Banking & Finance

BLOMINVEST‘s review of Lebanese banks

by Stephane Abichaker, Nicole-Clémence Khoury & Nicolas Photiades
written by Stephane Abichaker, Nicole-Clémence Khoury & Nicolas Photiades

In June 2008 BLOMINVEST published a review of Lebanese banks as part of its Global Equity Research Report series. The following is a summary of that report.

The Lebanese banking sector has always been at the core of the domestic economy with Lebanese banks playing a major role in the financial recovery of the country and carrying almost all of the latter’s financial intermediation activity.

• Lebanon enjoys high banking penetration rates with a deposits/GDP ratio standing at 2.82x in 2007e compared to 1.15x for the emerging markets. This is mainly due to the continuous inflow of funds from Lebanese expatriates which is driven by two important factors: the support of the international community as proven by the latest Paris III conference, and the strong track record of no default.
• The degree of fragmentation of the banking sector has been decreasing along with a fall in the number of active banks. Currently, 66 banking licenses are active out of which two thirds are Lebanese and 77% are commercial.
• This landscape results from foreign divestments, liquidity surpluses in the GCC countries, local diversification of business lines with an increasing focus on private, investment, and Islamic banking activities, and finally the BDL policy of supporting M&A activity between banks to avoid liquidation costs and to improve the efficiency of the sector as a whole. For instance, since 1997 around 30 banks were acquired or merged with the acquisition of BLC by Fransabank, with July 2007 being the most recent consolidation transaction.
• The 11 largest banks account for nearly 80% of the total sector’s deposits with BLOM and AUDI, the two largest banks, showing clear signs of pulling off the rest of the group due to higher assets, profits and greater geographical diversification.
• Despite immature local capital markets, the Lebanese banks were amongst the first banks in the Arab world to access the international capital markets by issuing GDRs, preferred shares and Eurobonds, reflecting comfortable financing flexibility.
• The major Lebanese banks have been seeking not only local but also international expansion in order to enhance their profitability, diversify their earnings’ sources and assets, increase their product range, and in time of crisis allow the channeling of funds to safer zones. Geographical expansion is also seen as essential for risk diversification.
• Traditionally, Lebanese banks have been mainly family-owned but the need in the last 15 years to raise capital via both the local and the international capital markets has diluted families’ stakes, albeit without affecting significantly their managerial control.
• The main driver of the Lebanese banks’ profits is interest income that arises mainly from inter- bank deposits, allocation of funds into mainly Lebanese sovereign bonds and treasury bills, and customers’ loans. Profitability indicators have been improving in the last few years, although the still limited diversification of income is causing return on assets and return on equity ratios to still lag regional peers. However, regional expansion is expected to promote earnings’ diversification by increasing non-interest income, and reducing the reliance on domestic income in the near future.
• Despite the cost burden that arises from the banks’ expansion strategy, Lebanese banks have managed to control their operating expenses, with BLOM leading in terms of operating and management efficiency.
• Amid the political and economic turmoil following the assassination of PM Rafic Hariri and the July 2006 War, customer deposits, the main source of Lebanese banks’ funding, grew significantly — over the past six years reaching $72 billion as at year-end 2007.
• Lebanese banks remain exposed to the Lebanese sovereign risk as around 25% of the banks’ balance sheet is accounted for by lowly rated government bonds and treasury bills denominated in both USD and LBP (Lebanon is rated B3 by Moody’s and B-1 by S&P). The high risk weighting on these government securities (as a consequence of Basel II regulations) is somehow mitigated by the high yields carried by these government securities and by the strong track record of the government in repaying principal and servicing debt. Moreover, the Central Bank has continuously enjoyed implicit support from GCC governments in maintaining high foreign currency reserve levels, and hence keeping the local currency stable.
• Loans account for a relatively low percentage (22% at end 2007) of the banks’ consolidated balance sheet. This is due to the lack of quality borrowers and to the limited ability of corporates to adequately service debt. However, NPL coverage by loan loss reserves is improving across the sector, with the smaller banks appearing to be in greater difficulty on that front than their larger peers.
• Capital adequacy of banks has improved significantly over the years with consolidated equity for the sector accounting for 7.6% of total assets as at year- end 2007. The larger banks in particular have a solid track record in capital raising within the international capital markets and have had a strong organic capital growth over the last decade due to solid profitability.

Stéphane Abichaker, Nicole-Clémence Khoury, Nicolas Photiades work at the equity & fixed income research unit of BLOMINVEST Bank.

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Banking & Finance

Construction – Cement syndicate

by Executive Staff
written by Executive Staff

What could prompt the cooperative efforts of a Lebanese bank to engage a French building materials company and 15 additional regional and international financial institutions from all over the globe and seal a $380 million deal? Apparently, cement is the glue behind one of largest private financing syndicates for industrial projects in the Levant.

“The current construction boom in the Middle East which has increased the consumption of cement, combined with an acute shortage in the region, has driven cement prices to unprecedented levels. Our region, and Syria in particular, has a shortage of about 4 million tons per year,” explained Ramzi Saliba, General Manager of Bank Audi’s corporate banking division. The Syrian cement deficit comes alongside an ongoing housing crisis and lack of raw materials, a result of decades of nationalization and the centralized economic policies under the ruling Baath Party.
For decades cement production remained a state monopoly in Syria. However, recent circumstances have prompted the Syrian government to open the sector to private investors, and to compensate by introducing a limited liberalized economy. “Contrary to common belief, Syria has modernized and liberalized its laws considerably in the last few years,” Saliba confirmed. “That, coupled with the explosion in construction has made cement a very attractive sector for Bank Audi, now and for years to come.”
Bank Audi, coordinator and leader of the syndication, is among the first banks to set up in Syria after the government allowed private banks five years ago. “Private banking in Syria is still in its infancy stages, and it is a natural place for Lebanese banks to take hold of opportunities, more so than any other country. We know the market well, we know the people well, many large Syrian names and corporations have been the clients of Lebanese banks for 40 years, so we know the business very well,” Saliba said.
As far as Bank Audi’s interest in putting together a bridge loan in Syria, Saliba outlined that, “This deal was in line with the regional expansion strategy of Bank Audi, helped by several factors. The main reason was the shying away of larger international financial institutions on large deal because of the economic crunch that’s taking place in the US and Europe. That gave us a really great chance.”
Capitalizing on the window of opportunity, Bank Audi pursued Egypt’s Orascom Construction Industries. Saliba detailed the progress of the operation: “We had started discussions with Orascom Construction, OCI, and in the interim, Lafarge bought OCI’s cement business. We asked them to carry on with the discussions, and they saw how far into the deal we’d gotten, so they continued working with us; it worked out.”
Global leaders in building materials, French cement maker Lafarge boosted its market position to No. 1 in the region after acquiring the cement business of Egypt’s Orascom Construction Industries at the close of 2007. Having secured the deal with Bank Audi for its subsidiary, Syrian Cement Company, Lafarge Group will now continue its expansion in the Middle East with the setup of a greenfield cement plant near Aleppo.
The new plant is scheduled to begin production in 2010, and will have the capacity to generate 2.9 million tons per annum. This should help put Syria on its way to meeting its cement demands, which are expected to grow drastically from 7 million tons per year today to around 18 million tons in the next three years due to the surge in real estate, construction, and tourism development.
The considerable size of the bridge loan, which stands be replaced after 18 months by a longer-term loan, and more importantly the union of so many diverse investors serve as clear indication of Bank Audi’s notable regional role. “It’s the first such transaction done by a Lebanese bank, in terms of region or even international financing opportunities,” Saliba said. “It’s the first, and certainly not the last for Audi, and I hope for other Lebanese banks who may be contemplating an effective regional role.”

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Banking & Finance

Private equity – An absence of exits

by Executive Staff
written by Executive Staff

On any given day, a scour of Middle East business news reveals that private equity in the region is ‘hot’, owing to favorable conditions at the macroeconomic level or data on fundraising and investment, which seem to be getting bigger. Watchers of the asset class meticulously track which funds are looking for which companies and which opportunities and sectors are attracting the most private equity. The asset class’ behemoths and large-sized deals in infrastructure and other industries dominate headlines. On the surface, the coverage of the asset class looks healthy.

However, the component of private equity which is less covered than capital raised and investments is the arm of the asset class which offers the best indicator of performance, the exit. Without appropriate exit data, it has been difficult to see what trend is following the explosive growth in the other sub-data available on private equity, beckoning the question: whither to the exits in Middle Eastern private equity?
A dearth of evidence continues to pervade estimates, but some figures have indicated that only 5-10% of private equity deals in the Middle East and North Africa (MENA) region have been exited. With private equity comprising 45% of aggregate investment in the United Arab Emirates (UAE) and 35% in Saudi Arabia, the relation between money invested and return on investment can indicate several things that a purely deal-side analysis cannot, including the asset class’ performance, potential pitfalls, and lagged performance to see if larger funds are or are not commensurate with larger internal rates of return (IRRs), the derivate used in calculating the success of funds, with ranges at 15-20% on the lower end and up to 100% in more lucrative examples. Because of some poor performance in regional bourses, private equity houses seem to be holding investments for a bit longer, waiting for appropriate exit options. With funds raised, investments complete and deals outstanding, limited partners (LPs) are going to starting demanding a return on their investment within the appropriate bounds of the fund timelines.

M&A doesn’t count
Distinct merger and acquisition (M&A) activity lies on a separate sheet from pure private equity. In M&A, a buyer bids and acquires firms to enlarge businesses both horizontal and vertically. In the case of horizontal M&A, a firm might be a competitor, but vertically, the acquired firm is a complementary entity. In the instance of a horizontal M&A transaction, a hotel chain might acquire a competitor to enlarge business or grow operations in new markets, be they different countries or a higher or lower-end of the business. In a vertical M&A transaction, the hotel chain might purchase a food services group to bring more of the hotel’s daily operations in-house. The M&A as a distinct transaction differs from the bread and butter type of private equity transaction where firms are first acquired and later exited rather than incorporated as part of a firm’s main business lines.
What then do the longer partnerships between private equity players and firms indicate? There are several speculative guesses, including the disparity in vision which could entangle maneuvering by management, making a firm reluctant to realize an exit. Another possibility is the poor exit environment, while still another is the possibility that private equity funds backed by institutional investors such as sovereign wealth funds (SWFs) are bound to the wishes of these LPs and blurring the pure business thought of profit and yielding to the ‘what’s best’ scenario for firms under management.

Trade sales
Some private equity exits have come in the form of the trade sale. This type of exit is viable for the region’s numerous family-owned firms, who would like to retain control after beefing-up the best practices instilled by a private equity firm. In June, 2008 the Foursan Group exited the Abdali District in Jordan to new investors via a trade sale, while Abraaj Capital exited both EFG-Hermes and the Maktoob Group via this route in 2007. Additionally, Injazat Capital exited its stake in Atos Origin Middle East, through a trade sale exit for the GCC-based technology firm.

Secondaries
The secondary market has given a new dimension to the private equity business. It is heralded as a way to unload a firm to another private equity player and will doubtlessly be used while more traditional exits like the initial public offering (IPO) route remain weak. The largest secondary transaction was Citadel Capital’s exit of Egyptian Fertilizers Company in June 2007 and while others have not been reported as secondary sales, the private equity to private equity nature of an investment is one way of gauging the exit type.

Strategic sales
The strategic sale of a firm to a related firm covering the same or similar industries is another possibility for MENA firms and might be the destination of most unreported or disguised exits. In June, the Foursan Group exited Arab Orient Insurance Co., a Jordanian insurance provider, to Fairfax Holdings, an insurance group looking to beef up the scope of its services.
Fairfax Holdings is a Western firm that acquired Arab Orient Insurance Co. for one possible reason: to expand Fairfax Holdings reach into a new market in the MENA region. With an ever growing population consuming ever more goods, firms servicing large markets with great potential will attract the likes of more Western firms looking to establish an arm in the region.

IPOs
The most traditional of exit options for private equity firms — the IPO — has not be used by firms reticent to face the valuation of a firm in the open market. According to Private Equity International’s survey, 33% believe that valuation and control are the greatest threats to the growth and development of the private equity industry in the Middle East while 25% believe it is non-initial public offering exits. In 2007, securities markets in the MENA region mimicked the situation globally and reported fewer groups in 2007 than year to 2006, when the turmoil on capital markets began. Although Q1 2008 performance remained poor, the situation as a whole for 2008 remains positive. For instance, the Saudi Arabian stock exchange has grown from a low in July 2007 to remain up over 25%. Regional bourses have followed similar trends.
However, a less sanguine conclusion is drawn vis- à-vis regional inflation rates, which can deteriorate investments and the value of companies choosing to list restructured operations now. In an approximated situation where capital market indices are achieving 20% annual growth in capitalization figures, double digit inflation can prick the balloon of optimism.

Large time horizons
With private equity firms tabling the immediate or traditional exit, the business is taking on longer time horizons for investments. The asset class’ main driver in the MENA region is currently infrastructure, which, by the nature of the industry, involves longer holding periods between investment and exit.
Initially evoked to describe pipes, roads, and ports, the term ‘infrastructure’ has come to include a myriad of sub-industries, including downstream industries and suppliers as well as networks involved in social infrastructure, namely the hospitals and schools being built to care for the populations of new cities and the growth dynamics associated with large Arab families.
Tertiary educational institutions, from new universities to research centers, are additionally accommodating the jobs to be demanded when the under-18-year-olds turn of age. For 51% of those surveyed by Private Equity International, infrastructure will attract the most investment interest in the next twelve months, followed by energy in a distant second at 20%. The two industries involve longer time horizons owing to the scale of deals as well as the timeline to realize results.
Private equity fits into the equation by its ability to recapitalize the infrastructure industry. Statistics have accounted for infrastructure projects comprising over 60% of new funds raised by regional private equity firms. New funds are sprouting up to bolster the demand. Al Khayyat, Rasmala, and RHT recently acquired a 13% stake of Taaleem, an educational specialist, which increased Al Khayyat’s stake in the firm to 25%. Taaleem is not the only education firm seeking or gaining capital to finance growth plans. Online educational resources, private educational institutions, books, and universities have all benefited from seeking out private equity growth capital, especially as many are battling for regional supremacy, moving beyond conquering just Riyadh and Jeddah to include operations in Abu Dhabi, Kuwait City, and Manama.
With longer holding periods and new industries in which private equity players are investing, the asset class has taken on a flavor distinct to the region. Two reasons come in play to understand this dynamic. The first includes the aforementioned style of partnership in the region, with LPs consisting of SWFs in addition to individual fund backers. Sovereign wealth does not expect the same returns on investment and deals can be political to an extent in that GCC SWFs partner with MENA-centric private equity houses to strengthen the business climate in the region. An additional factor less thought of is the need for strong financial services houses. Because private equity is the quintessentially efficient type of investment, the savoir faire of industry experts is useful in structuring the longer-term outlook of firms involved in infrastructure or energy.

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Network cooperation between telecom competitors

by Bahjat el-Darwiche & Louay Abou Chanab
written by Bahjat el-Darwiche & Louay Abou Chanab

Most recently, two fierce Italian telecom competitors with pending legal and regulatory claims resolved their differences and decided to share infrastructure. They are now jointly planning the rollout of their Next Generation Networks and they adopted a cooperation model open to all interested operators. This shift is a direct result of the need to focus on commercial offering and the drive to commoditize telecom networks.

This trend is growing in both developed and developing markets. In the Middle East and North Africa (MENA) region today, telecom networks are almost in every corner around us, yet the number of telecom operators is set to grow further. Policy makers and regulators understand the positive impact a balanced number of operators can have on competition and consequently on the economy as a whole. This raises a number of questions to answer: are investors still interested to fund more networks? Will those networks be profitable? And are there still enough available locations to deploy those networks without congestion risks?
Developed markets and recently developing markets have reached the conclusion that sharing telecom infrastructure can yield positive outcomes if managed properly. It mainly helps achieve the following:

1. Rationalized investments
It is not a hidden secret that building telecom networks is a costly activity. “Investment studies conducted during the early 3G hype in Europe put the average investment per 3G subscriber at around $500,” noted Bahjat El-Darwiche, a principal in the communication and technology practice with Booz & Company. “Sharing the cost to the 3G infrastructure buildup can generate savings of up to 40%,” he added. Sharing infrastructure can save critical investments thus significantly improving the profitability of the concerned operators

2. Develop new revenues
For incumbent operators in markets under liberalization, offering network components to competitors can generate new sources of revenues that would offset any potential losses from retail competition. “Sharing infrastructure can exceed 15% of an incumbent operator’s total revenues,” said Louay Abou Chanab, a senior associate in the communication and technology practice with Booz & Company.

3. Release capital
Competing operators, incumbents or new entrants are looking to diversify their revenue base and hence invest in different ventures locally or abroad. Sharing infrastructure allows all market players to release badly needed capital to invest in strategic ventures. In the case of India, $4 billion can be saved by 2010 if at least two operators share the needed 240,000 towers to improve coverage. The Indian government is even subsidizing towers should three or more operators decide to share it.

4. Improve competition
Infrastructure sharing has a dual impact on competition. On the one side it decreases entry barriers for new operators. Interested players will find it more appealing to enter that specific market given the ease with which they can start offering commercial services. From another perspective, operators now have less pressure to deploy networks and hence can shift their focus to innovation and better customer service. Both factors positively impact competition to the benefit of end-users.

5. Optimize use of scarce resources
Policy makers and regulators struggle with allocating frequencies to new entrants; municipalities also struggle with rights of way to allow the deployment of fixed networks. “Infrastructure sharing can alleviate some of the pressure we now have on allocating scarce resources to multiple operators,” said El-Darwiche. This optimization also serves to reduce the negative impact telecom networks may have on the environment.
A wide variety of infrastructure sharing forms can be leveraged by operators, policy makers and regulators. Sharing can focus on passive or active components of the network. For clarity, passive components are those that do not carry any electronic signals and can include mobile towers, ducts and even electric supply; active components on the other hand carry electronic signals and can include leased lines, switches and antennas.
In recent times, many innovative network sharing solutions have been implemented on both fixed and mobile sides. Stokab for instance, owned by the city of Stockholm, is building and operating a fiber-optic network in the city of Stockholm that is open to all service providers on equal terms. Stokab started in 1994 and now has coverage in over 27 municipalities in Sweden and is selling access to over 60 operators including the incumbent.
On the mobile side, a good example is one where Orange and Vodafone both agreed to share their respective networks in the UK and Spain. While each operator will still manage his own traffic independently, the UK sharing agreement will reduce capital and operating costs by up to 30% and in Spain it will reduce number of sites by around 40%.
Yet, the success of infrastructure sharing highly depends on key success factors. At a minimum, regulators should consider publishing certain safeguards as is the case in Jordan and Nigeria. Both countries have detailed certain behavior on the use of capacity, namely that it should be used on a first come first served basis and that any unused capacity should be returned.
Regulators should also consider pricing regulations for certain forms of infrastructure sharing like unbundling or site sharing; ideally, prices should be cost-based. What regulators should also aim to achieve is proper enforcement of the policy. It is foreseen that disputes will arise when sharing infrastructure. Regulators need to be ready to introduce regulatory compliance measures or intervene to resolve disputes.
In summary, it is important to seize the opportunity presenting itself today in the MENA region. While we have some successful examples, like in the case of Morocco where unbundling grew the broadband market by over 19% within six months, we need to maintain the momentum going forward. An incentive-based regulatory regime might significantly contribute to developing regional telecom markets and, in turn, the overall economy while rationalizing investments.

Bahjat El-Darwiche is a principal and LOUAY ABOU CHANAB is a senior associate in the communication and technology practice at Booz & Company

 

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Banking & Finance

The fallacy of projections

by Imad Ghandour
written by Imad Ghandour

In September 2006, the IMF in its Global Economic Output report projected that the US will be “the engine of global economic growth despite some uncertainty in the housing sector.” In its July 2008 report, less than two years later, the IMF revised downward (again) its projections for US economic growth to 1.3% (from 3.2% and 2.2% in the previous two semi-annual reports). The world’s most sophisticated economic forecaster failed to project the size and impact of one of the most serious financial crises in our modern history on the most monitored economy, although that event was on the radar screen for two years.

Recently I spent a few hours with a colleague of mine trying to “fit” the actual financial results of a company we had invested in into the model we had built for that company prior to that investment. The bottom-line projections were close to the actual results, yet we couldn’t put the right parameters in the model that will get us even close to reality.
It was an intellectual exercise, but at the end I had to pause and think: if a model cannot predict the past, how on earth were we confident that it could predict the future?
Make no mistake, this is a universal problem and is not a result of any individual incompetency.
Thousands of financial analysts pour their energy into predicting the “fair” value of stocks and other financial assets. They calculate with pinpoint accuracy the price of the stock after going through the mundane task of calculating things like future revenues, overheads, profits, discount rates, betas, comps, etc. Yet, with all the sophisticated modeling, I have rarely seen a numerical analysis explaining or predicting the “actual” market price of a stock. Furthermore, research has shown that actual prices do not necessarily gravitate towards “fair” prices, as the theory behind all this analysis suggests. In other words, the thousands of “fair” value models published by investment banks invariably fail to predict the present (or the past) and are unlikely to predict the future.
Yet we rely on projections to give us confidence in our decision. No investment is done in the modern financial world without a model. No model is without future projections. We project profits in 2015 to be $56,405,383.34, yet the only fact we can be sure of is that they will not be this number. We base our decisions on such numbers, and we focus our attention on things like the IRR as the analytical summary of thousands of assumptions and projections. We may reject an investment because the model calculated an IRR of 29%, while we all know that the same model with a little bit of subjective tweaking and twisting may give a magical boost to the IRR to, say, 39%.
Prior to inventing Lotus 123 and its successor MS Excel (and before I was born), investors relied on qualitative assessment and simple calculation to make their investment decisions. Did they take wrong decisions? Does a 1000 line model give an edge over such “unsophisticated” investors?
In his inspiring bestseller The Black Swan, Naseem Taleb skillfully argues that we simply cannot predict the future because “significant yet improbable events” (he called them “black swan events”) are the ones that will shape the future of individuals, countries, companies, and economies. We simply cannot predict or time or imagine such events, and we definitely cannot project their impact (hence the IMF miscalculation).
Projections are useful to the extent they are used as an analytical tool for possible future options. They may bring illusionary confidence, but reality will surely be different, especially in private equity investments that span several years. Embracing this fact as we price, negotiate, structure, and manage any investment is the key to sustained successful investment.

Imad Ghandour is the chairman of Information & Statistics Committee—Gulf Venture Capital Association

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Capitalist Culture

Rule of law – Deferred judgement

by Michael Young
written by Michael Young

It was an enlightening coincidence that the former leader of the Bosnian Serbs, Radovan Karadzic, was arrested and sent to The Hague shortly before Russia dispatched its army into Georgia. Where the first event suggested some kind of imposed benchmark of international justice and behavior was possible, the second made it clear we shouldn’t go too far in our expectations.

The Georgian conflict has long been a complicated one, and Russia is no guiltier than other countries, such as the United States, in respecting international law only when it favors its interests. But in the hours after its invasion of Georgia, it was telling that Russia sought to cobble together a legal case accusing the Georgians of war crimes in South Ossetia — rather rank hypocrisy given that Russia’s army targeted civilian areas in Georgia, but Moscow apparently felt the need to offer a legal cover for its actions before the international community. Effectively the Russians twisted themselves into a pretzel to make it seem that they adhered to international legal and human rights norms.
So while the world may be a long way away from an effective and comprehensive system of international justice, Karadzic’s arrest, however, showed that once institutions are actually set up to affirm the rule of law, to circumvent these and their implications can be difficult.
The Hariri tribunal, which is currently being established in The Hague as well, is a case in point. Much has been written of late suggesting that the tribunal is dead, that its prosecutor has no case, that the system of international justice has been shown to be weak in the face of the political interests of individual states. That may well be true in some regards. The former United Nations investigator, Serge Brammertz, who just so happens to be Karadzic’s prosecutor today, clearly did not progress in his investigation as rapidly as he could have, earning him the biting criticism of his predecessor, the German judge Detlev Mehlis.
However, the pessimism may also have to be qualified. The international community and the UN may behave in the most cumbersome ways, but once they go to the trouble of setting up something like the Hariri tribunal, they usually have to give it some meat and meaning, or risk considerable embarrassment and antagonism. That’s why the Hariri tribunal — despite all the doubts surrounding it and the need to lower expectations in terms of who will be directly accused — is nonetheless likely to function and create far more waves than anyone expects. Once the tribunal opens up one sensitive door, it will likely be very difficult to control what comes afterward, and what other doors are opened.
In many respects that is a lesson about the possibilities of international justice, one pillar of a capitalist culture that seeks the amelioration of human freedom in the context of open minds and open markets. Justice doesn’t usually end up working because states or politicians want to improve the world (even if that motive can exist for a time), but because states sooner or later have a selfish interest in accepting justice.
That was certainly why Karadzic was handed over to the tribunal responsible for the former Yugoslavia. With Serbia looking to enter Europe, and the fact that the continued freedom of Karadzic and his collaborator Ratko Mladic presented a major obstacle to this, the Serbia government apparently weighed the costs and benefits of allowing the two men to be protected by certain power centers in Serbia. The conclusion was that protection wasn’t worth it, at least in Karadzic’s case.
That situation does not exist in Lebanon, or at least not yet. If anything, some might argue, the Syrian- Lebanese rapprochement effected in August may make any future blame directed against Damascus by the tribunal problematic for Lebanese interests, since relations between Lebanon and Syria might suffer. In other words Lebanon may have no advantage in seeing the Hariri tribunal go through. Perhaps, or perhaps the precise opposite may be true: If Syria was involved in Hariri’s elimination, as many believe, than what kind of interest can Lebanon have in pursuing a relationship with a regime that murdered a former prime minister? And if Syria is innocent, then it has nothing to fear from the tribunal.
Whichever answer ends up being the correct one, the superficial assumption that “justice always prevails” should be discarded. The point of international justice is not that it is invariably satisfied, but that its burdensome imperatives, even when imperfectly applied, often end up shaping states’ foreign behavior. And that opens up spaces forcing states to sometimes go along with an international consensus, even if they don’t care to do so. There is no certainty here, no guarantees, not even a chance to predict that norms of justice will gradually spread over time to encompass most states. Only the ability to say that some norms of justice are more likely to be applied today than previously.
It’s not much perhaps, but it’s no little thing either.

Michael Young

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The burden of luxury and the joy of taxes

by Zafiris Tzannatos
written by Zafiris Tzannatos

The July 2008 issue of this magazine was dedicated to “Luxury Economics,” focusing on the “Middle East’s appetite for surprising, exotic and authentic experiences.” A separate article in the same issue did not fail to note the move in the UAE to introduce a value added tax. Does luxury increase “happiness”? And does taxation decrease it? Paradoxically, the answer to both is “no” according to some new views. In a nutshell, luxury, once tried, becomes necessity and taxes can reduce materialism — a common theme in many religions — and help citizens preserve a healthy work/life balance. Let us examine each assertion in turn.
Historically, economists have related well-being to the level of incomes while development theories typically stress economic growth as the ultimate objective. The Gulf Cooperation Council (GGC) economies score well on both counts. The recent hike in the international price of oil has been associated with high government revenues and a corresponding fast rate of economic growth. And citizens have not only enjoyed traditionally high levels of incomes but, under popular pressure, recently managed to get unprecedented salary increases for reasons unrelated to their work effort and productivity.
However, it has been found that once wealth reaches a subsistence level, its effectiveness as a generator of well-being is greatly diminished — as if a “hedonic treadmill” were in operation: you keep moving just to stay in the same place. In other words, aspirations increase along with income and, after basic needs are met, relative rather than absolute levels of income influence well-being (“happiness”). If this is to be accepted, distributing the oil revenues across the population in some uncritical or untargeted way may have only a temporary effect on “happiness.”
The emerging theory of “happiness economics” aims to understand what determines the well-being of people. The theory has consequences for understanding happiness both as an individual as well as a societal goal. “Happiness economists” aim to change the way governments view well-being and how to allocate resources. And a new concept has been developed, the GNH (Gross National Happiness) that is broader than the conventional GNP (Gross National Product) or GDP (Gross Domestic Product).
If income alone is a poor approximation for happiness, what should economists take into consideration? The four pillars of GNH are the promotion of equitable and sustainable socio-economic development, preservation and promotion of cultural values, conservation of the natural environment, and establishment of good governance. What should one then look out for?
First, social comparisons. Happiness is derived from relative income as well as from absolute income. If everyone gains purchasing power, some may still turn out unhappier, if their position compared to others becomes relatively worse — as the case is with recent universal handouts given by the GCC governments. This effect does not necessarily turn economic growth into a zero sum game entirely, but it can diminish the way people perceive the benefits of their own hard work.
Second, adaptation. As people get used to higher income levels, their idea of a sufficient income grows with their income. In this case, if people fail to anticipate that effect, they will feel they work more than is good for their happiness.
Third, changing tastes. Individual preferences are not constant. They are increasingly mutable, shifting constantly according to the latest fashion, adapting cultural norms and what neighbors do. In turn, the perceived values of one’s accumulated possessions are subject to depreciation, ultimately having a negative effect on happiness.
All these considerations make sense. Humans adapt, often rapidly, to their current situation. They become habituated to the good or the bad. They are sensitive to the status they have relative to what they perceive others enjoy. More generally, despite the fact that external forces are constantly changing one’s life goals, happiness for most people is a relatively constant state. Regardless of how good things get, people report about the same level of happiness over time.
This has led some economists to argue that taxes can serve another purpose besides paying for public services (usually for public goods) and redistributing income (usually to the poorer citizens). This additional purpose of taxes is to counteract the cognitive bias that causes people to work more than is good for their happiness. That is, taxes could help citizens preserve a healthy work/life balance.
In short, money does not add much to happiness: Lottery winners are an example as, within a year, they are said to return to their former happiness level. And those handicapped in, say, a motor vehicle accident, usually return to former happiness levels, despite their loss of function. Some studies have suggested that a sense of “higher calling” or “purpose” can add to someone’s happiness. If so, perhaps the development of a national vision and the introduction of taxes in the GCC countries may cause the citizens to look outside themselves and become happier — even though they may consume fewer luxury goods.

Professor Zafiris Tzannatos is Advisor to the World Bank and former chair of the Economics Department at the American University of Beirut. The views expressed are his own and do not necessarily represent those of the World Bank.

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Lebanon

Politics – The guillotine for Paris III?

by Executive Staff
written by Executive Staff

Afew months ago, a Lebanese politician from the parliamentary minority hinted at the possibility of cancelling the Paris III agreements of January 2007, during which some $7.6 billion destined to support major reforms in the Lebanese economy were pledged by the international community. But can the Paris III process really be reversed? And if so, what would be the consequences?

Nassib Ghobril, head economist at Byblos Bank, is of the opinion that, “the objections of certain political factions to Paris III that were recently reported in the press about the possibility of canceling Paris III can be put in the framework of political haggling. This particular statement was made during the negotiations dovetailing the ministerial declaration. They appear to be only political motivated and are thus far from being a realistic proposal.”
During the past two years, the overall implementation of Paris III, including privatization of key sectors, among them Electricité du Liban (Lebanon’s electricity company), the telecom sector and the Casino Du Liban, has been delayed, mainly because of security problems (a war, a one-year blockade, and a few skirmishes) and political dissensions that culminated in the total paralysis of political life with the cabinet’s work severely impaired by the total closing of the parliament, making it impossible to legislate and implement any new reforms for more than a year.

Paris or no Paris?
“These reforms, which are at the heart of Paris III, can only be implemented by a functioning parliament and cabinet,” said Ghobril, which means that in the absence of political consensus, the full implementation of Paris III might be postponed indefinitely.
The economist underlined, however, that the actual cancellation of Paris III is impossible as the agreement made in Paris in 2006 is backed by contracts signed by Lebanon and international governments and institutions, some of which have disbursed part of the funds.
Louis Hobeika, a professor at the American University of Beirut (AUB), tends to agree with Ghobril. He added, however, that although the Paris III agreement cannot be cancelled it may be modified or adapted to the new economic reality. “The scenario submitted to donors during the Paris III conference was certainly too optimistic when it came to certain aspects of the economy such as inflation, economic growth and government expenditures,” Hobeika explained. The AUB economist underlined that Lebanon’s needs in aid have also grown significantly since the deterioration of the economic situation in the last few years.
“One of the purposes of the Paris III conference was to allow the government to reduce its public debt, which since 2006 has increased significantly by $6 to $7 billion. Forecasts should therefore be modified accordingly,” Hobeika said. A recent Lebanon This Week report put the Lebanese public debt at $44.4 billion in June 2008, up from $40.37 billion in December 2006.
Hobeika explained that he was initially opposed to holding Paris III at the time for several reasons. The scenario put in place was overly confident and optimistic, forecasts were inaccurate and the local political context unfavorable. “Supporters of the Paris III conference argued at the time that it was imperative it should be held before French president Jacques Chirac, known for his personal relations with the Lebanese government, stepped down. The government could have asked for Arab funding and postponed the Paris III conference until the situation improved, without committing itself to unrealistic objectives which has reflected negatively on Lebanon’s image,” he argued. None- theless, he underlined that once a government committed itself to an economic program in coordination with international countries and institutions, its decisions can in no way be recanted by subsequent governments that come to power.
In addition to the impossibility of breaking international agreements, Ghobril pointed to the fact that many sections of the Paris III agreement have actually been implemented with disbursement of funds. According to the economist, some $4.5 billion have been committed by international donors, amounting to 63% of the total funds pledged during Paris III.
The Byblos Bank report highlights the different amounts pledged: while budget support agreements totaled $1.86 billion, equivalent to 39.4% of total signed agreements by the end of June 2008, private sector support amounted to $1.27 billion (26.9%) and project finance support to $1.03 billion (21.8%). “Project finance has witnessed the lowest disbursements as it requires parliamentary approval, while Central Bank support has been fully disbursed,” emphasizes Ghobril.

Able to swim without aid
Although the donors’ lifeline seems essential to Lebanon, it does not account for the country’s survival, which can be essentially attributed to its resilient economy. Hobeika believes that foreign aid bestowed on Lebanon will not insure the country’s resistance to economic shocks while implementing reforms related to budget deficit and the establishment of proper structure could.
Ghobril agreed, stating that, “Lebanon has been able to survive through extremely adverse conditions and repeatedly proven its economic buoyancy. Compared to other countries such as Jordan, which would suffer tremendously from foreign aid drying up, Lebanon relies on much smaller amounts of foreign aid.”
Putting forth indicators of Lebanon’s economic resilience, Ghobril discussed the recent relatively easy renewal of the treasury bonds that matured this year, in spite of the unstable Lebanese situation. “Byblos Bank jointly with BLOM manages a 500 million Eurobond that was recently twice over subscribed due to large demand. This proves that that Lebanon does not essentially rely on donors’ aid and foreign investors,” he said.
Lebanese investors are also dedicated to their banking sector and have proven numerous times that they will not exit the market at the first shock, as it has been the case in some countries in South America. In addition to the Lebanese state never having defaulted, the Lebanese banking system has proven repeatedly its ability to face one crisis after another.

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Lebanon

Development – Raising a new bourj

by Executive Staff
written by Executive Staff

Beirut seems in a building frenzy, and Bourj Hammoud, a suburb east of the city on the other side of the Beirut River, is no exception. Parallel to the highway in an area known as Sandjak, the municipality is to construct three residential-commercial towers, a multi-story parking and a public garden. The project has generally been well received as a sound attempt to upgrade the area and improve access to Bourj Hammoud. The remaining inhabitants however, await eviction and an uncertain future. They complain that the compensation by the municipality is not sufficient.

With an estimated cost of $20 million, the Sandjak project is an initiative from the municipality, which is quite a rarity in Lebanon. The local authorities bought the land from its Lebanese owners for some $2 million and are currently in the process of securing loans. The two-and- three-room apartments of up to 120 square meters, however, will not be available for just anyone.
“Bourj Hammoud is saturated,” said Raffi Kok Oghlanian, project manager at Sayfco Holding and deputy mayor of Bourj Hammoud. “A lot of young people are leaving. One of the goals of this project is to offer affordable housing to the newly-wed and young people born in Bourj Hammoud.”
When completed, the project is to significantly change the face of Bourj Hammoud, offering direct access from the highway, as well as ample parking facilities. This to great relief for Bourj Hammoud’s thousands of shopkeepers, as the area today is only accessible from two narrow entry points and suffers from endless traffic jams and a chronic lack of parking.
As always, however, progress comes at a price. While half of the Sandjak area has already been demolished, the other half is still standing, yet awaits a similar fate. The some 100 families still living there await a notification to leave, which is likely to arrive between 6 and 12 months from now. “I was born here 43 years ago,” said the owner of a small supermarket. “I now live in Antelias, but my parents are still here. Where can they go? The municipality gave us $13,000. The house next to us got $5,000. What can you do with that? ”

The good of the many
Oghlanian said he understands people’s grievances, yet added that the problem of a few cannot stand in the way of a project that benefits the whole community. What’s more, according to him, the municipality has done everything to soften the suffering of current and former inhabitants. “We asked the Lebanese court to look into the dossier and formulate a recommendation regarding compensation, according to which we paid everyone up to $15,000,” he said.
To understand the specific difficulties related to the Sandjak Project, within the wider context of urban development in densely populated Bourj Hammoud, it is necessary to have a brief look at the area’s history. Situated on the eastern bank of the now nearly waterless Beirut River, Bourj Hammoud is one of Beirut’s most distinctive areas, for several reasons.
Although having become more and more mixed in recent years, the quarter is still predominantly Armenian. The area was only developed from the 1920s onward when survivors of the Armenian Genocide (1915-1918) arrived in Beirut. Until then, it had been an area of fields and agricultural land dotted with farms. In fact, Bourj Hammoud is named after the only two-storey house that existed at the time, which happened to be owned by the Hammoud family.
The first development centered around four clusters: Marash, Cis, Adana and Sarkis. Apart from the latter, they were named after cities in what is today eastern Turkey, yet what Armenians refer to as “historical Armenia.” Gradually, as wood made way for concrete, the former refugee camp became an integral part of the Lebanese capital. In fact, with some 150,000 inhabitants cramped together on an area of some 2.4 square kilometers, Bourj Hammoud ranks among the most densely populated areas in Lebanon and the region.
Bourj Hammoud has also become one of Greater Beirut’s most popular shopping districts. The area offers a true high street, mainly catering for a middle class clientele. In addition, it is famous for its many jewelers, watch makers and goldsmiths. Finally, it is quite an industrious area as well. Inside the labyrinth of little alleyways, there are hundreds of textile, shoe and metal workshops, while heavier industry is located on the seashore.
“The first urban development in Bourj Hammoud took place on land donated to the Armenian community,” Oghlanian explained. “The land was divided in smaller plots, on which people constructed their homes. Later on, the municipality bought land and allowed people to construct their homes. They own their homes, yet can only sell with permission of the municipality. The third form of urban development was technically illegal. People constructed their home on land that was not theirs. Such was predominantly the case in Sandjak.”
One should know that Sandjak was not just any area within Bourj Hammoud. It had a bad reputation. “Even the police would not dare go inside,” one shopkeeper said. Others claimed it was a hotbed for criminality. Yet, despite the occasional “mafia” graffiti on some of the walls still standing in Sandjak, one hardly feels unsafe when walking around. Regardless of its reputation being true or not, the fact is that Sandjak was one of the quarter’s poorest areas.

Local demographics
“There were essentially three groups of people living in Sandjak,” Oghlanian explained. “First of all, there were a number of foreign workers who in recent years had rented rooms. Second, there were people who had been renting from the original Armenian owners for a very long time. And third, there were the people who constructed the houses and still lived there.”
The first group was given notice to leave and look for alternative lodging. The second group was paid between $2,000 and $5,000, while the third group received between $5,000 and $15,000. That may not seem a lot, and has to do with the fact that most of the dwellings were constructed illegally in the first place.
“The Lebanese owners of the land were more than happy to sell, as it was quite impossible for them to remove the inhabitants,” Oghlanian explained. “Now, we could have gone to court and just thrown them off the land. However, that would be rather inhumane and cause a major upset within the community. Hence, we asked the Lebanese court for a recommendation and paid compensation.”
The Sandjak project is part of a wider initiative by the municipality to upgrade Bourj Hammoud. “The government has long considered Bourj Hammoud as the backyard of the capital,” said Oghlanian. “Every time it planned a sewage treatment plant or factory, Bourj Hammoud was proposed. We, as a municipality, have worked very hard to change that perception. Bourj Hammud is a not only a residential, but also a very productive commercial and industrial area.”
Over the past decade, the face of Bourj Hammoud has indeed changed. The municipality invested significantly in a beautification campaign. Streets and pavements were widened, trees planted, public lightning improved and building facades were cleaned and painted. By law, building owners are obliged to take care of the façade, but the municipality decided to exercise that right instead — all in all, some $10 million was spent.
In addition, with financial aid of the central government the area’s infrastructure was improved, notably the sewage system — which often was not able to absorb severe rains — was upgraded for $7 million. Where 10 years ago streets would flood after a heavy shower, today everything stays dry.
As Bourj Hammoud offers relatively little room for expansion, the Sandjak Project has the potential to significantly alter the area, as well as one of Beirut’s main access roads. Construction is expected to start within a year and could be completed by 2010. The compensation paid to Sandjak’s inhabitants and their future, however, is not the municipality’s only worry.
According to Oghlanian, the municipality calculated that the project is to cost some $20 million. But seeing the rapidly rising costs of construction materials such as steel and concrete, the price could increase significantly. In that sense, it seems construction should start sooner rather than later, at least seen from the municipality’s point of view, though the remaining inhabitants of Sandjak no doubt have a different opinion.

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Lebanon

Industry – Diamonds from the rough

by Executive Staff
written by Executive Staff

Lebanon is a country of great diversity, which has proved to be its greatest weakness and most powerful asset. Seemingly, Lebanon’s industry reflects this permanent contradiction.

Lebanon’s exports are a good indicator for the condition of its industry. According to Fadi Abboud, president of the Lebanese Industrialists Association, “electrical products contribute to a large chunk of our exports accounting for as much as $500 to $600 million. Food items come in second, while jewelry (including scrap metal) and finished products are faring quite well.” On average, jewelry figures exceed official ones as many Lebanese artisans export their precious works without declaring them to customs.
Mazen Soueid, Head Economist at Banque de la Mediterranée, underlined that manufacturing only represents about 6% of the country’s GDP. He identifies jewelry to be among the best performing segments, which interestingly enough is partly exported to Switzerland, whether under the form of scrap metal or finished products. Foodstuffs come in second, followed by machinery and chemicals in third place. “The worst performers in terms of exports are the plastic and optical instruments industries. However, it is quite interesting to note that the export value of works of art has doubled last year,” he said.
When highlighting profitable sectors economists seem to agree. Marwan Mkhael, head of research at BLOM Bank, believes that the Lebanese players should focus on those industries that are flourishing and try to understand the reasons that contribute to their growth. “Lebanon has to focus on industry segments in which it has a competitive advantage, whether in the form of know-how, or high added value. One of such examples is the agro- industry, which presents very interesting opportunities for Lebanon as our country has the right products, the proper machinery and the know-how, to which can be added excellent marketing skills,” he said.
Products can be easily exported to Europe, where items such as Conserva Chtaura (a local Lebanese brand of canned food) or high-end Patchi chocolates can be easily stocked on shelves in countries like France, Italy or England.
“Lebanon can’t compete when it comes to the production of mass items, and can only succeed with high value added product categories,” Mkhael underscored. Such products require skilled workmanship and belong to sectors such as IT, pharmaceuticals, design, fashion, any industry backed by R&D.
Abboud also said a number of industries are protected by either high custom duties or import bans — such as mineral water, cement and electrical cables — and have thus thrived inside the country. “This indicates that local industries should be protected by tariffs when they have an economic sense,” he said.

An uneven playing field
In Lebanon, as in the rest of the world, energy intensive industries are facing difficult times. Inflationary trends fueled by oil prices reaching towering heights have put a toll on energy intensive production. Many of Lebanon’s trading partners are benefiting from subsidized energy bills, mostly in oil producing countries, causing regional inequality when it comes to energy costs. “This situation creates unfair competition that contradicts the principles underlying agreements such as GAFTA or the WTO,” Abboud said. One of the new local victims of the rise in fuel costs is Uniceramic — a ceramic wall and floor tile manufacturer — whose energy costs jumped to 25 times those of Egypt, rendering the company unable to compete and forcing its closure.
Abboud envisions four possible solutions to solve the energy problem, and alleviate pressure on the Lebanese industry sector.
The first solution resides in industrialists lobbying for cutting energy subsidies in oil producing countries — an issue that cannot be realistically enforced. The second solution entails imposing additional tariffs on energy intensive goods imported. The third option is based on the creation of a fund financed by oil producing Arab countries that would subsidize industries in non-oil producing nations such as Lebanon, a proposal also suggested by Indevco’s CEO Neemat Frem. Finally, Abboud argues that in the event that the Lebanese government comes to the conclusion that energy intensive industries cannot be competitive in our current environment, it should provide players with a viable exit strategy.
In Frem’s words, “The problem of energy in Lebanon has taken the dimension of a national disaster. After all, the country is much more vulnerable to fluctuations in gas prices than other neighboring countries boasting significant oil reserves.” Indevco currently produces about 12 MW to cover part of the electricity needs of its local factories, and is thus directly affected by spikes in international oil prices.
Soueid underlined how the difficulty faced by Lebanon’s energy intensive industries is partly due to their inability to transfer cost increases — resulting from rising fuel prices — onto the final consumer.
“Lebanon has been historically considered as the Switzerland of the Middle East; maybe it is time to take this expression seriously by reproducing the Swiss model and concentrating on high-end items,” Mkhael suggested. Industries that are currently performing well belong in various fields — jewelry, fashion, or high end food items. “In this particular segment we can replicate the example of Thailand that has been successfully selling Thai microwavable food on international markets. We could easily export Lebanese food all over the region and build on the popularity of our local cuisine,” said Soueid.
The economist also explained that the IT sector, though small and somewhat fragmented, definitely holds promising opportunities for the future. According to Soueid, a project to create an IT village was under planning before it was recently abandoned.
Industrialists, on the other hand, do not share the economists’ Manichean view of Lebanon’s economy. Many believe the contrary: that growth in Lebanon’s industrial sector can only be built on a real twinning of the traditional as well as state-of-the- art niche industries. “Lebanon’s industry needs to be rebuilt on a dual approach, which preserves its existing traditional industries and develops new innovative ones, focusing on high end products” said Frem.

Economies past and present
Abboud maintains that Lebanon’s traditional industries are the backbone to the Lebanese economy. “Lebanon already does not recycle its paper or metal. Can you imagine if we have to cover all our needs in plastic bags, cups and other items by importing such items? Lebanon’s industry sector can’t be only built on niche markets,” he said, also pointing out that a balanced approach would also allow the absorption of the additional 50,000 job seekers that come on the market every year.
Frem argued that, “One has to keep in mind that any business still operating in Lebanon’s complex environment can be viable on the long term. After all, it has survived in spite of extreme and adverse conditions! ”
What is the role of the state in shaping the industrial sector and the economy? Regarding the agro-industry, Lebanon definitely needs to become more self-sufficient in terms food requirements, while also trying to cater to the newly rich who are more health-conscious and look for better, fresh produce. According to Soueid, the most urgent task faced by the government is devising a successful national strategy for reducing the deficit, while simultaneously developing industry segments that are profitable. He emphasized the importance of a clear national strategy that will effectively plan for emergency food needs. Other measures that should also be undertaken by the government include the reduction of debt levels, which will
allow interest rates to fall and promote private sector lending. As Soueid asserted, “When one has the opportunity to place [their] money in treasury bills and obtain a comfortable return on investment, one will not be motivated to open a plant or a business!”
Another essential reform identified by the economists is that of the power sector. In 2008, it will cost the Lebanese government about $1.5 billion. This situation leads to inefficiencies in the industrial sector, where most companies end up settling two different power bills instead of one, in order to cover both their generator and EDL costs. “It seems to me that the industry has been abandoned by the government as it remains, after all, one of the rare sectors in Lebanon not to be protected,” said Abboud.
Frem agrees that the political instability hinders the government’s efforts. In addition, he does not think that the various governments that came to power over the years ever “realized the industry’s essential role, one that can create powerful synergies with other sectors such as services or tourism. A salad sold in one of the capital’s many restaurants made with vegetables produced locally will have a multiplier effect that eventually reflects on various segments of the economy.”
Mohamad Choucair, CEO of Patchi, deems that former industry minister Pierre Gemayel had put in place a plan for shaping Lebanese industry, which was never implemented because he was assassinated. However, he hopes that it “will be eventually implemented by the new minister in charge of the sector.”

The way forward
Another problem plaguing the Lebanese economy, according to Mkhael, is that some businesses have not been able to adapt to changes and blame others for their failings. The fact that many businesses in Lebanon remain family owned further hinders the evolution of the industry while a modernization of the sector would attract investment as well as allowing a better application of economies of scale.
According to Frem, “The future of Lebanon’s industry lies in businesses requiring multiple skills such as IT industries, video games development or movie production or any business which is built on system integration.” In his view, Lebanon’s image, its brand, can also be efficiently put to use in a region with a trillion dollar economy.
Another opportunity lies in more exports to the Euro zone, further pushing Lebanon to look outwards, instead of inwards.
But in the end, quality is the sector cornerstone. “I believe that our company has been extremely successful because of its minute attention to quality. This, in conjunction with an original concept and good branding, has allowed us to succeed internationally,” Choucair said. Frem pointed out, however, that before being able to turn the country’s individual corporate success stories into a collective success, there is a need to fix Lebanon’s political structural issues and to build the right system for governance and decision making processes that focus on real creation of value.

 

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