Society

Q&A with Salam Rayes

by Josh Wood
written by Josh Wood

 

Salam Rayes is the chief executive officer of the Ashrafieh-based St. George Hospital, one of Beirut’s oldest healthcare institutions. Executive sat down with Rayes for a frank discussion on the ailing state of healthcare in Lebanon.

E in last year’s Facts & Forecasts issue, Executive looked into how the National Social Security Fund and insurance were the biggest obstacles to the healthcare industry in Lebanon. 

Has anything changed?

Basically, there is no change — the problems are the same. The main problem is that the healthcare sector is fragmental and there is no policy or guidance to the sector. The private sector works on its own and the public sector works on its own. And the public sector is [really] public sectors — social security, the Ministry of Public Health, the armed forces. Each one has its own healthcare program and health coverage. And then again you have the insurance companies. Reimbursement is the main problem; it’s still a serious problem that is… jeopardizing the delivery of healthcare.

E In Lebanon, private hospitals are said to be much preferred over public hospitals — is this the case?

You’d be surprised. There are good government hospitals on the periphery, depending on the management. If you have good managers you have good hospitals. I can name two or three that are excellent hospitals on the periphery and people go to them. But in general what you are saying is correct [the majority of people go to private hospitals], but I hope that the government hospitals that are providing [good] healthcare to people are increasing.

E  What other problems are facing the healthcare sector in Lebanon?

Most universities graduate medical students who go abroad and never come back because of the way of life here. They have better opportunities [abroad] in whatever they specialize.

The human resources are not being attended to very well. There is a shortage of nurses, which has increased this past year because the nursing schools did not take the number that they usually enroll — most of them went below 50 percent [of normal enrollment]. And there are no schools for paramedics.

If you look at the financing as a problem, the human resources as another problem, updating your equipment is a third problem. And nobody gives a damn: if you don’t have the ‘X’ piece of equipment you’re not a good hospital and people stop at that.

 

E  Do you see any solutions to these problems?

I don’t think so. These problems have been accumulating over the past 100 years. Same problems, same mentality, same attitude. Solutions are all individually taken care of, not collectively: not as hospitals, not as [the] healthcare [sector], not as anything. Everybody solves his own problems and the one who solves them better is surviving better. It’s as simple as that.

I’ve been in the healthcare sector since 1965 and the same problems repeat themselves: reimbursement problems with the government, equipment, staffing, human resources, financing. Nothing has changed. Of course, the magnitude is different. I mean, we were worrying about $5 million and now we are worrying about $20 million or $25 million. 

Yet, the situation is not pessimistic because of individual efforts. You have doctors who go abroad and specialize and come back and keep on going back and forth to gain more experience and knowledge. They come and treat patients better simply because they want to do that. And communication is easier now so they can browse and find more information about modalities of treatments and so on.

So if you look at it and take it at face value, everything is fine.

E  Is it difficult staying competitive with so many hospitals and clinics popping up in Lebanon today?

We have good healthcare delivery — not in all hospitals but in quite a number of them. The practice of medicine has changed over the years. First of all, hospitals are divided into two main categories —either university-owned or church-owned as one main category and owned by individual doctors as another category. The majority of hospitals are small hospitals owned by individual doctors.

My competitor is no longer Hotel Dieu or AUH — it is the small hospital that has specialized in ‘X’ specialty. They have specialized in ophthalmology and they have good doctors there. So ‘X’ hospital is my competitor in ophthalmology, ‘Y’ hospital is my competitor in orthopedics. It’s not one place —it’s different hospitals now because there are good doctors practicing in small hospitals all over the place. So you cannot rank hospitals anymore —you can rank specialties if you want. Do we have a good specialist in neurosurgery in brain surgery, in spine surgery? They’re all over the country — in small hospitals not necessarily in big hospitals.

The disadvantage that they have in small hospitals is that they don’t treat the patient in totality — they treat him only for that specialty. If someone comes in for a spine problem and is diabetic and has a heart problem, they cannot treat him in that center, they have to get the specialist from other places. It’s only the big hospitals — the university hospitals — that have a general treatment of the patient in its totality.

E  In this setup, is it difficult for your hospital to attract specialists?

This is of course a major challenge. You see we have 200 doctors — they have seven. They have to worry about finding seven — I have to worry about finding 200 and about replacing the 200, so the magnitude is different.

E  Is the Ministry of Public Health responsive at all to the needs of the public or private healthcare sectors?

Yes and no. They are doing their best with the resources they have. I think that this minister is doing a lot better than previous ministers — after all he is a physician. The ones who were before him were just politicians. He’s definitely much better than what we had.

E  What do you believe the healthcare sector will start looking like in the near future?

More of the same — no major changes unless you get a Minister of Health who is willing to impose changes that will shape up the whole system.

 

 

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Finance

Exporting the excess

by Emma Cosgrove
written by Emma Cosgrove

 

In a year where deadlines for global economic recovery were repeatedly pushed back like a teenager’s weekend curfew, Lebanon’s banks managed to sail through 2010 with relative ease. Commercial banks’ total assets climbed 10 percent year-on-year to $126.7 billion at the end of September, despite a slight falling off of capital inflows.

Deposits constituted 82 percent of the banks’ balance sheets, growing by 8.4 percent to reach $103.9 billion at the end of the third quarter. Ninety percent of that deposit growth was contributed by residents while, in line with capital inflows trends, new non-resident deposits shrank to 10 percent of the total, after constituting 28 percent over the same period in 2009.

Net profits increased by 37 percent in the first nine months of the year, but the real battle cry of the banking sector in 2010 was lending. Celebrated by Executives and analysts alike, lending at Lebanese banks saw a 19.2 percent rise in the first nine months of 2010 — growing from $28.4 billion at the end of 2009 to $33.8 billion at end-September 2010, representing year-on-year growth of 63 percent. Of this expansion, 84.5 percent of loans went to the domestic private sector.

Dollarization of lending has continued its downward trend spurred by incentives from Banque du Liban (BDL), Lebanon’s Central bank, which lifted reserve requirements on local currency lending to 60 percent of economic sectors. These circulars began in June of 2009 and have been extended until June of 2011. Dollarization of lending stood at 81.2 percent at the end of the third quarter.

However, despite obvious growth and apparent demand, Lebanese banks must still look outside the country to deploy their massive funds.

“It is indeed difficult to find use for all the funds we are receiving, so the only way to continue this expansion and to continue to grow our balance sheet is to continue to fund clients outside of the country,” said Walid Raphael, general manger of Banque Libano-Francaise to Executive in May.

As of the end of September, delinquent loans represented 4.3 percent of all lending: down from 5.7 percent in 2009.

Onward and outward

Excessive levels of liquidity and looming domestic stability risks caused banks to continue the suggested central bank strategy of opening branches and offices outside of Lebanon.

BDL Governor Riad Salameh

“The local Lebanese market is saturated with banking services, which made [BDL] eager to encourage banks, such as ourselves and others, to expand outside the local market,” said Chawki Badr, head of international expansion at Bank of Beirut and Arab Countries, to Executive in May. This trend is the continuing adherence to an intention expressed some years ago by BDL Governor Riad Salameh, which he said, in May, should be continued.

“Our objective here is to decrease the sensitivity of Lebanese banks to the Lebanese sovereign rating and also to have a sector that would enrich our balance of payments and provide opportunities for employment, because the Lebanese have skills in financial services and banking, and you can see them working everywhere in the world,” said Salameh.

Banks are limited to investing 50 percent of their funds abroad and Salameh has expressed that the goal is for 50 percent of bank revenues to soon come from abroad as well — an effort that will hopefully raise the credit ratings of Lebanese banks, which currently stand below investment grade as they are tied to the sovereign rating.

Lebanon </p> </div> </div> <div class=

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Society

More serious than just ‘the sniffles’

by Josh Wood
written by Josh Wood

 

Healthcare has long been a source of pride in Lebanon. Visitors from across the region come to its hospitals and clinics to go under the knife, be it for open-heart surgery or a nose job.

Today, the sector represents between 3 to 4 percent of the country’s gross domestic product, taking in close to $1 billion annually, according to Sleiman Haroun, president of the Syndicate of Private Hospitals and the head of Zalka’s Haroun Hospital. It is an industry that employs 25,000 people, of which 5,000 are doctors.

The World Health Organization’s 2010 World Health Report shows that Lebanon’s total spending on health decreased from 10.9 percent of gross domestic product in 2000 to 8.8 percent in 2007. Over those same years though, total per capita spending on health (taking purchasing price parity into account) jumped from $801 to $921 while government expenditure per capita went from $240 to $411. Both per capita examples are much higher than average in the Eastern Mediterranean Region (in which Lebanon is grouped) and even globally.

Despite these figures, there are signs that Lebanon’s healthcare sector is ailing rather than thriving. The number of hospital beds in the country has dropped from 10,000 to 8,000 over the past few years. Staff have been lured abroad by better salaries, leaving hospitals shorthanded. Government insurance programs, which cover the majority of Lebanese citizens, have piled unpaid bills on hospitals already crippled by debt.

And as the problems mount, many are becoming more and more pessimistic as to whether solutions will arrive. At the same time, however, some hospitals are finding ways to survive, despite the obstacles in their path.

Brain drain

Despite Lebanon’s longstanding reputation for top-notch healthcare in the region, much of the talent behind the country’s standing is being poached by foreign hospitals.

“We’re losing a lot of human resources – they’re traveling for better conditions [regarding] salaries and working hours,” says Haroun.

Nurses are in especially short supply. “We need around 20,000 and we only have 5,000” he says. In Lebanon, salaries for nurses start at around $670 per month, according to Haroun, while European recruiters bring salary offers for Lebanese nurses of around $3,300 per month.

The money is the key draw; a 2007 study on the migration of Lebanese nurses conducted by American University of Beirut (AUB) found that 57 percent of nurses who left Lebanon did so for financial reasons, while 42 percent saw better opportunities for professional development abroad.

“It’s been building up over the years, but last year and this year were catastrophic because we have witnessed some European countries recruiting nurses in quite an aggressive way,” says Haroun. One in five nurses leave Lebanon for either the Gulf, Europe or North America within two years of graduating from nursing school, according to the AUB report. Many would leave sooner, but foreign hospitals often require a minimum amount of actual hospital experience from prospective nurses, usually about one year.

 

“It’s a brain drain for us” says Dr. Huda Huijer, the director of AUB’s Rafiq Hariri School of Nursing. The shortage is becoming more and more visible. According to statistics released by the World Health Organization (WHO), Lebanon has one of the lowest ratios of nurses to population in the Middle East, placing it ahead of only Sudan, Morocco and Yemen.  The WHO numbers say that Lebanon has just more than one nurse per 1,000 citizens, though locally produced reports put that number at anywhere from one nurse per 567 citizens to one in 1,600. 

In 2010, the Order of Nurses in Lebanon — the syndicate for the profession — registered more than 8,600 members, up from just 7,000 in 2008. Not all of the nurses registered with the syndicate work nor are all of the nurses in the country registered, making it difficult to get a pulse on the actual situation. Still, the murky figures all point to a very obvious nursing shortage.

“Senior nurses are very few in many hospitals — we are always bringing in new people to be trained,” says Huijer.

To add to the difficulties presented by the lure of foreign jobs, Huijer claims that nursing schools around the country are not seeing the enrollment numbers that they should be. Part of the reason stems from a lack of understanding about the profession, she says, making it essential for nursing schools to actively recruit. Other essential staff such as paramedics are also in low numbers, leading to problems keeping emergency rooms running at full potential, according to those in the sector.

The good news is that while nurses may be hard to come by in Lebanon, the country’s 5,000 doctors are more than enough to meet demands, according to Haroun. While some doctors leave Lebanon initially after their training, they often return to the country to practice medicine later.

Skipping out on the bill

The biggest financial burden that Lebanese hospitals face is still nonpayment of bills by the government’s public health insurance schemes. According to the Syndicate of Private Hospitals, the government has now run up a debt of $700 million with the country’s hospitals. In 2009, Executive reported that the National Social Security Fund (NSSF) — which provides insurance for more than 1.3 million Lebanese — had $400 million in unpaid hospital bills. As the debt stands, it represents almost the entire amount of money generated by the country’s healthcare sector annually.

Specialist hospitals such as the Mother and Baby Welfare Clinic are proving increasingly popular with patients

Aside from the NSSF, many Lebanese fall under four other public insurance programs: some 1.5 million are covered under the Ministry of Public Health, 350,000 by the army, 195,000 in the Cooperative of Public Servants, 125,000 by the Internal Security Forces and 75,000 under municipalities and judges. The Syndicate of Private Hospitals estimates that government forms of insurance account for 80 percent of admissions.

Some 450,000 citizens have private insurance; these, and self-paying patients, have been essential for some hospitals to stay afloat as the NSSF digs itself deeper into debt. At the 200-bed St. George Hospital, about 45 percent of the patients hold a government form of insurance, 5 percent are self-paying and the remaining 50 percent have private insurance.

The hospital’s Chief Executive Officer Salam Rayes says that this has resulted in between $20 million and $25 million owed by the government. Still, the church and university-backed hospital has seemingly been doing well and has plans to fully open a new $65 million wing, doubling the hospital’s beds within three years. For other hospitals, the nonpayment can leave them unable to afford new equipment or hire staff, dulling their competitive edge.

“If you don’t have the ‘X’ piece of equipment, you’re not a good hospital. And people stop at that,” says Rayes.

Private vs. private

With a weak public health sector, private hospitals and clinics are generally the preferred choice for those who can afford them or have appropriate insurance. Private hospitals represent the majority of beds in the country and those who can afford to generally prefer them to the hospitals run by the Ministry of Public Health.

Rather than competing with the public healthcare sector, the private healthcare sector now competes within itself. A sharp rise in the number of specialized private clinics and hospitals — small outfits run by just a few doctors — over the years has presented a challenge to the established, larger hospitals in the country.

“My competitor is no longer Hotel Dieu or American University Hospital — it is the small hospital that has specialized in ‘X’ specialty,” says Rayes. “So ‘X’ hospital is my competitor in ophthalmology and ‘Y’ hospital is my competitor in orthopedics — it’s not one place, it’s different hospitals now because there are good doctors practicing in small hospitals.”

The advantage of big hospitals is that they can treat patients for a number of ailments rather than just one specialized area. To maintain a large hospital however, a diverse staff and new equipment are essential to keep an edge on the competition. With the ongoing public insurance crisis, such expenditures can be untenable without the funding of an outside institution.

In July 2009, Lebanese American University acquired Ashrafieh’s Rizk Hospital as part of a $120 million plan to widen the university’s scope of projects. Beirut’s other major university-affiliated hospitals include the American University Hospital, St. George Hospital (associated with Balamand University) and Hotel Dieu (Université St. Joseph).

Long-term recovery

There is little hope that the current state of the healthcare industry will be cured naturally or quickly.

“I’ve been in the healthcare sector since 1965 and the same problems repeat themselves,” says St. George’s Rayes. “Reimbursement problems with the government, equipment, staffing, human resources, financing — nothing has changed.”

The problems facing the healthcare industry today and the lack of any real government participation in tackling the problems as of yet means that hospitals have to adapt and take on their problems individually.

“Everybody solves his own problems. And the one who solves them better is surviving better — as simple as that,” he says.

Healthcare in 2010 was stagnant at best, showing little movement towards resolving the sector’s issues.

“We weren’t able to make any progress during the last year,” concedes Haroun.

With the reimbursement woes emanating from the mix of insurance schemes, much of the blame for the current state of Lebanon’s healthcare industry has fallen on the government. However, some critics have noted that the Minister of Health — Dr. Mohamad Jawad Khalifa — has been doing the best he can with relatively limited resources.

“I think that [Khalifa] is doing a lot better than previous ministers — after all he is a physician. The ones who were before him were just politicians,” says Rayes.

AUB School of Nursing’s Huijer — while admitting that the current nursing shortage is bad — believes that the situation could potentially be fixed if given the proper attention.

“The shortage can be remedied by improving the public image but also by improving the working conditions — and that’s what we keep telling our ministers,” she says. “They must really pay [nurses] better than what they are paying [now].”

For the healthcare industry’s problems to be solved though will require the active support and attention of the government. And, perhaps more importantly, a steady cash flow from the government’s coffers to clear its debt.

It is a frequently-diagnosed pathology among our politicians, however, to allow problems to degrade into terminal conditions before any sort of treatment is considered.

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Society

Kings of consumption

by Emma Cosgrove
written by Emma Cosgrove

Branding may be an elusive concept to define, plan and execute, but a successful brand is easy to spot. To determine which brands are winning the battle for Lebanon, Executive commissioned a study with IPSOS research firm to determine the top five brands in major categories of consumer life.

We polled 501 people of all ages, vocations and education levels from Beirut proper and its major suburbs and after hundreds of phone calls and door-to-door visits, the results are in.

Banks

Among all banks that operate in the Lebanese market, which is the top bank, in your opinion?

Fashion

Among all the fashion stores and clothing outlets that you are aware of in the Lebanese market, please name your favorite store.

Malls

Among all of the malls that you are aware of in Lebanon please name your favorite mall.

Groceries

Among all the supermarkets that you are aware of in Lebanon please name your favorite supermarket.

Confectionary

Which company sells the best confectionary products in Lebanon?

University

Among all the universities in Lebanon, which is the top university, in your opinion?

Wine

Which company offers the best wine in Lebanon?

Home

Among all of the furniture and appliances stores that you are aware of in the Lebanese market please name your favorite store.

Juice

Which company offers the best juice in Lebanon?

Dairy

Which company sells the best dairy products in Lebanon?

Water

Which company offers the best water in Lebanon?

Source: IPSOS, EXECUTIVE

Sample size: 501

Margin of error: ± 4.3%

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Society

A bright future?

by Paul Cochrane
written by Paul Cochrane

 

Lebanon’s industrial sector has overcome the odds stacked against it to have a surprisingly good 2010. Exports rose 32.6 percent to $2.56 billion as of the third quarter of 2010, up from $1.93 billion in the same period last year, according to figures from the Ministry of Industry. Imports of equipment and machinery were also up by 13.54 percent to $176 million, a healthy sign of cash being injected into one of Lebanon’s most neglected economic segments in terms of investment.

What was unusual about 2010 was that machinery and mechanical appliances topped the export list, at 21.21 percent, or $544 million, of the total, followed by exports of jewelry at 19.77 percent, or $507 million. In 2009, the country’s jewelers were the biggest exporters at 31.5 percent of the total.

“This year, Lebanese industrialists and entrepreneurs succeeded in overcoming internal instability, the global economic situation, the high cost of raw materials and unfavorable exchange rates,” said Charles Arbid, general manager of Rectangle Jaune and president of the Lebanese Franchise Association (LFA). “The rise in exports is also due to the development of certain markets and existing markets — the first destination is the Arab countries, but also toward Mediterranean countries, which have become an important target for exporters.”

Lebanon’s strong economic growth has also aided the sector, with domestic sales on the rise.

“Internal consumption is up, and there is demand for Lebanese products,” said Arbid. “It’s a maturity stage where on a technical level we’re strong enough and capable enough to produce the right products. There is definitely a lot of competition, but with production prices increasing in the Far East today, people are turning to easy-to-find products made here at a good price.” His company, Rectangle Jaune, experienced growth of 8 to 9 percent this year, “but it has been a huge effort to maintain this,” he conceded. Last year the clothing company had double-digit growth.

Attar Steel, which has an annual turnover of up to $5 million and is one of the top-10 Lebanese players in the industrial sector, recorded 25 percent growth this year in the Lebanese market, outdoing its typically buoyant business in Saudi Arabia.

“This year was better than 2009, and better than 2008. Lebanese sales were particularly good, as 2009 carried with it the terrible effects of [the political unrest of May] 2008,” said General Manager Hassan Attar. The company, which has a 12,000 square meter factory in the Bekaa with a staff of 40, produces 1,000 items, from light, perforated and embossed steel, to large steel doors and hangers for airports.

Evolution of industrial imports of equipment and machinery ($millions) and the evolution of industrial exports ($millions)

On-the-ground realities

At 9 percent of Lebanon’s gross domestic product, industry is an important employer and sector for the country, even if it is not living up to its full potential. “In general, Lebanese exports are getting better, and 2010 has been good for industry,” said Fadi Gemayel, chairman of Gemayel Freres and President of Libanpack. “That doesn’t mean we don’t have impediments, such as political instability, but we are growing and can grow more.”

Diana Menhem, a researcher on Lebanese industry, says the sector is being hindered by the high costs of labor, inputs and energy, and the “quasi-monopolistic behavior” of importers.  “What’s important in the end is that industrialists are not interested in developing their products — value-added is low and decreasing, as a World Bank World Development Indicators study shows,” she said. “Within that, what is more alarming is that the percentage of medium and high technology is really low. It’s because there is no incentive to improve their products and the government is not saying ‘we’ll help out and subsidize energy or exports.’”

While the World Bank study shows a gradual decline in value-added manufacturing as a percentage of GDP up to 2008, the LFA’s Arbid attributes the export increase in 2010 down to the industry having adopted value-added goods.

“There has been a definite increase in industrial exports, and that is due to the efforts of industrialists over the past decade to develop products and services with added value,” he said. “There has been a big effort in branding, something I’ve been fighting for with colleagues, for added value, and we are going toward specialized production.”

Pushing such value-added production is the LFA, whose membership has swelled by 50 over the past year to 120 companies, brands and concepts. “We have a powerful and influential association as many businesses are going towards the brand and franchise concept,” said Arbid.

Franchises include food producers, bakers, jewelers, services, beauty care and restaurants.

Libanpack is another example of adding value to Lebanese products, with its packaging facility set up two years ago as a non-profit organization to boost exports. Initially financed by the Swiss Development Agency, and given land facility by the Lebanese Industrialists Association, the facility now works with 50 companies.

“As industrialists we cannot narrow our competition on prices due to the cost structures in Lebanon, so we have to put forward our competence in other fields, such as value-added, packaging and design components,” said  Libanpack’s Gemayel. “Packaging is one of the contributing factors now to marketing goods, and Libanpack is a platform for those involved in packaging to add value to their exports. In that sense we have given small and medium-sized enterprises the tools to do this, to use the most advanced packaging material.”

The need for a plan

For Lebanese industry to push the proverbial envelope further, more action needs to come from the government.

“We need two things: a serious plan, as industry requires plans, and linkages between industry and human resources to carry out such plans,” said Menhem. “There are a lot of models we could use from countries such as Singapore, South Korea and China. In all these cases what these countries have is a large, well-funded industry ministry.”

Government investment could, in particular, be of great benefit to the agro-food industry; the Lebanese Farmers Syndicate reported that agriculture generated some $1.5 billion in gross revenues in 2009, but could generate $3.5 billion if there was sufficient cash pumped into infrastructure.

Attar Steel </p> </div> </div> <div class=

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Society

Investing in the name

by Emma Cosgrove
written by Emma Cosgrove

 

A company has a brand whether they want it or not” is a popular adage for explaining the importance of branding as a discipline. And, according to a recent survey conducted by local branding firm Brandcell entitled ‘The State of Brand Management in Lebanon,’ it is one that may need to be more explicitly communicated to Lebanese businesses, organizations and institutions.

“In Lebanon [branding] has become, by force, a need. But it hasn’t been easy and still it’s not easy. Branding is still largely misunderstood and unappreciated and very vague to the client,” said Abdo Saleh, executive design director at Brand Central. Brandcell’s survey polled 50 professionals — from marketing managers to chief executive officers to communications and public relations (PR) managers — to find out if they truly have a grasp of the illusive concept of branding and if it is properly integrated in both the perception and operations of their institutions.

City Mall - Lebanon

The study found that “although Lebanese marketers believe in the importance of branding and its influence on customer choice, they lack the full knowledge related to a brand’s economic value creation and to a brand’s relation to business strategy.”

Joumana Rizk, owner and managing director of Mirros Communication and Media Services, said that she was in the public relations (PR) game for over 10 years before she began recommending that her clients work with her company in addition to branding firms in order to create the best solutions and strategies.

“When we want to deal with PR or work on PR and communications we cannot take just one part and forget the other parts,” said Rizk. “PR has to be incorporated in a bigger strategy, which includes branding and communications and marketing. So of course when I discuss PR and communications with my clients, it has to be incorporated in a branding approach.”

Taanayel Dairy Brand - Lebanon 

In-house

There is only so much an outside PR professional or branding firm can do to make sure that a branding strategy permeates every level of an organization; something branding professionals insist is essential to ensuring the “authenticity” of a branding strategy. Though it is the job of the branding consultant to make sure that the brand identity and strategy chosen is organic to the institution, internal communication and the spreading of a branding philosophy throughout an organization ensure that the strategy is kept consistent and executed on every possible level.

“Its not a one way thing — it’s a chain. Everybody has to be involved,” said Rizk.

Only 31 percent of marketers in Lebanon think that their company’s employees have a good understanding of the core ideas of the brand identity, even though 73 percent of marketers survey their employees regarding their understanding of the brand, according to the Brandcell survey.

Branding Survey: Beirut, Lebanon

This indicates that 42 percent of marketers are aware that their branding strategies are not penetrating through the ranks, but have so far been unsuccessful in remedying the situation. 

The study notes that Lebanese marketers “need to devote more branding efforts especially to engage employees, have a more supportive management and have brands aligned with business strategy and operations.”

However, Saleh says that this disconnect is a common occurrence in organizations in highly developed markets as well.

“To be fair [this] can be found in developed markets — you would be surprised,” he said. “In very sophisticated markets and with very sophisticated companies you will still find those faults of understanding. That’s quite normal because it’s a very tricky discipline.”

Going into the metrics

One way to convince executives and even staff of the importance of an intimate knowledge of their own brand is by presenting it in terms of dollars and cents.

But this is yet another “tricky” task. While 80 percent of the marketers claim to measure the financial value of their brands and the return on brand equity generated by their efforts, only 40 percent of marketers claim to be aware of how brands create financial value for their organizations.

Supporting a theme of overconfidence, this paradox suggests that 40 percent of marketers are attempting to measure their brand’s financial value without truly grasping how this value is generated. This fact contributes to a widely acknowledged lack of standardization in return on brand equity and brand value metrics.

Branding survey cont...: Beirut, Lebanon

“Return on investment in branding is as elusive as the search in alchemy for the elixir of life,” said Saleh. “Every branding specialist worldwide and every marketing guru claims that they have formulated the right approach on how to financially prove the success or failure of branding… but you won’t find one standard today that most people are adopting. Everyone has their own and sometimes they are protected by a proprietary system claiming that they have the only answer.”

Yet another curious contradiction among marketers is their rock solid belief that their tactics are effective. Even though 92 percent of marketers say their branding is effective in influencing the choices customers make, only 71 percent of them claim to survey their customers about their brands. This leaves 21 percent of marketers believing that their efforts are working without bothering to be sure.

It is an issue of consistency and follow-through, which are the main roadblocks to truly effective branding and a particular problem in the local market. “Lebanese people are very good at creating concepts and ideas but they don’t sustain them properly. Our main problem is consistency,” said Albert Thoumy, head of communication strategy and development for Crepeaway. “We have good brands and good communication skills but we do not question ourselves enough to do something different, to apply high quality standards and to innovate,” he said in conjunction with Brandcell’s survey.

Important aspects of branding according to brand managers: Beirut, Lebanon

The evidence shows that this is not an industry at a crossroads, but simply a phase in a progression toward a mature branding market, though it may frustrate the experts waiting for their clients to catch up.

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Real Estate

Executive insight Sayfco Holding

by Chahe Yerevanian
written by Chahe Yerevanian

 

In light of the strong price performance of the Lebanese real estate market during the last three years, a popular topic of discussion across the country has been whether we are in the middle of a market bubble. Are prices destined to fall, or is there truth to the old Lebanese proverb that land in Lebanon is as precious as gold?

As with any product or service, real estate prices will always be governed by the laws of supply and demand. In addition to increasing local demand, the real estate market in Lebanon also attracts buyers from the Lebanese expatriate community (which some estimates peg at as much as 15 million), and from wealthy Arabs. In a region mostly dominated by desert plains, Lebanon’s temperate climate, lively nightlife and diverse geography stand out like an oasis in the sands.

However, in the first nine months of 2010, sales to foreigners actually dropped by 0.7 percent relative to the same period last year, according to Bank Audi.

Strong end-user demand from both residents and non-residents, coupled with a limited land area, has driven increases in real estate valuations. The average value of property sold in Lebanon increased 28 percent in the first nine months. Some areas of Beirut, such as Downtown, Verdun, and Achrafieh, are especially sought-out but also have relatively low land availability; consequently, these areas have experienced the highest increases in value.

Spreading out

Given the sharp increase in price, which starts around $6,000 per square meter in downtown, demand has shifted to the suburbs of Beirut (such as the Metn) where prices are comparatively more affordable.

Again, once fair value is reached in these suburbs, the trend and demand will shift further out into the outer suburbs (Keserwan/Jbeil from one side and Aley/Chouf from the other side). As in the development of any country, high prices in the city center will displace local demand farther out to the periphery of the city. A crucial factor for this continued growth is the development of an adequate transportation infrastructure for residents to easily commute from these suburbs to their area of employment.

Finally, from a financial perspective, the key ingredient in past real estate bubbles around the world — debt-fueled speculation — is for the most part missing in the local market due largely to wise governance from Banque du Liban, Lebanon’s Central Bank. Given the regulatory limits on debt extended by banks for real estate construction, most major developers fund a majority of a project’s cost with equity and, to a lesser extent, cash proceeds from the pre-sales of apartments. Even credit facilities to the buyers of a residence are typically only extended if a substantial percentage of equity has been injected into the transaction.

These positive factors do not mean that prices will forever increase at double-digit rates in all areas, or that a slowdown in sales activity will never occur. Even with positive market dynamics, the type of supply must follow changes in buyer requirements or desires. For example, as real estate prices rise in Beirut, demand is increasingly shifting to smaller apartments (below 200-250 square meters), the typical market demand of major European cities. Periodically, political or security fears may also sometimes cause a temporary drop in sales volume. However, the long-term fundamentals of the real estate sector in Lebanon are sound. 

Given its distinctive cultural heritage, geography and the resilience of its people, there will always be strong demand for real estate in Lebanon from residents and non-residents alike. This demand, coupled with a relative scarcity of supply, will support prices in the long run. Monetary authorities in the United States and Europe may have the power to run their printing presses and to create dollars and euros at will, as they have recently shown, but God stopped creating land in Lebanon a long time ago.

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Betting on the Blue Line

by Nicholas Blanford
written by Nicholas Blanford

You have to hand it to Khalil Abdullah, who must be the most optimistic businessman in Lebanon. He is currently putting the finishing touches on an extravagant Afro-Arabic style tourist resort on the bank of the Hasbani River, less than a mile upstream from the border with Israel.

This section of the Hasbani River cuts a narrow gorge through a grassy plain at the foot of the Shebaa Farms hills, flanked by dense oleander and eucalyptus trees. The Blue Line, the United Nations-demarcated boundary that corresponds to Lebanon’s southern border runs up the middle of the Hasbani at this point. If visitors to Abdullah’s resort swim to the far bank of the river, they will have entered Israeli-occupied Syria and risk being shot by Israeli troops. Indeed, when Abdullah began work on his project, Israeli troops would turn up on the cliff on the opposite bank and peer at him through binoculars.

Israel’s unease over Abdullah’s activities was probably due to concerns he was planning to pump water from the river. The Hasbani is one of three tributaries of the Jordan River that flows into the Sea of Galilee, Israel’s largest source of fresh water. Previous small-scale pumping schemes by the Lebanese government and local farmers have triggered uproars and even threats of war.

Furthermore, this section of the border is notoriously porous and a favorite location for cross-border smuggling, particularly narcotics. In 2007, two drug smugglers wearing Spanish United Nations Interim Force In Lebanon (UNIFIL) uniforms attempted to enter Israeli-occupied Syria near Abdullah’s resort by crawling through a storm drain. Unfortunately for them, Israeli troops had staked out one end and shot one of the two smugglers as he emerged.

The Alawite village of Ghajar, lying a mile north of Abdullah’s resort, has long been a conduit for cross-border smuggling. The Blue Line splits Ghajar so that the upper two-thirds fall inside Lebanon and the remainder in Israeli-occupied Syria. After Israel’s troop withdrawal from South Lebanon in 2000, Hezbollah set up a position in the northern part of the village from where they ran an intelligence operation inside Israel. Israeli troops occupied the area during the 2006 war and have remained there ever since to ensure Hezbollah cannot return.

In November, the Israeli government finally agreed to a UN-brokered compromise in which it will cease its military presence in northern Ghajar in exchange for UNIFIL and the Lebanese army maintaining a tight security cordon to prevent anyone from accessing the village from the northern side. There was an element of bloody-mindedness in Israel’s procrastination over Ghajar. The village is sealed off on the southern side anyway, with the only available access through a checkpoint manned by Israeli soldiers. Given the presence of the Lebanese army in the border district and UNIFIL’s cordon of fences, patrols and watchtowers, it is unlikely, if not impossible, for Hezbollah to return to the village as they did before 2006. 

However, there was a legal complication in that the residents, although Syrian nationals, have held Israeli citizenship since 1981. That meant that Israeli citizens technically would be living on Lebanese territory.

What would happen if one of them fell sick and needed an ambulance to take them to hospital, or if repairs needed to be conducted on a house in northern Ghajar? Could an Israeli doctor or electrician cross the Blue Line into Lebanon? The UN, Israel and, grudgingly, it seems, Lebanon, have agreed on a sensible compromise to return the situation to pre-2006 so that the residents can lead normal lives.  Ultimately, the curious case of Ghajar can only be fully resolved when the Israelis and Syrians strike a peace deal and Israel withdraws from Ghajar, the adjacent Shebaa Farms and the Golan Heights. However, Israel’s decision to finally adopt long-standing legislation mandating a national referendum to decide whether or not to end the occupation of Syrian territory and East Jerusalem has dimmed hopes of a resumption of peace talks and increased chances of war.

But the ever-optimistic Abdullah has an answer for that. A later phase of his project will see the construction of a 60-room hotel on the cliffs overlooking the Hasbani gorge and his resort: “Maybe they can hold future peace talks there. After all, it will be at the junction of the Lebanon, Syrian and Israeli borders.”

NICHOLAS BLANDFORD is the Beirut-based

correspondent for The Christian Science

Monitor and The Times of London

 

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Real Estate

Q&A Bassim Halaby

by Rayya Salem
written by Rayya Salem

 

 

This year saw the launching of Beirut Terraces in Minet el Hosn — developer Benchmark’s second high-end project in the capital, with one of the highest prices per square meter in Beirut starting at $7,200. With more than $1.4 billion invested in residential projects, both in Lebanon and the region, the four-year-old firm is one of the key players in Beirut’s luxury property market. Executive sat down with Chairman and Chief Executive Officer Bassim Halaby to chat about the current and future state of Beirut’s property market, with a special focus on the Beirut Central District (BCD).

E Were the rises in the price of property in Beirut over the last two years expected or even healthy?

Since the 2006 to 2008 period, the spike in prices made Lebanon seem brighter than it was. It’s the gap between the retraction in the world economy with the growth of Lebanon’s property market that made us look very good. But we all knew it was just a one or two-year phenomenon. Now, 2010 to 2012 is a time where solvency is expected to take place in the market. Most stock of housing should be absorbed by the market. If it [isn’t], it will take one additional year. Developers work on a pre-sale basis, so my sense is that in 2012 the market will stop witnessing mushrooming of new projects and there will be a major slowdown in the construction industry. Sell-offs will not happen at rock-bottom prices, but at good value for money.

E What about prices outside of Beirut?

The price of land doubled in the last five years in BCD and more than tripled around Beirut. So the BCD was already leading [the market] and hit a ceiling quickly. Beirut [areas outside of Solidere] has grown irrationally to the extent that prices around Beirut are very comparable to Solidere, without having the level of accessibility, the level of organized environment, control and zoning. It’s a fixed, regulated, predictable neighborhood. This is why people buy in BCD, because they know what they will view from their office or home. I would say prices have reached stabilization— a normalization of the market.

E Is infrastructure improving to be able to absorb the increase in construction?

Beirut infrastructure is a disaster in progress. The BCD has been planned on the basis of density, size of roads and anticipated traffic. But the moment the spillover of traffic of [greater] Beirut goes into BCD on the port roads, the BCD closes down.

E We have seen more demand for smaller apartments. How are developers responding?

Beirut’s property market is not homogenous; there are 17 micro markets each behaving differently. Small apartments — 90-150 square-meter (sqm) — are not a new trend in some of these markets, particularly on the outskirts of the city, but would definitely be a novelty in BCD.

People have been buying small apartments, crowding themselves into spaces they believe they can live in and then closing off balconies with glass, meaning that the indoor space was not enough for them. That’s why one of the concepts of Beirut Terraces was to create an indoor/outdoor living space. But in general, the smaller the apartments, the more a developer has to provide costly parking space. For a 300 sqm apartment I have to provide two spaces. If I build three 100 sqm apartments, I have to provide three. Outside Beirut, the municipal law is not as strict on amenities and services provided.

E From your building experience in the BCD, what are buyers’ preferences shifting toward?

Having tried Wadi Hills, where people wanted townhomes with gardens, we came to the conclusion that we could do the same concept of townhomes, yet stacked vertically. They feel private yet close to each other, like in a village.

E  More developers are claiming to build “green” projects. Are buyers more aware of environmentally-friendly construction?

Today, “green” is not a selling item. LEED certification [the United States Green Building Council certification system] is not a valid draw for a buyer. But buyers are becoming more and more concerned about long-term running costs of their unit. The reason to buy is still location, size and quality of life offered.

E What draws investors to Lebanon in spite of the political instability?

Politics, security and stability have never been a reason to stop Lebanese from investing in real estate. The market is led by at least 66 percent demand from [local] Lebanese, 20 percent from Lebanese expatriates and 14 percent from non-Lebanese demand. So Lebanese are always interested in having an apartment for themselves or their kids.

E Have developers’ profit margins changed over the last few years?

Today we don’t have a project in Beirut that exceeds $130 to $150 million in [construction] costs, unless it’s something like City Mall or a commercial project. A project value of $500 million [such as Beirut Terraces] means you’re talking about $150 to $170 million for the cost of land, $150 million on construction cost and the rest are revenues that you have to pay taxes on, so it’s not [all] profits. Developers are operating on profit costs ranging between 10 to 30 percent.

E How will the BCD area change in the near future?

The landfill area [reclaimed land on the seafront adjacent to Beirut International Exhibition and Leisure (BIEL) center] consists of available plots in BCD. BIEL is a temporary structure to be replaced by a tower, which might be 200 meters high, which Solidere is planning. Whereas the height of Wadi Hills is 110 meters, the height of towers on landfill plots is going to be around 180 meters.

E  Looking towards 2011 and beyond, what cost issues are developers facing?

Developers do ‘land banking’ and therefore buy land in anticipation of the next project and not because we hedge on whether there is stability or long-term peace. There is always a project in the pipeline. Construction cost fluctuates depending on demand, but it has stabilized due to the financial crisis. China is no longer building by the billions and thus increasing raw material prices. Gulf countries are no longer experiencing high growth potential. So we are working with a normal situation where construction cost is predictable. The value of real estate has normalized.

E What about the recent influx of “nonprofessionals” in the real estate market?

This is an unregulated business and anyone can become a developer. That’s why we saw so many entrants. People think that you can bring the architect and make him the project manager, architect, builder and everything. You [can] bring a contractor who would subcontract everything else. Some people get together, build a project, distribute shares or units among themselves and sell the remainder, which brings in some profits.

The problem is when these same people get into another project, but now they have to sell all of it off to market. Without the right calculations, they build the wrong product for the wrong market. In Beirut, approximately 30 percent of stock has been built with substandard quality and is wrongly priced. The market regulates itself so they will eventually close down their shop.

E Is choosing the right architect for a major project in BCD becoming more important because of the construction boom and subsequent competition?

We want Beirut Terraces to be an award-winning design at the global level. We want to put Beirut on the map of quality of architecture and quality of life and match what Solidere is trying to promote: ‘Beirut as a reborn city.’ By choosing Herzog & de Meuron [architects] we have been able to achieve, despite the market’s soft tendencies today, great interest and a demand that is resilient to market softness.

E What is the key ingredient that makes Beirut real estate vigorous?

Beirut has shown that cities are based on culture and not only services and economies. When I was doing my thesis back in the 1980s, I looked at cultural activities like jazz festivals that re-invigorated the economies of New York, Boston and cities in Canada. Beirut has all the ingredients of cultural activities, beyond the nightlife, beyond the food, beyond everything. The biggest ingredient is the people… this culture transcends to every single Lebanese, so big developers today are more or less targeting a diaspora that has the taste of globalization but has the real know-how of the local culture.

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Gold’s glorious 2010

by Paul Cochrane
written by Paul Cochrane

 

It’s been a glittering year for gold globally, with a Troy ounce (37.1 grams) rising $300 to a record $1,424.60 in November, before backing down slightly into the high $1,300s as Executive went to print. And it’s been just as bright a year for the precious metal in the Middle East. The Saudi Arabian Monetary Agency (SAMA) re-checked its accounts to find it had 180 tons more than it originally thought, Lebanon’s central bank reserves appreciated by more than $2 billion to close on $13 billion, and gold bugs in the United Arab Emirates were given the novel option to buy 24 karat bars from vending machines.

For individuals and governments alike, gold has been the go-to “alternative monetary asset,” as World Bank President Robert Zoellick put it in November.

Bullion took on a new allure as the United States dollar and the euro continued to weaken amid ongoing concerns about the financial markets, and central banks sought to hedge against inflationary pressure. Driving demand even higher was the inability of institutions and currency hawks to buy Chinese renminbi, as its exchange is restricted, leaving few options to hedge against further drops in the world’s two leading currencies. Gold’s surge has raised debate about whether the precious metal should have a monetary role four decades after the US ended the gold standard. A return to the gold standard is not likely, or indeed necessarily wanted, but any country that sold off a good chunk of its gold, like Britain did a decade ago, is today regretting not having hard assets tucked away in the vaults.

For dollar-pegged currencies, which includes Lebanon and most of the Gulf Cooperation Council (GCC) countries, holding sizeable gold reserves has been a real boon. Five Middle Eastern and North African (MENA) states are in the top 30 countries in the World Gold Council’s (WGC) World Official Gold Holdings rankings. But it is not the usual suspects of the oil-rich Gulf states taking the titles: Lebanon ranked 18th globally — just behind Britain and ahead of Spain — with 286.8 tons, equivalent to 25.2 percent of the central bank’s total reserves. Algeria, ranked 23rd, has 173.6 tons, Libya is right behind with 143.8 tons, and Turkey is in 29th place with 116.1 tons,

Out of the GCC nations, only Saudi Arabia makes it into the top ranking, leaping from 24th to 16th place in March when SAMA announced that, incredibly, due to “a difference in accounting” rather than new gold purchases, the kingdom had 322.9 tons instead of the earlier announced 143 tons. One can only wonder how much unaccounted-for gold there may be still hidden under the tiled floors of the Saudi central bank when such a staggering discrepancy is revealed. Furthermore, such holdings are only the reserves of SAMA, not the private stash of the estimated 7,000 members of the Saudi royal family, nor of Saudi citizens. Then there is the vast amount of gold ore lying under the kingdom’s sands, estimated at 20 million tons, according to Australian government statistics. The Saudi Arabian Mining Company (Ma’aden) has five operating gold mines, with proven gold ore deposits of 1.3 million ounces and current exploration suggests deposits of more than 8 million ounces elsewhere on its acreage. This year British and Australian gold mining companies obtained exploration licenses.

With gold production having peaked in 2011 at 2,645 tons, and the output of the four traditional producers — South Africa, the United States, Canada and Australia — on a downward curve, Saudi Arabia, in addition to its gushing black gold, appears to be experiencing a gold rush of the more traditional type.

The big question now is whether gold will continue to rally in 2011. Gold bugs are dreaming of an ounce hitting $2,000, while other pundits suggest the rally may be over and it is better to buy silver.

MENA central banks holding gold appear to have no desire to sell. As Riad Salameh, the governor of Lebanon’s central bank, told Reuters in October: “Lebanon will sit on its gold… In a world where you could see major crises, the payment instrument of last resort is gold — especially for a country like Lebanon that doesn’t have natural resources.” The same could be applied to individuals. Personally, as a gold bug myself, I’m hoping for another glittering year in 2011.

PAUL COCHRANE is the Middle East

correspondent for International News Services

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