategies depend on aggressive consumer lending.

“The bigger question over the medium term is how much will the quality of assets be affected? Will non-performing loans increase? How will the banks react? Will they continue to lend as aggressively as before?” said Ghobril. “It’s easy to lose confidence. It is very difficult to restore it.”

The recent turmoil will not only have an impact on the numbers but could affect the integration of foreign banks into the Egyptian market; since the early 1990s, gradual privatization has led to increased exterior investment throughout the economy. Since reforms were initiated, 150 state entities, from myriad industries, have been sold to the private sector.

But public support for privatization of government assets has waned in recent years due to the resulting unemployment, and the dregs of the state’s assets have not been fetching attractive bids.

In 2008, the Egyptian government pulled out of a plan to sell Banque du Caire, Egypt’s third largest bank, when lower-than-expected bids came in. The highest bid was $1.4 billion for an 80 percent stake in the bank, lower than the desired $1.6 billion. The privatization program has since been dropped, with many regional banks anxious yet unable to enter the Egyptian market.

In a WikiLeaks release of United States diplomatic cables printed in The Telegraph on February 15, a US diplomat stated that the “restructuring” phase of Egypt’s financial sector reforms ended in 2008 and that there were no plans to revive it.

The cable said: “The CBE is not planning to privatize any of the public commercial banks, but instead is focusing on increasing their efficiency by holding their management accountable and improving their workforce and IT infrastructure.” These cables, however, were from December 2009 and new leadership could change this strategy.

The future

Lebanese banks have long sought international expansion with the intention of raising their credit ratings, which are kept below investment grade by heavy exposure to the domestic sovereign; but with a ‘BA2’ rating from Moody’s (sub-investment as well), Egypt may not be the place to look to rectify that.

With other countries of interest in the region also experiencing unrest, Byblos Banks’ Ghobril surmised that regional expansion plans for Lebanese banks were likely “on hold” for the moment. Marwan Barakat, head of research at Bank Audi, agrees: “What is happening in the region is something quite important and, at least in the near term, banks will not be aggressive in their expansion while waiting for the [outcome of all the changes].”

It is on the long-term outlook where divergent opinions emerge. Barakat remains confident that the overarching plan to increase Lebanese banks’ international business to 50 percent of their balance sheets will hold.

 “The needs are there in all of those markets. [They] are passing through short-term challenges. This does not mean that those are not important markets with important needs for financial services,” he said.

But Ghobril said that regional events call into question the validity of the entire strategy. “I wouldn’t look at it on a country by country level. The more relevant question to ask is how will the whole expansion strategy of Lebanese banks in the Arab world be affected, given what is happening? Nobody could have possibly expected this to happen.”

But for now, Ozalp said Lebanese banks in Egypt are returning to their normal functions. “As far as our bank strategy is concerned nothing has changed,” he said. “I think that once the dust settles it will create a lot of opportunities.”

“Is the whole expansion strategy of the Lebanese banks going to backfire given what is happening? Nobody could possibly have expected this”

March 21, 2011 0 comments
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Banking & Finance

For your information

by Executive Editors March 21, 2011
written by Executive Editors

LCB in US crosshairs

Lebanese Canadian Bank was accused by the United States Treasury Department of money laundering in connection with a drug operation with ties to Hezbollah, on February 10. The department released a 14-page notice of finding, which concluded, “Lebanese Canadian Bank SAL is a financial institution of primary money-laundering concern.” Stuart Levey, the US treasury undersecretary for terrorism and financial intelligence, said he believed the fault lay with the bank’s “management complicity, failure of internal controls, lack of application of banking standards” and other “vulnerabilities” in Lebanese banking standards. In response, The Association of Banks in Lebanon put out a statement stating its support for the bank. Riad Salameh, governor of Banque du Liban (BDL), Lebanon’s central bank, travelled to Washington, DC, on February 24 to discuss the matter with US officials. Salameh and others have suggested that the investigation could be the result of Western dissatisfaction with the recent shift in power in Lebanon’s government. A statement from Salameh was broadcast on the popular television show “Kalaam Al Nas” in order to discourage Lebanese depositors from withdrawing their money from the bank, as some experts have suggested was happening. “We wish to assure Lebanese markets, and those who are dealing with [LCB], that their dealings with it are secure,” Salameh said in a BDL release. Though BDL management has made no comment on the issue, the bank has posted a statement on their website saying, “[LCB]…is committed to fully cooperate and coordinate with the relevant regulatory authorities in an effort to demonstrate the integrity and transparency of its operations and accordingly denies knowledge of any involvement in any manner whatsoever in illicit transactions or wrong doing.”

Libya unrest hits banks

The United States Treasury Department announced on February 25 that it would be monitoring transactions for possible links to the unrest in Libya. The treasury department’s Financial Crimes Enforcement Network requested that financial institutions “apply enhanced scrutiny” to accounts which could be held by Libyan officials or Muammar al-Qadhafi himself. “Financial institutions should be aware of the possible impact the events in Libya may have on patterns of financial activity when assessing risks related to particular customers and transactions,” said the statement.  A WikiLeaks cable released in late February containing a message from the US Embassy in Tripoli valued Libya’s sovereign wealth fund at $32 billion and said that “several American banks are each managing $300 million to $500 million.” According to US State Department spokesman Philip Crowley, Libya’s finances had become so entwined with the US that the country suffered significant losses with the fall of Lehman Brothers and was also approached by now debunked ponzi-schemers Bernard Madoff and Allen Stanford. Libya announced that it would be accepting bank license applications from foreign players in February of last year. The country’s central bank only ended up issuing one license, however, with Italy’s UniCredit SpA the now perhaps not-so-lucky recipient. Three Gulf Cooperation Council banks had entered the running — it was reported that Mashreq Bank, Emirates NBD and Qatar Islamic Bank were put on the short list for licensure but in the end none was granted. Byblos Bank and Fransabank have representative offices in Libya.

BDL posts full 2010 figures

Lebanon’s banking sector showed a slowdown in deposit growth and a relatively robust year for lending according to Banque du Liban (BDL), Lebanon’s central bank, which released full financial figures for 2010 performance. Deposits represented 83 percent of the sector’s total balance sheet. Customer deposits grew 11.9 percent to reach $107.2 billion by end-2010; this growth is 37 percent lower than the growth posted in 2009 when the financial crisis encouraged depositors to seek out the safe haven of Lebanese banks. Loans grew by 23.1 percent in 2010 to reach $34.9 billion at end-2010. Dollarization of lending was 64.1 percent. The expectation at the start of 2010 was for the ratio of dollar lending to decrease based on relative political calm and encouraging policies from BDL in lifting reserve requirements on the majority of Lebanese lira lending; political unrest in the fourth quarter slowed this trend, leading to comparable figures to 2009.

Shaky start for Egypt’s banks

Egypt’s net foreign reserves at the country’s central bank fell by $1 billion in January down to $35 billion, leading to a balance-of-payments deficit for the month.  Deputy Central Bank Governor Hisham Ramez said in early February, upon the reopening of the country’s banks, that the foreign reserves would be used to cover withdrawals and transfers in an effort to stabilize the Egyptian economy.  Foreign holdings of treasury bills dropped as well in the first month of the year, decreasing by $2.8 billion as foreign investors were spooked by unrest in the country. EFG-Hermes expects reserves to continue to decline in 2011, compounded by the Central Bank of Egypt’s efforts to weaken the Egyptian pound.

Arab stock market losses

General unrest in the Middle East and North Africa led to losses totaling approximately $24 billion in February on regional bourses. The majority of the losses were in Saudi Arabia, Qatar and Kuwait, while Abu Dhabi managed slight gains. After the $24 billion in losses, market capitalization of the region’s 14 stock exchanges was left at $930 billion on February 23, down from $954 billion at the end of January.

Bank of Beirut heads to Oz

Bank of Beirut announced on February 21 that they had acquired an 85 percent stake in Australian Laiki Bank. Laiki Bank was majority-owned by the Cypriot Marfin Poplar Bank, which put out a joint statement announcing the sale. Regulatory bodies from all three countries have approved the deal, which has been reported to be valued at $420 million. “Entering the Australian banking sector is a direct materialization of our strategy to expand outside Lebanon and serve our customers wherever they are. After highly successful operations, whether in the United Kingdom, Germany, Cyprus, Oman and other overseas markets, the acquisition of a majority ownership in Laiki Bank will allow us to further improve our performance and offer our customers an expanded international platform that caters to all their needs,” said Salim Sfeir, chairman and general manager of Bank of Beirut. Including Laiki Bank, Bank of Beirut now has 65 branches worldwide with 50 in Lebanon and 10 in Australia. The Lebanese bank also has two branches in the UK and Germany, one branch in Cyprus and one in Oman. These locations combined give the bank a total consolidated balance sheet of $9 billion with $6.88 billion in deposits.

March 21, 2011 0 comments
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AdvertisingSpecial Report

Chuck Brymer

by Executive Editors March 21, 2011
written by Executive Editors

DDB Worldwide CommunicationsPresident and Chief Executive Officer Chuck Brymer sat down with Executive to give his perspective on the Middle East’s advertising industry. DDB Worldwide was one of the initial building blocks of Omnicom, the New York-based communications holding which just reported $12.5 billion in earnings for 2010. Brymer was in Dubai on the occasion of an internal merger of three Omnicom-owned agencies into an entity called DDB FZLLC.

  • We established that you do not talk about the value of your unit here in the Middle East…

We do not talk about revenues anywhere in the world. But you can look at the [overall] revenues of Omnicom, where we reported our results just yesterday. 

  • But we would love to understand more of how much the Middle East represents of the total.

What I can tell you is that the Middle East and Africa is a market that in my view is still somewhat in its infancy compared with [where it will end up]. We look toward the region with optimism; we look toward the region as having growth potential. We have invested into the Egyptian market; we have invested into this [the United Arab Emirates] market, the Saudi and the South African markets. These are the core hubs that are the important markets for us.

  • What do the events in Egypt say about the role of social networks?

Egypt demonstrates the power of social networks and the power of people talking to people. My business has been historically about connecting people to a product and connecting people to a brand. Today it is just as much about connecting people to people. It’s much more powerful sending you a television commercial that you take in. If it’s well done, it will motivate you not only to buy the product but hopefully to send that message through to your network of friends and community. If I’ve done that it creates a greater opportunity for communication.

  • Middle Eastern brands are missing from the list of top global varieties. As an expert on global brands, how can brand owners in the Middle East make the list?

I happen to believe that brands are, in many ways, not only an engine to a company’s profitability but can be the engine for growth and prosperity of a country. Look at a market like South Korea, which  was able to raise and enhance the quality of life through exportation of goods. The exportation of goods was predominantly driven by the success they had with brands. China as a market has yet to create brands. There are a number of brands on the horizon that China will begin to export and with that they will create an even more powerful economy.

If you look at the Middle East, the same thing applies. The ability to create strong brands will generate significant revenues back to the home markets and there are none that currently exist in this market at that level. That being said, I do think hospitality brands like Emirates have the potential to be well known and globally established.

  • Does the Middle East currently play any role for you as a source of talent?

I think the creative product here in the Middle East is good but I think it’s going to get a lot better.  We’re investing in our people, in cross-pollination and in training, so that we can create even better work here and use the people here to build up that work in a bigger way.

  • Senior members of the industry here told us that agencies in this region in the past won international awards but these campaigns were created only for award shows and never ran commercially. What does this say about the acceptance of creativity in the market?

I think it is an ethics question. There is a lot of skepticism toward work that has been created just for winning an award show. We’re trying to achieve recognition for work that is run in the market that has brought recognition to our clients’ brands, so we don’t really support that whole premise.

  • And how do you see your role as a global owner of a unit here in the Middle East in pushing standards in this market to more compliance with best practices?

Well, I think the more that we invest in the market the more we expect our markets to comply and to deliver that work. At the end of the day it comes down to talent — nothing else. If you have good talent, you will create great work.

It used to be if you have a great client, you’ll create great work, and I suppose there is a little bit of that as well, because you need clients that are willing to take a step out and to take chances and to support the creative product through work that is edgy.

If you want to get noticed in this world, sometimes you’ll have to step out and do something different and clients that understand that give us greater opportunity to do that.

  • This brings us back to the question of how to better nurture talent that comes from this region to succeed on the global stage…

The most important thing is to allow the local talent here to see and to participate in global work. By understanding and seeing how other markets do it, Western markets and increasingly those in Asia, it brings a greater appreciation for creativity.

I think the second thing is getting our offices to engage in that kind of work. We might take a global assignment and say ok, ‘I want to see the work from Australia, Dubai, Paris, London and New York’ and we’ll drive all five or six of those markets together to look at the work.

I think getting the local talent here to be a part of that process and see the work coming from other markets is very helpful. It’s like playing tennis. You play a better tennis player and theoretically you raise your game.

  • The ‘American Idol’ method of defining talent for entertainment has been very successfully translated to the Middle East. Would you expect the same for the advertising industry where consumer-generated advertising spots can generate huge attention at an event like the Super Bowl?

Will we see more of that? I think so. ‘Crowd-sourcing’ ideas — soliciting ideas from anywhere — can make sense. My own point of view is there is no wrong way to create a great idea.

Many of these ideas need to be polished, taken from a raw state and built into a more expressive way of communicating it, but wherever it comes from I think is fine.

No agency or individual has a lock on creativity. The most important thing is that the idea has been polished in a way that it is presented in a most effective way to consumers.

And the instant response rate that you get nowadays will show you very quickly where you went wrong. Absolutely.

  • Is that the end of marketing or just the beginning?

The beginning. Marketing has a future. The one great thing about the business I’m in is that our currency is ideas. The world will never turn off the need for ideas.

“Marketing has a future. The one great thing about the business I’m in is that our currency is ideas. The world will never turn off the need for ideas”

March 21, 2011 0 comments
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AdvertisingSpecial Report

Trouble at home

by Executive Editors March 21, 2011
written by Executive Editors

Lebanon may be the birth-place of the Middle East’s advertising empires but a host of issues hold it back from being a big regional player in terms of what matters at the end of the day: client spend.

In 2010, an estimated $1.22 billion was spent on advertising in Lebanon, according to ZenithOptimedia. This is expected to grow by 5.8 percent to reach $1.3 billion in 2011 and upward to an estimated $1.43 billion in 2013. This growth is consistent with gross domestic product growth estimations but ask industry leaders and they will tell you that the numbers don’t mean much.

As with all regional (and perhaps global) advertising figures, the published numbers only represent those on the surface. They hide the discounts and deals underneath, leaving valuations of the industry in Lebanon unreliable and inflated (see story page 52). Several industry leaders told Executive that the true value of the industry may be as low as $110 million.

Advertising executives confirm that these deals, offers and discounts are commonplace to the market and of no great surprise or detriment to the industry. But Carole Hayek, general manager of Optimedia Lebanon says that this practice is causing a slow erosion of the industry’s integrity and sustainability.

Weakening the foundations

“Once you are used to having a lot of discounts, a lot of offers and packages offered by the media, then the client will feel that he doesn’t really have to put effort behind spending on advertising,” said Hayek.

She continued: “That doesn’t mean that I am pointing at the media for doing this. I understand that they need to reach a certain amount by the end of the year to cover their expenses so they are using a lot of [methods] to achieve their targets. But this should be a little bit more studied because you cannot continue this way.”

Furthermore, Hayek says that these practices common to Lebanon are growing in prevalence in other markets like Saudi Arabia and the United Arab Emirates, where they were formerly less of a problem, demonstrating a ramping up and not a tamping down of the practice. Exacerbating this issue is the lack of direct involvement between the clients and the agencies.

“Unfortunately, most of the clients in Lebanon are not the principals, they are agents — they are distributors so they don’t care about brand building. They only want to make short-term money,” said George Slim, chief operating officer of Lowe Pimo.

Standing out, outdoors

Besides industry culture, the physical environment of Lebanon’s advertising landscape makes for some challenging competition — especially out of doors. The great acknowledged challenge for the industry in today’s media landscape is which “touch point,” or point of contact between a brand and a client, is right for which brand. Outdoor advertising has been, and remains, a large part of that discussion with 10.5 percent of Lebanon’s advertising spend going to outdoor ads.

This may not seem like a large proportion but outdoor is second only to television in terms of media spending. With much lower prices, it represents a greater portion of advertising focus than the numbers would suggest. But the efficacy of outdoor ads is eroding as unmonitored and unregulated areas of the country grow clogged with billboards; agencies and media companies are frustrated with the effort it now takes for a campaign to jump out among the noise.

“Three or four years ago, with 300 faces [individual billboards] you could have a ‘wow’ campaign. Now even with 2,000 faces you are not achieving this affect,” said Hayek.

Solidere is an example of an area where existing regulations are being enforced, but outside of central Beirut any regulations that do exist are surely being ignored; the billboards jostling for drivers attention on the highways of Doura and Dbaye are nothing short of a forest.

This is not seen as a problem by all, so long as spending in this medium continues. “I think there are already some regulations that are not being respected or enforced but this is not holding back the advertising industry. More money is being spent there,” said Nabil Maalouf, managing director of Euro RSCG Beirut.

Perhaps all of these challenges are simply a part of the market’s evolution. Regardless, most agencies Executive spoke with seemed to accept it as the nature of the game. A concentrated effort, then, is the only way to bring about a change of culture. As of yet, no one is stepping forward. Even simple issues of payment seem to be an insurmountable problem to industry players who are generally at the mercy of the clients. “I wish there were laws that prevent clients leaving an agency without paying them. There is no respect for that,” said Slim.

With an energetic industry regionally acclaimed for forward and creative thinking, Lebanon is still leagues behind what it could be. Sadly, this is a familiar refrain. As Maalouf attests, “Lebanon is known to be the land of missed opportunities when it comes to business, to governments, [at] all levels.”

March 21, 2011 0 comments
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AdvertisingSpecial Report

Eli Khoury

by Executive Editors March 21, 2011
written by Executive Editors

Eli Khoury, chairman and CEO of M&C Saatchi MENA, is about to complete his first year of running an independent regional agency after ending a relationship with one of the big four holding companies. Executive sat down with him to discuss his experiences as an independent partnering with an international but unaffiliated network.  

  • Are you celebrating your independence?

Big time. There are two reasons why it is bad to be part of the big ones. The first is technical and commercial. If you have a global client, New York, Europe and the rest will keep most of the money because they are in dire straits too. In the Middle East advertising market you get only the crumbs but they are not demanding monkeys to operate. They want real people to operate. There is no match.

  • And the second reason why it is in your opinion not good to be with one of the top groups?

The second reason is that they really don’t care if you develop your creative talent or not. In the old days, those who started the networks were ad men who loved it and they used to drive around trying to teach a thing or two to their people. With the mega-groups today, they don’t care. In my opinion, the big mega-groups are dead.

  • Creatively dead or economically dead?

I think one will drive the other. I think those who will be the industry makers in the future will be independent agencies who are somehow a network, because you have key market offices. Besides, over the Internet, you can be [everywhere].

  • What made you seek to move from affiliation with a big group to preferring the status of a smaller, independent agency?

When I was a kid and joined agencies, the big dream was a big international name. That was achieved not because of a business deal but because there was compatibility in thinking. At one stage, one would feel that the brand is his and have love for it. But as you grow older and as the world changes, you start realizing it could just as well have been Khoury and Co. or ‘xyz’. In our days, everybody is a client and the world is everybody’s. Who would prevent me from running an ad in New York as Khoury & Co? If I have a client in the Middle East who is willing to pay for a spot on the Super Bowl, I’ll run it. Unfortunately, that is something one learns later in life.

  • But you have an international minority stakeholder. Couldn’t they aim for majority?

You said it: minority. There are only two worries: culture and people. When another company wants to buy your company, if you are a decent practitioner you are worried about the culture because it has your name on it and [you worry] about those who spent years making your success. If these are well taken care of, plus a good price, why not? But this won’t happen today with a mega-group.

  • Wouldn’t a mega-group provide more resources, stability and global clients?

You cannot count on an international partner. Global clients, by the way, are becoming ridiculous clients. I can assure you that since the 1970s no one has made the money they think they should have made out of global clients. Recently, it has become much worse.

I prefer a large Middle Eastern client who has hopes and expansion plans over your average big multinational [company].

  • And that has something to do with the fact that global companies are looking at Middle Eastern markets as…

As secondary, to begin with. Brazil, India, China and Russia are way ahead of us, and that is understandable. In terms of advertising, we are followed only by Africa. And I would expect that Africa will surpass us at some point.

March 21, 2011 0 comments
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