Consumer Society

ICT – A slower connection

by Executive Staff
written by Executive Staff

Seven hundred billion dollars is a lot of money, no matter who you are. Just to put things into perspective, besides $700 billion being the amount that the US government is dishing out to its corporations in the hopes of saving them from economic peril, it is also the size that the global consumer electronics industry is said to be worth at the onset of 2009, according to the Consumer Electronic Association (CEA). A big chunk of that consists of the ICT market that governments in the region have been keen to remove from their bookkeeping.

Middle Eastern spending on ICT is expected to rise to more than $95 billion dollars in the next three years in a global marketplace that will top $4 trillion by 2011, according to the World Information Technology Services Alliance (WITSA) and Global Insight. Naturally, much of that $95 billion comes from retail expenditure on ICT products. For example, according to the International Data Corporation (IDC), the UAE spending on retail ICT currently stands at $5.3 billion and is expected to increase to $6.8 billion in the next three years.
Subsequently, the demand for ICT products continues to look promising to first-time buyers as well as existing gadget owners. “What is happening with these [ICT] products is that they are having a higher penetration rate across the population and consumers who already own these products tend to be highly technology oriented people, so the upgrade rate for these products is quite high as well,” said Adib Cherfan, CEO of Samsung’s exclusive agent in Lebanon.
Most of the substantial growth in the regional retail ICT demand can be attributed to the effects of the regional super-cycle characterized by the exponential advances in technology, a multitude of suppliers and mass adoption rates in the MENA region. “I think it is the nature of the technology as well as the suppliers lobbying to fulfill market needs and demand that is driving the [ICT] market,” said Cesar Chalhoub, vice president of ITG Holdings. Furthermore, the most pertinent effect that is driving demand in retail ICT markets is the perpetual price cuts that the industry is experiencing, with the knock-on effect on profit margins seemingly the worrying many people. “We don’t have any product that is not growing in 2008,” touted Cherfan. “Mainly, prices are the driving factor behind [ICT] industry growth.”
Since first-time buyers ultimately return to quench their thirst for technology, repeat customers and upgrade rates are proving to be the essential elements that are invigorating regional retail markets in 2009. “We see that existing customers will be the ones carrying the market in 2009 because they are the ones who will be acquiring new products and following new product trends,” explained George Khoury, CEO of Khoury Home, Lebanon’s largest consumer electronics retailer. Also, with the increase in competition resulting from the regional super-cycle and the subsequent oversupply of ICT gadgets to regional markets, customers are becoming more demanding when it comes to product availability. “Customers know what they want and if you don’t have it as a retailer they are going to get it from somewhere else,” said Chalhoub.
Above all, it is purchasing power that drives retail markets and within the ICT market the most significant trend taking hold in 2008 is the increased importance of retail financing. Even with a global credit crunch, regional banks (who are comparatively much better off than their western counterparts) are eager to provide funding to facilitate the ICT purchases of lower income bracket populations across the region. “At the end of the day, cash flow worldwide has increased in banks that did not go subprime or invest in derivatives,” Cherfan explained. “[Banks] need to use that liquidity to be profitable.” Moreover, customers are all too eager to embrace the attitude taken by regional banks. “Retail financing makes up almost 80% of our sales in ICT products in 2008,” said Khoury. The expansion and increased awareness of retail financing in local markets has brought lower income bracket consumers into the fray of ICT consumers and allowed them to purchase products that were previously inaccessible to them. According to Cherfan, “Now, even if you are in a lower income bracket, you will be able to get a credit rating and buy your ICT product.”

The notebook is king
On a sector level, the one that carries the most weight is the LCD sector of ICT gadgets, which is synonymous with growth patterns prevalent on the consumer electronics level. “Anything really related to LCD technology has been doing extremely well in 2008 and has replaced the desktop computer as the driving force behind the ICT boom in 2008,” Khoury stated. “We certainly expect this to continue into 2009.”
Furthermore, notebook computers are the big winners in the retail ICT game in terms of volume and revenue on every level of the business. In the Gulf, year-on-year third quarter laptop shipments grew by more than 95% to 982,000 units, compared to 268,000 desktops according to IDC data. The UAE led the pack with 530,000 units, followed by Saudi Arabia (323,000), Kuwait (65,800), Qatar (34,800), Bahrain (14,600) and then Oman (13,800). Moreover, other countries in the region, like Lebanon, are experiencing similar growth patterns. “In 2008 we have seen more than 100% growth in sales of notebook computers,” Khoury said.
Having moved out of the luxury item category, notebooks are now emerging in the region as the next big product that will carry the retail market. “The portable computer is still the major item of consumption in our markets,” Chalhoub pointed out. “Notebooks are the most important product for 2008… and this is expected to continue in 2009,” added Cherfan. The most important element affecting the sales of notebook computers in the region is price. The super-cycle effect has taken a stranglehold on the notebook industry that has seen prices plummet in recent years spurring on mass market demand. “Price is the main impetus for this growth in notebook computers in 2008,” says Khoury. “In the recent past, the price range for laptops used to start at $1,200. Today laptop computers start at $400 or $500.”

Printing getting pressed
Despite all the rosy signs of growth amid lower prices, not all ICT products are doing well. Different explanations apply to different products but the overriding theme of products that are suffering is that they are doing so as a result of the ICT super-cycle. In particular, printers have been hardest hit as the need for printed materials on the consumer end of the sector has decreased dramatically with the increase in data transmission capabilities across the region. “Output devices such as printers are suffering more because materials are more focused on transmission. Internet and communications have taken away the need to print,” Chalhoub said.
Another area that is feeling the weight of the super-cycle is the mobile phone sector. Even though turnover has increased

Q&A: Anssi Vanjoki
Executive vice president & general manager, Multimedia Nokia Corporation

E Where, would you say, are we in terms of technology?
Today, anything that is about emotions and feelings, like words or pictures, can be digitized. And if it can be digitized, it will be digitized. Then it can be put on the Internet and as technology progresses, everything, all feelings, all emotions, all literature and entertainment, all music, everything will be put in this cloud called the Internet. With devices that are able to use all that digital information, this can become as real to me as the physical environment or the analogue information around me wherever I am. The unnecessary use of analogue methods for creating and sharing the concepts of the abstract that the human being can understand is going to change, and we will be living, instead of just in physical reality, in an augmented reality, a virtuality as real to us as the world.

E Isn’t music a bit different? It’s not exactly always around us.
Music has universality everywhere. But it is also a business with rights holders, who are monetizing this feeling that I get when I listen to music. That has been broken. Much of it has been stolen. We aim to get it back to its owners and creators, and to ensure that this business and ecosystem is going to continue.

E How do you do that?
The Middle East is no exception to the world. There is the question of lawfulness and morals. Do you want to be a criminal? If you became a criminal by accident, because you did not know better, but then end up paying, you are not a criminal anymore. Given that, then, all the music you consume is going to become legal.

E But why develop a new music platform instead of using or linking to existing ones?
Because the platforms we have seen so far are inadequate, they are not offering what we believe the consumers are willing to have, but I want to emphasize that our strategies are not exclusive. The whole software is open source. We are inviting other people to join in rather than trying to sort of cut them out. Nokia is about connecting people. Nokia is not only offering commercial content to people but enabling people to create their own content and to share it in interesting ways with their friends.

to an average of 18 months, according to Cherfan, the outlook for the mobile phone sector does not look propitious. Having done well in previous years, mobile phone sales are now looking flat. Net income for Sony Ericsson fell 48% during the first quarter of 2008 and the company later stated that growth in 2009 would be “flattish”. Regionally, other companies, like LG, are falling short in 2008. “We’re not meeting our target this year,” stated K.W. Kim, CEO of LG Electronics Middle East and Africa, in an interview with Gulf News.
Cherfan explained that companies that concentrated on volume models had been growing until the market became saturated in 2008, at which point only the companies that invested in higher-end models continued to do well. “We expect 2009 and 2010 to become more and more difficult in the telecom sector with only one or two major players emerging,” he said.

Slowing down
It is not a presumptuous claim to state that everything in the retail ICT market will continue to be fine. However, the industry is by no means immune to the wider effects of a global recession. According to IDC data, in 2009 the IT markets in the Middle East and Africa will experience a growth of 8.5%. That figure is down from 14% in 2008 and the 12% prediction before the onset of the latest phase of the international financial crisis. Although the retail market is somewhat shielded from the IT market as a whole, since most of the spending cuts will be on the commercial side of the industry, retail sales and growth are bound to be affected as well. “Things will really reposition themselves back to a real environment and get out of a virtual growth cycle,” said Chalhoub. Cherfan added that, “The super-growth across the board in our region will definitely slow down.”
Comparatively speaking, the ICT sector (and in particular the retail side of the business) are better off than many other industries, which are still reeling from the effects of the global financial crisis. The need and the desire for ICT products look to remain strong as the region continues to regard technological advance as a necessity that cannot be forgone. The clicking will continue.

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Banking

Lebanon – Cedar‘s solid assets

by Executive Staff
written by Executive Staff

In recent years, the Lebanese banking sector has been breaking records time and time again. Within the first nine months of 2008, Lebanese banks saw an astounding $7.8 billion increase in deposits — smashing the already record-high $6.6 billion in deposits for the entire year of 2007. Bankers unanimously agree that 2008 has been an unparalleled year in Lebanese banking. With a relatively stable political environment, confidence levels are soaring due to increased foreign remittances, FDI, sound liquidity, strict regulations set by the central bank, a stable currency, a prosperous real estate market and an improved tourism sector. It is fair to say that the Lebanese banking sector is doing exceptionally well. In light of the global financial crisis, Lebanese banks are surely insulated but not isolated, resilient but not immune, and have been heralded in the international press as “a beacon of stability and growth,” as was stated by the New York Times.

The Lebanese central bank is performing extraordinarily, as the regulations and monetary policies it has set for local banks have created great insulation and success across the board. Because the central bank has been able to maintain the stability of the Lebanese Lira, Nassib Ghobril, head of the economic research and analysis department at Byblos Bank, strongly believes that, “the stability of the currency is the cornerstone of the resilience of the economy and of the banking sector […] It has also helped the inflow of deposits, remittances and capital inflows overall.” With a stable currency due to diligent efforts by the central bank, confidence levels continue to rise. Also, conservative policies — such as preventing domestic banks from purchasing structured financial products and subprime products — are chiefly responsible for the continuous sound performance of Lebanese banks. Ghobril is proud to say that being “conservative is cool,” especially since mishandled risk management elsewhere — i.e. in the Gulf, US, and Europe — has proven to be unbeneficial. Confidence in the Lebanese banking system is directly related to “the very strict regulatory frameworks on behalf of the central bank of Lebanon and the banking control commission, [as well as] the conservative practices of Lebanese banks,” said Dr. Marwan Barakat, head of the research department at Bank Audi-Audi Saradar Group.

Foundations of stability
Apart from playing it cool, there are various reasons as to why Lebanese banks have been largely protected from the international crisis. Firstly, seeing as they are so conservative, banks in Lebanon do not lend much — Barakat claims that “the total loans to the private sector as a percentage of their deposits is equivalent to 33%.”
Thus, with a low amount of lending exposure and high amounts of liquidity — Barakat asserts that “primary liquidity amounts to 48% of total deposits, which is very high by all standards” — hence, banks are less at risk than their regional counterparts. Secondly, since Lebanese banks are strong net creditors abroad, “the foreign assets of the banking sector are more important than the foreign liabilities in value — the difference is around $4 billion, to the benefit of [Lebanese] foreign assets.”
Only four years ago, Lebanon faced a great challenge as to how to disperse its high liquidity levels to OECD countries, because at the time, countries abroad did not need cash injections. Now, with the looming financial crisis, Lebanon has been able to successfully lend liquidity to foreign financial entities and thus make them liable to domestic banks in Lebanon. Ghobril finds it “very funny” that OECD countries “are coming to Lebanon to place money in their banks to support their liquidity. Can you believe this? It’s very ironic.” Ironic indeed, but it is surely a good thing for the Lebanese banking sector.
Another factor which is shielding Lebanon from international vulnerability is the fact that the country has contained housing loan exposure. Even though real estate prices have declined since their skyrocketing performance following the Doha agreement, they are stable enough to leave the banking sector comfortable and at present housing loans “are equivalent to less than 2% of balance sheets,” Barakat underlined. Another shield has been the Lebanese banks’ high collateralization. “The amount of loans against collateral is equivalent to 76% to those outstanding in the banking sector, which is a very high level,” Barakat said.
Currently, deposits into the Lebanese banking sector account for around 83% of total assets, “making them among the most liquid in the world,” according to the New York Times. Most experts agree that these deposits are coming from foreign remittances — i.e. Lebanese expatriates living abroad and depositing money into banks at home. Like his local counterparts, Ghobril contended that, “the expatriate remittances are a major source of capital inflow.” Fadlo Choueiri, head of corporate finance and economic research at Credit Libanais Investment Bank, explained that, “the Lebanese banking sector has witnessed in 2008 a unique inflow of foreign remittances from Lebanese expatriates living mainly in the Gulf region, with some 43.1% reported annual expansion in foreign inflows to $5.5 billion though July 2008, up from $3.95 billion in the same period of 2007.” Indubitably, Lebanese banks are increasingly dependent on expatriates. But, Barakat expects in the worst cast scenario that “remittances will be equivalent to 20% of the GDP in Lebanon, which is [still] a very high level.” Total remittances are predicted to exceed 2007’s high of $5.5 billion, which is one of the world’s highest per capita rates.

Pillars of the state
With remittances so high, Lebanon’s banks have been able to outgrow the national economy, with assets having reached a staggering $100 billion, while Lebanon’s GDP is valued at only $25 billion. On a side note, while governments across the world are stepping in to help their local banking sectors, the opposite is happening in Lebanon. Because the banking sector is so large, it has always been supporting the government. Ghobril illustrated this paradox, saying, “We were criticized in the past that the government depends [heavily] on the banks in Lebanon. But now, if you look at the global financial crisis, you have governments, finance ministries and central banks stepping in to rescue entire banking sectors in the US and in Europe. While in Lebanon it is the opposite, as the banking sector has been supporting the government for many years, and not at the expense of the private sector, this is a myth.”
Such remarkable growth has helped Lebanese banks to expand abroad, creating a larger client base and allowing domestic banks to cater to the Lebanese diaspora around the world. Most major players in the Lebanese banking sector — mainly from the alpha and beta groups — have been expanding regionally since 2002 and will continue to do so in the near future. Regional expansion illustrates the robust capabilities of Lebanese banks, thus boosting the image of the Lebanese economy altogether.
Tourism is also playing a major role in empowering the Lebanese economy, as well as the banking sector as a whole. In 2008 alone, Lebanon witnessed a 30% year-on-year increase, and Barakat holds that “it has been an important driver to the recovery that we are witnessing now.” All of these factors — tourism, remittances, high liquidity, real estate and stable currency — are sure to sustain, healthy, robust, and sound growth.

Forecasts
Analysts’ opinions regarding figures of the Lebanese GDP growth seem to vary. The majority of experts tend to agree with IMF forecasts, which prognosticate GDP growth for 2008 at 6% and 5% in 2009. Barakat believes that, “What supports growth in Lebanon in 2008 and 2009 is the fact that our economic recovery is tied to domestic factors much more than regional and international factors.” Given that Lebanon is not an exporting economy — Lebanese exports amount to only 10% of GDP — domestic growth cannot be predominately affected by any international or regional economic slowdowns. But, added Pik Yee Foong, CEO of Standard Chartered Bank in Lebanon, while the “Lebanese banking sector is unaffected by the global financial crisis so far … the market reality is that there will be an impact, it is inevitable.” Still, she believes that “we will remain resilient in the face of this [global] recession.”
Global challenges may thus create opportunities for the Lebanese banking sector, as “the leveling of playing fields offers Lebanese companies [the ability] to penetrate new markets,” said Foong. On another note, Choueiri expects Lebanon “to remain a safe haven for Arab and foreign investors along with Lebanese expatriates, thanks to its sound banking system coupled with an effective monetary policy that infuses an atmosphere of confidence among investors.”
Others are also quite optimistic, albeit with the possibility of political instability in mind. Even with parliamentary elections on the horizon in 2009, some experts think that the political environment will continue to stabilize and hence the banking sector is not likely to incur any negative impacts. Yasser Mortada, general manager at the Federal Bank of Lebanon, finds that “if nothing negative happens politically, 2009 will be another good year for the Lebanese banking sector.”
Barakat remarks that, “what the banking sector has to do is to continue in the same direction that it has been following over the past few years — which is a continuous upgrading of regulatory frameworks, taking lessons from the global financial crisis, while keeping in mind that the Lebanese banking sector has adopted a long term of circulars that have helped the sector avoid the crisis.”
Seeing as the banking sector of Lebanon has not been subsumed by the crisis so far, Choueiri holds that “the Lebanese banking sector remains immune from any imminent breakdown and is thus expected to preserve sustainable growth and prosperity in the coming period.”
While the chief of the IMF’s Middle East and Central Asia department, Domenico Fanizza, applauded the Lebanese central bank for protecting domestic banks from the financial chaos in October 2008, he cautioned that the worldwide turmoil may have incidental, negative backlashes on Lebanon’s economy. Such repercussions could be comprised of a slowdown in economic growth, fluctuation of tourist inflows, and decreased remittances from Lebanese expatriates. However, most analysts are confident that Lebanon’s banks will remain sound regardless of the economy slowing down slightly. With so many reasons for continued success, there are simply not enough significant factors in the banking sector’s way to sway it from further prosperity in 2009.

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Tourism

Lebanon – Natural potential

by Executive Staff
written by Executive Staff

For most people, Lebanon is synonymous with shopping and partying galore. However, its Mediterranean atmosphere offers a wide variety of handsome landscapes — unusual when compared to neighboring countries where sandy dunes and rocky deserts abound. Many Lebanese would be amazed by the variety of nature reserves Lebanon boasts. The Chouf Cedar Nature Reserve, nestled between Dahr al Baidar and Niha in the South, is covered with oak forests. There lay the oldest Lebanese forests of Maasar Chouf, Barouk and Ain Zhalta, where cedar trees, Lebanon’s national symbol, grow on the western slopes of the mountain. The reserve is also a prime destination for bird watchers. In the north, the Horsh Ehden Nature Reserve, situated on the upper northwestern slopes of Mount Lebanon, is home to cedar trees bordered by a mixed forest, including acorn, pine, wild plum and pear. The Palm Islands Nature Reserve lies off northern Lebanon’s shore, consisting of three islands where birds and turtles come to lay their eggs.

These are only a few examples of Lebanon’s many ecotourism sites, to which most Lebanese remain oblivious. “There is not enough awareness in the local community about the benefits of ecotourism,” said Sawsan Abou Fakhredine, director of the Association for Forests, Development and Conservation (AFDC). The organization, which was established in 1993, aims at community-based conservation for sustainable livelihood of people through rural and ecotourism. The association first identifies an area and then trains a group who will be responsible for it. By the end of 2009 it will have established as many as four eco- lodges in the north, the Chouf and the Metn. For Michel Moufarej, owner of LibanTrek, a tour operator which specializes in ecotourism, the business is more of a passion than a job. “Awareness towards ecotourism activities is slowly improving but very much behind its full potential,” he said.

Rural benefits
For the past 12 years Cyclamen, a division of TLB Destinations focusing on sustainable tourism in Lebanon’s rural regions, has invited travelers from all over the world to experience and discover Lebanon’s diversity, unique culture, history and natural beauty. It has developed trips emphasizing the local community by organizing home stays or sharing simple meals with villagers. TLB’s concept is known today as ‘sustainable tourism’, meaning daily operations should be responsible and contribute positively to the sustainable development of Lebanon. For example, TLB Destinations offers financial resources to initiatives, such as rural women’s cooperatives, and promotes tours to support projects to avoid emigration from rural regions.
“Travelers are always encouraged to purchase food locally rather than bringing a picnic with them. We make sure that our visit has benefited the rural communities. What is the point of just arriving by bus, hiking and then going back home again? How will we have benefited the rural communities?” said Nassim Yaacoub, program manager at Cyclamen.
“In order to develop ecotourism activities, one needs a physical infrastructure. This type of activity generates resources for rural areas, while preserving nature,” Abou Fakhredine added. The director explained that the sector suffers from the limited marketing it receives when this activity strongly needs to be reinforced. The Lebanon Mountain Trail (LMT) was financed by USAID and falls in the ecotourism segment of activity. The LMT is a 440 kilometer path that leads from the northern tip of Lebanon to the southern part of the country and goes through more than 75 towns and villages. It promotes environmentally and socially responsible tourism and is the first long distance hiking trail in Lebanon.

Fostering awareness
“Unfortunately, tourists who visit Lebanon are rarely familiar or interested in the concept of ecotourism, as they prefer to shop or go out to cafés and restaurants,” Abou Fakhredine said.
The director said the best year AFDC witnessed at their first lodge, situated in the village of Ramlieh in the Chouf, was 2004 when it received 4,000 visitors of which about 20% were foreigners. At Cyclamen, most clients are equally divided between Lebanese and foreign nationals.
“In this type of business, companies can adopt one of two approaches: either focusing on Europeans or Americans, who are usually interested in ecotourism activities, or creating awareness among the local population. We have decided to try promoting both market segments,” Abou Fakhredine said. He added that the association organizes ecotourism festivals every year.
LibanTrek targets schools, institutions and individuals. “We have about a third of our client base who are foreign,” said Moufarege.
Yaacoub pointed out that his company’s travelers “are made aware of local concerns regarding conservation of natural areas, as well as endangered and threatened heritage. TLB has also founded national days and respects international days with events to raise awareness, such as World Wetland Day, International Women’s Day and International Mountain Day.”
But industry players are not the only ones taking an interest in ecotourism, as they are joined by other Lebanese entrepreneurs. The Saadé brothers, Sandro and Karim, who recently introduced a new wine project to the market, included a boutique hotel in their Bekaa premises. “We need to preserve our heritage and work as well on promoting it actively,” Sandro Saadé said.

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Money Matters

IPO Watch – Third quarter chill

by Executive Staff
written by Executive Staff

Unprecedented turmoil in global markets at large, and in local markets specifically, over the past few weeks caused several firms to call off public offerings scheduled for the fourth quarter of 2008. Analysts agree that although the initial public offerings (IPO) market hasn’t been running at full throttle for the past five months, it has not been stuck in first gear either. The region’s IPO market fared better than its global counterparts, data shows. According to a report by Renaissance Capital, a UK- based financial firm, IPO activities in third quarter slowed in every region except the Middle East. However, the start of the fourth quarter shows substantial delays, rescheduling and reduction in the number of firms going public. The main culprit behind the slowdown of activity is the financial crisis that started in the United States and later spread across the globe.

The region’s markets have witnessed an unprecedented wave of selling leading to a 22% loss in the broad MSCI Arabian Market index for October, representing a loss of more than $255 billion in market capitalization. A report released by Rasmala Investments said panic selling was prevalent across all markets causing a loss of between 25 and 35% (with the exception of Lebanon, Tunisia, Morocco and Bahrain). And as of this writing, uncertainty over the extent of the region’s exposure to the global financial crisis and concerns over the state of the property sector continue to agonize investors.

Against the grain
So how is the IPO market holding up with all of the other plummeting markets and doom and gloom surrounding financial circles? Economics 101 teaches that a strong stock market is necessary to encourage companies to go public. However, going against the grain, the IPO market in the MENA region appears to have developed a stronger immune system than its global counterparts, and family businesses continue to jump on the IPO bandwagon.
Looking back at the region’s 9-months IPO market offerings, one will find that it was up by 90% when compared to the same period of 2007. According to figures from Zawya, so far the region has boasted 50 new IPOs with a total value of $13.12 billion compared to 54 IPOs with a total value of $6.88 billion for the same period in 2007. Renaissance said the number of global IPOs in the third quarter fell 82% year-over-year and the amount of proceeds raised declined 89% to $9.3 billion. The region raised $3.61 billion in the third quarter of 2008 from 12 IPOs, compared to $4.72 billion from 13 IPOs in the second quarter of 2008.
Renaissance Capital pointed out that 10 of the largest global deals during the third quarter, “four made public debuts in the Middle East, and another four did so in Asia.” Saudi Arabia was the biggest IPO player in the region accounting for 26% of the total number of deals and 74% of the total capital raised. The kingdom raised around $9.5 billion year-to-date. The most noteworthy is Saudi Arabia Mining Company which raised over $2.4 billion in proceeds.

Cooling sentiment
However, despite all the success in last nine months, data suggests that IPO market activity in the fourth quarter of 2008 is certain to slowdown as investors observe the global markets from the sidelines. The mood in the IPO market has significantly worsened against the second quarter of 2008. The primary markets, due to panic selling, negative psychology and speculation are showing signs of the financial crisis. But market experts say that the cooling of sentiment is noticeable only with regard to issuers and issuing companies, while the mood among investors has remained almost unchanged. Although the short-term outlook appears lackluster, companies in some of the market’s hottest sectors, such as oil, agriculture and telecoms, could keep the IPO market chugging along in the near term. Nevertheless, a few large deals are set to brave the tough IPO market in the coming weeks.

Braving the markets
But despite the current climate, plenty of companies are still looking to go public. November witnessed the announcement of five new IPOs all scheduled to be launched in the first quarter of 2009. Saudi Arabia, with the largest economy in the region, announced three IPOs. The agriculture and food firm, Al Akhawain, said that it will offer 30% of its shares to the public seeking to raise around $27 million. Herfy Food Services, a fast food unit of Savola Group, said that it will go public in the first quarter of 2009 by offering 30% of its shares. The company did not disclose the amount it wants to raise, but it’s offering around 3 million shares. Herfy has a paid-up capital of $27 million. The Dammam-based conglomerate, Aujan Industries, said it will also go public offering 30% of its shares. The offer size will range between $775 million and $1.04 billion.
Meanwhile, in Bahrain, mobile operator Zain Bahrain, a unit of Kuwait’s Zain Group, had announced in April of 2008 that it will go public, both on the Bahrain and the London Stock Exchange, but the IPO was delayed and rescheduled. However, Zain Bahrain has now confirmed that it will offer portions of its shares in the first quarter of 2009. Although it is not clear how much the company is looking to raise, media reports say that Zain Bahrain share offer on the LSE will be worth around $4 billion.
In Qatar, Al-Mazaya Holding Company said it will launch its IPO in November despite turmoil in financial markets, and will launch a $9.5 billion worth of projects in Dubai as it mitigates slow growth in Kuwait. Mazaya is seeking to raise around $137 million by offering 50%, or 50 million shares, priced at $2.75 to the public. Mazaya’s current capital stands at $138 million.

The bottom line
Without a consensus opinion among local analysts and business leaders, what will happen in the fourth quarter is not clear. But the good news for investors is that most great returns will be realized when the markets return to their pre-July days, because the quality of companies attempting to go public will be better and prices will be favorable as IPOs will need to be priced relatively low to attract investors. But one thing that has been clear in today’s turbulent MENA markets, the direct impact of the financial market upheaval on developing countries has been limited and global economic growth remains strong, the World Bank said in a report released in October. The bank pointed out that the region’s governments continue to implement “policies supporting economic resilience” and urged business leaders to be prudent in the way they deal with the volatility and uncertainty prevalent in today’s markets.
Furthermore, the appetite of local companies to raise capital will not stop; governments remain committed to distributing wealth through the public markets and the decline in the markets of developed countries will only help the region make it through these volatile financial times intact. Add on top of that the fact that almost 300 companies have shown or are now preparing to go public in 2009, the bottom line is the IPO market will remain “seriously” active for quite some time.

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Comment

A hard right to Jerusalem

by Peter Speetjens
written by Peter Speetjens

November 4, 2008 was exactly 13 years from the day Yigal Amir killed then-Israeli Prime Minister Yitzhak Rabin, out of fear for the latter’s intention to conclude a peace with the Palestinians and give up part of what the Orthodox Jews perceive as the God-given land of greater Israel. The murder (finally) opened the eyes of the western world that Israel is to a large extent a religious state, which since its inception in 1948 has grown ever more so.

This religousity was illustrated by the country’s municipal elections on November 12, especially by those in Jerusalem. The main candidates for the Holy City’s top job were colorful, to say the least, and as such a good reflection of the complex make-up of Israeli society.
In the race were the eventual winner, Nir Barkat, a sharply-dressed former paratrooper and software tycoon, Meir Porush, an ultra-orthodox Rabbi portrayed on election posters as a Papa Smurf look-alike, and Arkadi Gaydamak, a Russian immigrant billionaire who hardly speaks a word of Hebrew and is wanted by Interpol for his role in an arms smuggling scandal between France and Angola.
Barkat won with 52% of the vote, closely followed by Porush with 43%, while Gaydamak came in as a disappointing third with 3.6%. In total, only 41% of the electorate went to the polling stations, which should not come as a surprise as Arab Jerusalemites did not bother to leave their homes. After all, who should they have voted for? Without exception, all three candidates stressed that the Jewish capital would never be divided and even the so- called “moderate” Barkat has called for an increase in settlements in occupied East Jerusalem.
Thus, Arabs and their situation in Jerusalem did not factor in as the main issue between the two main candidates.
Barkat’s campaign slogan was to “save the city,” but not from Arab hands and international good intentions, but from the rapidly growing influence of Jewish fundamentalists represented by Porush. “In another 15 years there will not be a secular mayor in any city in Israel, [except for] perhaps in some far-flung village,” claimed Porush, a 54-year-old rabbi, during an election rally.
His remark, in Yiddish, had been made to an all-Orthodox audience and was not meant for general consumption. It only became public knowledge once it was broadcast through a mobile phone news service. Porush, a father of 12, noted that the religious community’s size and influence has been growing, primarily thanks to its high birthrate.
To what extent religion has become a dominant factor in Jerusalem’s politics and daily life was felt by Rachel Azaria, head of the tiny Wake Up Jerusalemites party and the city’s fourth candidate running for mayor. Like the other candidates, she had intended to run with the help of a poster campaign portraying her and two fellow party members. The election posters were to be shown on busses, among others.
The ad agency in charge however, only agreed to run the election campaign as long as the poster did not portray any women. Even though only Azaria’s face was to be shown, the agency feared the city’s ultra-Orthodox Jews might vandalize the busses if these showed any female images. Although the agency claims that it had offered a number of alternatives, such as covering parts of Azaria’s face, the latter has now gone to court.
Meanwhile, life goes on in Jerusalem, a city that ranked last in a recent poll measuring the quality of life in 15 Israeli towns, as it suffers from congestion, a rapidly increasing population, lack of employment and a severe brain drain, as most young professionals would rather live and work in liberal Tel Aviv than in the increasingly religious climate of the Holy City.
The newly-chosen mayor, Barkat, aims to revive the capital by attracting tourism and transform the city into a high-tech hub. Yet, exactly how he intends to do that remains unclear. According to leading Israeli historian Tom Segev, many Israelis already regard Jerusalem as a lost city.
Segev also claimed that, put together, Barkat and Porush sound a lot like Avigdor Lieberman, the controversial and outspoken leader of the hardline Yisrael Beitenu party, which mainly represents Israel’s more than one million Russian immigrants, who once said that he would like to see all Israeli Arabs expelled.
If the recent municipal elections in Jerusalem are anything to go by, the national elections that are to take place in February 2009 are likely to produce a similar turn to the right. In the recently dissolved Israeli parliament, the nationalist Likud Party combined with Russian and religious votes were good for some 50 out of a total of 120 seats. With the centrist Kadima Party in disarray, as Ariel Sharon lies in a coma, Ehud Olmert faces corruption charges and current leader Tzipi Livni has yet to earn her stripes, there is a fair chance for a right-Russian-religious coalition to gain an absolute majority.

Peter Speetjens is a freelance writer and analyst based in Beirut.

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Banking

Saudi Arabia – Kingdom holds the fort

by Executive Staff
written by Executive Staff

The ongoing global financial crisis has had limited effects on the Saudi banking sector. Fighting through recent years — with the 2006 stock market crash and a bullish year in 2007 — Saudi banks in 2008 have “performed relatively well,” noted Murad Ansari, vice president at EFG-Hermes KSA. Saudi banks are not immune to the global troubles, but they are definitely less exposed than other banks around the world, especially since “almost 86% of total assets of the banking sector are invested in domestic assets,” as described in a recent EFG-Hermes report.

Due to their low exposure to international credit, equity, and property markets, Saudi banks have been able to insulate themselves from the storm of the international crisis. And thus, according to EFG-Hermes, “Saudi banks are relatively well positioned to weather the impact of the ongoing financial turmoil.” Also sheltering Saudi banks from the global chaos is the minimal exposure they have to equities and real estate. “Over the last 12 months,” contends EFG-Hermes, “rising cash reserve requirements of the central bank coupled with strong loan growth has meant that most of the banks have reduced their exposure to international assets.”
While most of the top banks reported mixed quarterly results, “overall the listed Saudi banks (nine month profitability) recorded [a year-on-year] increase of 1.6%”, said Global Investment House. The Saudi central bank has voiced willingness to help the kingdom’s banks if necessary, by injecting a proposed $40 billion of liquidity into the financial institutions. As of now, the central bank is yet to pour funds into the banking sector but, theoretically, by pumping liquidity into the banks, the central bank could buffer the consequences created by the financial distress, whilst guaranteeing bank deposits to boost confidence levels. Nonetheless, EFG-Hermes disclosed, “the central bank has lowered the cash reserve requirements of commercial banks by 300 basis points, freeing up an estimated SAR10 billion [$2.7 billion] in liquidity that had been with the central bank in cash reserves.”

What crisis?
According to Ansari, even though the growth rates in neighboring countries, such as the UAE and Qatar, have surpassed those of the kingdom, the balance sheets of Saudi Arabia’s banks have grown at an impressive 28% thus far this year. Third quarter results for 2008 show that the crisis has only affected selected banks and not the system in its entirety. EFG-Hermes also asserted, “Banks which had relatively higher asset exposure to North America and had higher investment equities have seen the impact in their 3Q 2008 results. However, even in [those cases], the impact has not been significant enough to wipe out profits.” Thus, even with a few dips in some banks’ profitability, such occurrences were not significant enough to lower confidence levels across the sector.
EFG-Hermes indicated a couple of “medium term challenges” confronting the Saudi banking sector. First and foremost, Saudi banks will have to face “arranging required funding to finance the aggressive domestic investment plan.” Secondly, they will have to figure out “funding to smaller corporate clients/sole proprietorships where owners can potentially have exposure to international equity markets.” However, such obstacles are not believed to be strong enough to weigh down earnings in the form of credit provisions for the sector.
The pivotal drivers of banking sector growth, as outlined by Ansari, are the corporate credit demand, an increase in government spending as well as expansions by large corporations and a surge in the demand from smaller corporations. The liquidity of the Saudi banking sector has also helped it stay afloat and perform decently. Hamad Saud Al Sayari, governor of the Saudi central bank, concurred, saying that the local banks are “highly liquid” and possess “good capital adequacy.” The total deposit growth by the third quarter of this year “surged by 9% [quarter-on-quarter] compared to 1% in [the second quarter of 2008] despite the fears of an outflow of funds following reduced speculation on the de-pegging of the Saudi Riyal to the US Dollar,” EFG-Hermes observed.

Forecasts
For the most part, the Saudi banking sector is predicted to slow in 2009. Ansari feels there are two sides to the story in 2009, assets and liabilities. Believing banks should be “extra cautious” now on the asset side, the VP outlined that the “financial viability of projects, and hence asset quality, will once again become the prime concerns for banks.” In terms of liabilities, banks are likely to seek new options to raise funds, and thus deposit mobilization will be a chief concern for the kingdom’s banking sector next year. Although such issues were present in 2008, Ansari reckoned that their relative importance in 2009 is “likely to increase significantly.” Overall, even at a slower pace, the Saudi banking sector is predicted to perform well next year. While the kingdom’s banks are not likely to face a “total meltdown,” Ansari feels that “the overall environment requires banks to be more prudent while lending.”

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Insurance

GCC & Levant – The fog of financial crisis

by Executive Staff
written by Executive Staff

The long-term effects of the global financial crisis have already begun to take hold of the industry as lower demand for oil, resulting from the effects of a global financial crisis, has pulled the rug from under the inflated oil revenues the region was lavishing in only a few months ago — albeit with double-digit inflation. Oil-rich governments do have a certain amount of financial cushion hoarded in their sovereign wealth funds, but individual disposable income will suffer as a result of lower cash flow in the region. Oil-poor nations will also be directly affected by less disposable income in places like the GCC, as their residents will be less able to send remittances to countries such as Lebanon, where remittances constitute around 25% of GDP. The decrease in regional disposable income will prove another substantial hurdle for a regional insurance industry already dealing with low demand and penetration.

For an industry that depends heavily on investment revenues, it comes as no surprise that Return on Investments (ROIs) have suffered greatly as a direct result of the global financial crisis. “Some of the largest players’ 2008 Q3 year-on-year income came down by 70% or more,” said Thomas Schellen, publishing editor at Zawya Dow Jones. Previous statements touting the region’s relative immunity to the effects of the financial crisis have proved to be nothing more than wishful thinking, as the Middle East’s equity markets have tumbled subsequent to the collapse of Lehman Brothers, exacerbating an already unstable market environment. As Executive went to press, the Tadawul, the largest Arab bourse by capitalization ($296 billion), had lost half its value in 2008. Other regional equity markets have followed suit creating a situation where the regional insurance industry will be hard pressed to find lucrative investment opportunities to prop up their recent profit losses in 2009. “The whole investment philosophy is changing […] what we see now is that whatever diversification you do or assets you acquire, everything is going down,” explained Farid Chedid, managing director at Chedid Re.

The bottom line dropping out
The perilous financial environment prevailing today has undoubtedly prompted regional insurers to shift their focus from investment income to technical underwriting, but they will be unable to completely retrench from the investment side of the industry, as “there will be no escape from their [insurer’s] financial dependency [and] this will affect the bottom line of insurers very directly,” Schellen said. Thus, all regional insurance companies can do to shield themselves somewhat from the effects of the global financial crisis is to change their bullish investment strategy to one that mitigates risk and, where possible, pulls out completely. “The average rate of investment income will drop heavily and become very conservative,” said Elie Nasnas, director general of AXA Middle East. According to Michael Bitzer, CEO of Daman, “People will start to reevaluate how they invest for retirement. In the past they were investing in real estate and stock markets here and in their own countries, and now I think that they will be looking for a more stable form of investment and return so this might spur more demand for such products.” Bitzer explained that risky investment products will also make up much less of a proportion of insurers portfolios as customers are less willing to embrace risks under the current financial circumstances.
Furthermore, the exposure of the American Insurance Group (AIG) to subprime losses has tarnished the image of insurance agencies in the public consciousness in the West but has yet to significantly affect the regional insurance environment. “People do not realize that this might affect their local insurer,” Bitzer said. “I think that the majority of our clients are not educated enough to understand that even AIG has a problem and maybe they should check with their own insurer.” Moreover, there is a perceived notion that the losses at AIG have aided many of their competitors in the region. “The troubles at AIG have helped their competitors; there is no doubt about that,” said Chedid. However, if the financial crisis continues to affect AIG the outlook for many regional insurance markets does not look promising, as “there are territories where if, God forbid, AIG falls you will have a crisis, like Lebanon, where their market share is huge and this would become a social problem,” Chedid concluded.
Both AIG and Alico Lebanon (a subsidiary of AIG) declined to be interviewed for this article. However, Osama Abdeen, executive vice president of AIG MEMSA released a statement to Executive saying, “AIG’s insurance companies remain financially healthy and are meeting all policyholder obligations. Insurance is a regulated business. Regulators ensure that each AIG member insurance company has adequate assets to back each policy and meet all policyholder obligations. Policyholders are protected and their policies are safe.”

Losses? What losses?
The unwillingness to divulge information to the public and press about profits and losses during a global financial meltdown is suspicious, as well as indicative, of a general industry slowdown and a loss of profit growth. “Numerous companies in the GCC have put off their announcements of their 3rd quarter results as far back as they can, to as much as 45 days, rather than 10 or 20 days” said Schellen. “This is an indicator that they are not really happy about what they will have to say.”
The lack of transparency in an industry that operates using reserves from their clients to attain ROIs seems contradictory to the interests of the industry as a whole. “The success of the insurance industry is linked to its transparency,” Chedid said. “There is definitely a need for better regulation and automatically more access to information.”
Countries like Qatar, Jordan and the UAE increased their transparency rating in 2008 according to Transparency International (TI), the global organization that monitors transparency and corruption. This, however, is not indicative of wider regional reform and the effects of the sector’s opaqueness are being felt in the regional insurance industry.
“One indicator is that there are laggards currently in announcing quarterly results,” said Schellen. “It took a lot of convincing in order for companies to tell us their breakdown figures in terms of the real benchmarks, like how much revenue comes from underwriting and how much comes from investment. In some countries, like the UAE, they won’t do it by line of business; they will give us technical results but will not announce them for each line of business,” he explained. In Lebanon this trend is proving to be a huge impediment to the growth of the local market, as current legislation is deemed inadequate and government is uncooperative in providing information to local insurers.
“Legislation only goes so far as to require companies to publish their financial statements,” said Nasnas. “We used to compile a report for the Lebanese market, but this year we still have not gotten the consolidated figures from the Ministry of Economics for us to carry on in making the report. Many reinsurers and insurers, both regional and international, as well as many international groups are asking for the figures from Lebanon for 2007 and we don’t have them.”
With the need for growth potential as high as ever, one can only hope that governments increase their efforts to increase transparency in the region for the good of the insurance industry and us all.

Propping up the industry
In times of crisis, the need to stay ahead of the competition is even more pertinent to a company’s operations and the insurance industry is no different. “Modernization is a necessity for local companies to be able to survive if we have an economic downturn in the region,” said Chedid.
To stay ahead, many regional organizations are making blanket investments in the modernization of business sectors and processes. One of the main areas in which the regional insurance industry is undergoing an overhaul is in the IT sector.
“Any company that wants to be significant has to beef up their IT and bring it up to global standards — this started in 2008 and will definitely continue in 2009,” Bitzer asserted. “Companies are focusing more on this, especially regional companies, because when you are of a certain size you cannot operate without a very efficient IT system,” added Nasnas.
Another area of the industry where companies are suffering is in the lack of adequate human resources for regional markets to accommodate the needs of the regional insurance industry, which is “an issue weighing heavily on the back of insurance companies in the region,” according to Schellen. Today, except for Lebanon, Egypt and Jordan, most of the insurance staffing is imported from outside the region. Furthermore, within the region itself local talent is being uprooted from countries in the region where insurance penetration and expertise is concentrated to the more lucrative areas in the region, inevitably causing a brain drain on many local markets. “In Lebanon we had a huge HR problem in 2008 because all the people we train get great offers from the Gulf and leave,” Nasnas said. Also, within the Gulf states many traditional staffers from the Indian subcontinent are moving back to their home countries, now that the opportunity cost of returning has decreased as a result of the emerging nature of these economies. The void created further exacerbates the human resource shortage in countries like Lebanon. “There is a need to replace [the workers from South Asia] and they are doing it with highly qualified human resources that mostly come from Lebanon,” Nasnas said.
At the end of the day, however, it is growth which will accommodate for any pitfalls in the insurance industry. The implications of lower oil prices will have their ramifications on growth capabilities across the region in 2009. However, the nature of the regional insurance environment has the ‘wiggle-room’, as well as the willpower to endure the effects of a global financial crisis and come out on the other end looking better off than when this whole mess began.

 

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The Buzz

Surviving the downturn with intelligent branding

by Joe Ayoub
written by Joe Ayoub

With the global financial downturn impacting on all markets, everyday business challenges have become compounded by reduced customer spending power, budget constraints and more cautious investor confidence. Companies may be turning to downsizing, or outsourcing to meet these challenges yet their biggest asset — their brand — cannot be approached in the same way. True, they can choose to stop spending on their brand, but in a time of crisis, there is actually no better time to leverage their brand assets to produce greater value.

Not just a name

First, it is important to understand what exactly is a brand. With branding still a fledgling topic in terms of awareness among local businesses, many mistakenly believe it means having a strong name in the market. Companies in Lebanon often think, “I have a famous name and it is selling well so this is a brand.” But often it’s selling because there is no real competition, or the product or service is cheap. When a serious competitor appears, they lose market share. In fact, a brand is a total experience: it’s the name plus the logo plus the brand promise and the delivery of that promise — brand equals trust.

Winners and losers

Competition can quickly sort the winning brands from the losers, but a crisis is another force to reckon with. In an economic downturn, consumer spending falls and purchasing shifts away from those brands which lack a strong bond with their customers. Many Gulf real estate developers have already learned this lesson, having spent lavishly on logos and communications but overlooking the need to bond with consumers. Thus, at the first sign of economic pressure, they began to suffer as investors sold their shares.

The new market reality is that consumers are not only spending less, they are  re-examining every single purchasing decision. One global trend also emerging in Lebanon is for strong brands to reach out to consumers in a way that takes advantage of the economic climate but avoids diluting the brand value. These brands are opening new stores, often referred to as outlets, where customers have access to discounted luxury goods. This drives sales for the known brand but by using an alternative name for the outlet, it avoids diminishing the perception of the brand.

This trend is a prime example of well-positioned brands creating value by driving demand. What all successful brands require is a deep understanding of brand mechanics, how their brands influence customer behavior and choice. Understanding the process of brand value creation is vital not only to drive demand but also to improve decision-making and budget spending.

Digging for value

A successful brand strategy consists of determining the brand essence — which is what the brand stands for — and the brand promise, which is what the customer expects to be delivered when they buy the product or service. The branding process starts with an internal brand audit. Working with the company’s management, the audit sets out to discover the core strengths and fundamentals of the brand, what makes it unique and how it reached its current status. Once this is identified, strategies are devised around the brand foundations.

The corporate strategy starts with a vision, a mission, a set of beliefs and the corporate attitude or personality of the company. Once these are set they should first be shared and believed by all employees working in the company so they can deliver in their daily work.

But branding doesn’t stop there; brand management is essential for it to be effective. If you have a car, you change the oil, maintain and clean it so that it always performs. A brand is the same; you manage its image, its performance, and you keep on improving the service or product formula, so that it consistently delivers on its promise.

Sending the right message

All of these are essential before a company should think about advertising. Companies suffering from ineffective advertising shouldn’t blame the ad agency but look internally and see if they have a clear message, brand promise, employee and customer satisfaction. Only once these are really well covered should they consider advertising.

So, in times of crisis, instead of focusing purely on where and how to cut costs, companies should use the period of uncertainty to look at their brand value and strategy, look internally and question everything they have been doing: At the brand level, are your customer touch points well structured? Are your employees motivated and happy? Do they believe in your brand and your company? Then look outward at the customer: are they having a positive experience with your brand? What should you improve?

With companies increasingly focused on the bottom line, the good news is that branding drives up the brand value; the more positive a connection with customers, the more customers will remain attached to the brand and be prepared to spend money on it. Many companies may be looking to outside investors to inject funds into their business, and with a good brand strategy, they can sell at a premium. Even for companies not looking for outside investment, branding done correctly is one way to ensure that once the crisis eases, not only will they still be standing but they will also be among the first to reap the rewards. 

JOE AYOUB is CEO of BrandCell

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Society

Lebanon – Aging potential

by Brooke Anderson
written by Brooke Anderson

A mid a global recession and a decline in wine consumption worldwide, Lebanese are raising their glasses as the country’s $25 million wine sector continues to grow at a steady pace. But experts say that despite Lebanon’s ideal climate for viticulture and a high level of expertise, the sector is still not living up to its potential.

 

World wine consumption dropped by 0.8 percent last year, according to the International Organization of Vine and Wine. But New World wine consumption has increased, and so has Lebanon’s, rising by 1.5 percent during the same period. 

“I think people are searching for a new taste. The wine consumer is always looking for a new product, and Lebanon is benefiting,” says Lebanese restaurant consultant Nagi Morkos. “Worldwide, there is a trend toward ethnic wine and food.”

With domestic consumption still relatively low, the country has relied on exports for most of its profits. Between 2002 and 2003, Lebanese wine exports doubled, and today they continue to increase. According to figures from the Lebanese customs, official wine exports totaled $13.1 million, up from $9.8 million in 2006. The United Kingdom, the biggest importer, bought $4.6 million worth of wine in 2008, compared with $2.6 million in 2006.

Even with the ongoing global recession, some vineyards are opening up to new markets, compensating for a drop in sales to their established buyers.

“We can’t say we’re not affected by the crisis,” says Emile Majdalani, marketing director at Kefraya, one of the country’s top producers. “But our brand is well established and we’re always working on long-term business plans. We’ve never opened so many markets as we have this year — a total of six new countries.”

Kefraya is now exporting to Australia, Benin, Cyprus, Nigeria, Mexico, Poland and Togo.

“We felt the crisis in certain countries, mainly the United States, Russia and Western Europe,” says Majdalani. “But our main markets are more or less compensated. We’ll close the year with no decrease in exports.”

As for wine sales in Lebanon, which has been relatively unscathed by the global financial crisis, he says business is booming, up 15 percent from last year.

From one resilient war-torn country to another

Last year saw a major increase in exports to Iraq, after five years of decline following the US-led invasion in 2003. In 2008, Iraq imported $158,000 worth of Lebanese wine, up from $88,000 in 2006.

“The Iraqi market fluctuates,” says Ramzi Ghosn, winemaker and co-owner of Massaya winery in the Bekaa Valley. “It could be an index of stability in Iraq, according to wine sales.”

Like Kefraya, Massaya is always looking at new markets and trying not to rely too heavily on its established ones.

Lebanese wine is a $25 million industry, large by Middle East standards but small compared with major wine-producing countries such as France, Italy and the US. Since 2005, the number of vineyards in Lebanon has doubled — from 15 to 30. Still, that’s small compared to neighboring Cyprus, whose vineyards number 60, and which attracts an international crowd to its annual wine festival in August.

Observers have pointed to Lebanon’s shift over the past several years from a whisky and arak society to a wine culture, and attribute this to the country’s relative stability over the past couple of years. An example of this is the opening of the first commercial winery in South Lebanon in 2003.

At Karam Winery in Jezzine, founder Habib Karam is basking in the relatively newfound popularity of Lebanese wine.

“Today, if you are a wine importer in America or the UK, it’s your responsibility to have Lebanese wine. Otherwise your list won’t be complete,” says Karam, who exports 50 percent of the 55,000 bottles he produces annually. “We are becoming like Chile and South Africa. Lebanese wines are in demand.”

At Nabise, a boutique winery in Mount Lebanon near Aley, which opened in 1999, the husband and wife co-owners Nazih and Mai Metni proudly note that their vineyard is in an area slowly recovering from sectarian conflict. Since they started a decade ago demand has steadily increased, although this year they admit they have been affected by the recession, as 70 percent of their exports go to the US. But Mai Metni is confident wine is a sustainable export, particularly as there has been a steady increase in foreign demand for their wine ever since they opened. “I’d like to see a hundred wineries open in Lebanon. We need exports for our economy to grow. What else are we going to export? Oil?”

New grapes for an expanding palate

But as demand grows, vineyards continue to open. In April, the Saade Group, a Beirut-based family business that primarily works in real estate and tourism, unveiled their new wine, Marsyas. In November, they will introduce their new Syrian wine Bargylus in the coastal province of Latakkia. Both wineries use their own grapes and are being bottled according to international standards. This is the first time that a company opens a winery in both Lebanon and Syria, another sign of Lebanon’s increased stability.

“Wine is good for Lebanon’s reputation,” says Sandro Saade of Saade Group. “The downside is that there needs to be more regulations that ensure quality.”

For now, most of Lebanon’s commercial wineries buy the majority of their grapes from farmers instead of using those grown at their vineyards.

“Lebanon’s wineries should start investing more in their own vineyards,” says Saade. “All of the wineries have done a good job so far. But we can take the wine-making sector to the next level.”

Despite the competition between Lebanon’s various wineries, Saade hopes to see more cooperation between them.

“What is a pity is that nobody is coordinating,” he says. “In Lebanon, we have everything on our side, and we’re not exploiting it. We need a common vision for the country.”

Unfortunately, right now, he says, “There’s a lack of strategic thinking in Lebanon for everything, including wine. There’s no Lebanese flag on Lebanese wine.”

But this lack of national unity might not be entirely the fault of Lebanon’s wineries.

In the summer of 2006, a National Institute of Wine was slated for opening but has been put on hold ever since the July 2006 war. The purpose of the institute, which would be a partnership between the ministry of agriculture and the private sector’s Union Viticole du Liban (UVL) would be to study wine and enforce regulations to protect the quality of Lebanese wine.

But as the project continues to get delayed, so wanes the momentum to get it started.

The UVL, which is supposed to represent all of Lebanon’s wine producers has only managed to attract 11 wineries, at least two of which have left the union over the past two years. They cite the group’s lack of vision and unity.

 Growing the fruits of success

However, despite the challenges facing Lebanon’s wine industry the ministry of agriculture sees it as a success story. “The wine industry is better than others in Lebanon. There’s competition,” says Mariam Eid, head of the agro-industry department at the ministry of agriculture. “You can’t compare it with olive oil, where they still use out-of-date technology. Wine has an important future in Lebanon. I hope the institute will open soon.”

Other people see the future of Lebanon’s wine industry in “enotourism.” Over the past year, Lebanon’s producers have stepped up their efforts to attract tourists to their vineyards, although it appears to be without coordination. The Saade Group is planning a hotel and wine museum in the Bekaa Valley, both slated to open in 2011. Kefraya says it is also opening a wine museum, which it expects to open next year. Carlos Adem, owner and founder of Chateau Faqra, a boutique winery in Kfardebian, is building a small hotel near his vineyard, which he plans to open next year.

This appears to fit well with a recent initiative by the Ministry of Tourism to promote rural Lebanon.

“Wine tourism is a part of agro-tourism in Lebanon,” says Nada Sardouk Ghandour, general director of the Ministry of Tourism. “When people see the wine label, they also see the name of the village.”

The home front first, then the world

But with all of the recent international recognition of Lebanese wine, it’s the Lebanese themselves who might be the ones preventing their local wines from receiving the domestic praise it deserves.

“In Lebanon there’s a snobbish attitude that everything imported is better,” says Ghosn of Massaya. “For them, it’s not always about pleasure. It’s about having French wine at the table so they can say, ‘I drink French wine.’”

Carlos Khachan, a Lebanese wine expert who leads tours of Lebanon’s vineyards with his group Club Grappe, agrees. He believes that if the Lebanese themselves have confidence in their own country’s products, non-Lebanese will follow suit.

“[The late industry minister] Pierre Gemayal told people to buy national products. If you love your country, you should consume its products,” Khachan says. “Why not apply that to wine?”

If Lebanon is to succeed in attracting more domestic consumption it will have to do so soon as tariffs on foreign wine have been decreasing, making the domestic market even more competitive. Several years ago, tax on foreign wine in Lebanon was 70 percent, but it is now only 40 percent.

“They keep on reducing taxation. In two years, there will be no duties [on foreign wine coming into Lebanon],” predicts Adem. “Lebanon will face more international competition. But this will make us produce more high-quality wine. With taxes getting lower on imported wine, we’ll have no choice.”

Still, to really get Lebanese wine on the map, it will take more than good quality, but also good name recognition. Michael Karam, author of the book “The Wines of Lebanon” agrees that “Lebanon will never make a genuine impact on the international wine market unless it embarks upon a proper generic campaign. By that I mean selling Lebanon — not Musar or Kefraya or Ksara or Massaya — as a wine producer.”

If Lebanon does not address this soon, he believes Lebanese wine “will remain nothing more than an ethnic curiosity, living on the reputation of Chateau Musar, which only appeals to a few devotees and does not represent the new generation of Lebanese wine. We are being left behind.”

He notes that even Brazil, which is not known as a wine-producing country, has a national wine campaign.

“We need to take on the world with our six million bottles, but if we don’t act soon we will have missed the boat,” says Karam.

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Editorial

The silver lining of crisis

by Yasser Akkaoui
written by Yasser Akkaoui

It’s that time of year again, but this time the party hats and horns are being distributed with a bit more caution than in previous years. Depending on who you listen to, the world is sinking into an economic crisis that could match the great depression that followed the Wall Street crash of 1929.

Certainly as I sit here in Dubai, writing this last editorial for 2008, the buzzword is restructuring. Every company is doing it in preparation for a 2009 that is yielding little in terms of economic and financial outlook. This was an economic crisis that began in America and it is the ripples of this crisis that are now beginning to lap the shores of the Arabian Gulf. Whether it becomes a tidal wave remains to be seen but cautious businessmen and financiers are battening down the hatches nonetheless.

This current restructuring will be accompanied by the inevitable layoffs that will see the departure of many skilled people from countries — Lebanon, Jordan and India — with a tradition of exporting human talent, depriving those economies of much needed remittances.

The potential upside to this rather dark development is that they will no doubt eventually be deployed to areas of fresh opportunity, such as Iraq, a nation that Executive has earmarked for considerable growth in 2009. It is a country rich with oil, minerals, agriculture and an educated workforce. It is high risk, but high-risk means high reward. As companies in the Gulf try to speculate by how much revenues will drop in 2009 – 10%, 20% or even 50% — such opportunities cannot be scoffed at.

Executive knows a bit about crises. It knows that publishing is not just about the good times when the ad revenues come in thick and fast. We stood by our readers during the 2006 Lebanon war and now we do not flinch in standing by our loyal subscribers across the Levant, the Gulf, Sudan and the Maghreb in this latest test of will and character.

Executive reiterates its commitment to the private sector, be it, banking, real estate development or trade and encourages the tireless pursuit of sustainable development. It is in these areas that we will channel our own energy; for the passion of those with the vision to achieve new goals will outlast even the gloomiest economic downturn.

Yasser Akkaoui Editor-in- chief

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