Levant

A roof over every head

by Executive Staff
written by Executive Staff

One consequence of the population growth forecasted for the Middle East is the increasing need for affordable housing. Until recently, the region’s main property developers focused on the high-end market, while the public sector built subsidized homes for lower income groups. This stereotypical state of affairs has gradually changed face, as the tendency today is for governments to enter private-public partnerships (PPPs) with the region’s leading construction firms. 

Tameer Jordan, for example, is to construct 16,000 affordable homes outside Amman, and Orascom Hotels and Development (OHD) is building some 50,000 units in the 6th of October City on the outskirts of Cairo. Emaar recently won a $100 million contract to build social homes in Egypt and, as early as 2006, signed a memo of understanding with the Syrian government to build low-cost housing.

One thing is certain: constructing social housing is not just about solidarity, but makes perfect business sense. While very lucrative, the top-end of the market is limited in size as, at most, 20 percent of the region’s population is able to afford a top-notch villa or luxury apartment, let alone second, third or even fourth homes.

Market of the masses

“Some 80 percent of the world’s population lives on less than $10 a day, while some 50 percent live on less than $2.50 a day: that’s an enormous market,” said Markus Giebel, chief executive officer of Deyaar Development in the United Arab Emirates. “While it remains difficult to target the extreme poor, there are certainly opportunities in the low-income segment.”

Jonathan Reckford, CEO of Habitat for Humanity (HH), an American non-governmental organization constructing homes for the poor, explained that builders and property developers have so far largely ignored the lower-end market segments for a few basic reasons. The market’s top-end segment is extremely profitable, the region suffers from land scarcity, especially in urban areas, and zoning laws in most countries favor high-end development.

“Most importantly, it is extremely difficult for low-income groups to obtain mortgage loans, especially in the Middle East, while micro financing for housing hardly exists,” he said. “We have run such a program in Egypt for the past decade or so, and the results have been very promising. Over 95 percent of recipients pay their installments on time.”

The reason for the Egyptian government to downscale the role of its public building arm and enter PPPs, according to Egypt’s Minister of Housing Ahmed El Maghrabi, lies in the fact that the state simply cannot keep up with the rise in demand, which is mainly driven by a population growth rate of more than one million people a year.

“We will continue to work with the private sector in the future,” he said. “The government’s role will be limited to offering subsidized land and housing loans.”

One of the main contractors to build low-income housing in Egypt is OHD, which is in negotiations with the Turkish and Moroccan governments to build similar projects. Chairman and CEO Samih Sawiris said a number of conditions should be met to make PPPs regarding social housing schemes a success. First of all, he warned, companies that are only interested in making short-term profit should forget about entering the business.

“It’s a long-term investment,” he said. “Ultimately, it will make money through the appreciation of residual land values. The revenue cycle is 10 to 15 years.”

Sawiris stressed that high volume is crucial to keep construction costs down and urged governments to avoid the mistake of pushing the urban poor into an area or suburb far  from the urban core where, he said, they commonly make their money.

“People will refuse to go, as they do not have the money to commute,” he said.

Wrapped up in regulation

Finally, the state and its inevitable layers of red tape should stay away. Sawiris pointed to Egyptian regulations that stipulate a three-lane-road should be constructed when a project reaches a certain size. Yet most poor people do not drive and prefer to pay less for a sand road and have access to public transport instead. “Let the government provide the land and developers will do the rest,” he said.

There was one big absentee in the debate: green building. Can developers offer mass low-cost housing schemes and provide for green solutions in terms of water and energy use?

Maghrabi admitted that his government’s focus has been on housing people. Green building practices will have to come later. At next year’s World Economic Forum perhaps?  

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Levant

The Oriental assembly

by Executive Staff
written by Executive Staff

From May 15 to 17 the World Economic Forum (WEF) on the Middle East took place on the hot and humid shores of the Dead Sea in Jordan. Some 1,400 participants from across the globe, including some 1,000 private sector representatives, 14 heads of state and dozens of ministers, traveled to the earth’s lowest point to discuss the socio-economic issues facing the region.

As is so often the case with mega-gatherings such as the WEF, the most interesting words and opinions were not always expressed in the main conferences; many were found in the topic specific debates taking place on the meeting’s sidelines.

Participants and press happily met over coffee, lunch and dinner. And eat well they did as, according to one cook at the King Hussein Conference Center, the food bill for the first day amounted to some $90,000. Fortunately, the WEF has its sponsors.

There was also some controversy before the meeting even started. A small group of demonstrators in Amman protested over the attendance of an Israeli delegation, including Israeli President Shimon Peres, which was arguably the reason there were no Syrian or Iranian representatives.

In his opening speech, Jordan’s King Abdullah II referred at length to the Nakba and the Arab Peace Initiative (API). According to him, the Nakba was not just a catastrophe for the Palestinians, but for the entire region and the world.

“As we feel compassion for all who have suffered, let us also commit to joining the solution as well,” he said. That solution, said Abdullah, is the API.

“We have committed,” he said. “So now must Israel. The API has offered Israel a place in the neighborhood and more: acceptance by 57 nations.”

Abdullah also said that there can be no economic cooperation with Israel without a political solution. 

Away from politics, he identified the Arab youth as a “vital dynamic” of this year’s forum. 

“The 21st century has brought the Middle East its largest youth population in history,” said Abdullah. “In only a few years we will be looking to these 200 million young men and women for our region’s strategies, partnerships and solutions.”

From the plethora of topics discussed and debated at the Dead Sea, Executive highlights three in the following pages that in the future will play an ever more important role, particularly in the context of the region’s fast growing and ever younger population. These are the call for social housing; the state of the media; and the need for proper education.

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Levant

Banks hold the fort

by Executive Staff
written by Executive Staff

As with most countries in the Levant, Jordan has emerged relatively unharmed from the financial storm that ravaged the world. The Kingdom’s banking sector possessed few toxic assets. The Amman Stock Exchange (ASE) saw a decline of some 25 percent, far less than the world and Arab average. Still, Jordan’s economy appears faced with a tough road ahead. One of the crisis’ main victims so far has been real estate, which recorded a sharp fall in prices. In addition, remittances from the estimated 350,000 Jordanians living abroad are likely to decline and unemployment is set to rise. The economic growth forecast for 2009 is some 3 percent, down from 5.6 percent in 2008.

“The Jordanian banking sector has proven to be quite robust,” said Ali Nasser, an investment analyst at the Global Investment House in Amman. “The Central Bank of Jordan (CBJ) upholds strict regulations, which is one of the reasons that Jordan’s banks have not been directly affected by the credit crunch. Jordan’s loans to deposits ratio, for example, is 70 percent, while in the UAE it measures between 100 and 120 percent. In addition, the CBJ has responded adequately to the crisis. The only criticism one may have is that the CBJ could have reacted a bit earlier and more aggressively.”

Following the 2008 financial meltdown, Jordan’s central bank embraced an expansionary monetary policy in an attempt to boost the economy. Since last November, it cut interest rates three times, while the reserves to deposits ratio was reduced from 10 to 7 percent. Today, the re-discount rate stands at 5.25 percent and the interbank rate at 3.1 percent. To secure consumer confidence, the government guaranteed all bank deposits until the end of 2009.

In March, the International Monetary Fund’s mission to Jordan praised the measures, although most financial observers agree the central bank’s relaxation of monetary policy has so far not resulted in more dynamic lending practices. As with banks elsewhere, Jordanian banks have opted for a wait-and-see approach. Consequently, the CBJ currently holds excess bank reserves of some $4.5 billion.

“Banks will make profits in 2009, yet their results will be hampered by the economic slowdown and losses on the Jordan and other stock markets,” said Nasser. “In the first quarter of 2009, the prices of most bank shares were in decline, which is arguably the result of risk aversion in lending practices. Car loans for example were down some 70 percent, and it is very hard these days to get a housing loan.”

Amman Stock Exchange

Having recently celebrated its 10 year anniversary since privatization in 1999, the ASE has been affected by the financial crisis, although less than markets elsewhere. During the first half of 2008 the ASE price index had increased by some 30 percent to reach its highest level ever. Companies extracting potash and potassium did especially well, due to the food crisis and the demand for fertilizers.

Following the financial downturn in September 2008, however, the ASE price index went into free fall and closed the year 25 percent lower than the previous year. Market capitalization amounted to a bit more than $37 billion. While the industrial sector, which includes mining, declined by 11 percent, the service sector decreased by 17 percent, and the financial sector by 29 percent. The latter was dragged down by real estate firms that saw their average share price decrease by some 50 percent.

“Today, the ASE has absorbed the crisis and we can conclude that the losses were not as deep as elsewhere,” said ASE’s Chief Executive Officer Jalil Tarif. The Morgan Stanley index reveals that stock markets worldwide in 2008 declined by an average of 43 percent, while Arab markets fell by an average of 55 percent.

“One significant reason for the ASE’s limited losses has been the presence of foreign investors,” said Tarif. “This has had a stabilizing effect, as most of them are strategic partners; ‘hot money’ is not really an issue in Jordan.”

By the end of 2008, 49 percent of ASE shares were owned by foreigners, mostly Saudis (8 percent), Kuwaitis (7 percent), Lebanese (6 percent) and Qataris (4 percent). 

“The prospect for 2009 depends first of all on the direction of the international financial markets,” Tarif said. “Of course, the well-being of the US market is a key indicator for any market. Secondly, the movement of the oil price is important, as Jordan is a net-importer. Because of these factors, the future is difficult to predict. But this year’s first quarter results have been promising.”

The first quarter showed an average decline in profits of companies registered at the ASE of some 20 percent, yet the figure was dominated by the performance of financial and real estate firms.

“Ten years ago there were but five or six real estate firms registered at the ASE, while today there are some 40,” said Tarif. “Due to the crisis and banks being less willing to issue housing loans, some companies face difficulties to meet their obligations.”

Remittances

According to a report by the National Bank of Kuwait issued in February, some 350,000 Jordanians work in GCC countries. Their remittances amount to some 17 percent of the Jordan’s GDP. Due to the current crisis, especially in Dubai, remittances declined in the first quarter of 2009 by 18 percent compared to the last quarter of 2008. While most Jordanians abroad will try to stick it out as long as they can, many fear an increasing number will return home, putting more pressure on the domestic labor market. Officially, unemployment fell during the first quarter of 2009 to 12.1 percent, compared to 12.7 percent, yet in reality the number of jobless is thought to be double that figure.

In light of the above, Jordan’s central bank downgraded its forecast for economic growth from some 6 percent to an estimated 3 to 3.5 percent. But the good news is that inflation, which was a record-high 14 percent in 2008, fell to some 4 percent this year. That has not helped retail so far. While there were no vacancies to be seen in Amman’s main shopping centers, one shop keeper at the City Mall estimated a decrease in turnover of some 20 to 25 percent. So it seems that it is not just Jordan’s banks that are keeping a cautious eye on their money while awaiting better times ahead.

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Special SectionYoung Arab Leaders

Salah A.H. Al-Qahtani- Q&A

by Executive Staff
written by Executive Staff

Salah A. H. al-Qahtani is the executive vice president of Al Qahtani Pipe Coating Terminal and the chairman of the Saudi Arabian chapter of Young Arab Leaders (YAL). Executive magazine recently spoke with him about YAL’s critical role.

E  There’s been a lot of talk today about finding practical solutions to the problems young Arab students face, particularly with specialized education. Is that something affecting you in Saudi Arabia?

Yes, there is a lack of education, for sure. We understand it, but we have to just fix it, we don’t have to talk about it. What we have to do as business people is we have to train our kids. You have to build a team under your company. You build a team, and you educate them.

E  So, in other words, you see filling this gap as a responsibility of the private sector?

No, it’s not the responsibility of the business sector, it’s the responsibility of the government, but the question is, what can we do to boost it? In Saudi Arabia, we are a part of the government and at the same time we are not.

The way I see it, it’s like a wagon and a horse. The government is the wagon, but you need a horse — the business community — to move it.

The wagon, there’s a value in it, but you need the two together. And without the two, the government cannot build infrastructure that the businessman can use.

I’ve worked with a lot of charities, and I like to participate in a lot of government institutions, because the government has helped us to build. Our father and mother taught us to build for tomorrow — to build up young people who can help you in the future.

E  And this, I assume, is where Young Arab Leaders (YAL) comes in. How long has YAL been in Saudi Arabia?

YAL in Saudi Arabia started in 2004. I started two years ago, and I  took the chairmanship eight months ago.

E  What sort of initiatives have you undertaken?

The best that we have done, thanks to God, is we signed a deal with a Saudi economics newspaper. This is a huge deal for us. They can train the students in a number of fields, including even PR work, like how to deal with news. Also every event that they have, anytime they have a speaker, they will bring it to our group, and invite our YAL members. In the last six months, we’ve had an event every six weeks.

Also — this is very good news, everyone is so happy about it — we just did an agreement with Cisco Systems, two weeks ago. The plan is that we get 200 students, all mature boys, class ‘A’, from university, and they get to work with Cisco for between eight and 12 weeks.

E  Like an internship program?

Right. We had a party to celebrate the deal, and the chairman of commerce in the kingdom came.

E  And young people are signing up for this?

Just last week, the board of YAL Saudi — me and my colleagues — we went to all the universities and explained that we have this system; these are the pros of it, these are the cons, and we need students. I brought in seven, one of my colleagues brought in 10, and now we have already signed up 25 students.

E  Sounds like things are taking off in Saudi.

When I started as chairman we had 84 members. Now we have 118.

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Special SectionYoung Arab Leaders

Elwy Taymour- Q&A

by Executive Staff
written by Executive Staff

Executive sat down to talk with Elwy Taymour after a press conference announcing the opening of the YAL Egypt Branch, the appointment of Taymour as its chair, and the formal launch of a program called Learning for Life, which is “designed to help Arab students bridge the gap between universities’ academic output and the marketplace requirements.”

E  So here we are, minute one.

Right. We just started, this is minute one.

E  Egypt seems like a pretty big gap in coverage.

What happened was that Young Arab Leaders realized from the very beginning that Egypt was very important, but for two or three years nothing really happened.

E  Why not?

I think it just didn’t materialize. But the Minister of Investment came in with SODIC [an Egyptian company that has been running a pilot program for the past year], and they tried to push the program and start the chapter. What’s good about Egypt is that the nucleus of the program was started before all this was organized, so there’s a structure that we can build around to hit the ground running.

E  So tell me what’s been happening

We’re doing two main things. We have the Learning for Life program, and the grants associated with it, but then we also have donated money for labs, for actual labs at the universities and that’s going to be an ongoing thing. It’s always going to be there, it’s always going to be serving as place to offer training courses.

E  It seems that students coming out of university without the necessary training for the workforce is a real problem in Egypt.

It’s always been a problem with this region. I think more and more there’s a gap between people coming out of university versus what’s out there waiting for them. Everyone wants to be an engineer and a doctor, and there’s a ton of other things out there that nobody knows how to do. So, I think one of the main things of YAL is that each chapter will try to reduce that gap. By introducing courses, by maybe getting a little bit more of a headway than what the government is doing, in terms of providing these guys with a little more of something to look forward to when they come out.

E  Do you have any specific plans, now that you’re in charge?

To continue the initiatives that have already started, that’s one. Second, I really would like to start working in places other than Cairo, so the focus is also going to be, for me, like Alexandria, and some of the poorer places in upper Egypt. That’s a priority for us and to also encourage more people to dedicate some of their own time to participating in the programs.

E  You mean adults, or kids?

Whichever. Whether they’re people who decide to join the chapter, or people who are older and would like to volunteer some of their time.

E  Big plans, it sounds like.

Well, I think these programs are quite important, but I also think that what Egypt suffers from is a lot of little problems. I think fundamentally there are things that need to change in the country, but to begin with, there are smaller things. If you were to assume the quality of education is currently at 20 percent of its potential, for it to jump to 60 percent or 70 percent I think you need very small things to change. Getting kids exposure to the arts and things like that, I think, is something much more important that we can focus on that will create a much bigger impact. I think the most important thing right now are the small things that we can change.

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Special SectionYoung Arab Leaders

The first step in progress

by Executive Staff
written by Executive Staff

Dr. Omar bin Sulaiman, the chairman of Young Arab Leaders (YAL), didn’t have to pay very close attention at YAL’s annual forum in Beirut last month to pick up on the high levels of youth frustration — although it’s probably a good thing he did.

“How do you start?” a young woman, a YAL member from Egypt, asked from the audience. She was standing with a microphone in a large ballroom at the Habtoor Grand Hotel during a morning discussion on how to create more opportunities for youth. And she was expressing a recurring sentiment.

“Young people do not have enough expertise to write a correct business plan,” she said. “We end up with young people saying, ‘No one will give me a job if I don’t have the right connections.’ Meanwhile, the public sector says you need more education. The private sector says the public sector has to change first. Your parents say go find a job.”

Like so many others in the ballroom, she was feeling exasperated. For one thing, the financial crisis had severely limited job opportunities. But she had also found that gaps in higher learning left recent graduates just a little shy of what hiring companies expect from them.

This is precisely the role Sulaiman envisions YAL playing. YAL has big ideas and lofty goals — their four pioneering initiatives are education, entrepreneurship, dialogue and leadership — but Sulaiman is a practical man, and he believes in practical solutions.

He was sitting in the front row and wasn’t supposed to be part of the discussion — he’d already given some introductory remarks earlier in the day — but now he rose to respond to this young woman.

“Who here is ready to train someone on the spot?” he said, turning to face the crowd. Half the adults in the room raised their hands. “That’s 400 hands! We could start right here, with ourselves!”

It was a start

Later, during a break in the forum, Sulaiman told Executive, “frustration is a part of life… We all go through it. You know, your house, your friends, sometimes something frustrates you. It’s fine, it’s a part of life. As long as you move on from that.”

Over the past year, YAL has faced its own frustrations and challenges — the economic crisis being at the top of the list — and it has steadily worked to make itself more streamlined and structured. They moved away from the non-profit model. They elected their first CEO, Assem Kabesh. They opened a new branch in Egypt. And, as Sulaiman pointed out, they increased their reach to more that 4,000 “beneficiaries” — nearly half of them in the past four months alone.

“You want a culture of debate, but eventually you want to move on,” he told Executive. “You don’t want to debate it forever. Kill the issue, hammer the issue, but move on. That’s what I was trying to bridge. Stop saying, ‘Why aren’t you doing something about it?’ We need to say, ‘I’ll do something about it.’”

At lunchtime — over Lebanese cuisine at the hotel’s spacious pool bar — several students said they agreed with this sentiment. They wanted more solutions, and fewer debates, especially political ones.

“If we had gotten into politics this morning,” a young Lebanese YAL member said, “we never would have gotten out of the room.”

In the afternoon, Sulaiman’s practical problem-solving was put to a test. The YAL forum-goers divided up into smaller breakout sessions, with experts discussing each of YAL’s main initiatives.

At the session on entrepreneurship, Rami Makhzoumi, the moderator (also President and CEO of Future Pipe Industries,) took a cue from Sulaiman and used the opportunity to ask the members of the panel, all corporate executives, if they would be willing to pledge to consider the applications of any young men and women who went through a YAL training course. They all said “yes.”

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Executive Insights

Engaging employees for the company’s success

by Tommy Weir
written by Tommy Weir

In the midst of the financial crisis, most organizations are looking for a proven way to improve their financial performance.

The likelihood is that you are as well, and there is a proven way you can do it. Kenexa Research Institute (KRI) studies conclude that there is a relationship between employee engagement and an organization’s financial performance.

In the graph below we see that organizations with high employee engagement scores have two times the annual net income of those firms with low employee engagement scores. This data points to the fact that there is a direct linkage and correlation between engaging your employees and an improvement in your financial performance.

Global employee engagement & annual income

Source: Kenexa Research Institute (2009)

You may be wondering, “What is employee engagement?” According to Jack Wiley at KRI, employee engagement is “The extent to which employees are motivated to contribute to organizational success, and are willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals.”

Simply stated, employee engagement = employee pride + employee satisfaction + employee advocacy + employee retention. In other words, engaged employees are proud and extremely satisfied with where they work. They’re so satisfied they tell people about it and recommend their company as a good place to work. Engaged employees rarely think about looking for a new job with another company.

Some organizational leaders are skeptical about assertions that employees can be this satisfied. If you fall in this category as a leader, you need to reflect on the research analyzing employee engagement and understand the conclusive evidence supporting this research.

The way that employee engagement relates to an organization’s financial performance is that it drives an employee’s performance in terms of conscientiousness, organizational commitment and productivity. Additionally, higher employee engagement reduces absenteeism and employee turnover. These combined factors give us the most important result of employee engagement: an improvement in an organizations’ service quality and customer satisfaction.

Since it’s most probable that your organization wants to improve its customer service and financial performance, let’s contemplate the most relevant question: “What can an organization do to improve employee engagement?”

According to Wiley, to increase employees engagement, organizations need the following. 

  • Leaders who inspire confidence in the future because employees want to know what the future is and how their work relates to it.
  • Managers who recognize employees and emphasize quality and improvement as priorities.
  • To provide employees with exciting work and the opportunity to improve their skills. Employees who enjoy their work and are encouraged (and given the opportunity) to get better, contribute the most to organizational success.
  • Most importantly, organizations must demonstrate a genuine responsibility to their employees and communities.

So, how do you think your company is doing on employee engagement? Let’s take a look in the Gulf Cooperation Council and see what employee engagement scores indicate.

Employee engagement in the BRIC countries (Brazil, Russia, India and China) and GCC

0 = employees are not engaged at all

80 = employees are highly engaged
Source: Kenexa Research Institute (2009)

On average, organizations in the GCC are in line with global averages when it comes to employee engagement. But they are way behind India, which has a highly engaged workforce,which is one of the reasons why Indian organizations perform well and grow. If organizations in the region want to be global leaders, there is tremendous room for improvement in employee engagement.

One of the peculiarities about the GCC is the dual workforce: homegrown (nationals) and imported (expatriate) talent. Do you think there is a difference between the engagement of nationals and ex-pats?

Employee engagement in the GCC — comparing  ex-pats to nationals

0 = employees are not engaged at all
100 = employees are completely engaged
Source: Kenexa Research Institute (2009)

The results across the GCC are scattered as to who is the most engaged: homegrown or imported. But on  the whole, organizations in the GCC and all over the world have an incredible opportunity to improve their financial performance by driving employee engagement.

In conclusion, is your workforce motivated to contribute to organizational success, and willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals? It is important for every organization to understand its specific employee engagement score and implement a plan to improve it and, in turn, to improve the organization’s financial performance.

Tommy Weir serves as managing director of the EM Leadership Center

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Editorial

Orphans and the ghosts of martyrs past

by Yasser Akkaoui
written by Yasser Akkaoui

This month’s Lebanese elections will be dominated by orphans and the ghosts of martyrs past. On the March 14 ticket no less than five children — Saad Hariri, Walid Jumblatt, Nayla Tueni, Michel Moawad and Nadim Gemayel  — of slain politicians are all, in one way or another, forced to follow in a tragic tradition that has become the hallmark of Lebanese politics. Meanwhile, the opposition March 8 bloc has its own martyrs whose blood has helped make the soil of Lebanon so sacrosanct.

Yes indeed, we Lebanese do like honoring our dead, but the living must not be forgotten. It is of the utmost importance that our politicians, while recalling past sacrifice, do not lose sight of future obligations. Lebanon is a country dominated by its business community — its bankers, its financiers, its hoteliers, its restaurant owners, its retailers, its property developers, its traders and its small business owners.

From the mega-wealthy, who shape the Beirut skyline, to the shopkeepers on every street corner, business, more than politics, is what courses through Lebanese veins. Any future government, whatever its stripe, must provide to the electorate a robust economic blue print, a model to drag the country from its slough of despondency. Now is the time to deliver on the promises.

The good news is that regionally the markets are picking up, clawing back one third of the losses sustained since the meltdown. It is the first sign that the critically-ill patient is on the mend. More money will be pumped into the region, but this time it will be allocated prudently into those companies that have demonstrated they suitably restructured and shed the fat of corporate excess.

But this new financial nutrition will take time to filter into the region’s bloodstream, and in the meantime, new regulations must be adopted to ensure this new investment is safeguarded. Meanwhile, the price of oil is creeping upwards and this bodes well for regional economies.

For the moment, let’s hope the dead can breathe life into the living.

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Lebanon

Franchising – First Beirut, then the world

by Executive Staff
written by Executive Staff

The Lebanese are hardly known for living in harmony. They are more often at each other’s throats — if politics is anything to go by — than working collectively for a mutually beneficial future. But where political and civic cooperation leaves much to be desired, the Lebanese entrepreneurial spirit is alive and kicking.

Over the past decade a flurry of Lebanese brands started up and the more successful, primarily from the food and beverage (FNB) sector, expanded abroad as franchises into the burgeoning Gulf markets. Following the Syrian withdrawal from Lebanon in 2005 and the opening up of the economy, Lebanese businesses have also opened up shop in Damascus, while Amman has become a solid revenue earner.
What is perhaps surprising is that, given such regional success, it took until late 2006 for a franchises association to be established to bring together Lebanese brands, learn from each other’s experiences and push forward the expansion of Lebanese franchises.
Just over two years on, the Lebanese Franchises Association (LFA) is demonstrating what the country’s politicians have been unable to do: work together to improve business. For while the first half of the LFA’s slogan might need to be taken with a pinch of salt, the second half has proven to be correct: “Great nations make great brands.”
“I think what’s good about it is that Lebanon is always very good individually but bad collectively, so I salute this effort of Lebanese working together towards a common goal,” said Dani Richa, chief creative officer of advertising firm Impact BBDO and a strategic partner of the LFA. “The LFA is definitely a positive — a sharing of knowledge, know-how and best practice.”

The Middle East, the Med & the World
The LFA has certainly been active, with 55 members signing up, from ABC Mall, Patchi and Crepaway, to Najjar Gourmet, Pain d’Or, Salmontini and Al Rifai. Companies gain from training and guidance, with a franchising school established at the École Supérieure d’Administration in Beirut, offering legal advice on franchising and international exposure.
“The motivation was to give members know-how about franchising, then work on intellectual property rights, which is important in Lebanon to protect know-how and the brand name,” said Charles Arbid, president of the LFA and CEO of men’s clothes wear company Rectangle Jaune. “We then want to become a lobby group to work and interact with the government regarding trade and the industry itself.”
With a vigorous membership criteria, Yahya Kassa’a, general executive of Kassa’a Paints Group and member of the LFA, said the association has been elitist.
“It’s been the nice ideas of Lebanon: Patchi, Rectangle Jaune and concepts like Casper and Gambini. But we are going to introduce people from abroad, with Dunkin’ Donuts joining lately, and trying to keep Lebanese flair while getting bigger,” he said.
Richa said the LFA was too heavily skewed towards the food and beverage sector, and needs to diversify.
“I’d really like to see it go beyond the food and beverage lead,” he said.
But Arbid says that’s part of the nature of the franchise.
“We are trying to cover all the sectors, but restaurants offer the biggest potential for franchising,” he said.
Whether the LFA is elitist or not, it does have to be less discriminate after gaining membership in the World Franchise Council (WFC), made up of 34 franchise associations globally. One condition of the WFC is that the LFA be opened to non-Lebanese franchises. This will drastically boost the number of LFA players. “We believe we can reach over 100 members soon, especially as we opened the door to franchises,” said Arbid.
The membership of the WFC clearly works both ways, allowing for Lebanese franchises to enter markets elsewhere, even while foreign franchises in Lebanon gain from LFA experience. Seeing this potential, the LFA helped create the Mediterranean Franchise Association with 14 other countries in April. It is an indication of the strategic markets Lebanese brands want to expand into following entry in the Gulf and Levant markets.
“The new markets are the south Mediterranean: Morocco, Tunisia, Algeria and Libya, as it’s maybe too early to go to Europe,” Arbid said. “It’s best to go not to virgin markets but emerging markets.”
While the LFA is actively working on such expansion, individual members are eying franchise prospects even further afield. Kassa’a has expanded eastwards beyond the Gulf to have a branch in Kabul, and is to enter the French market with niche decorative products.
“We’re not far from signing in France, so bucking the trend [of the global downturn]. People are shocked,” Kassa’a said.
Restaurant chain Casper and Gambini had a chance to open in Malaysia at a mall half owned by the Kuwait Financial House that would target the Arab tourism segment.
“We had an opportunity but we didn’t find a local partner,” said Anthony Maalouf, chief executive officer of Casper and Gambini.

Solid partnership
The need for partnerships, typically for 10 years, is one area that the LFA assists in, yet the decision is ultimately up to the franchiser. And getting the right partner is not always straightforward said Maalouf, adding that formal agreements in the Middle East are “only ink on paper.” In Dubai, the local franchisee shifted interest away from involvement with Casper and Gambini after two years.
“We missed the train, but what’s going on there now can get us into the market,” Maalouf said.
Yet Casper and Gambini is a strong brand, and the company is finding offers from local players, such as in Syria.
“Since the region opened as one market, and we have brand value, we don’t need locals to get land or the location,” Maalouf said. “Real estate developers come to us and we can go directly in or as partners.”
Given the current status of the financial markets, expanding abroad in the present climate would seem low on most business’s priority lists. But Lebanese brands have continued to enjoy growth throughout the Middle East, buoyed by strong growth in the local market.
“Last year was a very good year for everyone, and in 2009 [there is] still growth in the first quarter,” Arbid said.
Such results have only boosted brands appetite for expansion. For instance, Casper and Gambini opened three new outlets in Lebanon over the past year, revenues have tripled, and the brand is set to open in the soon to be opened Souks of Beirut. Abroad, outlets are to open in Kuwait and Qatar, while Casper and Gambini has expanded into a falafel franchise, Falafel Nadia, in Kuwait.
But for Lebanese brands to truly succeed internationally, they need to do well at home.
“In no way can the LFA do well abroad if it does not do well locally. There is a direct correlation,” Arbid said. “We need to wait and see what direction the global economy is going in, and in Lebanon over the next six months whether it remains politically stable.”

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Lebanon

Acres Development – Georges Kamal (Q&A)

by Executive Staff
written by Executive Staff

Georges Kamal is the CEO of Acres Development, a subsidiary of the retail company Azadea. Earlier this year, Acres launched its first property — Le Mall Sin el Fil — and they currently have plans to launch two more: Le Mall Saida (at the end of the year), and Le Mall Dbayeh (at the end of 2010). Executive sat down with Mr. Kamal recently to talk about the branding of Le Mall, and why, despite the economic crisis, he believes this is a good time to launch shopping malls in Lebanon.

E  Tell me about the new Le Mall at Habtoor City.
Don’t say Habtoor, please.

E  Ah, I see. So Le Mall is in the location of the old Habtoor Le Boulevard Mall, at the Habtoor Grand Hotel, in Sin el Fil, but it’s an entirely new mall?
Right. The idea was to re-launch this mall. The original building was achieved in 2005, by Habtoor. It’s part of their hotel. But they didn’t succeed.

E  Why not?
You can attribute it to the circumstances in Lebanon, the political uncertainty which Lebanon was suffering for a couple of years, because of the [former Prime Minister Rafiq] Hariri assassination.

E  And your company, Acres Development, took over this failed mall and re-launched it as Le Mall. Why?
The commercial deal was fantastic. Because when there is a failure somewhere, the owner tells you, “Please take it and make something successful out of it,” and the conditions were extremely pleasant and profitable for us. We leased it from Habtoor for 20 years.
Also we believed a lot in the area, Sin el Fil.

E  That’s pretty brave, launching three malls in the middle of an economic crisis. You must be pretty confident.
This is important, because it’s directly related to our strategy. What we are testing today, are seeing today, is that Lebanon is crossing the crisis without any loss, any harm. Why? We think that in the previous three to four years Lebanon didn’t pick up as much as the other countries abroad picked up, it didn’t profit from the growth in the region because of the political situation here. That’s why today, you don’t feel like you’re going down, because you didn’t go up. The moral of this is that Lebanon is still attractive to the Arabs in the region and to Lebanese living abroad. We’re always trying to monitor, month by month, what’s happening in Lebanon, and we are always surprised in a positive way. So we are extremely confident in this country.
We’re seeing right now an increase in our sales by 20 percent.

E  Why do you think that is, other than the relative stability of Lebanon lately?
What we’ve done to Le Mall is a series of actions. First, the architecture and the design of the old building was extremely heavily, a lot of concrete, not a lot of light, not a lot of style. What we’ve done is to make it lighter, a modern style, catchy. We changed 50-60% of the structure.
Our second action was to build a very strong mix of brands inside. Because what brings people to Le Mall, or any mall, is really the brands there. Azadaya, the mother company of Acres, has in its portfolio a lot of big brands: Zara, Massimo Dutti, Paul and Bear, a lot of these brands. And we completed the Azadaya brands with some from the other big groups, like Retail Group [La Senza, La Cenza Girl, Aldo, Nine West] and Bestseller [Vero Moda, Jace & Jones.]
And in order to complement the shopping area with some food and beverage, we brought with us the leaders in the Lebanese market — Roadster, Lina’s, Dunkin’ Donuts, Burger King, Columbus Café, Julia’s.

E  Finally, there is the communication, the campaign.
The famous IAmMyself.Me campaign. You could hardly leave your house without seeing that.
That was the idea — it was a crazy idea to promote something very solid in Gemmayze, but today it is the talk of the town. What you try to do is build Le Mall as a brand. We went in a very aggressive campaign, very catchy one, and very young very trendy.

E  What about the other branches — the future branches in Saida and Dbayeh?
We’re full in Saida, all the shops, and in Dbayeh I can’t even open the leasing right now, because I have 100 shops, and the waiting list is 500 long!

E  Is there one that you like the best?
Dbayeh. It’s a more interesting one because it will be bigger, it will be on the highway, it’s very well located, and you have cinemas, entertainment, and we have many more anchor tenants than Sin el Fil or Saida, because they are smaller malls. In Sin el Fil and Saida, you have about 12,000 square meters of gross leasable area. In Dbayeh you have double this.

E  Plus, you get to build the Dbayeh and Saida malls from scratch, unlike Sin el Fil. What’s there in those cities now?
In Dbayeh there is nothing. In Saida there will be another mall facing us that they are building now. We will finish at the same time, and both of us will create synergy for the whole area. From there, you have Saida, Tyre, Jezzine, the mountains around there — now there is nothing. We are going there and taking the risk, we’ll be the first, and that’s what you’re doing, trying to be a leader in all markets.

E  How did you get into this business?
I’m a civil engineer, and I worked a lot in France in real estate development. Then I came back to Lebanon… and then I moved to this company.

E  I assume you are a big fan of malls.
No! It’s by accident. I used to build offices, I used to build apartments, it’s all real estate development. Malls are not hard if you have a structured mind and you have the logic for the whole process. Selling malls is like selling glasses, or popcorn. It’s just a product.

E  I noticed that in one of your sketches for the future malls there seems to be a giant Aquarium, which reminds me of a mall in Dubai. Is that what you’re going for? Do you have ‘Gulfie’ aspirations?
The final product — a virtual aquarium, not a real one — won’t be like that. It’s smaller. At the beginning it was like this but it was extremely costly, so we decreased the cost of it. Dubai is Dubai. When you start to do a project in Dubai, it doesn’t matter if it is profitable, it just has to make an impact.

E  So no plans for an indoor ski slope?
In Saida mall? Ha. No. How we will succeed is with the mixed brand in the mall.
Our vision is to be a leader in Lebanon in commercial development, and try to compete on the regional level. So for now, let’s be humble. But in 10 to 15 years? What you want to do is make Acres into something big, a Lebanese company, with a well known trademark in the region.
Right now we’re moving in the right direction.

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