AnalysisBeirut Port explosionOverviewTrade

Vivisection of a trade heart

by Nabil Makari
written by Nabil Makari

The short story of Lebanon’s vital trade of 2020 has three chapters but no resolution at the end. The tragic and dramatic lead character of the story is the Beirut port, which is revealed throughout the year as, in a succinct synopsis of this ballad, the open secret and potential epitaph of the Lebanese economy in its overwhelming dependence on external trade.

In the story’s first chapter, external trade was hit by the worst economic headwinds that stakeholders in Lebanon’s trade have experienced in years, due to severely restricted imports and port activity. The second chapter of the story starts out bloody and brutal, opening with one port warehouse’s gigantic explosion on August 4. The immediate fallout of this unimaginable catastrophe was a perfect storm of an elite-induced humanitarian and economic emergency, and the people’s justly outraged response; a cataclysm that has swept away a – by that time already shockingly ineffective – 20-member government that had been in office for 202 days but was never truly in power. The yearlong narrative’s third chapter overlaps with the existential pain felt by the myriad direct and indirect blast victims in the latter part of the year but, from the perspective of trade and container operations at Beirut port, actually constitutes the resilience part of the story. The narrative’s conclusion, however, is a cliffhanger of unanswered questions and tensions leading into the next year. 

The opening chapter

In the first six months of the year, activity at the country’s existential point of entry for goods and gateway for exports – the Port of Beirut – saw a 47 percent contraction of imports. Already in the prior year of 2019, the port had seen a modest weakening of its business, but “2020 is the first real contraction and it is a drastic one” in the experience of Samih El Zein, marketing manager of shipping industry stalwart Mediterranean Shipping Company (MSC) Lebanon, part of the five decades old Europe-based MSC shipping empire. 

As Zein told Executive in an interview in the second half or July, the worrying contraction in the number of standard containers – the so-called twenty-foot equivalent units or TEUs – processed at Beirut Port between January and July was overshadowed by the risks of misfortune that would befall Lebanon’s vital imports if there ever was a systemic breakdown of crucial port equipment, especially of the huge Chinese-made gantry cranes that have been working 24/7 as the physical backbone of the port’s container terminal for the past two decades. “We are at risk of losing everything that the industry built over many years,” he said. 

Both, the contraction of shipping activity in the first 6 months of 2020 (by over 50 percent when compared with the port’s longer term performance over the same periods in the past four years), and the perception of excessive risk if crucial equipment failure would occur, were unsurprisingly rooted in Lebanon’s economic meltdown and the debilitating restrictions on transferring funds abroad. 

As a side note to the problem, the outlook for the global logistics industry in the middle of the year appeared momentarily uncertain and gloomy, exacerbated by the coronavirus lockdowns in various countries and the supply chain and logistics disruptions of spring. Whereas cargo arrivals to Lebanon from the distant manufacturing hubs of China in the first half according to Zein were mere “ghosts of the past” and container shipment flows already reflected changes in Lebanese consumer behaviors and prioritization of basic necessities, cheaper goods and shorter international supply chains by importers, Zein expected inflows of containers through Beirut port to continue at reduced levels but not to dry up in the remainder of the year. The paramount concern on his mind, before the blast, for the near-term horizon was the specter of the Beirut port becoming unable to pay for equipment repairs due to transfer restrictions in combination with the rapidly weakening Lebanese lira.

The epic drama 

While the global shipping and logistics industries were adjusting their ways to the global trade realities and emitted first signs of returning freight volumes and profits by the beginning of the year’s third quarter, the second chapter of the 2020 Lebanon trade story unfolded on a sunny Tuesday evening in Beirut. Out of the blue, first a fiery roar, then a fireball, and then a devastating blast-wave raced through the streets and buildings of Beirut in neighborhoods near to the exploding, ammonium-nitrate filled warehouse of the centrally located port.  

In itself, this part of the port’s story was as short as it was destructive. This “Beirut Blast” was reported extensively in the hours following the catastrophe. The human cost, traumatic stresses, medical and survival needs and livelihood impacts on hundreds of thousands have been recorded and the responses documented over the following months. In parallel to those valid human interest stories, much has been opined, analyzed and speculated about everything and everyone who was ostensibly involved or morally responsible for the catastrophe, so much so that it does not need to be repeated here. 

In the context of the Lebanese trade story, the explosion’s dramatic chapter of humanitarian needs and amazing human solidarity does not have the central role. Therefore, just one encouraging recent piece of information might be noted: the latest update (No 15) in the regular situation reports by the United Nations Office for Coordination of Humanitarian Affairs, (OCHA) that covers the Beirut port explosion and aid responses, the UN flash appeal for relief funds has lately been revised downward to $196 million and was noted to have been funded to 80 percent. 

This is notable for both the important funding success of the flash appeal and for the downward reassessment of emergency needs by almost 45 percent when compared with the appeal issued at the end of August (an even earlier iteration of the appeal on August 14 contained an estimate of $566 million in total need, covering eight needs categories from food security and shelter to medical and education. The December 2020 situation report by OCHA thus can be read, among other things, as testimony to the amazing international and local solidarity with the people of Lebanon – notably, it bears repeating that the volunteerism and solidarity among the people of Lebanon excelled over months after the catastrophe – that has made considerable strides towards healing the city.  

While this human narrative wrote itself, the economic story of trade continued developing and did so, as usual in the Middle East, inclusive of regional and political overtones. Firstly, detailed numerical analysis of first-half and nine-month container traffic at Beirut Port showed that altogether, import shipping operations by the top five shipping companies and freight forwarders – which handle close to 80 percent of goods moved into Lebanon – through the port reached 110,033 TEUs in the first nine months of 2020, a 48.8 percent drop from 215,011 TEUs in the same period of 2019. The announced revenues of Port of Beirut clocked in at $84.8 million over the nine months, which shadowed the drop in activity through a contraction of 44.5 percent when compared with the same period last year. 

The Lebanon This Week publication of Byblos Bank further noted that by the end of Q3, 2020, the five largest shipping companies Mediterranean Shipping Company (MSC), Merit (CMA CGM), Maersk, Gezairy Transport, and Tourism and Shipping Services handled 35,569 TEUs (13%), 28,606 TEUs (10.3%), 20,339 TEUs (7.3%), 14,104 TEUs (5%) and 11,415 TEUs (4%), respectively. These five shipping companies and freight forwarders furthermore accounted for 89 percent of exported Lebanese cargo and 18 percent of the total export freight market, including trans-shipments through Lebanese ports. Maersk registered a year-on-year increase of 15 percent in export shipping in the first nine months of 2020, the highest growth rate among the top five companies. Indicative of the volatile exporting situation, the companies’ export-shipping operations increased by 70.8 percent in September 2020 from the previous month, following a decline of 25.4 percent in August 2020.

For the political and strategic angle of trade in the eastern Mediterranean, the news of rapprochements between various Arab countries and Israel was the autumn period’s defining news. No wonder that the question of competition between Lebanese and Israeli ports was occupying local minds in Lebanon. With Beirut port still in transition from arrested managers to their replacements and being consumed by investigating the blast, making repairs, and clearing up many messy questions over political responsibilities, operational negligence, possible terrorist implications, old-fashioned stupidity, destructive self-interests and handy scapegoats, attention for a while turned to the Tripoli port and its capacity. 

With regard to the Tripoli port’s utilization in short term substitution of the Beirut port, analysts recorded year-on-year increases of shipping volumes for the month of August. Those were reported as 55 percent increase in the number of vessels that called at the port and 79 and 99 percent increases in total shipping volumes and importation of goods, respectively. However, the number of TEUs processed at the port rose by a less spectacular 23 percent and analysts pointed out that Tripoli’s very modest container terminal cannot serve as a sustained alternative to Beirut. 

As far as the question if the port might be at risk of losing business to Israel’s Haifa port under a changed political paradigm of commercial ties between some Arab nations and Israel, the Tripoli port director Ahmad Tamer responded that he has no fears of the Haifa port competing against Lebanese ports, on grounds that Lebanese ports would be able to count on the support of the Arab states to Lebanese exports. “We are not afraid [of such competition] since our ports have a distinguished geographical location. Besides, the Arab always stand with Lebanon and its exports,” he tells Executive. 

However, Elie Zakhour, the head of the International Chamber of Navigation in Beirut, sees the competition of the Haifa port as a serious concern. “The Haifa port is not only a competitor to its Beirut counterpart but also to the Suez Canal.” This view is based on buzz, first created in mid 2019, over creation of rail links between Israel and the United Arab Emirates and Saudi Arabia and also on the signing of a memorandum of understanding between the UAE’s Jebel Ali Free Zone Authority and the Israeli chambers of Commerce, a move aiming to build new partnerships and allow data exchange. Zakhour further pointed to agreements between Dubai Ports Authority and Israel to revamp the ports of both countries, something which he considered as posing large competitive threats to the Beirut port.   

The resilience tale of the Beirut container terminal

While pundits chase catchy labels for the problems of the Beirut port – the “cave of Ali Baba and his 40 thieves” was a hit – the resilience chapter of the port’s return to operations and facilitation of imports and exports must be accounted for in the year’s trade narrative. 

Contrary to the initial cries of alarm that the people in the city and country would be largely derived of bread and all existential goods, which could no longer be off loaded at the devastated port, the operational recovery of the port’s trade heart – the container terminal with its towering cranes that have been defining the Beirut seaside since the beginning of the century – was achieved by August 10, the start of the next workweek after the devastating explosion.

Situated between 1.3 and 2.3 kilometers from the warehouse where the irresponsibly stashed store of ammonium nitrate had blown up, the damages to the all-important container terminal ranged from destruction of a spare parts warehouse containing 100,000 items to far slighter damages to the most distant equipments and facilities, including the quayside cranes. Several department heads in the management team of the Beirut Container Terminal Consortium (BCTC), the public-private partnership (PPP) company that has been operating the concession for the terminal and yard under a 15-year contract that actually expired in 2020 and was put up for a new tender in March, recounted their experiences in the days after the explosion in a meeting with Executive. 

The first hours were filled with shock and implementation of evacuation plans in the operation that numbers 650 employees and has about 150 on shift at any time of day and night. Safety, quality, and efficiency, in that order, are the three top priority objectives of procedural management that govern BCTC operations at any time, explains Terminal Manager Sarah Haidar. The safety, evacuation, and emergency response plans at the container terminal – a district in the port that is in a tight customs enclosure – thus were implemented within minutes of the blast. Search for employees on the ground commenced. Combining their efforts, uninjured managers and employees from all departments soon were heading to the hospitals all over Beirut’s conurbation, checking for injured colleagues. Phone trees were implemented to verify the safe whereabouts of every employee in the chaotic first two days after the blast. The team of BCTC suffered 10 fatalities and 42, partly major, injuries. The last two missing bodies could be found and recovered only after a week.  

The next action steps included setting up an outdoor emergency operations node in the parking lot, checking the integrity of containers with dangerous materials, finding of temporary electricity solutions for hooking up containers that depend on refrigeration in the heat of the Lebanese summer, retrieving one existential piece of equipment from the BCTC administration building – the server – and starting to sort through the debris, all in organized and orderly fashion to the extent possible.

Making a really long story short, the 99 percent Lebanese workforce of BCTC, returned the container terminal to partial operating functionality by August 7 and resumed the terminal’s activity on August 10, following safety checks of the port area and basins by the Port Authority and Lebanese security agencies. Up until the end of November, operational capacities were further recovered in increments.  

And then what?

If the past year has reinforced any trade knowledge, this must be the knowledge that external trade is inseparable from the economic success of this country. For a century, there have been and still persist man-made challenges for the geographic edge-and-transit country of Lebanon; these will not vanish until the global neighborhood of the Near East finds, if not outright peace (we dream of it, along with dreams of good national governance and 24-hour electricity, etcetera), but contractual and orderly coexistence which pays non-war dividend. 

The Tripoli port is a fine example. According to its director Ahmad Tamer, one week of Beirut Port closure saw 4,000 containers rerouted via the northern gateway to Lebanon, translating into temporary increases of general cargo volumes by 50 percent and containers by 10 percent during the period. But the real significance of the Tripoli port and development ideas for locating maritime transport hubs away from Beirut is the stunted regional gateway potential of such facilities. “The Tripoli port’s main aim is to serve external trade, but unfortunately the transit routes through Syria were closed when the civil war began in this neighboring country,” Tamer says, pointing furthermore to the border closures between Syria and its other Arab neighbors. 

The self-interests of countries in the Mashreq region and the impediments of ongoing conflicts are not the only barriers that constitute historical challenges to greater cross-border economic utility of Lebanese ports. In any case, Israeli-Arab rapprochement or not, it stands to reason that ports located on the eastern and northeastern Mediterranean and the Red Sea and Gulf/Shatt Al Arab coasts will have to compete for business in the wider Middle East where transportation infrastructures and emerging sea-land bridges are bound to re-shape the long-term equations of economic transit between Europe and Asia. 

In the short term, the Beirut container terminal operation is far from a comfortable situation because of the stresses on the economic equation that are caused by capital controls, need to maintain the expensive equipment, and downside risks on Lebanon’s importation volumes. As the concession for operating the terminal has this year been renewed in piecemeal extensions of three months at a time, question marks loom over the operation and the today very questionable proposition to reach another multi-year concession agreement with a qualified operator. This all endangers what in the words of BCTC general manager Ziad Kanaan was the successful creation of an industry. He tells Executive enthusiastically, “This project has in our opinion been the most successful PPP project in Lebanon.” 

One could easily argue that any further deepening of the past year’s economic policy and financial liquidity problems besetting Lebanon’s external trade can only be detrimental for the future trans-regional and international trade position of Lebanon if the ongoing challenges for finding better governance and national maritime coordination among Lebanese ports remain unsolved. The last two decades of gains in the utilization of the well-managed Beirut container terminal are an asset that must not be eroded.  

Journalist Walid Sleiby contributed to this story. 

Shipping activity in the Beirut port contracted by 50 percent in the first 6 months of 2020 when compared to the port’s performance over the same periods in the past four years.
The operational recovery of the port’s trade heart was achieved by August 10, the start of the next workweek after the devastating explosion.

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AnalysisBusinessOverviewRetail

Retail on the run

by Thomas Schellen
written by Thomas Schellen

From the perspective of consumer markets in Lebanon today, there are two classes of people: 1, those who can no longer carry out basic transactions in a consumer economy, and 2, those who are lucky enough to still go shopping, without knowing how long their luck will last. The large and growing first group includes those residents who depend to varying but overall increasing degrees on food aid, and those store keepers who have been forced by the economic crisis to shutter their small stores. The number of destitute families today is innumerable in exact terms but assumed to be in the hundred thousands; the store shutdowns by many estimates are reaching up to 10,000 points of sales, numbering between one third and 40 percent of traditional retail outlets. Their retail experience is existentially nil.

The second group, those who are still in luck of having access to printed paper currency (the perception these days is that of paper, more than that of currency) still includes many city dwellers in Beirut and elsewhere, judging by the visual evidence of crowded streets, socially distanced holiday fairs, and supermarkets in the Christmas season of 2020.

However, from a perspective of retail shopping as the quintessential modern activity in pursuit of economic satisfaction, the experience of the shopping class today is a rather sad mixture of opportunism – a combination of bargain-hunting and hoarding of basic food and household items in bounded rationality – and frustrations, from the sudden disappearance of brands and items that used to be abundant on the shelves to having to frantically calculate costs and compare prices against the available real budgets. Those personal wallets after all look deceptively large in lira amounts but have next to no purchase power when compared to the relative stable purchase power of the last 5 or 10 years. Ergo, the average retail experience this year is either absent or, in the fortunate case, a mixed bag of pains and excesses.

From the vantage point of profit-seeking retailers, consolidated retail turnovers have posted a sharp decline in the past 12 months, between third quarter of 2019 and third quarter in 2020, with all sectors of retail witnessing a “continued – and even worsening deterioration”, as stated by retailers and trade analysts in statistical documents that are rife with very disturbing numbers. The Beirut Traders Association – Fransabank index of retail activity in Lebanon (BTA-Fransabank Retail Index) in this regard paints a picture of steady erosion of retail volumes over the ten years between the beginning of 2011 and the third quarter of 2020.

THE RETAIL INDEX

The index fluctuated from the starting line of 100 points in the first quarter of 2011 – a quarter that predated the Arab Spring unrest and recurrent malfunctions of the political system and top institutions in Lebanon. By third quarter of 2019, the nominal index had receded to 49.57 points and the inflation-adjusted index to 45.04 points. While seriously worrying, both the nominal and inflation-adjusted index readings at this point in time one year ago were comparable to the two previous quarters in 2019 and also the first two quarters in each of 2016, 17, and 18 when the index had dipped below the 50 points mark. 

Over the four following quarters – Q4 2019 and the first three quarters of 2020 – however, the index fell off the cliff, dropping to less than 40 points (nominal) in the fourth quarter of 2019, then deteriorating successively further to 31.5 (Q1), 21.8 (Q2), and 21.9 points by the third quarter of 2020. While the nominal index thus suggests a near stabilization at low-level between the second and third quarter of this year (20 retail categories were still shown as receding quarter on quarter by between 5 and 90 percent, but the three retail categories of stationary/office supplies, used vehicles, and medical equipment reported increases when compared to the second quarter), the inflation-adjusted index number collapsed to 5.52 points in Q3 of 2020, down from 33.96 points a year earlier. In combination with the failures of negotiations and absence of government action except for valiant attempts to stem the rise of Covid-19, the report’s wholly cheerless opening line was that the third quarter of this year for Lebanon “was catastrophic in all aspects”. 

Khoury Home, confirmed to Executive not long ago that the chain adjusted to the challenges of 2020, even before the full extent of the crises could be anticipated. The company of then 450 employees, according to its chairman Romen Mathieu, decided to downsize in the summer of 2019, shift more into e-commerce and change the retail model. “It was hard to let go of about 200 employees at the time, closing over five showrooms, and right-size the administration. But every single employee got his full benefits at the time, with commitment to every employee that they would have the first right to rejoin the company if it were to expand again. When the thawra started, our competitors had big issues because they had large expenses [at a time of] slow business. We were already up to speed in e-commerce and terms of organization and flexibility,” he says.

“After the thawra, the economic crisis and the failure of the Lebanese lira, the banks, the Beirut blast etc, we have been sustaining a very good business adapted to the situation and ready to pull up again – not like before, the business model will be different to not only cover Lebanon but hopefully also a number of countries around Lebanon, with the knowledge that we have developed,” he tells Executive.

TRADITIONAL VS MODERN

One changed reality appears to be that modern retail and traditional retail have been thrown into a new dynamic, one that is reducing the role of traditional players in favor of more professional operators. The sudden death of so many small retailers in Lebanon – think “traditional retail” to be represented by a standalone shop or small family-owned network – is a huge problem for Lebanese society. 

About this, even the country’s largest supermarket operator, the Grey Mackenzie Lebanon Group that owns Spinneys, is adamant. By the destruction of 10,000 or 15,000 retail points of sales in Lebanon, “we will create oligopolies and monopolies. This is exactly what nobody wants. We have talked about free competition and having as much competition as we can, and this was working before all of this started. Now, due to inflation and [because many traditional retailers were] not making all the right decisions, or being forced not to make the right decisions because the circumstances are extreme, everybody as a sector is looking at traditional trade to make sure that they are able to survive. We hope that we can help,” says Hassan Ezzedine, the chairman and general manager of Grey Mackenzie.

For big players in modern retail – think chain stores or supermarkets – the crisis forced them to work much harder to keep their shelves filled with goods that the consumers would accept and could somehow still afford. But the changing retail landscape also means that there are opportunities for the swiftest and best capitalized players to acquire market share and expand, where, before the crisis many expansion attempts had been unsuccessful.

The challenge now is to reinvent Lebanese retail paradigms, as behavior changes have been forced on consumers and as the country is by necessity shifting towards more rational solutions of modern retail at the expense of cherished shopping habits. New business models with inclusion of salient online and offline strategies and considerations of exports (including brands of agro-foods that are really produced in Lebanon and not just packaged or labeled here) will indubitably be challenging to implement from the tiny Lebanese market base, but the retail crisis of 2020 does not preclude that some groups will convert these challenges into platforms of growth. 

By the destruction of 10,000 or 15,000 retail points of sales in Lebanon, “we will create oligopolies and monopolies. This is exactly what nobody wants.”

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BusinessQ&ARetail

2020: Spinneys successes, challenges and outlook

by Thomas Schellen
written by Thomas Schellen

The Gray Mackenzie Retail Lebanon group took over the local supermarket chain, Spinneys, three years ago next spring, acquiring the brand from Abraaj Capital in the United Arab Emirates. Today, the group portfolio includes 16 Spinneys super and hypermarkets, 5 discount stores under the Happy brand, and 11 convenience marts under the Grab’n’Go label. Sitting down with Executive for an extensive conversation, Gray Mackenzie Executive Chairman Hassan Ezzedine describes how the group has been handling the economic crisis of 2020 and is positioning itself for the future. 

Due to Covid-19, according to Ezzedine, the supermarket has become a one-stop destination for shoppers, who expect to find everything they could possibly want in one place. In response, the Mackenzie retail group is now working on developing as many consumer categories as possible. This includes the introduction of food courts and the development of online delivery to plans for cross-border expansion as well as production and exports of new food brands. 

Before the inflation of 2020, supermarkets in Lebanon had a lot of competition, and price wars drove down the price of goods. Now, that the Lebanese pound has devaluated so fast, from 1,500 L.L. to above 8,000 L.L. in Q4 of 2020, consumers are facing a new reality: prices are going up fast.

There has been great stickiness to traditional retail [think family-owned business] in Lebanon. Modern retailers [think hyper and super markets] have not taken more than a third of the market. How is the split between traditional and modern retail looking today? 

Traditional trade has shrunk. Today, according to many of our suppliers, and Nielsen Data also shows this shrinking of traditional retail, we are at 50:50 [between modern and traditional]. For some [suppliers], it is 60:40, but this also depends on the supplier. Modern trade has definitely taken a big chunk out of traditional trade during the economic crisis. Inflation has not helped traditional trade, or wholesalers, and increased the size of modern trade. Now it is up to modern trade to decide how to take this further. As I told you earlier, if I am looking at tier two and tier three [regions, further distant from the main coastal population centers] and start going up into these areas, then we will take an even bigger chunk. I think there are huge opportunities for modern trade in these [rural] areas.

Would you disclose how much of the market you have in terms of volume?

Pre-economic crisis, according to Nielsen we were 7 percent of the total trade, modern and traditional. 

By volume?

By value at the time [when the  group took over Spinneys]. We made a few improvements and one year and a half after we acquired, we improved two [percentage] points. I thought that was a very good achievement that we made. The changes that we made bore fruit. During the crisis I think that we reached 30 to 35 percent of modern trade, if we used to represent 20 percent of modern trade. This is based on numbers that we have seen from our suppliers when they share with us how much we represent from their turnover. 

How has the overall import quota of things on the shelves of your average Spinneys shifted between mid-2019 and mid-2020?

It depends on the category. There are categories that have lost demand, let’s say imported water, to give an example. Because the price of the [imported] product has increased, the quantity [of that product] decreased. The price of Perrier increased 40 percent, the volume decreased 40 percent. The category, however, has either maintained its level or has grown [as buyers switched to other, cheaper brands]. So, as a total per category, continuing with this example, there was not a contraction of sales of bottled mineral water.

Has there been a major shift from imported to local items of daily consumption? 

Definitely, in areas where Lebanese are in this category. 

Take wine and cheese as two of my favorite digestive exercises. 

Let’s start with wine. Two to three years ago, I decided that the wine category at Spinneys needed a total renovation. We did a type of [joint venture] with Vintage and we took [our wine selection] down from 2,000 references to 200. We depleted the old stock that we had, and we worked on certain price points for each type of wine and what values we were getting. When the inflation happened, everything obviously went down the drain, all price points were blown out of proportion. With the inflation, we still had a consumer that wanted our wine, but we also had great demand on Lebanese wine, because the price suddenly was more attractive. Lebanese vineyards have good wine. In certain years, great wines. 

How much of your turnover in red wines is in Lebanese wines versus imports, compared to one year ago? 

[The ratios] have totally flipped. If it was a 70:30 [in favor of imports before], it today is at 30:70. If it was two to one, it is two to one to the other side now. 

How is the situation with imported cheese such as French cheeses versus Lebanese cheese? 

We cannot compare between French cheese and Lebanese cheese. We always had a huge reliance on foreign cheese. We can make Halloumi and similar but we don’t have the capacity to make all the cheeses like Brie, Roquefort, and all the rest. 

How did the employee headcount develop over the past year? 

We are stable. At the end of the day the number of shops that we have [determines the headcount]. However, we had a lot of changes at the beginning from the management perspective. Many left us, but the main core [members] of the company are here and have more responsibility today. 

You had renovations and re-designations of stores in the last 24 months. Did you open any new Spinneys stores in that period?

We opened Signature in the Beirut Souks. That was TSC before and we called it Signature [because] we opened something above what Spinneys had [in terms of upmarket targeting] and we will go with this concept into other parts of the world. 

More affluent locations, you mean?

Exactly. 

The location in the Beirut Souks was impacted in the blast but Signature has reopened?

We are open. The blast has affected us in five stores and one warehouse. The team was able to fix everything to make it operational within two days. Tilal [located in Furn el Hayek, Achrafieh] took several more days because it was hit harder than others. 

The Grab’n’Go in Gemmayzeh?

It was totally destroyed. We got it back. All of our stores  are back. We lost one employee in [Spinneys] Mar Mitr in the blast. It was terrible but it brought us even closer together. We helped each other out. 

Has the payroll of your 2,200 employees been maintained at nominal level? 

First of all we [each employee an amount equivalent to half their salary] as bonus about five months ago. Then we are distributing every two to three months a voucher that is equivalent  to 22-23 percent of the payroll, which employees can spend at Spinneys or Happy. We have done this three times and are doing it again at Christmas. In January or February we are looking to do an increment for the whole company. The level has to be studied. The problem is that we cannot tell right now what level of turnover we are going to be working with. 

Can you say something about how your bottom line profit margin compares today to what it was a year ago?

We maintain it, but if you correspond it to the real dollar value, it is divided by eight. 

So it has dropped?

The emphasis this year has been on two things: maintaining our working capital and [reducing] our payable days [target for paying invoices]. Spinneys had 90 payable days; today it has 30. We were able to pay our distributors and suppliers to make sure that they stay afloat. We were able to pay bonuses. Today, it is time to survive and the main concern in January is that we cannot hold back any longer. We need to increase salaries, it is not enough to give food vouchers. We are helping as much as we can but people have lost their purchasing power and we have to find ways to bring it back. 

As you have mentioned, this year has been full of hiccups – sometimes overnight a supplier announces that they can no longer supply Spinneys. Is there a lot of pressure on the management team, such as your procurement and branch managers?

There is, definitely. But we have a super team. 

How many persons are in the management team?

Let me put it this way: we have 70 people that steady the ship from the operational and commercial perspective.   

If, hypothetically, there were an international investor who would want to acquire the group and offer you what you paid for the company plus a 20 percent premium on the acquisition, would you sell?

No, because I feel there is a lot more potential in this company. We have many plans to expand it whether at home or in Syria and we have created brands that we want to take outside. Also, you become an addict to retail and FMCG. I think I found my calling. It would be very hard to lure me away from it. 

How has your platform for e-commerce and home delivery been performing in 2020 and how are you planning to work on it?

We renovated the whole platform. We still have a few areas to tackle. We renovated how the platform is perceived by the consumer, but there are many things that have to be done in the background. We still have a few logistics issues that we want to fix. 

Do you have a key performance indicator for the group on what your delivery time should be?

We are working on time slots. So that means that whenever you pick a two-hour time slot, we have to be there. If you choose a time slot like 8 to 10, 10 to 12, etcetera, we have to be there within that time slot. Today we are being late by 20 minutes or half an hour, but we are working on it. 

Will you seek to corporatize the home delivery into an independent unit that would also serve third-party delivery needs from other stores or restaurants?

What we are trying to do – and we are following this model for Grab’n’Go, Happy and Spinneys – is that each concept has to make money on its own. All these stores are using the purchasing power of the group, and online, we will be able to use that purchasing power to create the margins required [for every entity to function individually]. But it has to make money as an entity itself before we expand and drown ourselves with investments that are not giving us any return. What I see is that Amazon is converting to brick and mortar. So what has happened is that both cannot live without each other. As brick and mortar I need my online platform and the online platform needs brick and mortar. 

Did the covid lockdowns generate a spike in online delivery? 

In the first lockdown that happened in [spring] we did not yet have our new platform ready. So we saw an increase, but if you want me to compare it to what our brick and mortar was selling – and [that is the case] even with the new platform when we got the new lockdown in November and sales were comparable [to those from March and April], the representation of online in comparison to what the brick and mortar was doing, was negligible. That does not mean that we will not enrich this channel and enhance it as much as we can. 

[Delivery] will grow slowly and gradually with time, there obviously is demand for it. Through Grab’n’Go we will go for fast deliveries, and through Spinneys, we will be creating a full marketplace. But we would like to perfect our logistics, our dark stores, do everything so that when we fully engage the consumer, they get the best experience that they expect when they come to Spinneys. 

But it will be a Spinneys platform, not branded differently under some corporate identity? 

It will always be Spinneys. We believe Spinneys is a great brand name in Lebanon, it has the equity and the trust of the consumer, and we would like to develop and build on it. 

“During the crisis…we reached 30 to 35 percent [of Lebanese market share] of modern trade. This is based on numbers that we have seen from our suppliers.”
“Today, it is time to survive and the main concern [is that] we need to increase salaries, it is not enough to give food vouchers.”

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Leaders

Existential warfare: The year of truth and shock

by Thomas Schellen
written by Thomas Schellen

Sadly, but also realistically, one could not blame an economic analyst for pronouncing Lebanon a lost cause in 2020. The numbers are not only disturbing, but unrestrainedly disastrous. Moreover, these numbers not only exist in arcane accountancy details, but they prevail wherever one cares to look, whether that is the macro-economy or fiscal realities. And the reforms are talked about. They go round and round, these reform promises, like a little white elephant on a dream-like carousel.

Yet even in the depths of the deepest currency troubles, one can postulate an upside. Hyperinflation, for example, was but a moment in July. The rest was severe, but technically, regular inflation. Note, remittances to developing countries are down globally, according to international estimates, but not by as much as had been feared earlier this year. In the context of contracted GDP and the exchange rate, the contribution of diaspora remittances to GDP is now thought to be above 30 percent. 

Additionally, not every producer of foodstuff in Lebanon was shamelessly extorting every last lira from their customers’ pockets, or pressing the blood out of their employees’ emaciated bodies. Not even landlords, or digital landlords – publishers and editors – are fated to be that cruel. Neither do local producers, traders and retailers rob their customers blind, nor hike prices beyond any moral restraint and enlightened self-interest. 

About the self-interest of our servants – the politicians – we can only say that they didn’t even successfully slip into Santa costumes this year, to bring the people tidings of their new incarnation into a cabinet for Christmas. Anyhow, despite their best efforts, the Lebanese people have prevailed as a not totally dysfunctional society. 

Forgive us, we are alive

In short, Lebanon as a society has survived this year where an assembly of economic men and economic women would have practiced perfectly rational self-extermination. This does not mean that the economic numbers and social realities are not depressing. They are even more depressing, because one can rail for months against the walls of this numerical economic prison, but cannot change the warden. Executive editors pray you to look for the numbers yourself, and analyze them. We have done it at the turn of every virtual and physical page of our magazine not just this year, but for more than 20 years.

 What we ask of you now is that after having chosen your numbers and analyzed them, choose the concrete measures to change Lebanon’s realities, one step at a time, as they famously say. To assist you in picking the solutions that have meaning, might appeal most to you and make you take up your weapons of truth and justice, we have reviewed the Executive Roadmap. For our 4.0 edition of this collaborative and consultative effort, Executive editors have selected 36 milestones, or targets, for you to pick from and invest your personal energy in, in 2021. We need to achieve those milestones. Lebanon needs to implement as many of the targets as we can push for. 

The historic perspective

History is perception. From a perception of Lebanese attitudes and experiences in the pivotal years of 2019 and 2020, one can call 2019 the year of delusion and protests, but also the year of righteous calls for the dream of a new society. 2020 was the year of despair and tragedy, but also the year of finally and inescapably accepting reality. The reality that this society has lost almost 30 years to inner corruption and external power plays. It is self-explanatory from the numbers that 2021 will be the year of economic pain and sacrifice. But will it also be the year of fairer opportunities and new endeavors in economy and society? We, the people, are the building blocks for this. Will we exert our will to be what we hope for? 

“If we believe that most people are decent and kind, everything changes,” writes contemporary Dutch historian Rutger Bregman. His reasoning is that fake addictions to cultural nocebos (opposite of placebo), veneer theories, and assumptions of human inadequacies, have prevented us from taking a realistic view. A view that simply says, we are not that bad, neither collectively nor individually. 

The realistic picture of Lebanese people in this sense is that they are amazing, and have proven themselves as a more coherent society than could have been expected throughout the trials of 2020. As true representative of the Lebanese spirit, former first lady Nayla Mouawad said in a quiet conversation in October about the development after the port explosion, “We can be unhappy with everything in this country, but not with the young Lebanese people.”

What we can predict with certainty for 2021 is that Lebanon will not fix itself. It cannot. We have been living off our reserves this year, many consumables – in the allegory of a car for example, our tires, battery, windshield wipers, brake fluids, and shock absorbers – have not been replaced. If our windshield showed a crack, it was not replaced, if our brake pads were run down, we let it ride and screech. The modern economy has its advantages, one of them that we have accumulated many things. But we cannot run on the reserves and neglect the replacement of wear and tear parts or the maintenance of society for any number of years. The risks of doing so are cumulative. We, the decent people, need to build a decent society in a decent state and we need to start today, not next year.  

Ceterum censeo (existential warfare)

In closing, one of history’s larger than life figures was the Roman military man, farmer and political leader, Marcus Porcius Cato. Of him, whose oratory skill and fame outshone even the presidential Lebanese orators of this generation, it is well known that he ended every speech with his core conviction: the demand that the enemy of Rome, Carthage must be eliminated. His oratory phrase went down in literary and political history as his, “ceterum censeo”. 

Our ceterum censeo at the end of 2020 is that the enemies of Lebanon’s democracy, the corruption and political self-interest of the country’s most powerful, have to be eliminated. Executive has repeated this often, not quite in every editorial and opinion leader, but time and again since its first issue went to print in the late 1990s. We are saying it again as this pivotal year of 2020 is drawing to a shameful close. Shameful because the only thing that this country, over the past 12 months, has seen that has been more severe than inflation and cost of living, has been vile and empty rhetoric and insincere promises of reform, whether it be political structural, or fiscal.

Reform is our right. We want reform now. 

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Editorial

100 years young

by Yasser Akkaoui
written by Yasser Akkaoui

2020 has proven to be one the most tumultuous and unrestrained years in this little nation’s 100 year existence. Twelve months of continuous and unexpected predicaments of the worst kinds, all endured with exemplary dignity and integrity. The extent of empathy, generosity and care offered so selflessly by the people is simply humbling. Look in the eyes of healthcare professionals and youths turned saviors in explosion devastated areas and you will understand. It is this sense of pride that allowed for people to repair their homes, renew their shops and pick-up the pieces of their lives

The beginning of the second century in the history of modern Lebanon coincides with the beginning of another fight between two sets of socioeconomic models. Lebanon will either move forward or be stuck in the past. Lebanon will either contribute to the world of knowledge, and the knowledge economy, or will watch the world progress.  Lebanon will either let corruption devastate its society and environment, or it is going to unite for what is right. History taught us that Lebanon is not a nation that can be held hostage for long.

This magazine will always believe in a Lebanon that can rebuild and reform its economy, strategize its healthcare and education, combat poverty and corruption, and develop entrepreneurship and its diaspora.

Lebanon has greedy enemies, within and without. We now understand more than ever who our enemies are and what they are after, and there is a lot we can do besides being dragged into violence.

For many, 2020‘s events seemed desolately out of sequence. But after being thrown abruptly into this new reality, we know that this is the new order of things, and we have risen to the challenge.

It is our national pride that is frightening.

Lebanon will defeat and outlive its enemies.

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LaborSpecial Report

Full interview with investment expert Romen Mathieu

by Thomas Schellen
written by Thomas Schellen

In the context of Lebanon’s existential crisis, Executive inquired about the country’s new economic and social barriers – a mountain of problems formed around a nexus of poverty, unemployment, and colossal need for investment, that at first (and second) sight appear impossible to scale. In seeking to chart financial and economic pathways across this agglomeration of challenges, Executive sat down with Romen Mathieu, co-founder and managing partner of regionally active EuroMena Funds. 

E  From your perspective as an expert on management and investment, is there potential to create jobs in Lebanon given the current situation, or would that be chasing a vain dream?

I do not think the question today is if the country is able to create jobs in the forthcoming period. The real question is whether the country is able to preserve existing jobs. [We need to] forget about creating new jobs and find ways to preserve jobs. With regard to our situation, I believe that we are today in the heart of the storm. The government was due to be formed [in late September]. It didn’t happen. Ad hoc we are hoping that the government will come up. The worst thing that can happen is that this government does not show up for the coming month, [October]. If we live in a country that will have no government in the coming month – which is a possible scenario because in Lebanon anything is possible – and if we see the first rains [of the winter season] and nothing done, I think the country will be in a catastrophe mode.

E  What would this scenario of no government imply and what do you see as better, alternative scenarios?

So if there is no government in the month [of October], I think the harm of the coming 30 or 45 days will be tremendous, even if one month from now we have a good government. It will take years to get back to where we are now – which by the way is much lower than where we used to be. If there is a government, and a respectable government as per international standards, [meaning] an independent government that will be able to pull in very quickly the IMF, Cedre, and the international institutions that can bring money and confidence back to the country, then the country will be able to preserve the existing jobs at least for the coming three, four, five months and then eventually be able to create new jobs afterwards.

E  Do you regard the need for using this small window to start a recovery more as a mental challenge or a financial challenge?

I am not sure that [the problem] for Lebanese people is mental. I am 50. I have lived 42, no sorry, 47 years of my life in war or a warlike situation. I never knew a Lebanon without a war or a crisis. So my mental [constitution] is very strong. I can assure you. [If we take the situation] after the Beirut blast – and I was there; my family was in it – I am not sure if there are many countries that could [make a comeback] after that. It is a major catastrophe, and insurances are not paying, the government is absent, and officials are not to be seen. And yet, people are starting to build back, shops are opening back up, etcetera. It is not a question of mental [resilience]. No one can say that the Lebanese population have a weak mental constitution. I am sure that we have the most powerful mental [resilience] in the world.

E  So the urgent challenge is financial?

What is missing now is solid ground on which to build. If money and support does not come before the first rains to Mar Mikhael, Geitawi, and all those areas, if the port facilities and logistics companies are not supported very quickly, and if the hotels, restaurants and service companies are not supported very quickly to build back, you will have tens of thousands of jobs that will be erased completely. [This is] because these young people that were working there are today either already out [of Lebanon] or applying to be able to leave at the first occasion.  And once they leave the country this time, you will not fool them again – they will not come back. So [the challenge] is about bringing very quickly the financial support to these companies, small SMEs, to be able to reopen shop, bring back their employees and start [operating].

E  How is that best done from your perspective as a private equity player?

We as EuroMena [Fund] have proposed an initiative to our DFIs, our development finance institutions, that are our shareholders – International Finance Corporation (IFC), the European Investment Bank EIB (EIB), [France’s] AFD Proparco, [Germany’s] KfW [Group], the CDC [Group of the] UK, all of these. We told these DFIs that the businesses which we are talking about do not want grants. Grants are for individuals who have no one to help them. A business in Lebanon doesn’t need a grant. It needs support. These businesses most probably each would need a very-long-term loan with a small interest rate and the possibility to convert [residual debt] into equity. If whatever remains of this loan is not paid back after six or seven years, it is converted into [lenders’] equity in the small businesses. And then we would have a premise for building a stock market for SMEs in Lebanon. That will create liquidity and create the ability for these small companies to take money from the stock market, bring in new investors, etcetera. This is what Lebanon needs today.

This is the proposal that we are working with today with our institutions, in order to be able to take [such long-term lending] very quickly to the largest number of companies. I do not know if it will happen; it depends on the availability of funds and this means it mostly will depend upon if we have a respectable government or not. If we do not have a respectable government, not one dollar will come. If there is a respectable government, there are huge funds that are willing to come to Lebanon with large amounts to support the economy, sustain the existing jobs and create new jobs.     

E  How far has your proposal been developed? Is this still in the design phase or have the international funds and DFIs received it, and have they responded? 

It has been received and has generated a very good echo. I think it now is about waiting to see which track the country will take. Will it take the dark track – then there is nothing – or will it take the track of light? Then we definitely will have the support that we and others can bring. We as EuroMena are committed to [deploy] all the necessary efforts and all the needed human resources to be able to in the first stage maintain [jobs] and then create the largest number of jobs possible. This is how we will keep our Lebanon standing up.

E  Do you have a target for how large this investment fund should be?

There is no minimum and no maximum. We know the amounts that are needed. It will take from $50,000 to a few hundred thousand dollars per company, for tens of thousands of companies. When you have a situation like this, you don’t count anymore. Whatever comes is welcome and whatever comes, you employ very quickly and put it to work. With this effort, you will save as many jobs as you can. It also depends on the ability of the [funding] institutions to move quickly. 

E  Assuming for a moment there is money, a good government, and international institutional support for the scheme that you are advocating, what eligibility criteria would you use for Lebanese companies that want to benefit from a convertible loan?

We talked a lot about that. I think there is no time to make a proper assessment of valuation [of an applicant company] with due diligence, lawyers, etcetera. A normal investment ticket for us is $50 million and above. But for the specific situation, we are looking at investments ranging from $50,000 to a few hundred thousand dollars. You will furthermore have to roll out [these investment amounts] as fast as possible to save the largest number of companies [and] businesses. We found that the best solution would be to make standard agreements whereby you probably would give a convertible loan to these companies, which is a loan with a long-term tenor of perhaps seven years. Also, because you are giving money in dollars, whereas most of these companies are local and their business is in Lebanese lira, or in lollars, they have to pay you in lollar – meaning you give them hard money and they have to pay you grosso modo in monkey money. Since you cannot ask them to pay you back in dollars in two or three years, you have to spread it out, hoping that – in the best case scenario – in the coming two or three years, things get back to normal and the lollar becomes a dollar and that the companies have the means to pay you back.

As they cannot start [making loan payments] immediately, you probably have to give them a holiday period of 12 or 18 months so that they start generating money as the country picks up and they will have the ability to pay you. You would probably charge a small interest, not a large interest. 

I do not believe in free money – what comes easy is what you lose easy. So there has to be a small interest [charge of] one, two, [or] three percent. Most importantly, if there is a remaining amount that has not been paid after the [maturing of the loan] – whatever period it is, five, six, or seven years – the entrepreneur should know that this is not forgiven. This means that he will have to give up equity in his company towards the entity that gave him the money. That entity becomes his partner and enters the board.

Meanwhile, throughout this entire period, our duty is to upgrade these companies and [equip] them with an investment grade corporate governance, accounts, transparency, [and compliance with] ESG and AML [standards on environmental, social and governance and anti-money laundering principles], educating them in all this. So that at the end, if you [obtain] equity in these companies, and list this equity on a stock market, [these newly listed companies] are eligible and attractive enough so that investors are coming in and you create liquidity for small enterprises in Lebanon.

E  Would this be a singular endeavor and fund where EuroMena would lead or would it be more of a consolidated effort involving everybody in town who has the requisite financial, investment and governance skills? Would a public-private partnership be involved?

EuroMena is a regional private equity fund. We invest in the Middle East and Africa. Lebanon is one of 22 countries that we invest in. But it happens that we are here in Lebanon; we used to be in Lebanon because the environment was good, the sky was blue and you had nice food and nice people around you and a good banking system and a good tax system. Except the people who are still nice, all this is out. There is no banking system, no regulation, the sea is polluted and the mountains are not green; nothing anymore. When you, today. tell people that you are in Lebanon, they look at you [and say hmm, okay]. But we have to give back to the country that has hosted us, for what the country has given us for 15 years. What we can give this country is the platform of EuroMena. We manage hundreds of millions of dollars and so are capable today to manage a specific envelope for the urgent matter of Lebanon. We will enter the special alliances and special partnerships that we need on the ground to do that. But what we are saying is that EuroMena will not make money from this.

E  There are capable people in Lebanon who have knowledge and experience in structuring investments, assessing companies and so forth. Would you invite them to be part of the team for this effort of providing convertible loans to a large number of Lebanese enterprises?

We would definitely be partnering with institutions that would be complementary to us and contribute to deploying these amounts in a faster and more efficient way. That is the objective. Again, this does not have the objective of publicity nor of making money. It has the objective of giving support to a country that has given us a lot and giving back to that country whatever is needed, while preserving the financial needs of our shareholders. Again, we are not into grants or throwing money down the drain. We are into investing responsible money with responsible people and responsible investors in order to sustain or create the largest number of jobs possible and make [Lebanon] pull up again.

E  How many jobs could a long-term, convertible loan sustain for each $100,000 invested by one of your institutional partners?

One million dollars could save on average 10 companies, and every company within that range would have on average ten jobs. What I am therefore saying is that a million dollars would probably save around 100 direct jobs but these [100] direct jobs would probably save 500 indirect jobs.

E  So we are hearing that around 600 jobs, a combination of direct and indirect jobs, could be saved over a period of three to five months, which would be a bridge period to reach a point where these companies will return to operational safe ground in economic terms?

That is one million dollars. So if you think $50 million, you are really talking about something  very important.

E  How large would an investment team have to be to facilitate this wave of convertible lending, in terms of assessing companies, or even just signing the necessary paperwork? Could the latter process be automated?

It takes a partnership with a law firm with a standard agreement, so that they know as much as possible. And it probably would require another agreement with a financial institution – not a bank but a quasi-bank – to use the IT systems of these [institutions]. We at EuroMena have the DNA of investors and so we are completely capable to serve this task, but we will definitely increase our team by capable young people. I think we have many in the young generation who today cannot find jobs outside [of this country] although all of them have degrees from great universities. They are prisoners today in Lebanon so there will be a great opportunity to put them to work.

E  So there would be an element of job creation in this endeavor, generated by your own organization.

I think so, yes.

E  Would you have a priority list of eligibile industries or sectors, or would it be across all sectors?

It depends on the willingness of the funders but I think there are no limitations; every dollar that is invested into something that creates a job, is a responsible dollar to invest. You have to see it from this angle. The objective is not the financial return – the objective is to save the largest amount of SMEs and jobs as fast as possible.

E  If we were to go below the SME range of enterprises to micro, small, and medium enterprises (MSMEs) and investments by micro-finance institutions (MFIs) into micro and nano businesses – meaning those enterprises that can benefit from micro-finance loans and employ very few or no persons outside the micro-entrepreneur’s family – could micro-finance entities with loans in the range of a few thousand dollars plug into the platform that you are proposing?

I do not know. I cannot answer you on this question today. I think in this situation you have to be open to anything that can create jobs and sustain jobs and preserve at least the capital of the investment, not the financial return. But I would not say yes and would not say no; it depends on who is the counterpart, what is the proposal, and how we can put hands together.

E  If a Lebanese saver with many old dollars in their bank account would want to invest with the scheme of convertible loans at low-interest long range tenors, would the platform facilitate this participation?

We will be definitely creative enough to use every single lollar, Lebanese lira, or dollar to save jobs.

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Editorial

Pyromaniacs

by Yasser Akkaoui
written by Yasser Akkaoui

The discourse of the reformist groups has changed after the massive August 4 explosion. The depth of hatred, spite, corruption and incompetence we are dealing with, embodied by our so-called political establishment, is beyond the most horrific, dystopian imagination.

Never have I come across so many frightened eyes as since the Beirut blast. Eyes that were hopeful before. Eyes that had left jobs and lives abroad to try and rebuild Lebanon, the Lebanon that they had heard their parents’ parents talk about. Look at what it has become.

Little did we know that we are dealing with pyromaniacs at the helm of this country, absorbed by ego and self-interest. They are sailing this boat into one sea of fire after another. Against all odds, we are soldiering on. Regardless of the repeated destruction of our lives and livelihoods, we will keep shoulders tightly together until we finally build the country we deserve.

On October 17, 2019, the revolt, the thawra, successfully made its voice heard. It isolated our political class, and demonstrated how irrelevant they have become, how distant, and how oblivious they are to Lebanese aspirations. In a normal world, they should have all resigned. Predictably, they did not. They chose to cling to sectarian and geopolitical manipulation to remain in power. Both excuses do not resonate anymore, their grand theft and negligence is unforgivable.

A year ago the first steps of the march for change started. Today, every free citizen, though tired, is willing to bite their wounds and continue on the journey of sacrifice, despite financial, socioeconomic, and health concerns, increasingly pushing the Lebanese psyche to the brink. With little left to lose,  the chance to reclaim Lebanon depends on this last burst of hope that remains. 

Today, we see family, friends, and neighbors grab first flights out of Beirut, wrenched from the ambition they had allowed themselves to feel; wrenched from their fight for the possibility of a better tomorrow despite the pain of today.

The tears at airports are different this time, as our loved ones look back at us knowing they have left us in a hell waiting to implode, knowing the chances of their return are as vaporous as post-bomb dust.

Those of us who stay, drive back grateful that loved ones are safe wherever they escape to. Now we have to take our revenge, to fight for the Lebanon we deserve, hoping one day these fires will turn into suns, and our children will return to us.

Whatever these pyromaniacs cook among themselves is doomed to fail, as every recipe of theirs has failed over and over – yielding bread that does not rise and does not nourish its people. It’s impossible for them to regain our trust, let alone the trust of the international community. 

It’s no longer about trust, we must hold these criminals accountable.

The march goes on. 

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DiasporaLaborLeadersOpinionpovertySpecial Report

The untold story of the last 12 months

by Executive Editors
written by Executive Editors

Lebanon is not a country by any easy definition. Whatever your preference
in terminology, when talking about a community of people in terms
of country or nation there are classic denominators involved that are either geographic, or social and cultural, but always framed as coherent and continuous. But Lebanon? Territorially, linguistically, historically, religiously, ethnically, even in terms of plant-life and climate – this assembly of ancient, sea-hugging, city-states, mystical valleys, hillside villages and once-forested mountain tops – is certainly not one thing: congruous.

The Lebanese idea nonetheless, for more than a century, has had such
staying power that foreign visitors and locals alike have latched onto it.
Even in today’s hyper-fragile context, people often reference Lebanon’s inherent contradiction between its paradise- like environment and profound social assets with its many struggles – joking that the abundance of diverse human talent and real natural treasures had to be compensated by the inclement geopolitical neighborhood and, in the words of veteran US-Lebanon diplomat, Jeffrey Feltman, “vexed relations with its neighbors”.

Although the country has received about as much international media attention in the past few months as it did in the 14 years since the war between Israel and Hezbollah, there is an untold story in the nauseatingly repeated tale of Lebanon’s woes and tribulations of the past 12 months.

On the headline layer, this is the period that started with the initial dysfunctions of the banks’ dollar machines in September 2019, and the politicians’ stupidities in designing their state revenue plans with its
“WhatsApp” levy in the following month. The politicians are now marking the thawra’s first anniversary by missing yet another opportunity for political governance. One more in a truly mind-boggling series of failures.
But beneath the popular veneer of financial errors and elite-induced governance-failures, is this astounding story: that the country has not completely disintegrated in the past twelve months.

How can a technically bankrupt state still show any – albeit stupendously incompetent – signs of governance- life today? How can it be, wonders the sceptic on human goodness, that what is dumbly described as “ordinary people” (as opposed to celebrities and demigods?) have shown so much solidarity, compassion and practical human investment to fellow humans and communities over many months, when conventional cynics predicted an overburden of mayhem?

How could this people – professionals already suffering from economic losses, students with no visible job prospects, neighbors whose homes had been blown to shreds – show so much solidarity and compassion in the weeks after the Beirut port explosion?

This is the mystery tale. Lebanon has actually managed to survive the past twelve months, despite all doom that so many a talking-head, conspiracy theorist, and opinionator predicted would figuratively kill the country, gut all its banks and enterprises, and literally kill scores of people by starvation, crime, inter and intra-communal violence.

This version of the Lebanon 2020 tale reminds of another timeless story, the one of what many see as President John F Kennedy’s world-defining moment, in a speech he gave to emphasize US support for West Germany.

In 1963, JFK stepped in front of the Rathaus Schöneberg and told the people of Berlin, Germany, and the world, that the proudest statement one could make in the politically coldest days of the Cold War was to declare, “Ich bin ein Berliner” – “I am a Berliner”.

What worked back then as an emotive and stimulating message to a post-WWII public might not work in addressing a social media spoiled and intellectually keen Lebanese youth of 2020. But this does not detract from the fact that Kennedy’s solidarity declaration roused immense enthusiasm from the Berlin people and had a deep impact on the course of the Cold War.

Beirut today is the frontline of humanitarianism, of solidarity, of fighting fear and poverty, the frontier of the people, and the peaceful arena of their justified demand that in systemic, political change for a failed regime, all means all – kellon ya’ane kellon. In this sense, Executive editors reckon that instead of coming across as an almost-derogatory statement of inferiority, Ana min Beirut could be the most underrated affirmation of human talent today.

But. There are a few caveats, the problems are horrendous. Despite the spirit of the people, and the astonishing fact of mere survival, one cannot predict if Lebanon will survive until tomorrow, next week or the month thereafter. The economic spiral is so far from virtuous that it is ridiculous to predict any positive turn. It has thus been extremely testing to investigate the nexus of poverty and job destruction, which is a main theme of this issue, along with questions on the role of the diaspora. Talking about poverty in Lebanon in so many learned ways can be depressing because of the onslaught of numbers and definitions (see poverty special report) and the crucial cross-linkage between curbing poverty and preserving jobs (see labor report).

Most disastrously for the country’s state of mind, however, is that Lebanon’s political pyromaniacs, pirates and brigands are still sitting in their palaces.

What can you do with a pyromaniac? If you have to deal with such an afflicted individual, you may classify him or her as a person with environmentally induced sociopathy or some form of personal psychopathy. You may compassionately regard her or him as worthy of your pity, someone who is suffering from an “impulse control disorder”. But however sympathetically you think of pyromaniacs, these people, just as kleptomaniacs, are criminally insane. You need to protect society from them and you need to protect them from themselves.

Now such disorders of the soul are very rare (pyromaniacs and kleptomaniacs exist mainly in the minds of paperback novelists and yellow journalists) and there is no reason to believe that Lebanon has an outside the- bell-curve high percentage of pyromaniac citizens or elites.

But given the evidence of insane political behaviors on individual and group levels in Lebanese political these past 12 months – the vicious cycle of October 2019 closes itself and only one conclusion remains:
this country is confronted with dangerous individuals and groups that are as politically powerful as they are delusional and unable to learn or change their behavior. And this makes Lebanon on the first anniversary
of the thawra sadly look like the stage of a movie, satirizing the ugly downside of the human condition instead of a showroom of human goodness that it could be.

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LaborOpinionSpecial Report

Boosting the Lebanese Food Industry to Preserve and Create Jobs

by Mounir Bissat
written by Mounir Bissat

The Lebanese food industrial sector is capable of supplying most of the basic products that were imported into Lebanon before the onset of the 2019/2020 crisis. The sector’s output encompasses a wide variety of products, ranging from poultry and processed meats, to the whole range of dairy products (except butter and processed yellow cheese), jams, pickles, spices, nuts, coffee, edible oil, confectionery and snacks, bread and pastries, without forgetting a range of juices, mineral water, spirits and wines. Due to the financial crisis and LBP devaluation, imports are becoming increasingly expensive and unaffordable. Exports represent one of the few sectors that maintained a steady growth in volume since the early 2000s, and even when the economic decline started in 2011, exports stood still, or decreased modestly. I want to address two primary points in regard to the food industry. First, how Lebanon can leverage the food sector to create jobs, and second, how the agroindustry can be improved.

What is the best way to create jobs in the food sector, overcoming perceived obstacles, and creating synergies in job creation with adjacent or even distant sectors and industries, from packaging to marketing and logistics?

I believe we should focus on job preservation rather than job creation. The food sector, similar to other sectors in Lebanon, is under great risk, and subject to real threats of extinction… However, we cannot undermine the strong points that should be built upon to reinforce our chances for survival. Export capabilities should be upgraded and improved, by creating new tools to finance export activities and import of raw materials (the Cedar Oxygen Fund may be one way to do this), and settlement of pending, unpaid bank facilities. Moreover, focusing on import substitution is another important factor to keep the sector’s productivity high, despite the decreasing local purchasing power. Recent United Nations Industrial Development Organization (UNIDO) studies showed that every job opportunity in the industrial sector will help create 2.2 jobs in adjacent sectors. This could also be true in the case of the agro-food industry: for, in addition to boosting activities in support sectors like packaging, services, insurance, shipping , etc…, the agro-food industry will directly boost another vital sector: agriculture. Therefore, upgrading the expertise and knowledge of the agriculture sector, and encouraging the adoption of crops that can be processed as the essential raw materials for agro-food units, will create a circle of job creation across both sectors.

Can the agro and agro-industry sector be improved, and can it create new jobs, without having to rely on state action?

No sector is able to overcome the current “impossible” situation without relying on active state intervention in reviving the economic cycle in Lebanon. We are very well aware that the state has very limited and scarce resources to support the productive sectors, agro-food among them, however, many initiatives can be launched that do not cost a single dime. All it takes is ratification of new laws, and the application of existing ratified laws and decrees. The Food Safety Law, Appelation Controle, and Safeguard measures are few examples of a very long list of relatively easy actions that can improve the performance of the sector, helping eventually to preserve and create jobs.

Any financial and economic recovery plan that does not include any stimulus and support measures is doomed to fail in attaining its objectives. The focus in all draft plans that were made public was to reduce debt to GDP ratio to acceptable limits, and all the measures taken were centered around reducing debt, which is understood and acceptable. However, the same ratio can also be reduced by increasing GDP, and this can only happen by including stimulus measures to re-ignite the exhausted economy. According to many previous reports, most importantly the newest one by McKinsey, the agro-food sector is a major growth engine for the economy, considering its competitive advantages that need to be reinforced and emphasized.

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LaborOpinionSpecial Report

Industry: Its role and perspective in Lebanon’s economic growth

by Ziad Bekdache
written by Ziad Bekdache

The manufacturing industry is a core engine of economic growth for developed and developing countries; a fact reconfirmed by recent studies. On this premise, it is natural that the Association of Lebanese Industrialists (ALI) play a major role in economic and social policy. As Lebanon faces the worst economic crisis in its history, ALI is committed to surmounting the challenges ahead, while continuing to foster the development of Lebanese industries and supporting their response to new challenges in global competition and international integration.

Faced with the prospect of globalization, ALI has long determined core objectives of improving the business environment, reducing the various burdens placed on industrial firms, and reforming Lebanon’s labor market. Achieving these goals will help to accelerate the structural reforms needed to create growth and employment and make a major contribution to the modernization and globalization of the Lebanese economy. In this regard, supporting the internationalization of Lebanese SMEs stands out as one of ALI’s most important strategic tasks.

In our association’s perspective, the main challenges facing Lebanese industries prior to the financial crisis and the port explosion are listed below, and they still persist:

  • Loss of state dignity and respect.
  • Excessive number of unemployed graduates, as well as brain-drain.
  • Negligence of vocational and technical education, which are condemned as socially inferior, while the country is in dire need of these skills and sectors. High rate of unemployment.
  • High rate of poverty and extreme poverty.
  • Deadly bureaucracy.
  • Increased balance of payments deficit despite contraction of trade deficit.
  • A large trade deficit that from the industrialists’ perspective is often fueled by unfair reciprocity with countries, where Lebanon signs trade agreements despite imports being much higher than exports.

Many of these challenges have been exacerbated by the financial collapse, the ramifications of the port explosions, and the Covid-19 pandemic. These new challenges are:

  • The destruction of jobs in many vital sectors of the economy, such as food and beverage (F&B) and tourism
  • The drop in the value of the Lebanese lira, which led to a decrease in Lebanese salaries and wages, with the following results, based on ALI’s analysis:
  • The minimum wage has fallen from 450$ to 90$ per month due to continuing devaluation.
  • The Informal economy now covers 60 percent of the whole economy

Listing the challenges, ALI sees the need to address the current state of the Lebanese economy on the national level. Lebanon has unmatched financial potential in the global economy, and distinctive human capital: skilled and specialized people, educated youth, entrepreneurs and businessmen and women who uphold Lebanon’s image locally and internationally.

Facing up to the challenges, ALI took the initiative back in 2014 to propose a socio-economic program which would allow Lebanon to overcome the stalemate, and the porosity of the economy due to the prevailing conditions in the region. This initiative is coherent with actions taken by the government in the past few years.

The Lebanese government hired McKinsey to prepare a study about the Lebanese economy requesting specific recommendations in order to boost the business cycle. The recommendations submitted by McKinsey, published under the Lebanon Economic Vision report, clearly pointed to governmental mistakes in implementing economic policies during the last decades, because the government’s policies did not rely on Lebanon’s productive sectors. Unlike the negative view taken by policy makers on the productive sectors and their role in the national economy, the McKinsey study recommended for the Lebanese government to focus and rely on productive sectors, such as industry and agriculture. Moreover, the study mentioned four sectors capable of enhancing growth: tourism, agriculture, industry, and technology.

In our meeting with persons responsible for undertaking the McKinsey study, we agreed that all industrial firms who continue to survive despite the lack of governmental attention and support, are capable of becoming economic levers.

In addition to our collaboration with McKinsey, ALI and the Lebanese Center for Public Studies (LCPS) cooperated in 2017 to prepare a study about Lebanese export capacity. This study found that it is possible to increase Lebanese exports by $1 billion in different industrial sectors, such as agro food, pharmaceuticals, jewelry, clothes, furniture, leather, and electrical and industrial equipment.

Undoubtedly, the Lebanese economy has the potential to achieve more growth, and create job opportunities for the Lebanese youth. It is worth noting that the Lebanese industrial exports expanded from $800 million in 2000 to $3.6 billion in 2012 according to Lebanese customs statistics, and only started to witness a decline in light of the region’s political and economic reality.

It is the vision of ALI that Lebanese industrial businesses will lay the foundation of a new system that relies on design, creativity and innovation, aiming at manufacturing added value products in Lebanon and distributing them around the world in cooperation with the Lebanese diaspora. Industrial investment cooperation agreements could furthermore be signed with countries such as Iraq, Iran, and African countries, where opportunities are available and factors of production are low. Cross-border collaborations will ultimately pave the way to a holistic economic system that Lebanese industrialists will be well positioned to lead.

It is our position that the Lebanese industry can motivate the whole economy just as agro food industries motivate the agriculture sector. The manufacturing industry is able to create sustainable jobs, further expanding an economic sector that contains 195,000 employees, per the United Nations Industrial Development Organization.

In the current cash crisis, each $1 million worth of locally produced industrial goods will preserve 70 percent of scarce cash in Lebanon (the remaining 30 percent spent on importing raw material) and boost the economy. On the other hand, importing $1 million worth of wafer (the food-stuff), for example, leads to 80 percent drainage of scarce cash to the country of origin, while only 20 percent of this money stays in Lebanon. In addition, according to UNIDO, each job created in the industrial sector creates 2.5 jobs in other sectors. This shows the importance of Lebanese industry in revitalizing the economy.

Approaching the current crisis, ALI envisions a path for creating new jobs that can be summarized as follows:

  1. Adopt a package of new economic incentives covering all sectors to secure growth, sustain jobs for the Lebanese, and create new job opportunities.
    • Adopt solutions to the issue of energy intensive industries.
    • Encourage international investment in new industries, like the automobile industry, or in new industrial cities, like Tripoli, or in new private investments.
    • Adopt an action plan in partnership with traders to increase exports from Lebanon and to reduce the trade deficit
    • Prioritizing Lebanese nationals in the process of recruitment.
  2. Taking necessary measures to develop public private partnerships.
  3. Develop a clear vision for the exploitation of oil and gas.

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