BusinessOpinionQ&ASpecial Report

Q&A with Riad Obegi, chairman of Banque BEMO, on banking sector challenges

by Thomas Schellen
written by Thomas Schellen

At a time when banking is materially challenged by economic and financial stresses, and is faced with extreme criticism from distressed depositors and the explosion of economic commentators and activists of all colors in the country, Executive wanted to know what local banking leaders have to say about the quagmire and the way forward. Riad Obegi, chairman and general manager of Banque BEMO, was ready to answer.  

Where is the banking sector situated in terms of the short-term crisis and of the long-term economic recovery, rescue, or revival of Lebanon?

Let me start with a more basic consideration of banking. Any economy is based on trust and banks are traders of trust. People prefer to put their money in a bank rather than lending it directly to persons who need the money. So you have people who have savings and people who need funds for investing in the future. To put those two together, you need someone of trust in the middle. When you have lack of trust, or lack of trusting this middleman, the whole system is compromised. 

In Lebanon specifically, the situation in my opinion is not really a question of total bankruptcy. There is no bankruptcy, but there is a lack of trust. Unfortunately, the people whose role it is to [instill] trust, are in fact doing the opposite. Everybody is a little guilty—[including] banks of course. They made a mistake closing for two weeks [last October]; they made a mistake by not expressing themselves clearly; they made a mistake in not being very transparent in their policy, and they made a mistake not defending themselves when they were attacked. 

Only the banks? 

Banks are a little bit guilty but the government is extremely guilty. I am not talking about the previous governments. This present government is saying we are bankrupt and cannot do anything without the International Monetary Fund (IMF). It says: ‘The IMF is requesting that we do a haircut and we are going to do a haircut. We don’t know how much but we are going to do it.’ So they are creating uncertainty. Uncertainty does not generate trust. Adding to that is that they are saying there are too many banks in Lebanon. Forty is too much, 20 is better, they say. Why should it be bad for Lebanon to have the second [highest] ratio of deposits to GDP in the world? The first country in this regard is Luxembourg and I don’t think it is bad for any country in the world to aim to be like Luxembourg. They have the highest GDP per capita in Europe. 

When the government is saying that banks are bad or banks should close, I think it is destroying the trust and also destroying the possibilities of recovery. In the theory of [American economist Ben] Bernanke, the Great Depression of 1929 was so deep and so long because the authorities in the United States allowed banks to go bankrupt and disappear. This has crippled the credit channel. The information [stored] in the banks disappeared and the recovery took much longer. This is very well known but apparently not by our government and not by the advisors of this government. 

What can be done as an alternative to having our finance and economy exposed to the state?

I think the most important thing is to bring back trust. I don’t know what the government is going to do but if he [Prime Minister Hassan Diab] does a haircut, I don’t think trust will come back very soon. This [government narrative] is very absurd because he, and experts around him, say we do a haircut and decrease the debt of the government and then the IMF is going to give us money, and then people are going to trust us. I am a banker. If a client [takes a loan] and then finds ways not to pay me back, I am sure that I am not going to lend to him again. Not only am I not going to lend to him again, bankers usually have a long memory and they talk together. I do not expect this recovery plan, except for picking [funds] from one pocket to the other, to give good results. 

If we are looking at the proposed recapitalization of banks, do you think banks will be interested in adopting the government’s idea on recapitalization?

The government is saying: ‘Do recapitalization.’ Suppose you have just been robbed by the Mafia and then the Mafia tells you: ‘This is the last time. Come back, bring in your money again.’ I don’t know. I am not sure. 

It seems that some of us do not care to reflect on how we as consumers have been benefiting from the elevated value of the lira in the past decade. Could we blame the banks for making us consume? 

There is something that is more serious in that the government should normally be an entity that creates coordination between people, not cause problems among people. This government is saying there is this category of people; these are bad people. Thus they are creating animosity between the people. 

We could debate for hours if banks are just the intermediaries between savers and investors or if banks have a societal role to play beyond this function.

They do of course. They are the depositories of trust. 

What is the role of banks today in recovering and protecting assets of the Lebanese people, not just financial assets in the short term but also environmental assets, assets of civil peace among diverse population groups, or assets of Lebanese identity?

I think the Lebanese banks don’t have much of a say in these things now. They cannot do much.

But they could?

Yes.  Again, let us go back to the assumptions of the government of Lebanon. These assumptions are that the state of Lebanon is bankrupt, that Lebanon is bankrupt, that the Lebanese lira is overvalued, and that the banks are bankrupt. Everything is bankrupt, and whatever we do, it doesn’t matter. We cannot do anything. For us, this is wrong because the state of Lebanon is not bankrupt. It has assets. [We should tell the world:] ‘The state of Lebanon has liquidity problems but it has the assets and can pay—however, not now. We are not the type who does not pay our obligations.’ If we can make this point, everything goes up.

Even the lira?

Even the lira. Another assumption [of this government] is that Lebanon is consuming much more than it is producing. This assumption is based on wrong figures that do not make sense. We are importing $20 billion dollars in goods and exporting $3 billion in goods. But the services are not counted in this equation. If, for 50 years, we had been consuming more than we were producing, we would not be here. You can see from the figures in the banks that savings are increasing year after year since we are producing more than we are consuming. In the last few years, because of the financial engineering, we perhaps received some money that was opportunistic but over 50 years or 70 years? This does not make sense. It is impossible. 

Based on these wrong assumptions [the government] concluded with our foreign friends that the Lebanese lira should be devalued. I think this is a political decision in order to take back from the public servants what was given to them perhaps somewhat too generously. But there is no reason [for a devaluation because it would help us to export more], because we are mainly exporting services and services are not very elastic in terms of price changes. If you are a lawyer you are not going to get more business if you are going to say my hour is no longer costing $200 but only $100 from now. People would ask: ‘What type of lawyer are you when you are pricing yourself at $100?’

In that sense it is almost a Veblen good (based on the theories of American economist and socialist Thorstein Velben) where the demand and price are positively correlated.

Exactly. So I think that it is a wrong decision; wrong assumptions and wrong decisions. What can banks still do? I will tell you what we as bank [BEMO] are doing. I cannot talk for all other banks. We decided that we will lend again to our clients because our job is to take deposits and lend money. 

You resumed lending actively as of when?

We resumed lending as of April. 

How much demand did you encounter?

There is not a lot of demand, frankly, because people feel uncertain. But there are still people who are saying: ‘They are lending to me at a lower price than the bank from whom I am borrowing now, so let me go to them.’ All of this is progressing little by little as we decided to lend. 

How much of a percentage contribution to GDP do you see banks make by 2025?

The progression of loans follows the progression of GDP everywhere in the world. You might have temporary distortions, but on the long term, you see a very strong link between progression of GDP and progression of loans and as everything is going to reduce bank loans [in Lebanon], you have to expect a reduction of GDP. What can banks do? I think that banks, as much as possible, should resume lending. This is what we have done. 

Are there other things banks can do beyond their core financial business?

Banks can also help their clients to become more productive. How can they do this? I think that one of the weaknesses in Lebanon is that people do not like to work together. So we have to push them to work together, to make partnerships. Not necessarily to become public [as listed companies] but at least to partner together. I think the current situation pushes people to work together and also to try and look outside of Lebanon, because Lebanon is not [a territory of] 10,000 square kilometers; it is much more. You have Lebanese everywhere and Lebanese companies everywhere. They are using Lebanon as a base. The government does not like that, but that does not matter. [People] will continue working until this government goes away and somebody else comes and understands what Lebanon truly is. As banks, we need to help our clients to become more efficient, not necessarily to hire more people. 

We need to help [with regard to] the basis of the wealth of Lebanon, which is education. Today, universities and schools have very big problems in collecting tuitions. So we are going to develop financial products where tuitions are going to be financed partly by our bank and paid back over a long period of time. This [type of education finance] does not really exist now but we are going to do that. We are also going to—and are announcing this week—support mediation. This is because we have to expect a lot of bankruptcies very soon, which means that the judiciary system, which is already not very efficient, is going to be overburdened. What we as bank would do is encourage mediation, which might solve 20 to 30 percent of the problems [which otherwise would end in court]. It won’t solve all of them; mediation is not the judiciary. 

Would that be mediation in the sense of an arbiter or perhaps offer mediation to people who seek extensions of loan maturities?

A mediator is not a judge and not an arbitrator. He just puts people together and helps them to close the distance between their positions. A mediator gets active when there is a conflict, for example you call a mediator when there is a conflict between you and your banker who is saying I will not finance this need etcetera. So you call a mediator and the bank should accept this mediator who asks both sides what they can offer and tries to facilitate the dialog between the conflict parties. A mediator has a moral authority; however, he has zero power to force anything on you or the second party. There are universities that teach mediation. We are partnering with the Professional Mediation Center at Saint Joseph University (USJ) in Beirut. We are a bank but we can support mediation and push our clients perhaps to have a mediation clause in their contracts.

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Coronavirus AnalysisEconomics & PolicyHealthcare

Testing for COVID-19 in Lebanon

by Lilian Ghandour
written by Lilian Ghandour

This pandemic has been described as the defining global health crisis of our time. The novel coronavirus or SARS-CoV-2 is the cause of a deadly respiratory disease called COVID-19, currently affecting all continents, except Antarctica. Worldwide, at the time of writing, the virus has infected more than 5 million individuals and resulted in more than 300,000 deaths. From early in the pandemic, scientists raced to develop a vaccine, and many countries rushed to implement public health non-pharmaceutical interventions (such as local and national lockdowns, closure of academic institutions, and wide-scale social and physical distancing) to slow the spread of the virus. Since mid-March, the Director General of the World Health Organization (WHO) Dr. Tedros Adhanom Ghebreyesus has been stressing the importance of testing, testing, and more testing. Since lockdowns cannot go on forever (for social, economic, and mental health reasons), scaling up testing, isolation, and contact tracing to sustain the flattened curve in Lebanon (slowed transmission of the virus to ensure hospitals are not overrun) must be an integral component of a larger holistic national exit strategy.  

Still, testing is not one size fits all. There are different types of tests, as well as different ways of testing. Testing policies, which vary across countries and over time within countries, also define the function and outcome of the testing procedure. In the initial phases of the epidemic in Lebanon, for example, the focus was on testing symptomatic individuals and key groups (elderly, individuals with severe symptoms or returning from an infected country, or those who have possibly encountered a confirmed case). The goal of that “targeted testing” has been the identification and isolation of cases and their contacts to suppress transmission. Early in April, the Lebanese government expanded its testing capacity, and fifteen additional testing sites were added to Rafik Hariri University Hospital (RHUH), the primary and only governmental center offering free testing services since the beginning of the epidemic. On April 5, Lebanon began the first phase of repatriation of Lebanese nationals stranded abroad, and naturally, the number of tests began to increase (with daily fluctuations in test numbers). Official reports are published daily documenting separately the results for residents versus returning expatriates to monitor the number of “imported cases” vis-à-vis “local cases,” the latter being more of an indicator of local transmission (though the burden on the local health care capacity is bound to be affected by the number of all infected cases, regardless of source). On April 20, the Ministry of Public Health began population screening or what they called “random testing” (though it is not so random, see below) in different areas of Lebanon. The open public testing was a step toward identifying asymptomatic cases (those who are shedding the virus without showing symptoms). With the gradual easing of lockdown measures since April 27 and the continued repatriation of expatriates, it should not be surprising if the numbers of new confirmed cases begins to rise again (especially if suspected cases are not quarantined, and people are not practicing social distancing). With the lifting of restrictions, the role of mass testing becomes even more critical for the containment and suppression of the virus spread. With that in mind, what do we need to know about testing? 

Current mass testing is not so massive  

As of May 22, Lebanon has carried out approximately 60,000 polymerase chain reaction (PCR) tests in an estimated population of 6 million, so about 10,000 tests per 1 million. While the country’s testing capacity has been significantly improving and the ratio of total number of tests conducted thus far per million inhabitants is close to the world average (10,500 per million), it is still far from the ratios calculated for other countries such as the neighboring United Arab Emirates, which has a 15-fold greater ratio (150,000 tests per a million, among the highest globally). The number of daily tests conducted in Lebanon is variable, generally lower on weekends, and averaging in the 10 days up to May 22 around 1,400 tests per day (though there is no official target, local experts have suggested the need for 2,500 to 3,000 tests per day in Lebanon).

Current random testing is not so random  

Population screening can be done on a “self-selected” or a “random” group of people. When a group of individuals chooses to be tested, regardless of their symptoms or contacts, they will constitute a self-selected sample or a biased sample of the population from which they come (they came forward for personal reasons). The majority of that same population will remain untested, and within that group, some self-suspecting cases may not come forward for various purposes including access (most centers are in urban areas), cost (the test is free in RHUH only, and costs LL150,000-200,000 in other centers), stigma (fear of being labeled), or simply a lack of perceived need (asymptomatic case). This is what random testing aims to resolve. The standard dictionary definition of selecting subjects at random would be “without definite aim, direction, rule, or method.” This is far from the epidemiological definition of random sampling, which is very much methodical. In random sampling, a pool of people are identified (could be residents of a particular area), and each resident has a known, non-zero probability of being selected. When a random sample is tested for COVID-19, the percentage positive can then be extrapolated to represent the percentage of people affected in that community (with a certain standard error). This is not the case with the percentage derived from self-selected samples that represent only the tip of the iceberg. When testing capacity is limited, targeted testing is more justified to identify cases, trace contacts, and suppress spread. Without random testing, however, epidemiologists and public health officials in Lebanon can only hypothesize or predict (via mathematical modeling) but never truly know the true virus infection rate (nor the true case fatality rate) in the country. Random testing may be conducted nationwide, but amidst limited resources, they can begin to take place in selected areas or clusters, or targeted groups that may be considered most vulnerable such as the elderly or people with chronic conditions, or those groups whose conditions are less known to authorities, such as people living in rural areas or refugee camps. 

Different tests tell a different story  

The American Center for Disease Control (CDC) currently lists two types of tests for COVID-19: a diagnostic viral test and an antibody test. The most common diagnostic test is the molecular (RT-PCR) test (typically based on a nose or throat swab) that identifies active infections (people who are infected at the time of the test). Identifying and isolating active COVID-19 cases and tracing their contacts is necessary for providing treatment for those infected, and reducing the transmission of the virus from those infected to others. Still, the RT-PCR can neither tell us if the person was infected in the past  (and recovered) nor guarantees immunity in the future. The RT-PCR test is typically highly accurate but concerns of false negatives have been reported for various reasons (for example, swab was not taken or stored adequately). Serological tests (or an antibody test on drawn blood) identify persons who were infected in the past and recovered (and ideally developed an immune response). Serological tests can provide insight on the evolution of the epidemic and whether the threshold for herd immunity has been reached. Serological testing in Lebanon is not yet recognized. The U.S. Food and Drug Administration (FDA) describes other newer diagnostic tests with their sets of benefits and limitations (e.g., rapid, point-of-care diagnostic antigen tests; at-home collection tests). Besides differences in their utility, existing tests also vary in their availability, cost, how the sample is taken, and the time needed to get the results back, and these aspects continue to evolve as test developers work to streamline the testing process.

It only counts if you count it 

Bottom line, if you do not count it, it will not count. Epidemiological surveillance of COVID-19 allows us to understand the local dynamics of the virus, evaluate the containment of the spread, and make predictions. Surveillance data also informs local policies and interventions and allows stakeholders to re-evaluate their decisions continuously. As of May 22, Lebanon has recorded 1086 confirmed COVID-19 cases and 26 deaths, and the epidemic curve had been flattened until the surge in cases starting early May. Of course, conclusions are as valid as the numbers—and ours have largely been based on findings of known cases via targeted testing. Assuming a much higher number of undetected mild or asymptomatic cases in the community (which is likely the case for Lebanon), massive testing and epidemiological surveillance are integral to monitoring the actual spread of the virus in the community and to preventing transmission from asymptomatic persons to vulnerable individuals.  

Testing may be the backbone but is useless alone  

Testing is part of a holistic strategy to identify cases, trace their contacts, and isolate for precaution. Testing alone is futile and contact tracing without an effective plan to quarantine positive cases/isolate suspected cases is similarly useless. At the time of writing, 53 percent of the cases in Lebanon are due to contact with a confirmed case; moreover, 3 percent have an unidentified exposure. Mass testing strategies for COVID-19 have been described as central to lifting confinement restrictions, necessitating that significant logistics and capacity constraints are contextually addressed.  

As we learn how to co-exist with COVID-19 in this new normal, we must have in parallel a plan to avoid new peaks and keep infection rates suppressed to avoid overburdening our healthcare system. This is until a vaccine or effective treatment is found. Mass testing (at least targeted, at best both targeted and random) needs to continue, and significantly improve in number and distribution to build a better and transparent information system about the presence, distribution and transmission of COVID-19 in the country and its various communities. On May 22, Lebanon recorded 62 cases (59 locals and 3 expatriates), the highest number recorded in locals since the start of the epidemic (with a 3 percent infection rate considering 2,100 tests were conducted). With the current easing of lockdown measures, resuming of economic activities, repatriation of expatriates, and potential re-opening of land borders and Beirut International Airport, Lebanon is in need of a national strategy and perhaps additional local measures that consider the country’s particularities (limited resources and the prevailing economic crisis). This strategy must be evidence-informed, contextualized, and reflect a concerted, coordinated effort between government officials from various ministries, local epidemiologists working on COVID-19, and other stakeholders. Otherwise, we risk going back to square one.  

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Economics & PolicyEducationOpinion

UNESCO survey exploring remote learning experiences during COVID-19 lockdowns

by Mona Betour el-Zoghbi
written by Mona Betour el-Zoghbi

According to the initial results from a May survey being administered by the UNESCO Regional Bureau for Education in the Arab States (UNESCO Beirut Office), more than half of the parents of schoolchildren in the Arab region consider current online studying (whether using an online platform, mobile application, etc.) to be “inefficient” when compared to the traditional approach (face-to-face in a classroom). In addition, more than 80 percent of the parents are concerned that homeschooling is not providing the necessary education for their children.  

The survey, which targets parents of schoolchildren currently residing in all countries across the Arab region, was launched this May by the UNESCO Beirut Office, as part of its multi-pronged response to the COVID-19 pandemic and its impacts on the educational system. This response includes the formation of an Arab Regional Task-Force for COVID-19 Educational Response to support member states in deploying equitable distance learning solutions and to build more resilient, innovative, and open education systems. It also encompasses the formulation of a regional communications strategy to raise awareness on relevant topics amongst various target audiences such as teachers, students, and policy-makers through producing brochures, videos, and social media messages, as well as circulars and policy papers on topics such as higher education in the Arab states and technical and vocational education and training. 

The main aim of the survey is to explore the needs, challenges, and priorities of parents and children during the current COVID-19 pandemic, and to identify the most important lessons and takeaways from this experience to help guide future educational planning and design in the region. The opt-in survey, running throughout May, has been widely disseminated online (on our website, and via email and social media) in both English and Arabic versions, through the multiple networks and partners of the UNESCO Regional Bureau for Education in the Arab States.  Over 750 responses to the survey have been garnered from more than 18 Arab countries (see chart); with almost half of these responses from Lebanon, Syria, Egypt, Jordan, and Kuwait combined, and the other half dispersed across the remaining Arab countries. While this was an exploratory survey, the response rate thus far suggests that this online, opt-in survey format has provided a much-needed platform for parents to voice their concerns and share their experiences during these critical times of transformative change in the region and the world.   

Chart 1: Overview of Response Rate per Arab Country (as of May 20, 2020)

The data generated by May 20 provides important insight into what parents and students are thinking about remote learning and how they assess their experience with it. (These are initial findings; a deeper data analysis will not be possible until all responses have been gathered.) One of the main recurring issues that was raised amongst parents who reported that their children are utilizing online learning platforms was the difficulty of securing good internet access at home. The data indicated that such difficulty was faced both in terms of availability of infrastructure and connection, as well as the sufficiency of the limited quota for such extensive daily usage. Many respondents called for the provision of free or facilitated internet access to households during these times of remote learning. Some also raised the need for the government to provide free access to a homeschooling curriculum and supplementary material and tools that can offer guidance and assistance to both students and their parents, especially for poor households or for public schools that might not have internet access or the digital tools (such as Edmodo, Zoom, Socrative, or Google Classrooms) necessary for adequate online learning.

Other challenges facing families with regard to remote learning and home study range from the technical to the practical. Over 60 percent of responding parents thus far report that their children have too many distractions at home and so have difficulty keeping a regular study schedule. In terms of the user friendliness of remote learning, just 30 percent of parents report that their children are capable of using an online platform, by, for example, coordinating timings and classes, and maintaining concentration. Many respondents emphasize the need to benefit from technology for more timely and efficient feedback to students so they can better evaluate and regulate their learning. Others also call to simplify lessons and reduce online classes so that students are not overwhelmed. Lack of access to good educational online resources in the Arabic language was raised by 15 percent of respondents.

The main dilemma facing parents seems to be that of balancing work and homeschooling. Almost 55 percent of respondents think that online education is more stressful for the parents than for the students or the teachers, and more than 33 percent report feeling overwhelmed and tired. The implications of these initial survey responses suggest not only a need for greater technical and digital support for households participating in online learning, but also, and equally important, the provision of psycho-social support and guidance to both children and their parents for enhanced well-being. Some respondents even recommend that, in parallel to the regular academic classes online, supplementary courses and orientation should be provided for students as well as for parents on how to study online and best utilize technological applications and search for resources online, for a more efficient and useful learning experience. 

With regards to the parents’ perspectives regarding online teaching in particular, around 45 percent indicate that teachers need to be better trained and equipped to administer and lead online classes. Special focus is placed on the need for these lessons to be more interactive, to ensure student understanding and concentration through innovative prompts and methods, and to generate better instructional design for a more friendly and facilitated learning process. Overall, the survey responses so far seem to emphasize the importance of promoting teacher training for online classes, student training for remote and autonomous learning, and parental support for overall health and well-being of the family household. 

In projecting the eventual transition back to school, over half of the parents report being “very worried” about the impact of coronavirus on their kids. They indicate the need for ensuring proper awareness for children on how to deal with other students and people in public (such as proximity and hygiene), as well as psycho-social support and physical activity after a prolonged period of confinement. In terms of educational content, many parents see a need for schools to administer additional classes to make-up for lost time and to incorporate blended learning through a combination of online and face-to-face learning methods.

As for the main policy measures that survey respondents would like governments to take, more than half of the respondents so far agree on facilitating or even canceling official examinations, whereas many others call for prioritizing learning objectives and reducing the curriculum requirements for moving to the next grade. The provision of financial support to families who lost their income was also amongst the top answers, along with providing practical guidelines for parents and students to support distance learning. In addition, many of the survey respondents voice concern with regard to vulnerable students, including poor households as well as the refugees and displaced. They call on their governments to develop educational resources for autonomous learning for children who are unable to access online platforms, and to promote a more inclusive educational response with special focus on households and children living in rural and remote areas. 

Finally, the survey also highlights the need for Arab countries to maximize the benefit from technological innovations and digital tools for improving the online learning experience for students and learners in general. Many respondents call for the development of a comprehensive online platform that contains all necessary services such as online classes, new assessment and assignment tools such as the smart-board or the point-based system, and free educational resources and guidebooks. Others point to the need to develop good software, applications, and online platforms for hands-on/practical lessons, such as science classes, laboratory classes, or technical and vocational education and training, and for incorporating artistic and physical education activities into online learning in a more methodical way. 

Ultimately, the challenge for the Arab region remains developing sustainable solutions to educational provision that is also equitable and inclusive, and which leaves no one behind. In line with the insights generated through this survey, UNESCO remains committed to supporting governments for distance learning as well as for access to science, knowledge, and culture-sharing for the Arab region. The key targeted reprogramming efforts entail a priority focus on supporting countries and learning institutions in school reopenings, with main pillars of health and safety, quality of education, inclusivity, and overall well-being. In addition, increased emphasis is being placed on building the capacities of educators and teachers for remote learning, especially using online resources, as well as for developing tools for crisis-sensitive planning and curricula. A more long-term outlook poses questions on rethinking education amid the implications of COVID-19 for the education sector policy reforms in the Arab region, and developing a long-term strategy for strengthening e-learning in the region, including needs assessment of distinct countries and their capabilities in implementing e-learning. 

The UNESCO response is also set within a wider UN system framework to comprehensively address the needs and responses in both the short and long term. At the global level, one of UNESCO’s most immediate responses to the COVID-19 crisis was the launch of a Global Education Coalition with three flagship programs on gender, teachers, and connectivity. In addition, UNESCO provided policy and technical support to member states, established communities of practice in direct coordination with ministries of education, and organized global and regional webinars on different topics. Overall, UNESCO’s core areas of action have focused on main pillars, which entail rebuilding educational systems, promoting environmental sustainability, recognizing cultures in economic recovery, securing access to reliable information for all, and preventing discrmination to achieve social cohesion whilst reaching out to vulnerable countries and populations.

UNESCO continues to work at the forefront of the educational response to COVID-19 to ensure that quality education is sustained in both public and private educational institutions, and that learning never stops.  

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Coronavirus AnalysisHospitality & Tourism

F&B sector operating in constantly shifting and worsening conditions

by Nabila Rahhal
written by Nabila Rahhal

It is a sad time for the hospitality sector in Lebanon, as we hear of the closures this May of Food and Beverage (F&B) outlets such as Hamra’s Dar Bistro café and bookshop, Minet el-Hosn’s upscale fine-dining venue Balthus, which had been in operation for 20 years, and Tawlet Hamra, which had operated for just shy of a year before its owners took the decision to close (see interview with Tawlet’s Kamal Mouzwak). Others in the industry fear that this is just the beginning of a series of closures that the F&B sector will witness in the coming months.

The disruption of sectors that rely on direct contact with their customers, such as the F&B industry, is among the global impacts of COVID-19. For example, a survey of 5,000 restaurant operators conducted by the National Restaurant Association in the United States estimated that the F&B industry lost approximately $25 billion in sales and that more than 3,000 restaurants of the country’s almost 1 million outlets had permanently shut down during the first 22 days of March. F&B operators in Lebanon are certainly suffering like their global peers from the COVID-19 related lockdown measures, but they have the added weight of an ongoing economic crisis whose hallmarks are a volatile exchange rate, increasing import costs, and decimated purchasing power among local clientele.  

As the lockdown measures are eased in accordance with a five-stage national plan (and following an additional four-day lockdown imposed due to rising case numbers), restaurants were allowed to reopen for a second time on May 18. Those operators who have chosen to reopen their restaurants under the current restrictions will be dealing with ongoing and variable coronavirus measures, and with the country’s own economic demons. Executive spoke to restaurant and nightlife stakeholders to learn why they decided to open or remain shut, and how their first week operation (prior to the four-day lockdown) panned out.

Life in pre-corona times

Although the economic crisis was weighing heavily on the country, some F&B operators still had a positive start of 2020. “We had a 20 percent growth in profits in 2019, despite the ups and downs which manifested in the last quarter of the year, which surprised even us,” says Andre Malak, owner of four bars in Hamra (including Li Beirut and Ales and Tales), Jerry Thomas Experience and La Degusteria in Badaro, and Jungle Beach in Amchit. “We also started 2020 perfectly with a year-on-year growth in January and February when compared to the same period in 2019.” For the majority of operators, however, the F&B industry has been in a gradual decline for at least the past two years, as Executive had reported in December 2019 and again in March, following the closures of 241 restaurants in January 2020 alone.

In such a bleak context, the closure of all F&B outlets on March 11 (three days before the national lockdown) in response to the COVID-19 pandemic was the straw that threatened to break the proverbial camel’s back. “The turning point I would say, for the industry, goes way back to when Prime Minister Saad Hariri resigned [in 2017]; it wasn’t overnight but it started going down and things were not stable,” says Alexis Couquelet, corporate chef and owner at CouqleyBistro, a French restaurant with three outlets across Lebanon (in Gemmayze, Dbayeh, and a seasonal outlet in Broummana). “Then the revolution came and that took us down even more, and then we had corona. So it was a very ugly, three step downward spiral … it’s a big blow.”

To open or not to open?

Photo by Greg Demarque

As part of a national plan to ease down the lockdown measures, restaurants were first allowed to re-open on May 4, albeit with a 30 percent capacity. When the cases of coronavirus increased again, a four-day lockdown was reinstated starting the evening of May 13 until early morning on May 18, when restaurants were again allowed to reopen, this time at 50 percent capacity. Aside from capacity, the only other restriction on restaurants from the interior ministry is that serving argileh is not allowed—those who disobey this directive are at risk of being shut down. Other measures, which are being followed by restaurants which reopened, were set by the Syndicate of Owners of Restaurants, Nightclubs, Cafes and Patisseries, in collaboration with GWR Consulting and Boecker, and outline, in detail, all hygiene related precautions that restaurant owners need to follow to ensure a safe experience for staff and customers.

The decision to reopen was not a straightforward one for restaurants and many debated whether it would be feasible for them to do so. Dany Aprat, owner of Italian restaurant Tavolina and steakhouse Slate (both in Mar Mikhael) reopened both his venues on May 4, explaining that he chose to do so because it was what his clients expected of him and he still had a good reserve of dry supplies in storage that he could use. He says that while turnover was not as high as before the lockdown (they did not have to turn away customers because of the then-30 percent capacity limit), it was still acceptable. “Business was starting to pick up because our customers saw that we were following the hygiene measures set by the syndicate to the dot and told their friends that, so we had the word of mouth effect going on,” Aprat says, speaking ahead of the four-day lockdown.

Malak also decided to re-open his all-day café concept La Degusteria in Hamra on May 4 and they had the opening of a new La Degusteria branch in Badaro on May 6. He says they were busy throughout the weekend and up until May 13 when the four-day lockdown was announced and people felt scared again.  “We limited seating time so we were able to maintain a steady turnover while respecting the 30 percent capacity rule,” Malak says.

Although some bars are transitioning into opening during the daytime to circumvent the effects of the early 7 p.m. curfew, Malak chose not to do so with his bars saying that their customers were used to them being nighttime venues. “It’s a bit tough as we had developed our bars with nighttime clientele in mind and we would have had to change the concept if we wanted to open during the day,” he says.

Couquelet also decided not to reopen during this period explaining that, Ramadan being a slow month to begin with, having a 7 p.m. curfew would really eat into the evening turnover, “the bread and butter of most restaurants.” Add to that the odd and even license plate issue (whereby travel is restricted based on license plates, meaning less traffic and so less customers for a restaurant on any given day) and some people still being afraid of eating out, he says that “it could be, to a point, better to stay closed than actually open and that is frightening.”

What the future holds

The next hospitality sub sector to be allowed to open are bars and nightclubs on June 8, although some in the industry are skeptical. “I believe it would be impossible to open in June as planned because of corona and I don’t think things will go back to normal until August or September,” says Rabih Fakhreddine, CEO of 7 Management, a hospitality management company which owns and operates nightclubs Antika and Sayf, among others. “This is true for the outdoor nightclubs as well since they are mainly mega or medium-sized and attract large crowds. For such concepts to have such big gatherings again in two months, it will be risky and I don’t think it would be accepted by the authorities.” 

It is still too soon to speculate on the future of the hospitality sector but from all prior indicators, and from recent interviews with industry stakeholders, it does not look pretty. Even if the lockdowns are lifted in the coming months and, as a best case scenario, do not have to be reinstated, the Lebanese hospitality sector will still have to deal with the country’s home grown economic problems, which for many outlets has already proved too much to bear. If a second wave of coronavirus arrives and with it further lockdown measures, it could devastate many in the industry who are barely holding on.

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BusinessEconomics & PolicyOpinionQ&A

Q&A with Ziad Hayek on his and Gérard Charvet’s plan to overcome Lebanon’s financial crisis

by Thomas Schellen
written by Thomas Schellen

The arrival of a team by the International Monetary Fund (IMF) in Beirut for negotiations on the national need for financial assistance under a rescue package has sparked a wave of discussions on the task. This interest is fueled by widespread concerns that the latest official draft plan—based on a paper by international financial firm Lazard and presented by the Lebanese government on April 30—is only one of several possibilities, despite entailing numerous assurances of it being credible and “the only way.” In discussion are important alternatives for determining the Lebanese societal and economic trajectory for the coming decades, with updated alternative plans being put up for debate in the second week of May by, for example, local media company InfoPro or an outlook of expectations for the IMF negotiations floated under the umbrella of Carnegie Middle East. Executive spoke with Ziad Hayek, privatization and partnership specialist and, until February 2019, head of Lebanon’s Higher Council for Privatization and PPP, about the “Proposal to help Lebanon to overcome its financial crisis” that Hayek and French debt restructuring expert Gérard Charvet developed over the past three months.  

Two components in your latest concept that strike me as highly interesting were the Lebanon Asset Trust (LAT), and the role of the Lebanese capital markets and the Beirut Stock Exchange, where you used the abbreviation BEX, rather than the well-known BSE moniker.  Why did you choose the phrase BEX? Did you envision it to be a revived and privatized BSE, or a privatized BSE working in conjunction with the ETP project, meaning the supposed Electronic Trading Platform, or something totally new? 

I was not looking at it from that angle. I just used an abbreviation that I thought to be representative of the capital markets as a whole. I was envisioning capital markets as driven by a new entity that integrates everything that you are talking about, as a place where all the securities will be traded.

As for the LAT, are you proposing it to be established by law as a single entity that will pursue an initial public offering on the Lebanese capital markets and that will involve a strategic investor with the management experience needed to run an entity that will own all the public sector assets of Lebanon? 

Not a strategic investor to run the LAT as a listed entity, no. The LAT, as established by law, is a trust—there are trustees. The governance of the trust is a separate matter and has to involve a number of people other than the trustees. There would be a management committee that works in the interest of the trust beneficiaries, who are the trust certificate holders. We are recommending for civil society and multilateral organizations to be represented in that trust management structure. The strategic investor comes into play at the time of privatization—every time that an entity is privatized you find a strategic investor that can take this entity to a world-class level or an acceptable level of performance.  

Would the LAT be privatized and put on capital markets as one unit? 

No, the LAT is an interim entity. Its task is to restructure and improve the value of the public assets and privatize them within a ten-year period. 

So each asset individually? 

Exactly. The purpose of the LAT is to safeguard the banks’ balance sheets. The banks today have these eurobonds and BDL CDs (certificates of deposit). If they were to mark them to market, they would have to absorb huge losses, which they would have to take against their equity. Thus, they would basically lose all their equity. To avoid that, we are saying that this trust will be established and the eurobonds exchanged at par, one for one, for trust certificates. Because the trust certificates are not listed or quoted or traded, their value is basically their issuance value, which is one. The banks will carry them on their balance sheets as such. In this way, you will have sanitized the banks’ balance sheets. Now, there are many who say that these [LAT assets] are assets that belong to all the Lebanese people. However, we have put them in a trust, we have not given their ownership to the banks. They are in a trust and still belong to the Lebanese government. At one point in time, when these assets are privatized, the income from this privatization will go to the banks to make them whole. What the banks get paid is principal and a certain amount of profit representing interest that they would have been owed, up to a certain level. Above that, the money goes to the state.

It seems that there is currently skepticism regarding the capacity of the financial sector and the banking industry. Would the banks, as interested parties in the LAT, have to be major trustees of the entity? 

No, they are the beneficiaries of the trust, not the trustee. The trust would have to be managed for their benefit by whoever is the trustee and the entity managing the trust. They cannot act against the interest of the banks, but banks would not be managing this thing. 

When you look at an entrepreneurship project, the business plan is one thing but the most important thing is the team. In this sense of a trust that has not been existing in the past, do you have an LAT startup team in mind? 

We would have to talk about this issue further down the line. First, the trustee would be an international trustee, so not involved in Lebanese matters and people who are managing the trust will not be appointed by Lebanese politicians. This is a third-party trustee. Also, the management of the trust should be open to inspection and transparency, with best practices and multilateral stakeholders. The main thing is that we cannot trust the government to undertake the reforms and the privatization of [state-owned commercial] entities in the way that the Lazard plan said. Their plan is to put these assets into what is called a public asset management company that is owned by the government and managed directly or indirectly by the government. Since Lebanon’s independence in 1943 until today, the Lebanese state has never privatized a single asset. Why should we trust politicians to privatize entities that they consider their own fiefdoms? That is why we are putting it in the hands of a trust. 

How would one find an international trustee? What kind of model that is working elsewhere that you could emulate in the management of such a trust? 

There is no need to reinvent the wheel when it comes to trusts. There are trustees for everything and all kinds of trusts that are well-established globally. Costa Rica, for instance, has put its state-owned enterprises in a trust and other countries, including Morocco and Jordan, are forming holding companies for their state-owned enterprises.  

According to your latest plan, more than $32 billion of investment is envisioned over ten years. I understood that this is in three tranches, a $10 billion tranche for economic recovery, a $10 billion tranche for infrastructure and development deploying international financial assistance, and a $12 billion welfare fund for employees. 

Correct.

I understand that the second $10 billion tranche would come from sources such as the ones in the CEDRE plan. But where is the origin of the first $10 billion dollars, earmarked for economic recovery in your investment?

From public indebtedness.

Does this mean it will increase public sector debt?

Yes. Basically what happens is that after you have solved your situation today, the economy is supposed to grow again and as it grows, you can add debt to it, as long as we put some parameters to it and debt service does not surpass 3 percent of GDP.

How does this entire vision of going forward in the next ten years and realizing economic growth corroborate with the post-corona world with large uncertainties that we are heading into? 

As you can see from the worksheets in our presentation in the slide before last, we looked at economic sectors [such as agriculture, industry, IT and communication etc.] and built this growth not hypothetically but based on expected sector growth. Someone can argue with the assumptions that we have made for those sectors and there can be an honest discussion about those but the point is that we have to look at those numbers of growth of the sectors and then decide what the growth is going to be.    

What do you feel yourself in this regard? What is your margin of confidence that you have on those growth numbers, such as 168 percent in agriculture, 206 percent in industry, and 149 percent in ICT over the decade to 2030?

I am confident with these numbers and will tell you why. Of course the coronavirus has had a major effect on us. It has had a major effect on the world, but in our case this is exacerbated by our financial crisis. If you like, the difference between our plan and the plan of Lazard is the following: Lazard’s plan is for a U-shaped recovery. You have the country in decline now and this is going to be an accelerated decline. At some point in time, they want to stabilize it with the measures that they have in their plan, and then they want [the country] to resume growth on a normal slope. Ours is a V-shaped recovery. It is a drastic decline that has to do with freeing the exchange rate and [other factors], and an accelerated and quick recovery immediately following. 

It looks to be a shock treatment.

It is a shock treatment, exactly. You can see this also in the plan that we will eliminate zeros from the currency. This is not cosmetic. This is intended to change people’s reference point, and then you have a V-shaped recovery, because you bounce back very quickly. And the reason that the growth rate is so high is that you have gone down so low. Then the growth rate becomes very high.  

Someone I talked with asked why the IPR note on intellectual property is placed right at the top of your presentation. Is this something that you want to sell as a consulting service? 

What we have in this presentation is only part of the total information that we have. We of course want to provide this to Lebanon and help the country for free. What we wouldn’t be happy about would be government consultants, who are paid millions of dollars, taking our ideas and implementing them, getting paid for work that we have done. 

How many hours of work have you invested as co-authors of this plan, between you and Gérard Charvet?

We do not stop; we work on it every day.

How many man-hours or workdays?

I don’t know. We have been working every day since February. We were not counting hours. 

It certainly looks very impressive as a plan but this raises the question of how you will get remunerated for such an effort.

That is not important for us. As I said, we wanted to do something of value here. We just didn’t want other people to profit from our work, but we want Lebanon to profit from our work, for free. 

Would you be willing to go into politics in order to make the plan happen? 

I have not expected this question. Gérard is French, doesn’t speak Arabic, and would not go into politics here. I myself have left the government a year ago and it is not like I am eager to get back in. But I feel that the experience that I have is valuable in the situation, having restructured the debt of Honduras, Trinidad and Tobago, and Venezuela, and having been an advisor to the Mexican government on the peso crisis in 1994. Also Gérard, having been the guy who thought up the Brady bonds for Latin American debt solutions, we both felt that we have expertise and that it would be a pity not to use that expertise to help Lebanon. We are not thinking beyond that. I am not thinking beyond that. 

The reason why I am asking is that the whole discussion of a financial rescue and economic plan is very political and has been so from the beginning—but I do not see anybody who could be the superhero or historic leader to drive this, nor do I see political consensus for working in the best interest of the Lebanese people as much as I would want it to be. I think our politicians in charge are now trying to work in the best interest of the people but ask myself: Are they up to the task in the current scenario?

I agree. These times require a different type of leadership. We are missing that as a country. But to end on an optimistic note, I just want to make sure that our plan is grasped in its entirety; any piece of this plan can be criticized but, taken as a whole, it is very well balanced. That is the important message.   

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Economics & PolicyOpinion

Analysis of recent inflation using the Consumer Price Index

by Kamal Hamdan
written by Kamal Hamdan

In October 2019, following years of dysfunctional public policies, Lebanon entered the vortex of an unprecedented collapse. This was evidenced by, among other indicators, a further dramatic decline in economic growth rates, exceptional primary deficits and a negative balance of payments, a banking sector in crisis, and the emergence of a parallel foreign exchange (FX) rate in a country that imports most of its consumption needs. The increase in consumption prices is one of the most revealing indicators of these structural dysfunctions, and one of the most influential on the lives of the country’s residents—the majority of whose salaries are in the national currency. 

Using the Consumer Price Index (CPI) of the Consultation and Research Institute (CRI) consultancy firm, which has been issuing a monthly CPI for Greater Beirut since 1977, we have predicted the inflation trend over the medium term. (The CPI was the only inflation indicator in Lebanon until the Central Administration of Statistics began issuing their own in 2000; the two indexes record similar trends but are not identical as they weigh various expenditure categories within a typical household budget differently.)

Increasing inflation

Based on the trends recorded by the CPI over the past few months, several conclusions and warnings over future expectations can be drawn.

Firstly, the emergence of a parallel FX rate in October 2019 resulted in a price increase across several major items of the Lebanese consumption basket, in particular food items (see infographic below). The CPI, however, as it includes around 1,000 products and services, only began to increase in December 2019. The yearly price increase (a comparison of the CPI for each month of 2019 with its equivalent in 2018), remained either flat or negative for the first eleven months of 2019 (due to the stability of the peg until October last year).

Starting in December 2019, the CPI began to increase compared to the year prior, rising by 4.6 percent in December, 8.7 percent in January, 11.4 percent in February, and 13 percent in March (see graph below). More alarming was the sharper increases in the price of food items on year-on-year comparison, which rose by 3.1 percent in December, 10 percent in January, 16.8 percent in February, and 20 percent in March. In other words, the marked increases in food prices (weighed at 30 percent of expenditures in the CPI), which constitute a high share of the expenditure budget of low-income households (30 percent if not more for the lowest income households), have been the main driver behind the CPI’s increasing trend over the past few months. 

The relative delay in the impact of the exchange rate on consumption prices following October 2019 (see graph below) could be explained by the following factors: 1) The government’s commitment (through Banque du Liban) to subsidize the import of fuel, medication, and wheat, which constitute a major share of the consumption basket (fuel 3.03 percent, health 9.8 percent, and wheat 3.6 percent); 2) the stability of public fees and taxes, and the relative stability of housing prices; 3) the volatility in the price of vegetables; 4) the repercussions of the economic recession reflected in negative growth rates since 2018, which drove a number of importers and wholesalers to prioritize clearing their inventories, at least in the short term, by keeping their prices stable despite the devaluation of the lira on the parallel exchange market. 

Lessons from the past

The most important point, however, is the lesson that can be drawn from the historical relationship between the CPI and US dollar exchange rate trends. Based on CRI’s database, the yearly CPI curve remained consistently above the exchange rate curve from the mid-1970s until the mid-1990s, when the lira peg was put in place (with a limited exception in 1985-1987). Interestingly, after the inauguration of the peg, the gap between the two curves continued to widen year after year, despite the stable exchange rate (between LL1507 and LL1515 to the dollar). The trend is reflected in the demands of the Union Coordination Committee for a 121 percent wage adjustment to compensate for the accumulated inflation between 1996 and 2012, a period during which the US dollar exchange rate remained completely stable as a result of the peg. 

The three graphs below show the trends of these two indicators during three distinct periods that could not be merged into one graph as a result of the 4,800 times increase in the CPI between 1977 and 2019. The first period, which extends from 1977 to 1985, was characterized by relatively moderate differences between the two indicators, with the exchange rate curve catching up to the CPI curve in 1985. 

The second period, between 1985 and 1997, witnessed a closing of the gap between the two curves in 1985-1988, following which the CPI curve took off on its own while the exchange rate curve began to decline as of 1993 (this was aided by factors such as the expected increase in prices after the war due to the spring effect, multiple wage adjustments in the early 1990s, and the beginning of a descending trend of US dollar versus Lebanese lira when Rafik Hariri became prime minister in 1992).

The third period, extending from 1997 to 2019, was characterized by a widening of the gap that began in the second period, as the CPI continued its upward trend despite the quasi-absolute stability of the dollar exchange rate. 

These observations clearly show that the increase of the cost of living in Lebanon over the past four decades was not only dictated by the lira/dollar exchange rate (despite the importance of that factor). Rather, it was also, if not mostly fed, by factors that are deeply rooted in the Lebanese economic model. Specifically: 1) the domination of import and internal markets by cartel groups, as a result of the absence of effective anti-trust regulations and an ambiguous commercial representation statute that has strengthened these cartels; 2) the exacerbation of distortions in consumption prices and the exchange rates of non-US dollar foreign currencies, as a consequence of the implicit monetary stabilization policy after 1992 and the explicit stabilization policy after 1997, which encouraged imports and undermined the competitiveness of domestic exports; 3) the transformation of Lebanon into a consumer country (since the onset of the 1990s and accelerating from 2011) that finances its consumption through remittances and domestic and foreign borrowing (according to Lebanon’s National Accounts, private and public consumption exceeded the country’s total GDP in 2018); and 4) the weakness of consumer protection laws and regulations, especially those related to controlling monopolies and fostering competition, in addition to the low effectiveness of price control authorities and mechanisms that are currently solely reliant on margins of profits (as they are now in Ministry of Economy and Trade regulations). 

Warnings for the future

If we were to assume that the trend that has governed the relationship between the exchange rate and CPI curves over the past 40 years would remain unchanged, then we must raise an alarm regarding the potential of this relationship in the future. Based on the historical trends, what we are seeing now in terms of price increases failing to catch up to the rising exchange rate is only temporary and we should therefore expect the gap between the two curves to gradually begin narrowing. It is even likely that the consumption price increases may exceed exchange rate increases, which would have horrific consequences for the savings, wages, pensions, and purchasing power of the Lebanese people, especially if the needed public interventions do not materialize in view of the economic, fiscal, banking, and currency crises. Specifically, what is needed is macroeconomic adjustment, financial and monetary reforms, reform of the fiscal system, restructuring of public expenditures, independence of the judiciary, and accountability and the recovery of the stolen funds.

The interventions required to stave off price increases go beyond currency, fiscal, or regulatory measures that only serve to address the symptoms rather than the causes of inflation. The first step consists of regaining the trust of the people in their country, their economy, and their independent judiciary, through the immediate fulfillment of the just demands raised by the popular uprising, namely the enforcement  of an effective national rescue and recovery plan starting with taking concrete steps toward the recuperation of stolen or wasted public funds, reform of taxation system, a restructuring of public expenditures, and laying the groundwork for the revival of productive sectors, in addition to addressing the root causes behind persistent primary deficits, public debt, currency devaluation, and banking collapse. This plan would focus primarily on investment in infrastructure, fostering productive activities, the creation of decent jobs for graduates and unemployed youth, and the elaboration of a comprehensive social development and protection strategy that addresses the needs of the poor as well as lower and middle-income households in a country that is characterized by staggering income inequalities.

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Brand Voice

Philip Morris International’s Taylan Suer discusses IQOS and local market response

by Phillip Morris International
written by Phillip Morris International

Philip Morris International (PMI), the company that introduced iconic cigarette brands to the world, is building its future on their line of smoke-free products and envision that they would one day replace cigarette smoking, according to its website. Taylan Suer, country manager at PMI, tells Executive’s readers about the company’s line of heated tobacco products, including the IQOS. Suer also addresses the local market, especially given that IQOS was officially launched in Lebanon in February 2020, barely a month before the COVID-19 lockdown measures took ahold of Lebanon and the world.

The heat-not-burn technology completely reimagined tobacco products when it was first developed. Could you tell our readers how this technology works and also about PMI’s line of heated tobacco products?

The idea of heating tobacco, as opposed to burning it, is not new and has in fact been around for more than two decades. PMI has been heavily investing in research and development in order to develop a portfolio of reduced-risk products for adult smokers that have the potential to be less harmful than continued smoking.

In a nutshell, tobacco in cigarettes burns at temperatures exceeding 600°C, generating smoke that contains the majority of harmful chemicals. In contrast, IQOS contains an electronic system that heats tobacco within a precisely controlled temperature range that does not exceed 350°C. Since the tobacco is heated and not burned, the levels of harmful chemicals released are significantly decreased when compared to cigarettes. This is not to say, however, that IQOS is risk free.

At PMI, our reduced-risk portfolio currently comprises four products in different stages of development and commercialization. Our heated tobacco product IQOS, the forefront of these products, is already available in 52 markets across the globe and is continuously expanding. Approximately 15 million adult smokers to date have chosen to stop smoking and switch to our tobacco heating product IQOS.

Apart from reducing the harmful risks associated with burnt tobacco consumption, how does IQOS fit in with PMI’s culture and vision on a global scale?

With IQOS and our other smoke-free products, PMI is transforming into much more than just a cigarette company. We want to change society and deliver a better, smoke-free future. To make our vision a reality, we are transforming and staking our entire future on a line of smoke-free products. This is the biggest shift in the history of Philip Morris, and we are doing it because it’s the right thing to do.

There are an estimated 1 billion-plus adult smokers in the world that should be encouraged to quit. But for those adult smokers who would otherwise continue smoking, we want to provide them with smoke-free alternatives. We have committed to our vision relentlessly and have invested $6 billion in research, development, and production, all to ensure that those who choose to continue smoking have better options of doing so.

Let us talk a little about the local market. How was IQOS first released in Lebanon and how did the market react?

We launched IQOS in Lebanon in February 2020. I must admit that we have been impressed by the positive response and the high level of interest among adult Lebanese smokers. We believe that this interest is driven by the value adult Lebanese smokers place on innovation, which leads them to be open to trying and adopting innovating smoke-free products.

We have introduced IQOS in key branches of Spinneys. These corners are staffed with IQOS experts who are specifically trained to service and guide our adult consumers. We are also providing customer care support through our call center and social media channels including Facebook, Twitter, and IQOS.com.

Where can consumers find IQOS? Are they available for ordering online?

IQOS can be found in four Spinneys branches; Dbayeh, Hazmieh, Jnah, and Souk Beirut. However, due to the lockdown driven by COVID-19, we had to temporarily suspend our retail operations in order to ensure the health and safety of our employees. In the meantime, we activated a great partnership with the Lebanese online delivery service platform Toters, through which consumers are now able to buy IQOS from the comfort of their homes at the official prices.

Before IQOS was officially launched in Lebanon, consumers who wanted to try it were able to do so by purchasing the product from both the grey and black markets. How is PMI currently dealing with the latter?

Unfortunately, illicit products continue to be widely available in Lebanon. A 2019 study conducted by Oxford Economics, entitled Levant Illicit Tobacco, indicates 3.7 billion illicit cigarettes were consumed in 2018, more than one in every four cigarettes consumed that year (this was the peak figure in the three years covered by the study starting from 2016). We fully support and appreciate the efforts of the Regie Libanaise de Tabacs et Tombacs (RLTT) and the security agencies in their fight against illicit products.

With the COVID-19 pandemic holding companies’, employees’, and consumers’ necks tight, how has Philip Morris pushed back and how have you helped your employees in coping with the current situation?

It is a fact that every single person on this planet is feeling the impact of the global pandemic COVID-19. It truly a challenging time for all. We, however, made it our utmost priority to support one another. We have implemented strict policies to ensure the safety of our employees through remote work, hygiene kits, and other preventive measures. We have also ensured employment and financial stability and special recognition awards for the employees who need to be physically present at their work location during this period.

It is additionally important for us to support the local communities. We have worked with Ajialouna, a non-profit organization engaged in charitable, social, educational, and healthcare programs. They have been doing a wonderful job supporting the vulnerable communities during this period. They have been distributing boxes of food staples and other goods and we’ve contributed by supplying the hygienic products such as masks, sanitizers, and gloves to more than 200 families. We’ve also supported other NGOs and initiatives who’ve asked for help in these difficult times.

In conclusion, how have you personally dealt with the lockdown situation and what advice can you give our readers and your employees?

Frankly speaking, I find that establishing a routine has been the best remedy for me during this period. I do my best to separate work time from personal time, which includes working out, reading, and enjoying some Netflix series. I have, as well, done my best to stay in contact with my friends and family back home through video-calls of course. This is especially important in these times of physical isolation and I encourage everyone to reach out to loved ones who are not physically with them in this manner.

Brand voice is the paid window that Executive provides to our corporate partners and the business community for sharing their views, insights and messages. Brand voice content has to comply with Executive’s content guidelines but is not under the magazine’s editorial responsibility or control.

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Coronavirus AnalysisLeadersOpinion

Pandemic brings needed media self-reflection

by Executive Editors
written by Executive Editors

What is in a magazine? From the perspective of us who write and edit the content of Executive, it is a striving for truth, meaning a constant quest and never-ending chase for an elusive public good of the first order. In times of crisis, this striving for truth is often the most valuable contribution that critical thinkers, constructive troublemakers, and professional sceptics can make to a society, but in the immediate moment—it is often thankless. And yet, despite it being known to not be financially rewarding, the real prize of the writer is a long-term and intangible hope to make a difference. All that and more is being confirmed to editors of Executive and our magazine’s entire team during this time of global and local challenge.

In operational terms, Executive Magazine is both fortunate and deeply challenged by the circumstances. We decided in March as the lockdown got underway to reorganize our workflow, shifting from a monthly magazine format to an online-first approach. This has not meant a decrease in our output. On the contrary, these last seven weeks, through the immense efforts of our in-house writers, have seen multiple weekly analyses and the production of not the usual one, but three special report focuses: on Lebanon’s food security, on the impacts of coronavirus, and on what this all means for the insurance industry. 

Moreover, following passionate deliberations and soul searching, we have decided to double up our online content choices by creating a full PDF version of the magazine. You can now pour over Executive pages online as you would go through pages in the print edition, or continue to enjoy our stories in our web format. It goes without saying that our expert online team of one (enhanced by lots of willing collaboration from our wider team) will keep you alert on what we do, through our social media channels on Facebook, Twitter, Instagram, and LinkedIn. 

From perspective of professional journalism, a social media presence helps spread our content but does not do much to solve the challenges of providing top, trustworthy content in conjunction with economic viability. Financial pressures come with the territory of journalism and are exacerbating during the coronavirus recession for media organizations around the world, let alone for twice or thrice burdened Lebanon. Executive is not immune to these pressures; our team is working hard in these difficult circumstances to produce the best stories and analyses that we can, knowing that now more than ever is when Lebanon needs committed, investigative, and honest journalism. 

Lebanon’s experience of compounded crises is a painful but essential reconfirmation: A country cannot survive without the people’s quest for truth. This is always thus but never a more obvious and blatant need than at a time when leaders are lost; when they cannot find a way out of misery without turning to the outside and begging strong nations for costly aid; when they are in danger of giving up their people’s sovereignty; when they are unable to climb out of a hole of corruption that they have dug for their political class and for the state.

Talking globally and about moving forward, media and journalism will be in need to reboot after the pandemic. This will involve not just the reignition of the economic engines of media outfits but also a review, rethink, and refocus on conceptual levels. There can be no business as usual under lockdown, even for the online design Picassos, frantic teleworkers, heroes of home office labor, and executive multitaskers that are constantly hopping around between simultaneous Zoom gatherings or confidential Webex board meetings—but going forward, there also will be no business as before. 

The preparation phase for all that new business is commencing now when the seed of the post-corona world is still covered by the calming soil of economic inactivity that has been forced by our medically mandated responses to the pandemic. In the news business—that to some who love it has long been like no other business—the restart of money-making business in a world with more digital media competition over fewer advertising resources will involve taking further and faster steps in digital reengineering of business models, something that has been going on for decades, albeit far too slowly until the 2010s (and with too little vision and lacking of moral compasses throughout).

Media in times of pandemics already have become a hot research topic in online academic journal publishing. Social networking is jumping into a new dimension of its short history, becoming by some observations more socially connective but also more burdensome and intrusive. Observing this and embedding it into a narrative on the problematics of “neoliberal capitalism” (the 21st century edition), American academic Martin Filsfeder asks if we could imagine “social media networks and apps designed for the public good?”

In the social networking realm that is a democratization of what once was the profitable communication domain of yellow journalism and digitization of bad gossiping habits, the reality is now turning against that what was the old normal not even a quarter year ago. Social media has for years “incentivized controversy, outrage, and half-baked contrarianism” with the effect that there were many people who “correctly internalized those incentives,” but this is changing, says Andrew Marantz, a tech and social media journalist at The New Yorker. During the coronavirus pandemic, what was seen as good in terms of clicks—getting people’s attention at any price, under total disregard of ethics—even if it was a “bad tweet, morally speaking” is no longer just repulsive from the quaint observation point of looking for truth in media but potentially destructive of lives (it always was, but in a more indirect and less alarming way). 

It would be idiotic to believe that this destructiveness of lies and attention will eliminate the human temptations to tell lies or suddenly liquidate and reverse the patterns of propaganda journalism and deception that have been embedded for ages in media cultures of tyrannies, totalitarian states, revolutionary societies, and proud republics that are self-proclaimed homes of their peoples. For all who care about journalism and communication while living in imperfect societies in the best of all available worlds, this time of crisis is proof of the need to strive for truth. 

It is an urgent time us at Executive Magazine to keep our deception detectors on high alert, and also fact-check our own assumptions and all narratives as diligently as we can. For publishers, media types, writers, visualizers, bloggers, online influencers, and communicators of all stripes, it is time to rethink business and coverages. In the honorable profession of journalism, this virus-induced chance for personal reflection on existential essentials deserves to be a time of return to emphasizing media ethics and refocus professional journalism, remembering that we should and can be indispensable contrarian cogs in the digital machines of post-pandemic economic and social life.     

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Coronavirus AnalysisFood securityIndustry & AgricultureInsurance

Executive Magazine’s April/May issue

by Executive Editors
written by Executive Editors

The lockdown in Lebanon has been extended for a fourth time, till May 24. Easing measures are seeing those who can slowly reopen businesses and try to get back to work. But protests have also sprung anew. The reality is for many, there was no work before the lockdown began, and there will be none even when it is fully lifted.

Meanwhile, the lira is in freefall, decimating the purchasing power of many Lebanese as prices in the supermarkets continue to rise at alarming rates. One confrontation between a protester and an army officer, widely shared online, saw the officer respond to the protester’s shout of being hungry with “I’m hungrier than you.” Human Rights Watch warned earlier in April that millions of Lebanese were at risk of going hungry due to lockdown measures.

Now, more than ever, is the time for rigorous, honest, and investigative journalism. 

When it became clear that the country would be going into lockdown to try and prevent the spread of the coronavirus, Executive’s team made a collective decision to reorganize our workflow. Rather than produce content for a monthly magazine format, we shifted to a online-first approach. This did not mean a decrease in our output, on the contrary, our team has been working hard throughout these difficult circumstances to provide detailed analysis on three special report focuses: Lebanon’s food security, the impact of the coronavirus, and lessons to be learned from Lebanon’s insurance industry. 

We recently took the decision to collate all our work over these past two months into a PDF-format magazine that our readers can enjoy as they would our usual magazine. This can now be accessed here, or downloaded directly here.

We hope that you will enjoy seeing our content in its usual format. Of course, all the articles and analyses within remain available to read online, and will be shared on our Facebook, Twitter, LinkedIn, and Instagram pages. 

Moving forward, it is our hope to return to printing our magazine for the June edition, though Executive, as with all media outlets in the country, and indeed the globe, is not immune to the financial pressures and lockdown measures that the coronavirus has brought in its wake. We shall be taking things step by step, to ensure that the safety of our staff continues to be a top priority. 

To our readers, we thank you for continuing to trust us and follow our work, this past month has seen a double digit percentage growth in the number of sessions and page views on our website. You have given us amazing encouragement and we promise to continue our efforts to provide clear, accurate, and independent information on which you can form your opinions in these trying and stressful times. 

As always, stay safe. 

— Executive Editors

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AgricultureCoronavirus CloseupHospitality & TourismQ&A

Q&A with Kamal Mouzwak on the impact of COVID-19 on Tawlet and Souk El Tayeb

by Nabila Rahhal
written by Nabila Rahhal

After being closed down starting March 11 for almost eight weeks, due to measures taken in response to the COVID-19 pandemic, Lebanon’s restaurants were allowed to re-open on May 4 as part of a phased easing of the lockdown. To learn more about considerations F&B operators were taking into account before reopening, Executive chatted beforehand with Kamal Mouzawak, founder of farmers’ market Souk El Tayeb, Tawlet restaurants, and Beit guesthouses.  

Mouzawak also shed light on how the COVID-19 lockdown has impacted Souk El Tayeb and its food producers, given that the farmers’ market was classed as  a mall and as such will not be able to reopen until May 25.

Have you decided whether you will be opening the Tawlet farmers’ kitchens on May 4 or not?

We are still hesitating. It is risky [in terms of health] for our staff and for ourselves and our guests.

We are thinking that people will most likely feel comfortable being in open air venues in regions close to their homes. So we will open the Tawlet in Ammiq and the Tawlet in Deir el-Qamar. We will also be opening a new Tawlet in Douma. Douma was just a Beit [a bed and breakfast] but will now have a Tawlet too. (NB: The Ammiq, Deir el-Qamar, and Mar Mikhael restaurants did reopen on May 4, and while prices remain the same Mouzawak indicated they would increase slightly in the near future).

How about the Tawlet restaurants in Mar Mikhael and Hamra?

We took the decision to close [Tawlet and Beit] Hamra. It was a catastrophe for us; it was a project that started in June (2019) and cost us a lot of money and now we have to shut it down. We are very sad but it was bad timing since we launched it in the summer, then came October with the protests and now corona.

What is going through your mind as you contemplate reopening your Tawlet restaurants on May 4?

We have to open at 30 percent occupancy (NB: as per the government reopening mandate for the coming two weeks), which is nothing and hardly covers costs. The second thing is that people are still afraid to go out.

The third thing is that we have no recommendations at all on how to open; they just said 30 percent occupancy and that is it. The syndicate [of Owners of Restaurants, Cafes, Nightclubs, and Patisseries] asked consulting company GWR Consulting to give a webinar for 30 minutes but it should be coming from the concerned ministries and not the syndicates.

Hotels have been allowed to operate since April 27. Did you open your Beit projects?

No, because again we don’t know how to deal with this. Our hotels are not big: They are bed and breakfasts with teams that work very close to the guests. So how are we going to deal with it? We don’t know yet how to go about this. 

It’s not enough to say ok now you can open, you have to tell us how to open. We are left alone as we have always been. But sometimes we can deal with the situation when we are left alone, and sometimes we can’t.

Let us try to consider what the situation will be like in the summer or toward the end of 2020. Do you believe it would improve?

I don’t know. We are trying our best to open in outdoor places and hope for the best. We don’t just have the economic situation to deal with, we also have the political one where a person died two days ago (NB: A 26-year-old father and Tripoli resident Fawaz Fouad al-Samman died on April 28, as a result of wounds sustained the night prior in clashes between protesters and the Lebanese Army) and people are back to the streets. In such a situation, no one is in the mood to eat out. There is a lot of uncertainty.

In Greece and Turkey, tourism helped their economies recover from financial challenges. Do you see that happening in Lebanon?

That’s true and you don’t need to convince me about it. But they were only dealing with one negative situation, which is the economic crisis, not the coronavirus-related crisis, or the political crisis we are going through, or the corruption in the country … We have a lot to deal with.

Also, Greece had the backing of Europe while we have no one to back us up.

As you said there is a lot of uncertainty …

Yes, indeed. Yesterday we were working to close [Tawlet] Hamra while at the same time we are opening [Tawlet] Douma. It is totally schizophrenic.

But hasn’t the hospitality sector in Lebanon always been this way?

Not to this extent. We were never this poor. We used to be stronger in the face of crises both emotionally and economically. Even if you have money now, you cannot access it.

On another note, how are the farmers and food producers you work with faring under the circumstances we are facing these days?

The problem is that we barely had time to deal with the economic crisis—and we had just started to adjust and adapt to it—when we were hit with the coronavirus-related lockdown.

The coronavirus crisis is a catastrophe for Lebanon and everyone else in the whole world. But the problem for food producers, especially those that work with fresh produce, is that [their products] are perishable. If you are a fashion designer, you can store a dress safely for when you can sell it but fruits and vegetables have seasons and farmers need to harvest them and sell them in time or they will rot.

Another problem is that farmers have a [more] precarious and fragile situation than others because they work in a medium that is not very lucrative but has a high cost of production.

Has the demand on food products not increased since the lockdown? Given that people are at home and potentially cooking more?

This may be true but how can small scale producers and farmers deliver their products to these consumers? We are selling some of their produce in Dekenet (NB: a grocery store outlet in Mar Mikhael that was launched by Mouzawak and team in February 2020) but it is very limited compared to the market they had prior to the lockdown. Back then, they would sell in Souk El Tayeb and they had their own clients that they would deliver to.

What are the producers you work with doing in the meantime?

Nothing. They are at home; they try to make mouneh products (NB: preserved traditional foods such as pickled vegetables, dried yogurt, tomato pastes) and sell based on demand. But if this is not well organized and there isn’t enough volume, the delivery will cost them more than the profit they stand to make.

In the past few months, we have felt an increase in the recognition of the importance of agriculture and agro-industry to the economy. You at Souk El Tayeb have been aware of that for a long time now but is Lebanon catching up?

Definitely. Following the economic crisis, there was this trend of local production and of course, the first sector that will benefit from this is agriculture.

Where do you see this going? Is there potential to strengthen the sector?

Well, we have no other choice now. With the economic problems, we have no other solution than to produce locally. But we have to look at the costs here considering there are a lot of imported raw material; we have to look at this and also at how much they will be able to sell. We can produce more locally for sure, but at what cost? And at what price? Keeping in mind that consumers’ purchasing power is very low these days.

So you don’t see it as being the salvation to Lebanon’s GDP?

It costs a lot. The land is very expensive and there is no law to protect agricultural land as is the case in the US and many other countries. [Landowners] would prefer to sell their land for commercial use rather than keep it for agriculture since they would make a lot more money from that. 

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