The hummus war is escalating. In October, 2009, Lebanon set a Guinness World Record for the most hummus bi tahini compiled in one place, amassing more than two tons in an extravagant ceremony that drew international media coverage and beat the previous record held by Israel. Lebanon has been fighting for years to confirm that hummus is of Lebanese origin, and its organizers hailed the move as a bold offensive in the battle to repatriate the dish.

It took Israel less than three months to wrench that record back.

On January 8, Arab-Israeli restaurant owner and multi-millionaire Jawdat Ibrahim doubled Lebanon’s figure, borrowing a satellite dish from a local broadcasting station and filling it with more than four tons of hummus. Ibrahim told reporters his actions were not hostile.

“Competition is a healthy thing,” he said at the time. “Today we have hummus. Hopefully, soon we will have talks for peace in our region.”

How escalating an already bitter conflict might promote peace is a subject upon which Ibrahim failed to explain. He’ll get his competition though — Lebanese Minister of Tourism Fadi Abboud was quick to respond to the news of the Israeli record by saying that Lebanon plans to up the ante this spring, and will top Ibrahim’s record by another two tons.

The economic collapse of the Soviet Union ended the escalation of nuclear weapons stockpiling during the Cold War. Hummus — far cheaper  than nuclear armaments — probably won’t undercut the economies of either Israel or Lebanon. However, it is no less appropriate, now as then, to pose the question: at what point does escalation leave rationality behind?

We are like a country whose capital has been hit by two atomic bombs,” Patrick Elie, a Haitian presidential adviser and former defense minister told The New York Times. The death toll from the January 12 earthquake could surpass 200,000 people, according to the United States military.

There are thought to be as many as 20,000 Lebanese living in Haiti, according to Fadi Fawaz, advisor to Prime Minister Saad Hariri. Fawaz spoke to Executive the night before he left with an official Lebanese delegation carrying aid to Haiti. The state-owned Middle East Airlines (MEA) coordinated with the government to charter an Airbus 330 to carry the delegation and aid to Port au Prince, the Haitian capital.

“The aid taken on the plane includes 30 tons of health equipment, 25 tons of shelter and three tons of milk,” said Fawaz. He was accompanied on the flight by Yahya Raad, the secretary general of the Higher Relief Commission, representatives from the Foreign Affairs and Health ministries, as well as five doctors and members of the media. Fawaz said that having survived 15 years of civil war meant that the Lebanese have both practical experience coping with disaster and expressing emotional sympathy.

“We have previous experience in disasters and we should use thisexpertise to help those in need,” Fawaz said. “We are a small country but we can make a difference in this difficult area at this difficult time.” 

The clash of the Turkish titans is over. Only months after his media empire, Dogan Holding, was slammed with a record $3.2 billion fine for tax evasion, media mogul Aydin Dogan is stepping down as chairman of the company — effectively throwing in the towel to end the very public, very acrimonious battle he has been waging with Turkey’s Prime Minister Tayyip Erdogan.

The Dogan-Erdogan feud had been escalating with the drama of a soap opera over the past year, as ever-more defamatory accusations of corruption, blackmail and dodgy dealings were flung between the two. As reported in Executive last month, Dogan-owned newspapers and television stations stoked the flames with staunchly critical news coverage of the premier and his administration.

Dogan’s decision to step down is widely viewed as an attempt to bow out of the row, with his daughter, Arzuhan Dogan Yalcindag, replacing him at his post. The move is apparently part of a larger internal restructuring at the media organization, aimed at “achieving sustainable high growth and building strong foreign partnerships,” according to a press release posted on Dogan Holding’s website.

Cutting family ties

Dogan family members will still hold chairman positions in the company but are to transfer their executive duties to professional managers over the next six months. The development also comes after German publisher Axel Springer recently froze its plans to buy a 29 percent stake in the Dogan group.

Dogan’s decision to call it quits at age 73 does seem to have eased tensions in the spat. Shortly after the announcement of his resigning, shares in three Dogan companies surged on the Istanbul Stock Exchange, some by as much as 10 percent on an otherwise calm trading day.

But the merriment over the stock surge was dampened by news from the Istanbul public prosecutor’s office. It recently announced that the media boss, along with three other board members of the Dogan group, would be indicted on criminal charges that they intentionally let the media group suffer financial losses.

The charges stem from a complaint by Turkey’s exchanges watchdog, claiming that two Dogan companies suffered great financial losses by purchasing printing materials from foreign suppliers instead of Turkish companies. If convicted, they face up to eight years in prison.

The hefty fine imposed on Dogan’s company has fueled fears of a politically motivated clampdown on free speech among international media advocacy groups and, most notably, the European Union, which Turkey aspires to join. In October, the European Commission’s annual report on Turkey’s progress toward EU membership called on the authorities to treat Dogan in a fair manner and said Ankara needed to do more to protect free speech and press freedom.

EU bid breaker?

Aside from the Dogan case, European watchdogs are worried about the aspiring EU member’s controversial Internet censorship practices. Europe’s main security and human rights watchdog — the 56-nation Organization for Security and Cooperation in Europe — recently criticized Turkey’s Internet law, saying the country was blocking some 3,700 websites for “arbitrary and political reasons.” Among other sites, Turkey blocks seemingly harmless websites like YouTube, GeoCities and some Google pages.

Some think the Dogan case might seriously impair Turkey’s EU-bid.

“The tax levy imposed on the Dogan Media Group is a clear and severe assault on freedom of the press in Turkey and [will be] remembered in Turkey’s EU-bid,” said Cagil Kasapoglu, a Turkish journalist based in Beirut.

Kasapoglu said that the Dogan case would not only affect Turkey-EU relations, but it would also impact Turkey’s role in the Middle East.

“As for the foreign policy implications…the decision does not only strain Turkey’s relation with the EU but also as a representative of democratic values in the Middle East; it sets an unfortunate example,” she added.

But there are also those who believe that the potential dismemberment of Dogan’s media empire will pave the way for a healthy restructuring of the Turkish media landscape.

Sahin Alpay, a columnist and senior lecturer at the department of political science at Istanbul’s Bahcesehir University, previously said that “media aristocracies” such as Dogan’s threaten media pluralism in Turkey and polarize the country’s journalists, and the stories they report.

It is easier to walk into the Lebanese Parliament than gain access to the higher echelons of Lebanon’s jewelers, given the amount of security, how frequently top jewelers travel and their secretive nature.

To visit the offices of a jeweler is akin to entering Fort Knox: beyond the usual security to an office block there are multiple bulletproof doors to be buzzed through — including a holding room — until you’re sat in a padded leather arm chair of the ‘old world’ style.

When you keep merchandise worth up to $80 million on the premises, as some of the top jewelers do, such security measures are understandable. Yet while carrying out a heist on these jewelry fortresses would be difficult, just as challenging is getting interviews with members of what is arguably the country’s most secretive industry.

The sector, which by dollar value accounts for an estimated 30 percent of Lebanon’s total trade and exports, is so devoid of transparency that accurate figures are hard to come by and no companies are willing to open their books to external scrutiny.

“Around 90 percent of sales are not declared,” said one jeweler in a rare off-the-record disclosure.

Getting jewelers to talk is like getting blood out of a stone; they tend to clam up when it comes to figures, market variables and projections. Indeed, some jewelers are so tight lipped that half-hour interviews yielded just a few lines of useful information and usable quotes.

While Lebanon is well known for its banking secrecy, the jewelry sector should be equally — if not as infamously — renowned, particularly given its economic significance and export clout. According to the Syndicate of Expert Goldsmiths and Jewelers in Lebanon (SEGJL), Lebanon is the leader in jewelry and gold production in the Middle East (excluding Turkey), employing 8,000 people with 2,000 qualified jewelers and experts at some 60

major workshops.

According to the country’s other jewelry-related body, the Syndicate of Lebanese Jewelers, the sector employs 5,000 people. By comparison, the banking sector employs some 20,000 people.

Judging by the Lebanese Customs’ records, jewelry exports were valued at $707 million from January to September 2009, equivalent to 28.8 percent of the country’s total exports. Imports on the other hand were 4.2 percent of total imports, valued at $505 million in the same period.

However, domestic sales are not reported or listed by the Ministry of Economy and, as stated, much of what is sold and exported is not declared. According to SEGJL, approximately 80 to 90 percent of Lebanese jewelry is exported to the Gulf, Europe and North America. But the syndicate did not make clear whether that amount includes undeclared exports or not, and presumably much of what is actually exported is not disclosed, either by customers or by jewelers themselves travelling on sales trips.

When a single four-part set of jewels can sell for $4 million, “clients don’t want the value [of their jewelry] to be mentioned because of thieves and ransom threats,” said Gerard Tufenkjian, managing director of Beirut-based jeweler Tufenkjian.

One jeweler recounted that when he goes abroad for exhibitions he may take $3 million to $4 million worth of merchandise, but may only sell $2 million, so he will not declare the amount on arrival or departure. As Tufenkjian related, “Our business is in a bag, we come and go with one or two Samsonites [suitcases] to do our business.”

Patrick el-Khoury, head of publishing and events at Arabian Watches and Jewellery magazine, said he had heard rumors circulating within the industry that the sector was worth some $4.5 billion, which would be equivalent to a staggering 16 percent of Lebanon’s gross domestic product. “But this figure is not confirmed,” he stressed. Neither the syndicates nor jewelry companies would offer another figure.

The annual exhibition Joaillerie Liban 2009, however, stated on its website that “Lebanon has become one of the top five jewelry producers in the world,” with “60 percent of [the country’s] $1 billion production in jewelry and designer jewelry sold in Lebanon to visitors or importers from the region, Europe, the Far East and the Americas.”

Given the discrepancies of up to 90 percent between the SEGJL’s export figures, Khoury’s and Joaillerie Liban’s figures, the true value of the sector and the size of exports is essentially anyone’s guess. It is certainly one of Lebanon’s more successful sectors, but given its lack of transparency, a sizeable amount of money is not being disclosed and consequently, minimal revenues are going into government coffers.

Taxation is one reason the sector is opaque. Under Lebanese law, jewelers pay the standard income tax on employees’ salaries, but not on the value of precious metals or stones. For sales, taxation is 0.8 percent — a policy introduced in 2004 by the late Prime Minister Rafiq Hariri.

“We don’t impose this tax on the customer,” said Hovig Yessayan, marketing manager of Yessayan, adding that 95 percent of his firm’s sales go abroad to the Gulf and Lebanese expatriates.

The sector is dominated by family run firms, and families tend to not like their laundry, clean or dirty, aired in public

Diamonds are deception’s best friend

Another reason for the sector’s secretive nature is the diamond trade (see page 31). Lebanon exported 2.45 million carats in 2008, estimated at $48.47 million,  according to the latest figures from the global regulator, known as the Kimberly Process Certification Scheme (KPCS) (see chart below).

But according to Partnership Africa Canada’s “Diamonds and Human Security Annual Review 2009,” more than 97 percent of all diamonds leave Lebanon soon after they arrive, with 85 percent arriving in the country certified as industrial diamonds — used in drill-bits, saw blades and abrasives. Curiously, however, “some 250,000 more carats leave as gem quality diamonds than arrive — worth 36 times their import value,” the report stated.

With the average diamond imported into Lebanon at $19.67 per carat (among the lowest rates in the world), if exported at 36 times this value they would be worth some $708 per carat; carry this over 250,000 carats and there would be a $177 million differential between the value of diamonds entering and exiting Lebanon.

This math is only a guesstimate, however, as the value of diamonds per carat can vary widely depending on the specific stone; the global

average price per carat stands at around $95, while the highest quality diamonds can reach up to $4,000 per carat.

According to KPCS figures, there is a difference of just $1.6 million between Lebanese diamond imports and exports.

“The most common explanation of where diamonds are misclassified is tax avoidance, or some kind of [money] laundering scheme within a trading company,” said Annie Dunnebacke, a campaigner at the natural resource focused rights group Global Witness, based in London.

Quite clearly there are a lot of diamonds knocking around that are not being declared — at least in true worth — and so far, the KPCS has not investigated such discrepancies in Lebanon (see facing page).

When asked about why the sector is not better regulated, Hovig Yessayan said: “When [you are] making money for the country, no one cares.”

Keep it in the family

Among the factors allowing the sector to remain so hidden from scrutiny is that it is dominated by family run firms.

Leading companies such as Tufenkjian, Nsouli, Antoine Hakim, George Hakim, Azar and Gemayel have been in the business for more than 100 years. And families tend to not like their laundry — clean or dirty — aired in public.

“It is a closed sector, much like banking,” said Yessayan.

The cutthroat competition between the high-end jewelers over designs also emphasizes secrecy.

“Secrecy is very important in this business, there are lots of designers and outsourcing cannot be recorded,” said Khoury.

As Lebanese jewelers’ reputations continue to grow around the world, the opaque nature of the sector is only likely to increase. Lebanese jewelers can export to the United States tax free, and are expanding their presence in Europe, the Gulf and Asia, whether through showrooms or attending exhibitions and fairs.

“Some 250,000 more carats leave as gem quality diamonds than arrive — worth 36 times their import value”

Setting standards

Competition comes from the Far East, but Lebanon has the upper hand on design and quality for regional sales.

“The quality of the jewelry that is [made] in Hong Kong or China is not as good as Lebanon’s, it is thinner; Arabs are used to bulky jewelry,” said Yessayan. He added that jewelry is 15 to 20 percent cheaper in Lebanon than in the Gulf. “So if you are buying a set of jewels for $500,000, it is worth flying over; even Sheikhas take a private jet here and we close the whole building down as we want total privacy for royal clients.”

Lebanon’s designs and highly skilled craftsmen have also placed the sector on equal footing with Europe.

“The standards we have here are comparable to Swiss or French jewelry, and we’re very picky about our staff,” said Karim Hakim, one of the four brothers who run George Hakim, based in downtown Beirut.

“The designs, the model making, the execution of the casting process in all its five stages, the setting, electroplating, polishing and so on, all are taught here in our country and [produced] uniquely by Lebanese craftsmen,” said Berge Arabian, a senior member of the SEGJL.

Lebanese jewelers have weathered well the financial storm of the past year and a half, particularly the high-end stores, on the back of wealthy customers moving some of their money into hard assets due to concerns about banking stability, inflation and the depreciation of the US dollar.

The regularity with which regional clientele buy jewelry, compared to Europe or the Americas is keeping sales buoyant. “In the West, people will buy [new jewelry] once every 10 years, but Arabs will buy…something new every two to three years,” Yessayan said.

There has been a slight downturn, evident in a drop in regional advertising expenditure, but this has not prevented jewelers from expanding in the region. Yessayan, which saw 20 percent growth in 2009, plans to open a showroom in Saudi Arabia, while companies are working on developing their own brands and identity by increasingly moving into retail.

Rumors circulating within the industry suggest the sector is worth some $4.5 billion, equivalent to a staggering 16 percent of Lebanon’s GDP

Branching out

“There has been a big shift away from wholesale. You sell more and you get cash, you don’t wait for payments and it is better for the brand too,” said Yessayan. “We are heading into branding and creating an identity for ourselves, including a watch brand, Scala.”

Bejeweled watches are a growing segment for the sector, similar to how fashion and car brands started to bring out their own line of watches over the past decade. The jewelers team up with Swiss horologists to manufacture timepieces that are then imported to Lebanon to be turned into a watch.

“The Lebanese are starting to compete with international designers, and Lebanese jewelers have excellent design, execution and prices. The combination of the three is quite unique,” said Khoury.

Yessayan said the demand for such bejeweled watches predominantly comes from the Gulf, with prices reaching $100,000 for a diamond-encrusted offering. The Gulf will remain the sector’s primary export market for the foreseeable future, given the Gulf’s status as the fourth largest diamond market in the world.