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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

December 12, 2009 0 comments
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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.

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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.

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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.

December 11, 2009 0 comments
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Telecom

Politics vs privatization

by Executive Staff December 11, 2009
written by Executive Staff

Lebanon knows very little of the advances the telecommunications industry has experienced over the past decade in other Middle Eastern and North African countries. The sector is still wholly owned and controlled by the Lebanese government, meaning there is little industry to speak of.

Throughout 2009, the structure of the industry has hardly changed. Ogero, the government-owned fixed-line operator, remained under the management of the director general of Operations and Maintenance at the telecom ministry, the same body that oversees and issues contracts to Ogero — a setup in gross violation of corporate governance principles.

Profits from telecommunications operations remain a lucrative source of income for the government and the telecom ministry. According to the finance ministry’s 2009 budget proposal, revenues from telecommunications were expected to reach  $1.6 billion by the end of the year.

Another front that has seen little if any progress in 2009 is the implementation of Telecommunications Law 431, which calls for the creation of a joint stock company named Liban Telecom (LT). The company would inherit the different areas of Lebanon’s telecom infrastructure from the telecom ministry and merge them into a corporatized entity, paving the way for privatization of up to 40 percent of Lebanon’s telecom landscape within two years.

Kamal Shehadi, chairman of Lebanon’s Telecom Regulatory Authority (TRA), blames former Minister of Telecom Gebran Bassil (who is now Minister of Energy and Water) and the council of ministers (COM) for delaying the appointment of the board of LT that would, effectively, start the process of reform in the sector.

“This is the single most important reform that they…should have done in 2009,” says Shehadi. Without a corporatized body to regulate, the TRA must wrest control of the industry away from the telecom ministry and assert its authority as granted by stipulations in the telecom law. The trouble is, the telecom law itself is written in generalities, such as one, cited by many who support the minister’s authority over the TRA, stating that the minister has the power to establish the “general rules of Telecommunications Services in Lebanon, supervision of such application through reports submitted to him by the Authority [TRA].”

This caused quarrels over prerogatives in 2009, such as the licensing of data service providers and funding to allow the TRA to “create and manage” a national numbering plan, as stated by Law 431.

The law also states, however, that the TRA’s role is to “prepare the draft decrees and regulations” related to the implementation of the law, “and submit them to the minister and give an opinion on draft laws and decrees relevant to the telecommunications sector” — which would require the minister’s pre-approval before any action. 

With these issues in the way, the TRA and the ministry have had to refer to the Shura council — Lebanon’s highest court — for a final verdict on who would be granted what authority. The council has yet to make a decision on many of the outstanding issues.

It has, however, passed a verdict on one related to prefixes of mobile telephone numbers, which relates to the quantity of mobile numbers allocated to each of the country’s two contracted operators, Alfa, owned by Orascom Telecom, and MTC, owned by Zain. The decision granted the TRA the legal mandate to dictate to the mobile operators that “71” prefixes would be granted to MTC and “72” prefixes to Alfa in tranches of 1 million numbers at a time, which would allow the TRA greater control over numbering, as opposed to the previous practice of giving out 100,000 at a time. The problem is that before the decision was taken, Alfa had already issued 200,000 numbers with the prefixes of “717” and “716” in accordance with the previous numbering rules set by the ministry.

The decision was made by the Shura council in July, but as Executive went to press, no action had yet been taken to roll back these numbers and Alfa is still “awaiting instructions,” according to its Chairman and Chief Executive Officer Samer Salameh. (No one from MTC was available to comment for this article.)

The numbering issue is just one of many that have made life difficult for Lebanon’s telecom players, who are eager to expand and grow the industry. Both Alfa and MTC need more numbers to distribute now that they have completed an “aggressive plan done on short notice” to increase their capacity, according to Wassim Mansour, country director at Nokia Siemens Networks. By the end of 2009, both operators had expanded their networks from 600,000 subscribers to more than one million each. Salameh says that his company is looking to reach 1.5 million by next year, as the new infrastructure allows them to increase capacity “almost like a software upload.”

The expansion is one part of new management contracts that were signed in February 2009 with Lebanon’s two mobile operators, after the previous government shelved plans to privatize the sector in 2008 on fears that the international financial crisis would sink the offering price of the sector if it were put up for tender.

“There was no decision so there was no alternative,” said Shehadi in April. “The management contacts and their renewal were the only option left. ” The management contracts, which do not allow the operators to set their own prices, are yearly one-time renewable contracts that accord Alfa $6.75 per subscriber and MTC $6.66 per subscriber. Hence, expanding the networks, whose capital expenditures were footed by the government at around “$100 million,” according to Salameh, became a key profit-making opportunity for the two mobile operators.

The problem is that a profitable model does not necessarily entail profits in the real world, at least not in this case.

“Based on that price [$6.75 per subscriber] our speculation was that we were going to lose a significant amount of money in the first year,” said Salameh. “The good news is we lost a bit of money, but far less than expected because we were able to acquire customers faster than we had hoped.”

Salameh stressed that Orascom does not usually pursue management contracts, but did so in Lebanon’s case in order to position itself for eventual privatization of the mobile telecom sector.

Along with the decision to expand the network, the government also enacted a new pricing structure that lowered prices for prepaid monthly subscriptions ($45 to $25), prepaid minute rates ($0.50 to $0.36), monthly subscription fees ($25 to $15) and postpaid minute rates ($0.13 to $0.11), facilitating higher market penetration.

The average expenditure per user dropped from $75 in August of 2008 to the current rate of $50, according to statements Bassil made as he handed over the telecom ministry in November to the new minister, Charbel Nahas. Bassil also stated that throughout his tenure, mobile penetration rates increased from 32 percent to 50 percent, though still significantly below the regional average.

MTC introduced Blackberry to the Lebanese market in February 2009, and Alfa is slated to do the same this December, according to Salameh. In order to encourage adoption, the government lowered prices on service fees (from $45 to $40 per month) and increased usage capacity per user from 20 megabytes to 100 megabytes for both mobile operators.

Fixed line follow-up 

Now that the expansion of mobile networks has been completed, the country’s fixed telecom operations seem ripe for expansion as well.

One project that has been approved by the COM is the $14 million pilot project to lay fiber optic cables in the Hamra and Ashrafieh districts of Beirut.

The project will enable the residents of both areas to have faster Internet speeds and will be a litmus test for the implementation of broadband nationwide.

For this project to proceed, however, a long overdue tender would have to be issued by the Department of Operations and Maintenance at the telecom ministry and contracted to the incumbent operator, Ogero.

Abdulmineim Youssef, who has close ties to the parliamentary majority, heads both of these entities and many in the parliamentary opposition have accused him of stalling progress at the level of the telecom ministry. Youssef did not respond to Executive’s requests for an interview.

“For the time being, there has been no tender or anything issued,” says Roger Ghorayeb, country

senior officer for Lebanon and Syria at Alcatel-Lucent, the global technology  firm responsible for the construction of much of Lebanon’s telecommunications infrastructure.

Privatize or politicize

Authentic competition in Lebanon’s telecommunications market is widely recognized as a necessary condition for the sector to advance, and both mobile operators, Alfa and MTC, have expressed interest in acquiring a stake in any eventual privatization of the industry. Political leaders in Lebanon, however, also own stakes in the same regional and global telecom companies to which the country’s telecommunications sector may be sold, which has prompted criticism as there may be a conflict of interest afoot.

For instance, Prime Minister Saad Hariri is the director and general manager of Saudi Oger, which he owns along with other members of his family. Saudi Oger holds a 41.9 percent stake in Oger Telecom, where it partners with the majority Saudi government-owned Saudi Telecom Company (STC) that owns a 35 percent stake in the company. Oger Telecom is already active in the Lebanese telecom market, where it is majority owner of the Lebanese Internet service provider Cyberia, along with Saudi Oger. Oger Telecom’s chairman is Mohamad Hariri, who is also the chairman and general manager of GroupMed, which owns Lebanon’s BankMed.

Another political figure, former prime minister Najib Mikati and his family, through their M1 Group, are the second largest corporate shareholders in the multinational Mobile Telephone Networks (MTN), which runs operations in Cyprus, Syria, Dubai, Yemen, Iran and several African countries. 

In mid-November, Charbel Nahas, a former economist and consultant to the World Bank allied with the parliamentary opposition’s Free Patriotic Movement (FPM), took over the post of telecom minister from Gebran Bassil (FPM leader Michel Aoun’s son-in-law). As Executive went to print, Nahas was involved in drafting Lebanon’s ministerial policy statement and was not available for comment.

Nonetheless, the stage looks set for a bitter battle between those who advocate the speedy privatization of the industry against those who believe that the assets of the telecom industry should be increased before privatization in order to bolster the selling price of the industry.

Paris III advocates the privatization of the telecom sector, as do many within the parliamentary majority. Hezbollah — the lead opposition party which also happens to run its own telecommunications network separate from that of the state’s — has come out against privatization, stressing “the preservation of this national wealth through the sector’s development and improving its services” in its electoral platform prior to the June 2009 elections.  

While the new minister had not explicitly stated his position on the matter of privatization as Executive went to print, he has hinted at adopting the latter position, stating that he will not allow the state’s monopoly to turn into a private monopoly, and said he will focus on increasing the assets of the industry.

Even if privatization is not adopted, liberalization and the creation of LT are all viable options for the COM to take. The Shura council will also need to make decisions regarding the dispute over prerogatives concerning licensing regulations. With a new government and a new minister in place, there is some optimism, if not momentum, for telecom sector reforms to finally begin.

“It’s obvious that change is coming and the government is serious,” says Sami al-Basheer al-Morshid, director of the Telecommunications Development Bureau at the International Telecommunications Union, which works with governments and the private sector to promote best practices in the market. However he cautions that expectations “should be realistic.”

“By the end of 2010 we will be asking different types of questions, that is for sure,” he says. It seems 2010 will be another year where the Lebanese will have to wait and see whether their new government takes the call from the telecom sector, or keeps it on hold.

December 11, 2009 0 comments
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Real estate

Like a house on fire

by Executive Staff December 11, 2009
written by Executive Staff

Antoine Chamoun General manager, Bank of Beirut Invest

The market is not greatly affected by politics, elections and all the events [relating to security]. Of course if the political situation is bad, some buyers or investors hesitate. But people are used to the fact that things get resolved in Lebanon. So the major effect is not politics, it is liquidity, the conditions of the loans, the interest rate, facilities, scheduling and rescheduling of loans for long periods. All of these affect the market. The proof is that since the financial crisis began, there were times when we didn’t have a president but the inflow of money to Lebanon was higher than any other period. This is because investing in land is much better than having money or gold. This is what drives Lebanese to buy a piece of land or a real estate property in their country when it is available.

Karim Bassil Chairman, Byblos Real Estate Investment

My main worry is how Beirut is being developed with no real master plan. They are letting those beautiful houses get destroyed. There is no real master plan to make Beirut consistent. How can they let people build towers when there are no towers [in a specific area] and how can they let people destroy the greenery that is left in the city? Solidere is a great example [to follow] because it is consistent. For me, it is an example of how a city should be. I would like to see the continuity of Solidere to Gemmayze. People only focus on how to make profit. It is natural. Anyone, even in Europe, would have done it this way if they didn’t have a law to follow. Hopefully one day we will have a strong system and they, developers, will try to comply with it.

Karim Saade General manager, Greenstone

“[Beirut] is transforming itself from a town-like atmosphere into a city center”

People are worried about prices increasing in Beirut, and that is something normal because it is transforming itself from having a town-like atmosphere into a city center. It is like London where you have three layers in the city. You have the downtown, the city, and the suburbs where people will start living more and more because the city is going to be saturated. Beirut is developing a westernized city center. Is it healthy? I don’t know, but that’s what is happening. Suburbs and other areas will develop even further from now on because of the surge in prices in Beirut, and you will have customers for both.

David Mansour Real estate developer, Mzar Lodge, Sioufi Towers and Tilal Fakra

“There is very strong growth [in the mountains]. The problem is a lack of adequate infrastructure… So we have to create our own”

Lebanese people are now being attracted to areas where there is super clean air in the summer and snow in winter like Fakra and Faraya. The weather there is very nice and dry and the area is becoming full [of occupants]. The demand for chalets is huge and 90 percent of buyers are Lebanese expatriates. There is very strong growth up there. The problem in that area is the lack of adequate infrastructure. There is a problem with the availability of water and electricity. The roads have been improved but they still need a lot more work. The biggest issue is that the area doesn’t have a proper sewage system, so we have to create our own sewage treatment plant.

Nadine Khoury Marketing and sales manager, Emaar Lebanon

“In dubai… They used to sleep outside the office for two or three nights waiting to buy. Now some of them are in jail”

 Dubai’s market is an investment market, while the Beirut market is an end-user’s market. The United Arab Emirates is a cosmopolitan country — you see faces only once sometimes, they buy and you don’t see them again. The culture and lifestyle are totally different and the weather plays a big part. Buyers in Dubai are definitely richer and whoever talks about loans in Dubai has already brought a lot in cash to reach that stage. In Lebanon, they study the situation before buying and whoever buys in cash is the expat that lives outside the country. So in the UAE the income is higher, and the kinds of people that buy are the tycoons of Iran, India, Pakistan, while in Lebanon it’s different. But what flies high is scary because I lived it and I saw it in Dubai. They used to sleep outside the office for two to three nights waiting to buy. Now some of them are in jail. The golden years are coming to Lebanon; the healthy market is beginning to appear. We are a real country but there it was fake.

Nabil Sawabini Chairman and CEO, MENA Capital

“When you’re not an expert you make mistakes. Who will pay for them?”

What bothers me going forward is that there are many people that are getting involved in the market who think it is a good business to be in and they have no clue what they are doing. I’m just worried that they might not only hurt themselves but hurt those who lend to them and buy from them. When you’re not an expert you make mistakes. Who will pay for them? It is not only your money but the investors’ money. And if you have a problem finalizing your project it will impact on everyone and on the image of the market.

Joseph Sassine President and director general, Habitat Bank

“There are very few lebanese locals who can[afford to] buy property in Beirut”

For decades, the development strategy in the country was mostly concentrated on Beirut, and all jobs were created in the capital, including universities and hospitals. Therefore it is normal for residential developments to be located near workplaces. Since Beirut is already saturated, new highways should be built. If Mount Lebanon was better connected to the city, people would find it easier to live 20 to 30 kilometers further from Beirut. Another issue in the real estate sector is that we have a current situation where there are very few Lebanese locals who can buy property in Beirut because of the high prices of land, which is reflected in residential prices. Now you tell me that it happens in all the capitals in the world, which is true. But why should we become like them? One way to solve this is to remove the old rental laws and liberate them, creating more competition in the rental market, which will be reflected in the prices of residential properties and land as well.

Hani Haddad Managing director, A&H Construction and Development

“For you to actually invest in a project in Beirut, you have to make a decent return on it”

A trend in the market right now is developing bigger projects, because land is a very substantial investment for developers. If you take 500 meters and build 12 floors, your overhead is very high. For you to actually invest in a project in Beirut, you have to make a decent return on it. So all of these new projects are huge, all of them are 20 floors or more.

Chahe Yerevanian Chairman, Sayfco Holdings

“There should be new laws that oblige developers to present financing guarantees”

In the 1990’s, many non-professional Lebanese  spoiled the image of Lebanon abroad, especially the Gulf. Many of the same apartments were sold to different buyers, many projects were not completed because of a lack of financing, much of the finishing was way below the standards that were promised, and many apartments could not even be registered to the buyers because of legal issues. Therefore there should be new laws that should oblige developers to present financing guarantees to obtain a permit to give more security to buyers, so that projects are completed and only professionals remain in the market.

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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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