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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Comment

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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Finance

Sounding the alarm

by Emma Cosgrove
written by Emma Cosgrove

 

Common sense is the currency of rational minds — in this respect Dubai may be short on change. On November 25, Dubai World, the wholly owned subsidiary of the Dubai government, announced that it would request a 6-month standstill on all payments and debt servicing of some $11 billion due to creditors in December — effectively giving notice that the further $49 billion the company has outstanding may also be beyond its means.

The announcement came after the markets closed for the four-day Eid al Adha holiday, during which time the company maintained complete silence while the news shook the financial world, prompting panicked investors to line up at the doors of Gulf markets to dump exposed portfolios when bourses reopened on November 30. As they waited in the Gulf, financial markets from London to Beijing shed share value in fear of their own exposure.

Dubai and Abu Dhabi markets dropped instantly at the opening bell, followed closely by other regional markets. The next day, Dubai World released a statement confirming it was in talks with United Arab Emirates banks to restructure $26 billion in debt. The company said restructuring could consist of “deleveraging options,” “asset sales,” and “formulation of restructuring proposals.”

“We would expect a decision to come out of [the discussions]  on what assets underlay the liabilities, and what the plan is for liquidizing those assets so that bondholders get some partial repayments,” said Raj Madha, director of equity research at EFG-Hermes.

Dubai has hedged its future on booming demand to fill some of the biggest malls in the world

As executives and Dubai authorities prioritize Dubai World’s obligations behind locked doors, the rest of the financial world can do nothing but wait and watch the markets.

The markets react

By the middle of November 2009, the financial world seemed optimistic — and with some justification. The Morgan Stanley Capital International (MSCI) index had recovered 48.9 percent of losses incurred during the downturn, while the MSCI Emerging Markets index had fared even better, recovering 58.13 percent. The MSCI Arabian Markets index — Gulf Cooperation Council, Egypt, Jordan, Morocco, Tunisia and Lebanon — also followed suit, albeit with a little less vigor, recovering 30.89 percent of their losses.

After the announcement that Dubai World could effectively not pay its debt on time, that recovery quickly went into regression. In just two days of trading the Dubai Financial Market (DFM) dropped 12.5 percent and the Abu Dhabi Stock Exchange fell by 11.6 percent. Dubai’s indices for real estate, as well as investment and finance, saw some of the worse losses, down 18.1 percent and 15.5 percent respectively.

Question marks hang over the prospects of Dubai </p> </div> </div> <div class=

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Finance

The vocabulary of the recovery – Recurring profitability

by Emma Cosgrove
written by Emma Cosgrove

Recurring profitability

The repeated act of earning more than is spent.

“Banks have been hit by loan losses as well as investment losses due to the financial crisis. Recovering from the crisis effectively means returning to stable profitability,” said Moody analyst John Tofarides when asked what indicators are the most important to watch.

GCC Banking universe 2010 profit growth by region

Profitability is perhaps the most obvious indicator, but can also be the most misleading. Banks in the UAE, for example, saw a healthier first quarter of 2010 than second quarter, due mainly to an edict from the Central Bank to stop provisions for the first quarter. When a let up of bad loans did not materialize, they then had go into provisioning overdrive, which is why most saw smaller profits growth in the second quarter of 2010 than the first. Aggregate profits of the entire GCC banking sector declined 5 percent year-on-year at the end of June, and more tellingly, 10 percent quarter-on-quarter, according to Global Investment House, reversing the upward blip if the first three months of 2010.

UAE banks struggled the most in the second quarter and saw profitability shrink a dramatic 42 percent quarter-on-quarter. Omani banks, which saw profit drop 4 percent, were the other losers for the quarter. Banks in Saudi Arabia, Kuwait and Qatar averaged positive profit growths of 1 percent, 6 percent and 7 percent respectively, relative to the first quarter. Saudi Arabia and the UAE, however, were the only two countries with negative profits growth year-on-year.

Standard and Poor’s (S&P) predicts that profitability will be the last indicator to stabilize and return to a steady upward trajectory.

 So, recurring profitability is the sign that the financial fever has broken, the virus killed, and the GCC patient is back on the road to recovery.

Loan growth  

The percentage by which the total value of a bank’s loans changes over a certain period of time.

Healthy lending is the only way for banks to return to normal profitability. They can and are increasing their non-interest income through upping fees and offering more paid services, but if they are to fully recover, lending must resume.

Lending Growth, H1 2010 - GCC countries

But finding viable lending opportunities is challenging when personal as well as corporate finances are under such stress. Lending growth therefore can show not only the health of a bank, but also the health of the financial environment in which it operates. But the vacuum of viable lending is not the only hurdle. In crisis, banks become exceedingly cautious and reluctant to lend.

Steady lending growth will show not only an encouraging financial trend, but a behavioral shift as well, said Peter Baltussen, CEO of Dubai Commercial Bank. “Incremental loan growth will indicate whether banks are indeed willing to reverse their risk-averse approach of the previous years and start a positive credit cycle again, which will have a direct positive impact on the economy,” he said. 

In the first quarter of 2010, lending growth was varied throughout the region with most of the bad news coming from Saudi Arabia, the United Arab Emirates and Kuwait. However, though trends exist, lending practices vary more from bank-to-bank than from country-to-country. So this is an area where banks must be scrutinized individually rather than aggregated from each country (see chart). Though most of the region’s largest banks posted positive lending growth for the first half of 2010, many growth rates were quite low, leading regional experts to be very pessimistic in the their estimates of when lending will return to normal.

Sophia el-Boury, a UAE bank analyst at Shuaa Capital, said: “We’re not very optimistic in terms of lending growth. From now until the end of the year, banks will still be prudent and cautious to lend; the current operating environment is still changing.”

Bad loans

Loans that are not bringing income to the lending institution.

“Bad and doubtful debts and provisions reflect the credit worthiness of a bank’s customers and, sometimes, a region’s overall economy,” said Chief Executive Officer at United Arab Bank Paul Trowbridge of the GCC financial press’s new favorite phrase. “While reasons for potential non-payments can include disputes over supply, delivery or conditions of goods, they in general provide a clear indication on the appearance of financial stress within customer operations.”

According to S&P, non-performing loans have been steadily climbing since 2008, increasing across the GCC from 2.7 percent at the end of that year to 5.4 percent by the end of September 2009. S&P predicted in its February Banking Industry Report Card that NPLs would peak by mid 2010.

Qatar and Saudi Arabia have seen the lowest NPL ratios of all GCC countries. Qatar’s success in avoiding bad debt is no doubt due to the government’s swift action at the onset of the financial crisis, with the government buying up loans to the real estate sector from its banks and injecting capital into the system in October 2008. Kuwait is showing the most NPL struggles due to its banks’ predilection for local investment firms and real estate, which quickly became delinquent upon the onset of the crisis.

 

“Starting the second half of 2010 and assuming the economic recovery proceeds according to our expectations, we believe that asset quality for Gulf banks will likely bottom out before slowly improving,” stated the S&P report. NPLs are an important indicator not only because they demonstrate the general economic health of borrowers, but also because they forecast the continuing fortification against them, which is a major drag on profits.

Provisioning

The setting aside of funds to allow for existing or expected bad loans.

“The level of provisions has been the single biggest swing factor for regional banks in recent years,” said Dubai Commercial Bank’s Baltussen. Provisions in the GCC as a whole jumped nearly 5 percent year-on-year in the second quarter of 2010. Amid buzzing news of recovery at the beginning of the year, provisioning slowed across the board with the UAE Central Bank actually instructing its institutions to stop provisioning for their biggest threat, Dubai World.

Provisioning, H1 2010 - GCC countries

The instructions seem to have been quickly disregarded, however, as there was a 48 percent quarter-on-quarter increase in provisioning in the GCC in the three months to July 1, with nearly half of the quarter’s provisions taken by UAE banks. Saudi banks came in second regarding provisions, representing 23 percent of the quarter’s total.

Aggregate figures show provisioning by GCC banks peaked in the fourth quarter of 2008 when it became clear that the GCC would not be shielded from the crisis, and again in the fourth quarter of 2009, when the scandal and defaults of Saad Group and Algosaibi & Brothers had come into full effect and Dubai World had faltered. The second quarter of 2010 has seen the third most provisioning of any quarter since the crisis began, reaching nearly $2 billion.

A slowdown in provisioning will be perhaps the first sign of recovery for each country’s banking sector; an event that may be already occurring in Oman, as provisions there have returned to normal levels this quarter, according to Global Investment House.

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