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Environment

Natural, not neutral

by Executive Staff December 17, 2009
written by Executive Staff

Nabil Habayeb President and CEO, General Electric Middle East

The environmental problems in the Middle East are huge, and as of yet we still don’t have a common approach to resolve them. As a technology provider, we at GE are doing everything we can to address these issues, but the key thing is implementation of policies and solutions.

This will require a good understanding of the problem by the leadership, a commitment to resolve the problems, and a partnership with all stakeholders — public, private, non-governmental organizations, governmental and financiers — to act accordingly. The main thing is to make sure that we bring awareness and solutions, and have a debate, and come up with reports that focus on the region’s specific issues, in which the different sectors can take an interest.

Five years ago our chairman started the “Ecomagination” initiative, which takes the products that we have and invests in solutions that are environmentally friendly. These products have to go through several kinds of certification to ensure that we reduce gasses, purify water, have more efficient power generation equipment and produce sustainable energy…so, from a company point of view, we’re doing what we think is our responsibility, not just from a corporate social responsibility perspective — of course we have shareholders who will be looking for their return since we are not an NGO. A company like ours can now develop products that are environmentally safe and at the same time profitable. That is why we dub the initiative “Green is Green.”

Ziad Abichaker President, Cedar Environmental

Since 1992 our country has been under an emergency plan for solid waste collection and disposal — an emergency plan that lasts 17 years?  Something is amiss here. First, the plan has 50 percent of Lebanon’s waste centralized in one landfill site; it was Bourj Hammoud until 1997 and since then it has been Naameh. Soon, space will no longer be available to keep on this environmentally destructive path in Naameh and an alternative would be in order.

There are two alternatives.  Either we keep extending the current “emergency” plan and keep centralizing waste disposal in a mega landfill or we decide to reverse the road and start doing what most other countries are doing, which is sorting, recycling and composting.  Some would argue that we are doing this now under the current plan, but what they don’t know is that we are barely doing this for 6 percent of our total daily waste load.

Soon, it will be a nearly impossible task to convince another region to accommodate the waste of Beirut and Mount Lebanon in their valleys and open spaces, which makes the alternative of continuing with the current plan practically impossible to pursue.

Every region will have to select a technology that will have the least destructive footprint geographically and environmentally. The problem is it might already be too late. Such an endeavor would require at least a two year planning and execution period.  Are the people in charge of the solid waste file doing any thinking about this eventuality?

 “The problem is, it might already be too late”- Ziad Abichaker

Garabed Kazanjian Oceans campaigner, Greenpeace, Lebanon Branch

“More than 50 pipes continue to discharge untreated sewage… into the sea”

It is astounding to see a country like Lebanon, which relies greatly on tourism to rebuild its economy, gradually and consistently obliterating its ecotourism assets. Two-thirds of the Lebanese population reside on the coast, a fact that naturally exerts great pressure on coastal resources. Twenty years on after the end of the civil war, solid waste dumps still exist in the form of coastal mountains, constituting a health hazard to the public and a source of toxic discharge to the marine life in their vicinity. Some sites, such as the Saida dump, continue to grow to this date like a cancerous tumor in the absence of waste treatment plans. Moreover, more than 50 pipes continue to discharge untreated sewage on a daily basis into the sea. Chaotic urban development contributes to the destruction of vital marine habitat, primarily the nursery areas of numerous commercially important fish species.

Fragile as our marine ecosystem is, due in great part to the pollution and destruction it is subjected to daily, not to mention the intensely destructive and unsustainable fishing practices throughout the whole Lebanese coast, it will not have the resilience to combat the effects of global catastrophes, primarily climate change and ocean acidification.

That is precisely why Greenpeace is campaigning for the establishment of fully protected marine reserves covering 40 percent of the Mediterranean. These no take/no dump areas (areas protected from both fishing and pollution) aim at protecting vital habitats, such as spawning grounds and nursery areas of threatened marine species, and aid in the recovery of depleted stocks.

Furthermore, the new Lebanese government should impose stricter regulations on coastal industries in regards to their waste disposal, update and implement fishing regulations, and put into practice the zero waste program.

Rima Habib Associate professor, Faculty of Health Sciences, American University of Beirut

We know that pollutants are responsible for a number of public health problems in Lebanon and beyond… In Akkar in North Lebanon, for example, we performed studies that found evidence of heavy microbiological contamination in water sources, usually as a result of infrastructural problems. In these areas, outbreaks of diarrhea and other symptoms are common… In some communities as much as 80 percent of household water sources can be contaminated, and close to 30 percent of households report sicknesses as a result of contaminated water. Children, of course, are particularly susceptible. This problem is more endemic to rural areas where there is a lack of proper infrastructure to treat and transport water. Another health risk is air pollution. Lebanon is not a highly industrialized country, so the largest contributors to air pollution are traffic emissions, which are usually concentrated in and around urban centers where there is a lot of traffic – Beirut, Tripoli, etc. Air pollution leads to respiratory ailments and to a lesser extent cardiovascular disease as well. Another problem with air pollution is CO2 emissions, of course. To deal with these dangers, it is necessary to apply environmental and public health standards and involve major branches of government…it would be truly excellent if Lebanon could establish a multi-disciplinary agency that involved all the ministries, something like the Environmental Protection Agency in the United States, that has “teeth” to enforce standards and make real changes to address human health from the preventive angle first, meeting possible threats before they result in illness.

“In some communities as much as 80 percent of household water sources are contaminated” – Rima Habib

December 17, 2009 0 comments
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Environment

Eco-economy: a worthy catch

by Executive Staff December 14, 2009
written by Executive Staff

Politician turned climate change champion Al Gore  told The New York Times that “Once the world makes it clear that we are going to follow a roadmap to a low-carbon economy, the best-managed businesses will seek to race out in front of that emerging trend.”

In other words, as public awareness of the causes and consequences of environmental degradation increases with time, market demand for “green” products — those that are produced in an environmentally friendly way, and can be used without risk of environmental damage — will increase as well.

“The environment is no longer a burden on the market,” said Edgar Chehab, energy and environment program manager of the United Nations Development Project in Lebanon. “Now it’s part of being a competitive industry: if you don’t produce products in an environmentally friendly way, you lose out on key markets.”

In the last few years, markets in Europe and the United States in particular have demonstrated a willingness to pay more for green products, he said.

All over Lebanon, new “green” markets are expanding and old industries are modifying practices to soften their impact on the environment. While many environmental advocates argue that measures have not gone far enough, an overview of reforms indicates that individuals and industries have not been wholly unresponsive to the country’s environmental problems.

One man’s trash…

New industries are rising to meet the challenges of the 21st century. Among them is the recycling and composting industry, which seeks to capitalize on, rather than simply dispose of, solid waste.

Ziad Abichaker, president of Cedar Environmental, is one of  a growing number of entrepreneurs turning recycling and composting into a viable business model.

“In Lebanon, 80 percent of municipal solid waste is organic, compostable material,” said Abichaker. “That’s roughly 3,200 tons of compostable garbage generated every day. After composting, that mass is reduced to around 1,750 tons.”

With one ton of high-quality compost selling for as much as $100, Abichaker said the economic viability of going green speaks for itself.

Cedar Environmental has built 11 material recovery facilities (MRFs), capable of handling close to 10 to 12 tons each of municipal solid waste per day, and a larger MRF for the Jbeil area capable of handling 200 tons per day.

The MRFs use a “Dynamic Composting” technique, in which an enzymatic bacterial component is added to organic waste to accelerate the degradation process that converts waste to compost. In this way, organic waste can be rendered safe — from a bacterial point of view — in three days, compared to the 90 days required by ordinary composting.

Inert materials such as glass, metal and plastic are recycled according to conventional methods, said Abichaker, adding that the profits gained from these materials are significantly less than those of compost.

“The real advantage of our MRFs is that they are modular,” he said. “We can bring them directly to communities, and place them in close proximity to where people live because dynamic composting is practically odorless.”

This also cuts down on transportation costs, he added.

Do you feel the Lebanese government is taking appropriate action on climate change?

Living off the land

The environment itself is a valuable resource, and continues to directly sustain a significant segment of Lebanon’s population through small scale agricultural and fishing enterprises. However, both of these occupations face present and future challenges due to environmental degradation. Many experts predict that the agricultural sector will be the hardest hit by the effects of climate change in the years to come.

Another factor that impacts agricultural markets is the improper use of synthetic pesticides, a phenomenon that has received increasing attention from specialists and monitors over the last few months.

Researchers at the American University of Beirut’s (AUB) Faculty of Agriculture, as well as studies conducted by the Fanar research station in Mount Lebanon, noted the presence of pesticide residue above internationally tolerated levels.

The issue came to a head in November when produce exported from Lebanon was returned because pesticide levels were deemed unacceptable by destination countries.

Yusuf Abou-Jawad, professor of plant pathology at the AUB Faculty of Agriculture said educating farmers about the proper use of pesticides was the key to reducing residue levels.

“The major solution is to convince farmers to depend less on pesticides and to follow an integrated pest management approach or a rational use of pesticides,” he said.“If farmers start abiding by the preharvest interval [the waiting period necessary for pesticides to take effect and be rendered harmless] mentioned on the label of each pesticide [canister], the residue problem will be solved immediately.”

Living off the sea

The challenges faced by Lebanon’s coastal ecosystems, upon which the country’s fishing industry relies, may not be so simple to solve. The coastal waters face an array of harmful influences, from industrial dumping, municipal wastewater and, particularly, unsustainable fishing practices.

The Lebanon branch of the international organization Greenpeace has made the rehabilitation of coastal zones its top priority.

“In terms of biomass, the Levantine basin is the poorest region of the Mediterranean in terms of harvestable fish,” said Greenpeace representative and oceans campaigner Garabed Kazanjian. “At the same time, it is a very important region, as many types of fish come here to spawn.” This makes Lebanon’s coastal ecosystems particularly delicate to external influence, he said.

“It’s a vicious cycle,” added Kazanjian. “Overfishing reduces aquatic populations, so fishers have to turn to more destructive fishing methods — like small mesh nets — to catch whatever they can.”

Using small mesh nets traps young fish that have not yet reached maturity, destroying the new generations before they have had a chance to spawn.

To fight these issues, Greenpeace has launched a multi-fronted campaign to raise awareness of safe and sustainable practices among fishers.

“There’s already a big fear among fishers that their industry could be on its way to collapse,” said Kazanjian. “Even though we’re telling them they have to change — and even limit — their methods of fishing, most of the people we’ve talked to have welcomed our advice because they’re looking for a solution too.”

Kicking the oil habit

In 2008, the Lebanese Energy Society and the Lebanese Center for Energy Efficiency and Planning released a report, authored by engineer Chafic Abisaid, detailing the country’s current energy practices and potential for future expansion into renewable energy sources. It noted that thermal, solar, wind, hydroelectric and bioenergy technologies all have long-term potential in Lebanon, but that these remain distant possibilities as the country is still in the early stages of data acquisition.

Ronald Diab, general manager of the Energy Efficiency Group in Lebanon said that the realistic first step for Lebanon to reduce its energy consumption would be to optimize the efficiency of its industry and institutions.

“In terms of economically viable solutions, you need to develop utility-oriented projects,” he said.

“Besides some cases of using solar-thermal energy to heat water, most renewable energy technologies are not economically viable in Lebanon at this time…there is still a lot of preliminary research that needs to be done.”

On the other hand, improving existing infrastructure in order to maximize the benefits of energy consumed is an immediate first step to reducing dependence on fossil fuels, said Diab.

His group has performed more than 500 energy audits of companies and launched more than 80 energy efficiency projects since it was founded. Because it lowers costs, energy efficiency carries its own market incentive.

“The most important aspect at this point is regulation,” said Diab. “A lot of the products entering Lebanon — light bulbs, for example — don’t meet international standards of energy efficiency.”

And as long as energy is cheap, the consumer base isn’t going to exert its influence over the market to select energy-efficient products, he said.

While a steep reduction in the country’s consumption of fossil fuels may not be a feasible option in the short-term, awareness of the need for a transition to sustainable energy is growing steadily.

On November 19-20, the Arab Forum for Environment and Development convened to present its 2009 report on climate change and the possibilities of sustainable energy solutions.

The event brought together

major players from industry and non-governmental organizations, with governmental and public speakers.

While highlighting major areas of concern, the conference showcased a wide array of industry and public groups working to transition the Middle East to a more environmentally friendly future.

“It’s going to have to be an evolving process,” said Nabil Habayeb, president and chief executive officer of General Electric in the Middle East, who attended the event.

“Some things can be done now…others will take time,” he said. “Inevitably, we are going to phase out non-renewable resources — this is why leaders need to think ahead about how they will diversify their economies into new fields.”

December 14, 2009 0 comments
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Environment

Waste not want not

by Executive Staff December 14, 2009
written by Executive Staff

In their most basic elements, humanity and the natural environment share a common foundation. While the environment and its resources can be harnessed, overexploitation and degradation must eventually take a toll on human life too.

As the first decade of the 21st century comes to an end, those costs are becoming evident. Car exhaust thickens the air we breathe. Industrial waste poisons the water we drink. In the Mediterranean, overfishing threatens what once seemed a boundless source of food. And year by year, the specter of a slowly warming planet looms larger, its dangers fully recognized if not yet fully understood.

Though set within relatively limited boundaries, Lebanon’s environment is characterized by a diversity of geographical zones: from its coastal beaches to the peaks of Mount Lebanon, from the fields of the Bekaa Valley to the banks of the Litani River. In a region marked by a scarcity of natural resources, Lebanon enjoys a relatively mild climate, plentiful rainfall and a number of fertile agricultural zones. Yet these advantages are not without limit.

Pollution and overuse of key resources degrade the country’s ecology and impact the human life tied to it. 

To a certain degree, these costs are quantifiable. In 2004, the World Bank, along with the Mediterranean Environmental Technical Assistance Program (METAP), published a report estimating that in the year 2000, environmental degradation costs in Lebanon — primarily in terms of public health costs, but also taking into account prospective revenue, either from impacted industry or loss of productivity — amounted to some $565 million, or around 2.8 percent of the nation’s economy. The report, The Cost of Environmental Degradation (COED), also points out that due to limitations in existing data, the above figure is likely an underestimation of the true costs of environmental degradation.

Invisible threat

Water resources lead METAP’s list of impacted areas, with degradation costs estimated at $175 million in health related expenditures. Every year, contaminated or unsanitary water leads to sickness and even death, particularly in rural communities where adequate water treatment facilities are often absent.

Children, who are particularly susceptible to infection, are the hardest hit: the report notes that 10 percent of all child deaths in Lebanon result from diarrheal disease directly linked to unsanitary water, sanitation and hygiene.

Contamination isn’t the only threat to Lebanon’s water. Though it is often identified as a water-surplus country in a water-deficit region, Edgar Chehab, energy and environment program manager of the  United Nations Development Program in Lebanon, told Executive that long- term water security should be a matter of major national concern.

“It’s a myth that this country has limitless water reserves,” he said. “The truth is, we barely have enough to meet our present needs.”

Lack of water management, particularly with regards to the run-off following Lebanon’s heavy rainfalls, means that the vast majority of Lebanon’s “water surplus” runs into the sea instead of being absorbed into underground aquifers, he said.

This causes water shortages and erosion of topsoil, weakening growing conditions in Lebanon’s agricultural sector. Without an adequate water management system in place, farmers draw on dwindling underground reserves to irrigate their crops.

As a basic formula, the system is unsustainable, Chehab said, adding that unchecked, the current pattern could lead to increased water shortages and desertification.

Though other sources contested the severity of Chehab’s estimate, few argue with his prediction that these problems will increase in coming years, as climate change alters the region’s weather patterns.

A 2001 report by Fadi Karam of the Department of Irrigation and Agro-Meteorology at the Lebanese Agricultural Research Institute, notes that in the latter part of the 20th century, Lebanon’s water systems were marked by a number of detrimental changes, including lower ground water levels, disappearance of certain springs and wetlands and a cessation of certain rivers — including the Litani — during dry seasons.

Paradoxically, these changes have been accompanied by an increase in rainfall, said Chehab. The ecological danger lies in the rainfall’s frequency and intensity: the last decades saw rains occur with greater intensity in a narrower window of time, meaning less time to absorb into groundwater reserves, and higher degrees of runoff and topsoil erosion. 

Solid waste management in Lebanon

Source: METAP

Lebanon’s annual environmental damage costs (2000)

Source: METAP

Going green or going greenhouse?

Beside implementing an appropriate water management strategy, there is little Lebanon can do to mitigate the effects of climate change in the short term. Climate change — the accelerated warming of the planet due to the build-up of greenhouse gasses trapped in the atmosphere and shifts in meteorological patterns that result — is reaching all corners of the globe, and stems from collective practices; namely, the world’s heavy reliance on fossil fuels for energy.

The vast majority of greenhouse gas emissions originate in the burning of coal and gas, and the drive to shift to clean, renewable energy sources has become a global undertaking.

Though responsible for only around 0.07 percent of global greenhouse gas emissions, Lebanon’s energy sector is almost exclusively reliant on liquid fossil fuels for electricity generation, with only a small fraction of total energy supplied by hydroelectric dams.

Vahakn Kabakian, project manager for the Second National Communication to the UN Framework Convention on Climate Change, told Executive that Lebanon will face serious consequences if the causes of climate change continue unchecked. By some estimates, Lebanon could see a 15 to 20 percent reduction in rainfall in certain areas by the year 2050, resulting in water shortages, shifting agricultural patterns and health impacts, he said.

The burning of fossil fuels by both the public and private sectors already takes a toll on public health due to urban air pollution. Air pollution raises the likelihood that urban dwellers develop chronic bronchitis and respiratory disorders, and can exacerbate the likelihood of lung cancer. The COED report estimates that the cost of air pollution in Lebanon is roughly $256 million annually. 

Lebanon is party to the Kyoto protocol, and has therefore pledged to work toward the protocol’s targets of reducing emissions by 12 percent globally by 2010, and by 35 percent by 2030. Kabakian is currently working in partnership with the Ministry of Environment to establish a nationwide inventory of greenhouse gas emissions, by evaluating the intensity of emissions in each region of Lebanon.

“The first step is to assess Lebanon’s vulnerability,” he said. “Once you have the data you can run models to see what will likely happen in the future… When your predictions are established, then you can begin to discuss your mitigation options.”

Not in my backyard

While consumption of fossil fuels leads to air pollution and a rise in greenhouse gasses, consumption of material resources — whether in the form of ordinary household products or industrial solids — generates solid waste. Managed and treated correctly, solid waste is not a threat to the environment. However, leading environmental advocates say that just by the sheer quantity of Lebanon’s waste alone, it is evident that the country’s solid waste management programs have a long way to go in achieving ecological balance.

“Dumping solid waste is not the main problem,” said Ali Darwish, chairman of the non-governmental organization Greenline. “Problems arise in terms of what is being lost. Waste represents an enormous amount of primary material, material that could and should be recycled and reused.”

“When we make something only to dispose of it and bury it, we create a continuous demand on raw materials, which have to be extracted from the environment,” he added.

METAP estimates that each person in Lebanon generates roughly a kilogram of solid waste every day (the figure is slightly lower for those in rural areas and slightly higher in urban areas).

That means total solid waste generation for one year is some 1.4 million tons, growing at a yearly rate of about 6 percent. Of that waste, about 8 percent is composted and 8 percent recycled. Some 46 percent is landfilled and 38 percent is left in open dumps.

Lebanon has no national solid waste strategy. Management of waste is left up to the country’s municipal authorities, which sometimes contract private treatment facilities to dispose of the problem but often resort to open dumping, said Darwish.

Even in the Greater Beirut and Mount Lebanon areas, dumping and landfilling remain the primary final destinations for the majority of municipal waste.

Besides wasting valuable resources, open dumping can contaminate soil and groundwater reserves, leading to health problems in communities close to dumping sites.

According to a report released in 2007 by the MORES agency, under the Mediterranean Environmental Technical Assistance Program, the two most prominent sources of pollution to Lebanon’s groundwater are solid waste and waste water.

When waste is dumped in one place consistently, it forms a compact layer over time. Rain water filtering through this layer picks up toxic chemicals and heavy metals from waste that has not been correctly sorted or treated, continuing into the soil below, and draining into groundwater. The contaminated water may be used later in irrigation or consumption, posing serious health risks for consumers.

As the problem of solid waste shows, pollution rarely remains confined to a single sector. Just as the elements pass through different states, so too is contamination spread to all corners of the environment; hitching a ride on the natural cycle of life.

December 14, 2009 0 comments
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Advertising

New media

by Executive Staff December 14, 2009
written by Executive Staff

Joe Ayache Managing director, Impact BBDO

E  Where does Lebanon stand today in terms of developing new media outlets?

‘New advertising’ services refer to media outlets outside the basic vehicles that we know, such as television, radio, print, outdoor etc. The new approach today is that, when you have done your basics, as a communicator you will find yourself compelled to tread new avenues in order to further maximize audience reach.

For that we are talking about ‘touchpoints’ with the target audience. These touchpoints vary with the attitudes and behaviors of consumers. There is, therefore, not one given solution. The error would be to stereotype once again and replicate what has been done in the basic media. To some people, direct marketing is the answer, for others product experience works better, while to others digital marketing solutions are key.

In Lebanon, we are still in the early stages of this new era. The rest of the world is already seeing its ‘new advertising’ services outgrow traditional media in market share, as well as in growth trend.

Antonio Vincenti Chief executive officer, Pikasso

“If done well, less means more”

E  Should Beirut follow Amman’s example, which heavily reduced and regulated the use of billboards?

Everyone in the sector agrees that something needs to be done about the overgrowth of outdoor [advertising] in the country, yet we should definitely not take Amman as an example. That is too extreme. Amman has reduced the outdoor sector to such an extent that the city is today facing a shortage of billboards.

Of course, good regulation is beneficial for everyone. If done well, less means more. A reduced number of billboards improves the city’s image, leads to better visibility and thus more effective campaigns. We should start by implementing the existing regulation.

Paul Boulos Regional director of business development, Drive Communication

“If it takes going back to the drawing board to redefine what we do, it is…time we have the courage to do so”

E  Where does the Lebanese advertising industry stand today?

After a period of growth in joint ventures with international chains, and expanding both vertically and horizontally in the Middle East and North Africa region, it is as if the industry today is living on past laurels. The idea that “the Lebanese are coming” is a myth. The question is: how do we measure success?

If we take an in-depth look at the market, what factors do we judge? Annual ad spend? If so, we have not seen significant change over the years, and the discrepancy between rate card and real figures is beyond any healthy business explanation.

Advertising plays an important role in building brands, sales, jobs and funding media. If the Lebanese advertising industry found business even during the blackest days of the Civil War, why can’t we do it today?

If it takes going back to the drawing board to redefine what we do, it is about time we have the courage to do so, without grudges. I think it is time to earn respect at home, so we can add value and create a positive change in the region, and be looked upon as ‘leaders.’ We have become too comfortable.

December 14, 2009 0 comments
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Finance & Economy

Our daily bread

by Executive Staff December 12, 2009
written by Executive Staff

Judging an economy solely by the numbers rarely reflects the situation on the ground, especially in Lebanon. In 2009, the country experienced an economic rollercoaster with gross domestic product growth estimates ranging from a pessimistic low of 2.4 percent at the beginning of the year — due to the perceived effects of the international financial meltdown — to the optimistic high-end estimate of 7 percent growth some were proffering by year’s end.

While growth of some sort was almost certain, the Lebanese economy is still vulnerable, especially when it comes to managing or reducing its gargantuan debt.

The greatest success story has been in the banking sector, which has seen a 21 percent rise in deposits from September 2008 to September 2009, reaching $92.2 billion, with total assets rising 16.6 percent to $109.9 billion in the first three quarters of 2009, according to the Association of Banks in Lebanon (ABL). Compare that figure to Lebanon’s GDP projection of $32.7 billion — according to the International Monetary Fund — and, considering that banks and governments around the world were reeling from a lack of liquidity, Lebanon’s situation at the end of 2009 is enviable.

Industrial devolution

But a banking sector alone does not an economy make. The high energy prices in 2008 had a knock-on effect for many in the industrial and manufacturing sectors, who finally threw in the towel in 2009. The most remarkable closure was arguably Uniceramic, one of Lebanon’s flagship manufacturers, which produced 82 percent of the ceramic tile market share in March 2006. The company went bankrupt in September after high energy costs, cheaper imports and being stripped of safeguard measures saw its margins plummet. One of the few companies listed on the Beirut Stock Exchange in its early days after the Civil War, Uniceramic was finally delisted once and for all in November 2009.

Another sector that has seen better days is the agricultural sector, not least because of the scandal that erupted late in the year when lax regulation led to poisoned fruit appearing on local market shelves. The issue prompted many agriculturalists to lambast the government for its lack of focus on a sector that is the main source of labor for much of Lebanon’s rural population.

While reliable figures are not readily available, the sector is estimated to be worth some $1.5 billion by those in the industry, and the Economist Intelligence Unit’s (EIU) latest figures, from 2007, put its share of GDP at some 5.2 percent. According to Bank Audi, Lebanon’s agricultural exports amounted to a meager $69 million in the first six months of 2009.

“The share of GDP that agriculture and industry hold is around 15 percent,” says Kamal Hamdan, economist and managing director of the Consultation and Research Institute. “It’s not at the heart of the club,” he adds, referring to the Lebanese government’s focus on other economic sectors such as banking, real estate and services.

The amalgamation of these two faltering sectors, industry and agriculture, may prove to be their salvation. The agro-industry sector has seen double digit growth in the past few years, as well as in 2009, according to Nabil Itani, chairman and general manager of the Investment Development Authority of Lebanon (IDAL), the governmental institution that promotes investment in the agro-industry sector and other “productive sectors.” Again, exact statistics are unavailable.

“We don’t have industrial, tourist or sectoral censuses. We don’t count the production in each sector,” laments Jad Chaaban, acting president of the Lebanese Economics Association (LEA) and associate professor of economics at the American University of Beirut.

Even without sector specific data, indicators show that the tourism sector has done exceedingly well and real estate held relatively stable in 2009 riding, respectively, the 2 million tourists expected to have visited Lebanon by year’s end and a constant flow of real estate investment from inside and outside the country. According to Byblos Bank, by October 2009, a total of more than 1.4 million tourists had arrived in Lebanon, an increase of 46.3 percent over the same period in 2008.

Real estate sales transactions over the year declined by only 3 percent to total 55,482 in the first three quarters of the year, according to the General Directorate of Land Registry and Cadastre (GDRLC). The figures are a marked decline from the 24 percent yearly growth in transactions from 2007 to 2008. The total value of transactions during the first nine months of the year reached $4.3 billion indicating a 6.4 percent drop over the same period in 2008. Be that as it may, the accuracy of these figures has been questioned by some who deem their source, the GDLRC, as susceptible to false declarations from real estate firms and other obfuscating elements.

Karim Makarem, director at Ramco, a Lebanese real estate advisory company, says that one reason for this is because many sales are made off-plan and don’t get registered until buildings are completed.

“Transactions may be done a long time before [they are registered],” he says. “So you might have a situation where the real estate market is very stagnant and the figures being released are ever increasing.”

Differing estimates for Lebanon’s economic performance

An elusive formula

When all the figures are tallied, Lebanon’s real economy is expected to have recorded bumper growth in 2009, albeit less than the IMF’s figure of 8.5 percent seen in 2008. The real amount of growth, however, is a contentious topic in the country’s economic community. The latest figures from the IMF predict a total growth of 7 percent for 2009. However, according to Bank Audi’s  research department, the last GDP figures provided by the government are those from 2007.

“You have several problems with estimating GDP. Even the government accounts are not up to date because they run on arrears,” says Chaaban. He predicts that 5 percent GDP growth is a more accurate number considering that “too few companies report their accurate figures. Even when it comes to real estate registration, hardly anyone puts in the right figure. You end up with a system of estimation and not accurate measurement.”

Much of the debate over the country’s accurate GDP centers on methodology. According to Hamdan, the government is currently using the French National Institute for Statistics and Economic Studies’ (INSEE) methodology to calculate GDP. This method offers three different ways to calculate GDP (see box on next page) and uses several parameters that cannot be calculated if sectoral or income-based reporting does not exist or is indeed inaccurate.

“Unfortunately we have no surveys which confirm the situation at the level of the economic sector,” says Hamdan.

The difference in methodologies has prompted organizations such as the EIU to maintain an estimation of 5.1 percent real GDP growth in 2009 as of end-October.

Marwan Iskandar, economist and managing director of MI Associates, however, agrees with the 7 percent IMF estimate made in early October, saying that the figure is not  just down to a bumper tourist season and real estate investments.

“The financial crisis had a beneficiary effect on the Lebanese economy because many Lebanese felt that their money abroad was not that safe, brought it back and are now looking at possibilities,” he says.

Iskandar’s point is substantiated by the fact that recent remittance figures have allayed fears of a decline in non-resident inflows to the country. According to the IMF’s most recent projections, Lebanon will attract a total of $7 billion worth of remittances in 2009, registering a contraction of only 2.5 percent on the previous year. According to Hamdan, some of this is a result of assets being liquidated by non-resident Lebanese, which could result in this phenomena being a one off.

The prognosis of many experts however, is that remittance levels will remain relatively stable in 2010, as the global economy is expected to see some kind of recovery and Lebanon has not seen the massive influx of expats from the Gulf that were expected due to the global downturn.

“There was a presumption that there was going to be massive unemployment in the Gulf and the reality was that while growth was stunted, massive unemployment was not created,” says Rabea Ataya, chief executive officer of Bayt.com, one of the largest recruitment firms in the Middle East.

The increased non-resident interest in Lebanon is also reflected in the growing amount of foreign direct investment in the country. In 2008, FDI reached $3.61 billion, according to a statement made by the United Nations Conference on Trade and Development, and is expected to hit $4 billion this year, says IDAL’s Itani.

Certain elements of Lebanon’s investment climate helped as well, such as the number of procedures needed to start a new business, which remain at five, lower than the Middle East and North Africa’s average of 7.9, according to the World Bank’s “Doing Business Report.” The report also stated that the time needed to complete these procedures had decreased from 11 to nine days in 2009 compared to a regional average of 20.7 days. 

Despite the increasingly friendly investment environment, legal recourse in the country remains an obstacle for investors, because of Lebanon’s infamously tedious litigation process and inefficient judiciary.

“For the last 10 years, investors have depended on arbitration [instead of judicial process]. This is a solution because time is money,” says Itani.

As Executive went to press, the Court of Accounts — the judicial body responsible for Lebanon’s Financial Court — had not yet submitted its annual reports for the years 2006 to 2008. Neither had it appointed a new president. The president’s post has been vacant since 2007.

Moreover, the special economic zone in Tripoli that was slated for construction at the end of 2008 was not created, although Itani expects it will be completed by the end of 2010.

Balance it out

One thing the Lebanese economy can also count on is a large and positive balance of payments (BOP) boosted by inflows of remittances, non-resident investment and a positive net increase in the foreign assets of the central bank.

According to the ABL, the first nine months of 2009 saw the BOP come in at a record $4.84 billion with the trade deficit narrowing to reach $952 million in September. Speaking at the Union of Arab Banks annual conference in November, Central Bank Governor Riad Salameh even stated that the balance of payments had reached $6 billion in October.

Foreign direct investment (FDI) overview, selected years

($millions)

Source: UNCTAD, World Investment Report 2009

Lebanon’s trade of goods

Source: Association of Banks in Lebanon

That bloody debt

As for public finances, there has been little progress. Lebanon’s gross public debt, which is held in most part by local commercial banks, continues to mount and is expected to reach $50.46 billion by the end of 2009, according to Byblos Bank projections. The cost of interest payments on the debt is the heaviest burden the government carries. According to Lebanon’s finance ministry, debt servicing amounted to $2.91 billion in the first nine months of 2009 alone, well on its way to the 2009 budget’s target of $4 billion for the year. That budget, released in August 2009, is just a proposal, however, and has no legal bearing since no budget has been ratified since 2005 by the Lebanese Parliament.

Iskandar predicts that the final amount of debt for the year will come to around $4.4 billion, but he insists the situation is not “destitute” except when it comes to political decisions.

“The government can do something about it [the debt] but they don’t because the political system is based on clientelism and nepotism, not achievement or performance,” he says. Still, Iskandar believes that the situation is better than the numbers suggest, because 83 percent of the debt is held by both Lebanese individuals and institutions that have an interest in continuing to hold this debt, because “it pays rates that you don’t get anywhere else in the world.”

According to Byblos Bank’s estimates, return on Eurobonds ranged between 7.25 percent and 7.35 percent in November 2009. “As long as they are getting their interest and the principal is being paid by issuing [more instruments]…they don’t want to unload because they are earning,” says Iskandar. 

Some even suggest that the real burden of the gross public debt is much less than the expected 154.3 percent of GDP projected by Byblos Bank at year’s end. The IMF says that if the government continues to enact “unchanged policies” the ratio could decrease to 151 percent by the end of the year.

Shortage and spending

Even if the country is not on the verge of financial collapse, the real problem of the debt is that servicing it does not allow the government to close the “black holes” that absorb so much of its current spending. The public electricity company, Electricité du Liban (EDL), is a case in point, as it is expected to drain some $1.5 billion from government coffers, according to Mohamad Chatah when he was finance minister in 2009. In the first three quarters of 2009, the government had already spent $1.16 billion on EDL, according to the finance ministry. The budgeted amount to be spent on EDL in 2009 was $1.23 billion, which will likely be overshot by the end of the year.

Most of EDL’s expenditure continues to be allocated to fuel oil imports that are shipped instead of piped, causing them to be even more costly. In September 2009, after repeated delays over issues relating to pricing and quantity, Lebanon began to receive cheaper and more environmentally friendly natural gas piped from Egypt via Syria to run its power plants. The agreement spans 15 years and stipulates that Egypt will supply Syria with 250 million cubic meters (mcm) of gas every year. In turn, Syria will pass on an equivalent amount to Lebanon whose total should eventually increase to 600 mcm per year. In total, the gas is expected to save Lebanon around $240 million based on an oil price of $75 per barrel, according to the investment bank EFG-Hermes, which also owns a minority stake in Bank Audi. 

“It’s good to take gas from the Egyptians because the Syrians cannot interfere with it. This is a multilateral agreement and that is the only reason why we received the gas,” says Iskandar.

The agreement is renewable by mutual consent with pricing renegotiated every three years, meaning that the gas is seen as more of a non-stick band aid than a stitch-up for Lebanon’s electricity finances.

“If the Egyptians suddenly don’t like us, they will shut off the gas,” says Chaaban.

In the short to medium term, the government looks set to implement former energy minister Alain Tabourian’s plan of buying smaller generators, which will cost around the same as the amount the government saves from using Egyptian gas. The agreement comes after months of political quarreling over the issue between the ex-minister and former Prime Minister Fouad Siniora. The generators are expected to produce 300 megawatts of electricity, slated to begin operations in the summer of 2010 during the months of the year when electricity consumption peaks.

Gas in hand, the Lebanese government will have some room to maneuver on the electricity issue. However, to make up much of the lost ground, the government will have to enact reforms, such as remote meter reading to replace the “1,900 people who come to measure your meter,” says Iskandar.

Another option is to increase costs of electricity to consumers, given that 38 percent of electricity in Lebanon is generated by private generators, according to Iskandar, and are much more expensive than state-provided electricity.

The proposal seems to be a sound one, according to Hamdan, who says his firm conducted a survey of 2,500 households in Lebanon, the majority of which stated they would be willing to pay higher prices if they were guaranteed 24-hour a day electricity. According to Hamdan, the sector itself will take about five years to reform if the government is serious about undertaking the task. Time looks to be of essence since he also states that electricity consumption is rising at around 10 to 15 percent a year.

Outstanding public debt by type of holder ($billions) (Actual value*)

Source :Banque Du Liban
* The figures are equal to the principal paid plus the interests due
** IDI : International Development Institutions
+ FG : Foreign Governments
(1) Include: public TB’s, public entities TB’s and financial institutions TB’s
(2) Include: Eurobonds holders (banks, non banks, residents and non residents), foreign private sector loans and special TB’s in FC

A social insecurity

Another state-owned entity that is draining government finances is the highly politicized National Social Security Fund (NSSF). Iskandar, who previously consulted the government on how to reform the fund, says the NSSF is “cancerous and is not going to improve.” There are no reliable figures that detail the government’s liabilities to the fund. One chief executive officer of a Lebanese bank who spoke off the record stated that in the lead up to 2009, the NSSF’s records had not been audited for eight years.

“It is facing a crisis. They are spending money without accounting for it,” says Chaaban.

The 2009 budget proposal bluntly states, if only in small print, that, “NSSF dues have been paid by the Ministry of Finance in previous years but these amounts were not allocated in the national budget.”

Media reports have suggested that the fund is running a deficit of around $456 million and Chaaban states that only 35 percent of workers are registered in the fund because many employers and employees choose not to register. Another statistic that points to the fund’s inefficiency is that government spending on public health was estimated at 12 percent of total spending, or $820 per capita, while Syria spent only $110 per capita and Jordan $500 per capita in 2005, according to the 2009 UN Arab Human Development Report. Spending on health and the NSSF are accounted for separately in the 2009 budget proposal.

Spending without fixing

The central bank has been swapping short term debt for long term debt to maintain the semblance of financial stability. At present, the Banque du Liban has succeeded in “buying time,” as Hamdan puts it.

Time, however, does not seem to be a luxury the Lebanese government can afford, as it has to budget for an increase in expenditure of 42 percent, or $10.82 billion, even with a budgeted spike in revenues of 36 percent, or $7.55 billion. As Executive went to press, total budget deficit in the first three quarters of 2009 had reached $2.22 billion. As such, it seems highly likely that the budget deficit target of 10.6 percent of GDP set for the Lebanese government by the IMF, could well be met.

Notwithstanding the fact that the government has to bear the burden of interest payments on the debt, the NSSF, EDL and other expenditures, it still ran a primary surplus of $693 million in the first three quarters of 2009 and budgets for $746 million by the end of the year. The government is still using the budget of 2005 as a baseline, according to Chaaban, by allocating what is overspent to the next year; but without the interest payments on the debt, the government would in fact be profitable.

Lebanon’s fiscal performance

Source: Ministry of Finance

Promises, promises

The Lebanese government has few options to get out from under its mound of debt. It will have to make several political decisions, including those related to the Paris III commitments, the enactment of administrative reforms and privatization of key state-owned enterprises such as telecommunications and electricity, to garner enough revenue to pay off at least some of the debt in the hopes of having it reach a manageable level.

With new finance minister Raya Haffar stating that she will pursue Paris III commitments, there is renewed pressure to enact many of the initiatives proposed. According to the finance ministry, $5.7 billion worth of Paris III pledges have been signed as of end-September 2009, with disbursements increasing by $600 million from April to November 2009.

Paris III’s planned initiatives are expected to be opposed by many — from the parliamentary opposition to local commercial banks.

“The terms were negotiated in a different political atmosphere,” says Iskandar, in a reference to the former Rafiq Hariri government that drew up the initial program. “I don’t think there will be any progress because politically it is not feasible.”

Indeed, considering recent proposals, changes appear unlikely. Increasing the value added tax (VAT) to 12.5 percent is highly unpopular amongst the parliamentary opposition and will require a new law to be drafted and passed. Hamdan says that between 1998 and 2008 the average national wage has increased by only 20 percent, and cumulative inflation by 80 to 90 percent. Thus, he says, it is doubtful that an increase in VAT is possible in the near future.

“I know most of these ministers and I don’t think they will sign onto this approach,” he says.

With the threat of inflation looming because of a falling dollar and rising oil prices, this possibility seems even less likely to be popular with the wider public. Officially, the consumer price index registered at 106.7 in September 2009, according to official figures. Chaaban has little faith in official figures since, he says, a useful methodology was only recently adopted.

“They used to count only Beirut and the basket was not representative of the actual consumption pattern. At some point even housing was not included,” he says, warning that inflation, while steady in 2009, could rise by at least 5 percent in 2010.

While this figure is much less than the rates experienced during the oil boom of 2008, Chaaban says the phenomenon of asymmetric transmission, whereby prices go up but don’t come down, continues to affect Lebanon’s consumers. Even according to official figures, which use December 2007 as a baseline, CPI for the items with some of the highest weights such as housing, food, beverage and transportation have all risen by more than 10 points as of September 2009. 

This may not bode well for those keen on implementing the global income tax, for which a draft law currently exists, making it more “possible that it might be implemented with some changes,” says Chaaban.

Increasing taxation rates from 5 to 7.5 percent on interest earned from banks also seems to be a highly unpopular move with many local banks that hold much of the public debt and thus have considerable political influence.

“If there is no reform, the banks will be reluctant to go in this direction,” says Hamdan. The only Paris III earmarked requirements that seem likely to continue are those associated with reforms in the public sector, from which Chaaban believes the government can only receive around $1 billion to reform EDL in 2010.

The only other option seemingly available to decrease the debt is to privatize the telecom and electricity industries. The former looks set to remain a contentious issue between the various national and international players who have diverging opinions on whether the sector should go private or stay public.

“I think that the minister of telecommunication will defend increasing the assets [of the telecom industry],” says Hamdan, in reference to the proposal to increase the assets of the telecom sector by improving its current infrastructure and selling it off at a higher price. That may well prove to be an arduous task if the telecom ministry’s operations continue to be politicized. “Selling it in this form amounts to giving the investor the current structure of prices and revenues, so you are essentially securing the flow of hidden taxes,” says Hamdan, who supports this proposal.

Others, however, disagree. “The sector is not going to move in the right direction without really having momentum from the private sector,” says Kamal Shehadi, chairman of the country’s Telecom Regulatory Authority. “By that I mean all of the economic associations will have to get on board.”

And given the track record of public ownership, his sentiments are echoed by many consumers who are tired of having some of the highest telecom costs in the world.

As Executive went to press, a ministerial policy statement had yet to be approved by the Council of Ministers. Expectations are that it will closely resemble the previous statements adopted by the past two governments.

There is still a sense of optimism that the new government ministers can overcome some of the economic hurdles, even if they will have to fight over details in the process.

“They are not politicians that are there just to oppose each other. Even if they oppose each other they will reach a compromise, as they are technical people who can discuss things,” says Chaaban. “Because the government took so much time to form I think now everybody is expecting it to deliver.”

CPI (2004=100)

Source: Association of Banks in Lebanon

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No honest broker in sight

by Adam Pletts December 12, 2009
written by Adam Pletts

Earlier today, about a mile from where I write, Hamid Karzai gave his inauguration speech at the Afghan presidential palace in Kabul’s heavily fortified “Green Zone.” Present were representatives from some 40 countries, including the many Western nations so heavily invested — financially and militarily — in Afghanistan’s future.

Among the honor roll at the November 19 speech were United States Secretary of State Hillary Clinton, British Foreign Minister David Miliband and his French counterpart, Bernard Kouchner. It is with mixed sentiments, and more than a touch of irony, that these champions of democracy extended their hand to Karzai, given that the election granting him a second presidential term has been almost unanimously condemned as fraudulent.

Before the election campaigns even began, it was clear Karzai had fallen out of grace with the West — a result of his previous administration’s abominable record fighting corruption and curbing the drug trade. According to Transparency International, in the last year Afghanistan slipped from the fifth most corrupt nation in the world to the second. Unless they plan to challenge Somalia for bottom spot, which is not inconceivable, there is really nowhere further to fall. Yet now, as the foreign powers that prop up the Afghan regime search for a champion in the fight against corruption, it is to Karzai that they must return.

With these expectations mounting, Karzai has made fighting corruption a cornerstone of his inauguration speech. Afterward, the international community’s verdict seemed to be that he had at least made the right noises, but they now needed action.

In fairness, there have been positive signs of late: the Afghan Attorney General’s Office has announced that five current and three former ministers are under investigation for corruption related offenses. But even with other cases in the pipeline, these must be considered the thin edge of a very thick wedge.

While the West points an accusing finger and insists more must be done, it is unfair to place all the blame on Kabul. Measures to insure the international community’s money — which ostensibly bankrolls the Afghan government — was well spent have been vastly inadequate. The notion of conditionality has barely been touched on; only now are countries involved in the reconstruction and security effort beginning to insist that continued support be contingent on tangible results in reducing corruption.

One key US suggestion to Karzai was to set up an anti-corruption commission. So far though, this has only highlighted the divisions in approach and priority so often hallmarking the international community’s reform efforts. Behind the scenes, the new commission has caused disquiet among multi-governmental bodies, which believe it only duplicates many of the present efforts and will slow down the progress of existing anti-corruption mechanisms.

Even the presidential election was a poor showing for the international community. The United Nations found itself in a scandal, with high-level resignations and dismissals following internal disagreements as to whether to present the full body of evidence they had gathered regarding election fraud. To Afghans it seemed the UN was scarcely adhering to the same levels of transparency that they advocate.

The truth is, with or without fraud, Karzai was always going to have secured the largest portion of votes, even if he couldn’t reach the 50 percent threshold needed for victory in the first round. Had it not been for the withdrawal of his sole remaining opponent in the runoff election, Karzai would inevitably have won this round outright. Although he never technically fulfilled the constitutional criteria to win the election, the international community nonetheless swiftly recognized his victory. Having been the beneficiary of such a flawed process, his credentials to fight corruption are severely tainted, perhaps even more so in the eyes of some Afghans than those of the outside world. Coupled with his previous track record, Karzai is hardly in an ideal position to fight graft.

Even if the will to fight corruption exists, achieving practical results will be an uphill struggle. Karzai’s ability to do what the West previously referred to as “consensus building” was one of the key factors that contributed to his winning the election. The flip side to this is that there are plenty of powerful and corrupt figures who feel their support obliges a return.

One need look no further than the two men who stood on either side of Karzai as he took his oath of allegiance. Both Vice Presidents, Mohammad Qasim Fahim and Abdul Karim Khalili, have warlord backgrounds and highly questionable human rights records. Their value to Karzai is the support they bring from the Tajik and Hazara populations, respectively. But this backing will come at a price, and so the vicious circle of concessions and double standards that is the backbone of corruption begins at the highest levels.

 Foreign politicians listened to Karzai’s pledges of action  in this city garrisoned by their soldiers, yet with empty streets and closed airspace. Were they to set substantially lower levels of corruption as a precondition for their mission’s success in the near future, which would allow them to withdraw, they are likely setting themselves up for failure.

Adam Pletts is a freelance journalist, photographer and analyst currently working as the information manager of a multi-governmental security reform agency in Afghanistan

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Healthcare

Sick from within

by Executive Staff December 11, 2009
written by Executive Staff

At first glance Lebanon’s health sector reveals a multitude of apparent contradictions and anomalies. Generally speaking, the health sector is a monumental achievement, and boasts some of the highest-caliber medical apparatus in the region in terms of both facilities and human resources.

The sector constitutes a significant contribution to the economy, but, in the same breath, public health puts great strain on the country’s finances.

The sector seems to be falling into the regional trap of creating high technology hospitals that are only accessible to a small minority of wealthy citizens. In a sector dominated by private care, the task of trying to expand the coverage and remain profitable is proving to be a challenge, if not impossible.

The National Social Security Fund (NSSF) is a case in point, as its spending deficit continues to place a great burden on the sector. If underlying issues of institutional rot in the NSSF are addressed it would almost certainly result in a promising and profitable health sector in Lebanon.

Two tier treatment

The importance of the health sector is reflected in its turnover of $700 million in 2008 and the 25,000 employees, including 6,000 doctors, it retained in 2009 according to the Syndicate of Private

Hospitals in Lebanon.

“In the opinion of the syndicate of hospitals this figure is low and is less than 3 percent of GNP [gross national product],” said Sleiman Haroun, president of the syndicate. “However, it does not include a lot of revenue from outside hospitals such as pharmacies.”

The medical profession is unlike other businesses in one principle aspect: no matter how important the economics of the profession are, all those involved in the sector have moral obligations that are not so obvious or pertinent in other industries.

“We do not want two tiers of healthcare; one for the rich and one for the poor,” Haroun said. “You can have this in restaurants, but not in healthcare.”

In Lebanon, as in many countries that are dominated by private health care, the balance between a profitable and an ethical health system is a delicate and continuous process. This balance becomes increasingly difficult as more complex and expensive technologies are introduced into the system, allowing people to live longer and healthier.

“The costs of health care are rising and this is happening everywhere in the world. We have to take care of our elderly and the financing and resources are rare,” said Roula Zahar, financial director of Mount Lebanon Hospital.

In a straight comparison of private health care turnover and GNP, Lebanon looks to be in a position to deal with this situation, since the share of total GNP the sector constitutes is not overly substantial.

However, the bigger picture of health care in society is less positive.

According to the latest available figures (2008) produced by the World Bank, Lebanon is among the countries with the highest public health expenditure in the Middle East. Government spending on healthcare equals 12 percent of total spending; only Djibouti spends more.

This is higher than the global average of government healthcare spending (some 11 percent) and the Middle East and North Africa, where spending averages between 2.4 and 6 percent.

Further to this, the World Bank also provides figures on out-of-pocket expenditure, which includes expenses such as pharmaceuticals, optional costs and in-kind payments, which make up 75 percent of private health expenditure in Lebanon (the global average is 43 percent).

The United Nations Development Program shows that, taking into account purchasing power parity theory, per capita healthcare spending in Lebanon— at just over $800 — is surpassed only by Bahrain ($870) in terms of regional spending.   

Geographic distribution of hospitals in Lebanon

Ministry of Health’s quality accreditation of hospitals

Source: Syndicate of Private Hospitals

Total number of hospitals

Source: Syndicate of Private Hospitals

Covering the people

In Lebanon people are covered by six different public health insurance entities: The NSSF, which covers some 1,350,000 Lebanese; the Ministry of Public Health (1,500,000); the Cooperative of Public Servants (195,000); the Army (350,000); miscellaneous entities such as municipalities and judges (75,000); and  private health care insurers (450,000).

Despite the different entities, “We believe that there are still issues where people who are very poor are not covered,” said Zahar. “We have a problem of coverage.”

At the same time, a system with so many insuring entities has created redundancy in the sector.

“As a doctor I am covered by the [American University Hospital] but as a worker I am also covered by the NSSF,” said Samir Arnaout, the representative of the Lebanese Order of Physicians and associate professor of medicine at the American University of Beirut (AUB).

“If I am admitted [to hospital] both will cover me. On top of this 10 percent will be covered by the Lebanese Order of Physicians. So, like myself, some Lebanese individuals and their families are covered as many as three times or even more, while others are not covered at all.”

Those entering private hospitals without any type of health insurance are designated as ‘self-payers.’ The number of self-payers varies: at the predominately maternity oriented Trad Hospital for instance, 40 percent of patients are self-payers, while other major hostpitals see just 5 percent. 

“The patient coming in as a self-payer will pay a higher tariff because there is no pressure on the hospital,” said Chadi Sebaaleni, marketing manager for Trad Hospital. 

The tariff and the NSSF

Coverage and who pays for it is an issue of great importance and an area of significant controversy in the sector. There is a complex system of tariffs in Lebanon that are highly controversial. For those covered by the NSSF, there is a very low tariff.

“The same tariff set in 1995, nearly 15 years ago, by the NSSF is still being used today,” said the Syndicate of Private Hospitals’ Haroun. “This is simply not workable for the health sector in Lebanon.”

This tariff has to be accepted by private hospitals by law.

Ostensibly, the NSSF is paid for by Lebanese employers and employees, with the former  contributing 23 percent of each employees salary to the fund and individual employees paying 6 percent of their income. However, the NSSF is mired in debt, estimated at some $400 million, and rife with allegations of excess pay, overstaffing and being opaque about its operations.

“The NSSF has all the ills that an institution can possibly have,” said Farid al-Khazen, AUB professor and a member of Parliament.

The NSSF is still implementing a computerization program which began in 2007, after receiving funding from the World Bank.

“It is not a healthy institution,” said  a chief executive officer of a Lebanese hospital, who asked to  remain annonymous. The NSSF did not answer requests for comment.

As a result of the deteriorating state of the NSSF, serious ethical and financial difficulties have emerged for the private health sector in Lebanon.

“The NSSF does not recognize your cost and they do not change [their rate] even with inflation,” the unnamed CEO told Executive, illustrating his point with the example of a gastroscopy procedure — an internal examination of the digestive tract.

“The hospital buys the equipment, employs the technicians and the doctor comes in and uses this equipment. The doctor is paid LL 90,000 ($60) and the hospital is paid LL7,000 ($4.60) [the rate set by the NSSF].”

“The gastroscope cost $80,000;  they don’t recognize whatsoever the cost of your services, so we are in a constant battle,” he said.

Not only is the rate set at a level that is not responsive to industry costs, payment is sometimes withheld for several years. The extent of the problem was articulated when AUB signed an agreement with the NSSF in 2009 to be reimbursed for outstanding out-patient co-payments dating back to 2002.

“No one knows who owes what. At the end of the year there is no statement of account,” said the CEO.

Reforming the NSSF has been a governmental priority for years, but the institutional rot has continued.  A solution to the deep-rooted financial and administrative problems that have crippled the NSSF has proven to be illusive.

“This is creating a lack of proper financing in the sector,” said Mount Lebanon Hospital’s Zahar.

“The hospitals are in a dilemma. You cannot go on paying for the drugs and the treatments for this person. You have a financial and human problem at the same time and we don’t know what to do.” 

The NSSF remains teetering on the edge of collapse and a major strain on the country’s private and public coffers. A Council of Ministers decree was passed stipulating that tariffs should be raised by 25 percent but the NSSF is refusing to apply it.

“Political issues are underlying the problem [of reform], there are political affiliations on the board of the NSSF,” Haroun stated. “If it were just a technocratic problem of reform it would have been sorted.”

Most in the health sector, however, have given up hope of NSSF

reform in the near future.

Exploiting the elderly

The need for immediate reform of the NSSF is an issue of life or death for many, particularly the chronically ill and the elderly.

Many elderly patients are currently stuck in a life threatening and highly exploitative situation, created by the deadlock between the hospitals and the NSSF, which is nothing short of a national scandal. 

The NSSF introduced a voluntary scheme for elderly citizens that were having difficulty finding coverage elsewhere. But the inability of the NSSF to pay for these patients has led to a dangerous standoff with the hospitals.

“They [the NSSF] collected subscription [payments] from the elderly and they went to hospitals but the hospitals were never paid,” the CEO explained. “So we stopped covering these patients and now the patients have coverage that is not accepted in any hospital.”

Despite this, the NSSF continues to collect payment from the elderly, one of the most vulnerable groups in society, for a worthless insurance scheme that exists theoretically but not in reality. 

“You ask the NSSF why they don’t close this program and they don’t reply, so [the elderly] keep on paying subscriptions,” said the CEO.

Regulation, accreditation, fragmentation

The need to overhaul the NSSF seems obvious. But beyond this, many are also calling for a renewal of the macro approach to the sector.

One of the fundamental issues is that the Ministry of Health does not possess an effective framework to implement changes within the sector. Decision making is spread over several different agencies, making it almost impossible for the health ministry to create an effective health policy. Haroun gave the example of coverage to illustrate how, in its current disjointed state, effective reform is simply not possible.

“Health coverage is fragmented: the [NSSF] is under the Ministry of Labor; the Armed forces under the  Ministry of Defence; the [Internal Security Forces] under the  Ministry of the Interior; the Cooperative of Public Servants under the president,” he said. “The result of this is that decision making is spread across five agencies, which means there is no single person that can impose a certain health policy with steps to implement it.”

This has created large disparities in the type of health care provided, even when considering standardized governmental coverage.

“Each group has its own policy regarding health care, the type of coverage and the amount of coverage required,” said the unnamed CEO. “The army comes to me, says to me they want this, we argue, [we] give them something and they take something, then they go to another hospital and do the same bargaining.”

Even within the army or police there can be different treatment based on the particular deal their representative has done with the hospital they are admitted to.

Regardless of the difficulties the health ministry faces in making reforms, there have been some successes which were received with near universal praise.

The most important step taken was the introduction of an accreditation scheme that started in 2002, whereby all hospitals in Lebanon are assessed by a team of foreign health specialist and graded into four classes.

“The accreditation system is a good start and it is the first time that Lebanon has moved toward a measure of quality [in the health sector],” said Tony Zreik, associate of the University Medical Center — Rizk Hospital (UMC-RH). “It narrows the margin of error.”

Mount Lebanon Hospital’s Zahar warned that the accreditation process stops short of any real reform and merely classifies hospitals instead of raising their quality levels.

“It does not give incentives for hospitals to perform better; it does not provide for everything they need such as training for the hospitals to improve,” she said.

Cohesive thinking

Many in the health sector told Executive that because of this fragmentation, policies are made on an ad hoc basis and are not strong enough to create a sustainable health sector.

“This sector depends on government regulation,” said Zahar.

“The government does not respond to citizens’ needs or to the problems in the sector, and this is a big problem.”

Efforts to create a more cohesive governmental health care system have been met with resistance.

“The Minister of Health is trying to unify health policies in the country but he is not succeeding, as all the different players want to retain their independence,” said the CEO.

This problem is compounded by a lack of unity in the private health sector that is creating wasteful practices. The CEO explained that this happens because the sector is not guided by blanket regulation, and an oversupply of certain types of medical facilities often occurs.

“Lebanon is a country of four million people and by global standards it requires probably four MRI machines. We have probably 20 or 22, because of competition between hospitals,” said the CEO. “We have more equipment than needed and to justify the purchasing of this equipment doctors are requesting unnecessary [MRI] tests…so you go there and pay.”

Lacking a proper regulatory

authority, Lebanon is spending far more on health care than it actually needs to and yet the resources that the health sector has are not being properly allocated. This wasteful practice and the issue of tariffs are driving hospitals to search for alterative sources of revenue.  

Insurance fund coverage

Source: Syndicate of Private Hospitals

Healthy tourism

Health tourism is seen as the best possible way of generating the substantial amounts of income hospitals need. The health sector is seen by many as well positioned to target the Gulf market because of the sector’s highly qualified staff, its technological advancement, excellent management and also Lebanon’s location within the region.

Lebanon is already a well known for its plastic surgery. But as Haroun, from the Syndicate of Private Hospitals, warns, this is not the same as health tourism for the hospital sector.

“Health tourism is not well developed in Lebanon; of the half million or so admissions last year only a few thousand were foreign,” said Haroun. 

Individual hospitals are now creating initiatives to capture some of the growing health tourism market. Trad’s Sebaalani stated that his hospital is now focusing its marketing strategy on health tourism.

“We can charge five times what we can charge a patient from the NSSF,” he said with regards to foreign patients.

Currently, foreigners account for just 15 percent of Trad’s total patients, yet brought them some 30 percent of their $10 million turnover in 2007.

UMC-RH’s Zreik, on the other hand, stated that initiatives by individual hospitals will ultimately prove futile.

“Big companies in the United States have deals with countries where they send their patients,” Zreik explained. “But to capture this market these companies need to see things that one operation or institution cannot provide.

“One institution cannot provide accommodation, accreditation and regulation. You need the state to assist in providing these,” he added.

Not all are convinced that Lebanon is the bastion of health tourism in the Levant. There is stiff competition from Jordan and Egypt, with Jordan in particular creating a highly effective national health strategy for health tourism.

In the Gulf, many nations are building expensively equipped hospitals at a rapid pace and their nationals typically travel to Europe for more complicated procedures.

“Health tourism is not a solution,” said the CEO. “Rather it is wishful thinking and a distraction from organizing a proper health care system.”

Without sweeping reforms it seems doubtful that issues such as the NSSF, tariffs and coverage are going to go away any time soon or that the highly fragmented health sector will unite. Health tourism may provide some relief to the sector but is unlikely prove sustainable.

Although far from receiving a clean bill of health, an ever present demand should ensure that Lebanon’s health sector will not collapse altogether.

It will likely remain resilient, as it has for many years, with the private health sector struggling to survive against the odds.

December 11, 2009 0 comments
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Call for mercy

by Executive Staff December 11, 2009
written by Executive Staff

Farid el-Khazen Member of Parliament

The voluntary [National Social Security Fund] is a scandal. The scheme has been discontinued and yet the fund has not [told members], so people still pay their annual fees. This is unacceptable — someone should put an end to it. The NSSF has all the ills a bureaucratic administration can have. There is no control, no supervision or coordination [in the health sector], all of which should be taken care of by the government. For the money we pour into the system we should have better results.

Tony Zreik Physician, University Medical Center  Rizk Hospital (UMC-RH)

Health tourism is currently not organized, and it must be if you want to make it viable. You can do a lot if you are an individual hospital but ultimately it comes to nothing if it is not a nationwide policy and vision. Every hospital wants to attract patients from everywhere but this requires a lot of things. Good equipment, doctors and nurses, these are not enough. You have to have a vision. You have to set up from the day the patient books the flight until the operation. Things are being done globally for health tourism that are highly advanced… It is the government that has to take the initiative. Look at Jordan, who is competing with us, they have a global vision [that has a strong] national strategy.

Health tourism is very realistic and attainable but it has requirements that collectively have to be worked on.

“Health tourism is realistic and attainable” – Tony Zreik Physician

Samir Arnaout Representative, the Lebanese Order of Physicians and associate professor of medicine, AUB

“Some lebanese are covered three times and others are not covered at all”

As a doctor I am covered by the American University Hospital but also as a worker I am covered by the NSSF, and if I am admitted to hospital, both will cover me. On top of this, 10 percent will be covered by the Lebanese Order of Physicians. Hence, some Lebanese individuals are covered three times and others are not covered at all.

There is a conflict between physicians and insurance groups. The Lebanese Order of Physicians is trying to increase tariffs because there have been none, despite marked inflation. But private insurance companies do not want to increase tariffs. They prefer to keep them as is. If a doctor is not living according to good standards then…everything will be in chaos. This is not acceptable.

Roula Zahar Financial director, Mount Lebanon Hospital

“Health Coverage is the public’s responsibility”

The voluntary NSSF fund, which you can belong to by paying a premium, has failed completely. Hospitals today do not accept this coverage and those individuals that are in this program have no coverage at all. This scheme has to be mandatory to all citizens, so that healthy people pay for the sick and a balance is created.

[Universal health] coverage is part of the public’s responsibility. If you don’t cover your population you might have a disaster. Hospitals are in a dilemma: on one hand they cannot go on paying for [NSSF members’] drugs and treatments, [on the other, they have a duty of care]. It is a clash between financial and human needs and they don’t know what to do… Coverage is the most important issue. This is where you start from, so that medicine is available to everyone.

December 11, 2009 0 comments
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Writing in the sky

by Executive Staff December 11, 2009
written by Executive Staff

While Dubai has gradually become the heart of the regional advertising industry, Beirut remains the main center for the production of television commercials and music videos.

“Even at its peak, Dubai would not do half of what we in Lebanon produce annually,” said Gabriel Chamoun, chief executive officer of The Talkies, one of the country’s leading media production houses.

It is estimated that Lebanon produces up to 500 commercials and music videos every year. The vast majority of these — Chamoun estimates some 75 percent — are aimed at the pan-Arab and foreign markets. Therefore, only an estimated 25 percent or so comes on the account of Lebanese advertisement budgets. Exact numbers are hard to come by, as the Association of Lebanese Commercial Producers was only recently established with the aim to bring more structure and transparency to the market.

Currently, there are 10 relatively large production houses based in and around Beirut, which in addition to The Talkies include such firms as Signature Productions, VIP Films and Laser Films, and some 15 smaller companies. Most leading Lebanese firms have opened branches in Dubai, as it is there that most international advertising agencies have their head offices. Traveling in the opposite direction, in recent years several Gulf-based production houses opened up shop in Beirut. They include Joy Films, The Big Kahuna, Dolce Vita and Film Works.

“Beirut is more cost-efficient than Dubai and can deliver the goods,” said Chamoun. “In fact, I’d say that Beirut offers the best value for money in the world. We have all the state-of-the-art facilities, as well as a well educated and flexible workforce that’s willing to work hard.”

The latter is no doubt a plus in a sector that is, more often than not, characterized by long working hours and overtime.

In addition, Beirut is centrally located, multilingual, has a varied urban and natural landscape, a good educational system and, as some consider, is the cultural and artistic heart of the Arab world. All of these factors are good reasons for firms to head Beirut’s way. On an international level, Lebanon’s biggest (non-Western) competitor is South Africa.

“For us, 2009 was pretty similar to 2008, both in terms of annual turnover and the number of commercials (50) we produced,” said Chamoun. “Perhaps we have been less affected by the regional crisis than other firms, as our strength has always been based on fast moving consumer goods. However, we did notice that advertisement budgets were somewhat tighter this year, causing clients to bargain harder.”

Compared to previous years, 2009 witnessed a decline in the production of music videos. Due to the economic crisis, the success of digital media and piracy, compact disc sales plummeted around the world, including the Middle East. In addition, the Arab world’s leading music producer, Lebanon-based Rotana, suffered from the fact that its majority shareholder, Prince Waleed Bin Talal, lost part of his formidable fortune in the downturn of the world’s financial markets.

Beirut’s billboard jungle

Lebanon’s outdoor advertising sector arguably profited most from the election craze that held the country in its grip leading up to June 2009. Billboards were the preferred vehicle for parliamentary hopefuls to bring their message to the public. The outdoor firms Pikasso and Groupe Plus, which control about half the market, both reported an increase in turnover of some 20 percent. Both firms were established shortly after the end of the Civil War, when Lebanon was still virgin territory in terms of outdoor ads, and the two have since become regional players with networks in Syria, Jordan, Dubai, Saudi Arabia and Algeria, among others.

Since the early 1990s, however, dozens of medium and small-sized companies have entered the Lebanese market, which is characterized by an overall lack of regulation and hardly any enforcement of those that exist. Today, there are an estimated 14,000 billboards in Lebanon, as well as some 600 double-faced unipoles, and 1,300 rooftop and wall signs. Most are located in and around Beirut, with a high number along the country’s main roads and highways.

The overgrowth is undoubtebly nowhere more visible than in the billboard jungle that hedges the highways between Beirut and major cities. The visual chaos, and potential danger to drivers, is perhaps best summed up by the huge billboard near Aley, which depicts a giant and very appealing lady in lingerie, with the text: “Keep your eyes on the road.”

As the art of outdoor advertising is all about maximizing visibility and exposure, one could ask: how effective can billboards be, placed as they are along the coastal highway, when their messages seem to drown in a sea of publicity?

“Everyone in the industry agrees that the current situation is not ideal,” said Tony Khoury, group sales director at Groupe Plus. “We tried once to sit down with all the parties involved and we tried to bring down the number of billboards by 25 percent, yet the smaller firms refused. They only have a very limited network and fear to lose out.”

It is often these firms, which have very limited networks and hardly the best locations, which undercut prices.

“They may have five billboards and claim they have a network,” Khoury said. “We are engaged in a continual debate with clients to explain that a network based on good locations with good visibility and good service has its price. One well-lit billboard on the entrance road to Hamra is worth 100 obscure ones.”

The solution, according to Khoury, is simple.

“There is a law,” he said. “It may not be a prefect law, but it is better than nothing and it clearly stipulates, for example, that there should be a distance of 100 meters between billboards, 1,000 meters between unipoles, and they should be placed at least 3 meters away from the road. The problem is not the law. The problem is that it is not implemented.”

Of course, outdoor firms are not the only ones to blame. To place a billboard, firms pay the private or public owner of the plot of land — or the roof — where the advertisement is to be located.

What’s more, for every sign, firms are obliged to pay a fee to the municipality. In other words, billboards are an important source of extra income for both landlords and municipalities, most of whom do not play according to the law.

Media expenditures

January to October 2008

Source: Ipsos Media CT

January to October 2009

Source: Ipsos Media CT

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Election injection

by Executive Staff December 11, 2009
written by Executive Staff

The relative calm and secure political environment that prevailed in Lebanon in 2009, coupled with record tourist arrivals and the parliamentary elections, saw the country’s advertising sector record an estimated increase of some 20 percent after a relatively modest 2008.

Politicians poured millions of dollars into public relations campaigns in the run up to the June polls, which — to a large extent — compensated for a drop in multinationals’ advertising campaigns. As a consequence, the outdoor advertising sector did particularly well.

A comparative analysis of the ad industry should start with a brief return to 2008, which was defined as a “tough year” across the board, witnessing less than projected growth of some 5 to 10 percent.

The main cause for the relative malaise was not so much the global financial crisis — which started with the downfall of Lehman Brothers in September 2008 and caused mayhem in the Gulf region — but the period of political instability triggered by the sectarian violence in Beirut and around the country in May 2008. Advertisers placed campaigns (temporarily) on hold, while the number of tourist arrivals were a fraction of the record number expected.

Unlike regional advertising capital Dubai (see box on next page), Lebanon was not directly hit by the 2008 global financial meltdown. The indirect consequences of the crisis — a lack of consumer confidence and shrinking advertising budgets — were expected to be felt over the course of 2009 and 2010, but this predicted downturn has yet to materialize.

According to market research firm Ipsos, total advertisement expenditure (based on official “rack rates,” which are likely higher than the final agreed price) amounted to $809.3 million by the end of October; slightly more than the $808 million spent on advertising in the whole of 2008. It is expected that this year’s total will amount to some $960 million, which would represent an increase of 20 percent compared to 2008.

As in previous years, television saw the highest spending, with 74 percent of the total, followed by outdoor advertising (10 percent), newspapers (6 percent), radio (5 percent) and magazines (4 percent).

The top advertising sectors in 2009 remained hygiene and beauty care (19 percent), entertainment and leisure (14 percent), banking and finance (7 percent), non-alcoholic drinks (7 percent) and automotive (6 percent).

It should be stressed however, that these are figures based on official ‘rack rates.’ In real terms, the total ad spend is significantly lower. It is widely acknowledged that official rack rates are not a given, but rather “the starting point of bargaining.” Sponsorship deals, advertisement exchanges, client incentives and promotions further obscure the true volume of the market.

“The market in real terms is not worth more than some $125 million annually,” said Georges Abdel Malek, president of the Advertising Agencies Association (AAA) in Lebanon.

Founded in 1959, the AAA defends the interests of the industry and its individual members: 42 active and 30 non-active agencies, employing some 4,000 to 5,000 people.

A reflection of the global market, the Lebanese advertising industry is dominated by international brand names such as Impact BBDO, Leo Burnett, Grey and Fortune Promoseven, which are part of the four giant groups that dominate the advertising world.

Known as the “Big Four,” Omnicom, Interpublic, WPP and Publicis had a combined global turnover of some $35 billion in 2007, and employed some 157,000 people in more than 100 countries.

“They indirectly control some 80 percent of the Lebanese market, while the remainder is in the hands of smaller local agencies,” said Abdel Malek.

Advertising spending share by market sector

Lebanon (January to October 2009)

Source: Ipsos

Distorted truth

“2009 was an exceptional year,” said Joe Ayache, managing director of Impact BBDO, Lebanon’s biggest advertising firm in terms of annual turnover. “The main event [of the year] was, of course, the parliamentary elections, while the country remained calm and witnessed a record number of tourist arrivals.”

In addition, the elections and summer holidays were followed by Ramadan, while the Christmas peak is still to come. Other main events included Beirut hosting the Francophone Games and being the 2009 World Book Capital.

“The elections pumped millions of dollars into the advertisement market, which essentially covered the ‘black hole’ caused by the decrease in the advertising budgets and campaigns of multinational firms,” said Paul Boulos, regional director of business development at Drive Communication.

A member of the Japanese Dentsu network — one of the world’s largest advertisement brands — Drive was long known as “the automotive agency,” because its sole big client for many years was Toyota. However, in recent years Drive has  expanded its client base. In Lebanon, it won contracts with many new clients and expanded its staff.

“Lebanon is not a volume market compared to the rest of the region, which is dominated by Saudi Arabia, Egypt and Turkey,” said Boulos. “But I think it is good for an ad agency to have a presence in Lebanon, as here is where it all began in the 1970s.”

“The Lebanese started it and they are still omnipresent in the regional market, even though the [center] has moved to Dubai,” Boulos added

Abdel Malek was careful, however, not to perpetuate a “hallelujah” atmosphere, warning that the election injection had brightened an otherwise bleak outlook.

“The elections may have produced a good 2009, yet they are a one-time event and cannot make up for the structural decline the sector has witnessed since the 1980s onward, when Dubai started to take over Beirut’s role as the center of regional advertising,” he said.

Outlook

Should the socio-political situation in Lebanon remain calm, most industry insiders are confident the coming year will be a positive one. The banking sector is expected to remain strong with a huge cash flow and tourists will continue to come.

The distribution of annual ad spend over different types of media is unlikely to change much, with the lion’s share going to TV, followed by the outdoor sector. As elsewhere in the world, print media may suffer on the hands of digital and other new types of media.

There is still much growth potential in developing publicity content for new media, such as the Internet. Lebanon has so far been lackluster here, certainly when compared to the United States and Europe, where the Internet is a main pillar of the media mix.

Beirut is likely to keep growing as a regional production center of commercials and music videos, while it is highly unlikely that the country will reach a solution regarding the existing billboard jungle, no matter how illegal a large part of it may be.

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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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