Going back a few years, Gemmayzeh was a quiet, residential area. As the brown tourist signs declare, it was and still is a “quartier a caractère traditionnel”, and back then one might have thought of it as something of a “sleepy neighborhood.” But much of that has changed. In those few short years it has gained a reputation as a nightlife hotspot — one of the places to be seen over the weekend, where the high heels and Gucci bags brigade rub shoulders with the nose rings and dreadlocks crowd.

Four years ago there were only a couple of bars or restaurants in Gemmayzeh, but the last year or so has seen an exponential growth in the number of establishments with around 80 bars at present, and it seems as if a new place is opened every week. While this may be good news for weekend revelers, the rapid development has come at a price for some of Gemmayzeh’s residents. Over the weekends the quarter’s once slow and sleepy roads are now packed with traffic and the streets are crowded with the city’s youth letting off steam. As the neighborhood’s residents get ready for a good night’s sleep, a cacophony of clinking bottles, base beats, laughter and chatter rises from the streets until the early hours of the morning.

Tensions between the residents and the bar owners and patrons had been on the rise for a while and at some point something had to give. In the beginning of April, some residents staged a demonstration in Gemmayzeh, bringing the place to a stand still for a couple of hours, while also lodging formal complaints with the Ministry of Tourism and the Governor of Beirut about the problems the bars were causing them. This lead to the temporary closure of some twenty establishments that were not in possession of the correct licenses and placed yet another two groups in Lebanon in a tense stand-off: bar owners on one side and the residents on the other.

Parties to Politics

Those who read foreign press features will be acutely aware that there are two almost contradictory stories that periodically emanate from Lebanon. The first revolves around the political turmoil and speculates about the possibility of conflict and the second celebrates Beirut as the only city in the Middle East with a “decent” — whatever that might be — nightlife. So it is a fitting irony that Beirut’s nightlife has, of itself, become the latest cause of turmoil.

To date things have not gotten too out of hand, and although the odd egg or two has been thrown from a sleep-deprived resident’s balcony towards a crowd of loud and tipsy drinkers, the security situation appears to be under control. However, Ellie Nassar, the mukhtar (mayor) of Gemmayzeh and head of the residents committee, noted that there have been escalations of late: in one instance a whole bucket of carefully aimed steaming water drenched a noisy group of street drinkers. He proceeded to make the point that Gemmayzeh should have some 15 to 20 police on the streets over weekends, plain clothed if possible, to monitor the situation.

Nassar even expressed concern, possibly a little tongue in cheek, that without proper policing and with so many inebriated individuals, events might take a violent turn. He explained, “with so many drunk people coming from the bars and making problems with the residents, maybe it will end in a shooting — when people drink they lose control and everybody here has a gun. Everybody. It’s dangerous and it could happen.”

Perhaps this is over the top, but perhaps not. On one occasion in a bar in Gemmayzeh there was a young man who was very eager to show off his gun. Standing with an Al-Maza in hand, he proudly listed the names of his friends in different sects and then proceeded to explain that he had an automatic weapon in the back of his car and he’d be more than happy to get it out. The offer was politely declined.

The road from Monot to Gemmayzeh

In a more serious vein however, Gemmayzeh’s rise does have a connection to the political situation. The opposition sit-in around the downtown area seriously affected the number of patrons visiting bars around Monot, which predated Gemmayzeh as Beirut’s street nightlife center and is located only a stone’s throw away from the fringes of the tent-city sit-it. At tense points in the political stand off, Gemmayzeh, although also close to downtown, was viewed as a somewhat safer location for a night out. Novelty, changing fads, and a trendy set of bars and restaurants have also played their part in Gemmayzeh’s transformation from a sleepy residential area to the latest hip thing.

Then, of course, there is money. Entertainment is big business. According to a survey by Ziad Kamel, who sits on the Gemmayzeh bar owners’ marketing committee, local businesses in Gemmayzeh were losing as much as $70,000 a day in revenue during the two-week period in which a number of the bars were shut down and strict closing times were imposed on those that remained open. It is not only the bar owners who are profiting, between them the restaurants and bars pay some $3.4 million annually in rent to Gemmayzeh landlords.

At present, the vast majority of the bars have been reopened and the early closing times have been lifted, following a series of commitments from the bar owners, such as monitoring noise levels and preventing customers from leaving their premises with drinks. Residents have also requested closer regulation of the valet parking system and there has been a suggestion that the disused Charles Helou Bus station car park might be revamped to cater for weekend parking in the area.

Both the bar owners and the mukhtar were keen to point out that the responsibility for regulating the area does not fall to the proprietors alone. Both have requested that the government provide better services in the area, particularly efficient policing, improvement of the infrastructure, regulation of the one-way traffic system and possibly even installing cameras along the street.

The debacle has had some positive effects, as Ziad Kamel pointed out that “it’s the first time that the bar owners in Gemmayzeh have worked together and seen one another as support rather than competition — this is something that Monot never had.” At the same time the mukhtar, Ellie Nassar, hopes that the efforts on all sides will make life easier for the residents. Under the new agreements all the entertainment establishments are to be given three warnings should they violate the noise regulations, after which they will be summarily closed down.

At the end of the day though, Mukhtar Nassar clarified that even the vast majority of residents do not want it to come to this, saying “We don’t have any target to close down the bars, we simply want to regulate the nightlife.” As another resident, Michelle Ghanem, said while attending the bar owners’ committee meeting, “all I want to do is get some sleep, that’s it, just some sleep.”

At a small pharmacy tucked into the Beirut neighborhood of Tariq al-Jdideh, a pharmacist recently had to deal with a rather vexing problem: he was running out of drugs. As an example he pointed to an empty box of Vastarel, a medication imported from France and used by patients with heart conditions, or who have suffered strokes, to protect their arteries and improve circulation. It is also a chronic use medication, meaning patients need to maintain a regular supply for a treatment that is long-term.

The pharmacist said the health of patients who come to him regularly for Vastarel would be threatened should they not have access to their medication, yet he’d been unable to order in new supplies of the drug from his wholesaler or the importer.

Instead, he had to go outside Beirut to buy the medication his patients needed at the pharmacy of a friend, who, running a larger operation than himself, carried more of the drug in stock — a segregate supply both pharmacists were depending on to last them through this drought. He added that a psychotropic drug called Leponex — used to treat schizophrenia and ordered directly, per prescription, from the importer — was completely unavailable on the market, forcing him to look in the Palestinian refugee camps for an illegally smuggled version to treat his patients.

“The importers either have the drugs in their warehouses and they are not selling them, or they are just not ordering more of the drugs in,” the pharmacist said. The dropping value of the US dollar has meant drug importers in Lebanon — where the local currency is pegged to the dollar — have had to pay more to bring in the drugs priced in euros or Swiss francs, which account for roughly 45% of the some 3,500 imported drugs sold in Lebanon.

Shrinking margins

The shelf price of drugs is controlled by the Ministry of Health, and the pharmacist remarked that the minister has stalled in signing a new set of price increases, the result being that the importers’ margins were being squeezed between the higher cost of their product and a static selling price.

Importers, however, have exclusive rights to each of the products they import — for example there is, by law, only one company allowed to bring Vastarel into the country — and as such, the pharmacist said importers were cutting supplies to the Lebanese market in an attempt to leverage the Minister of Health into signing the price increase.

The importers, though, deny this is the case.

“There is not a single medicine missing in the market due to the prices,” said Armand Phares, president of the Lebanese Pharmaceutical Importers Association, a syndicate with 37 members constituting 90% of all pharmaceutical importers in Lebanon. To prove his point during an interview he had his assistant run a check, and within 15 minutes she replied that at the three standard pharmacies she’d called — in the neighborhoods of Gemmayze, Badaro and Verdun — Vasteral was on the shelf and available for sale.

As for Leponex, Phares explained the importer was suffering an “exceptional shortage of stock” — originating outside the country — but that the drug would be available again shortly.

The importers’ exclusive rights over a product, adds Phares, enable an “unbroken chain of traceability” from the manufacturer to the consumer, ensuring quality control, though “parallel imports” of products into Lebanon make that exclusivity actually not so exclusive, meaning importers cannot leverage their market positions.

This does not mean all is well in the pharmaceutical business these days, said Phares, noting while there is a system to cope with the rapid currency fluctuations of late, the problem, according to him, is that the system is not being applied properly.

The Lebanese government’s Pricing Decision #306/1 from June 3, 2005, lays out the pricing policy like this: when a foreign manufacturer gets registered to export a drug to Lebanon, the Ministry of Health dictates that the price the manufacturer charges the Lebanese importer must be lower than (1) the ex-factory price in the country of origin, (2) the import price of the same brand in seven selected Middle Eastern countries, (3) the median ex-factory price in seven selected European countries, and (4) the import price of similar products already available in Lebanon.

Once the product is in Lebanon, the ministry also dictates the markup each party can tack onto the product on its way to the consumer, with the importers adding 8-10% when they sell it to pharmacist, who then tags on 24-30% when he puts it on his shelf, with margins decreasing percentage-wise the more expensive the drugs are.

Currencies fluctuate, however, and if, over a two-week period, the average exchange rate between the Lebanese Lira and the currency in which a pharmaceutical is imported (i.e. euro or CHF) moves up or down by more than 3%, the Minister of Health is supposed to apply this change — called the ‘price indicator’ — to the shelf price of the product.

Where the problem starts

Phares said the problem comes from a tendency the Minister of Health has shown to sign price decreases immediately into effect while delaying for weeks signing price increases, resulting in reduced profits for importers when they need to spend more to replace the same stock of drugs coming from Europe, for example, while also not being able to charge more in selling to the pharmacies.

Delayed price rises also have a tendency to spur pharmacies to try and buy more than their usual order of product, said Phares, since pharmacists know that if a certain product will cost more tomorrow, if they can buy today they will make profit on the difference, with the more unscrupulous pharmacists able to increase profits even more by withholding selling a product in anticipation of a price increase.

Even given this situation, importers must still supply the market normally, said Phares, although “normally doesn’t mean stupidly.”

Saleh Dbeibo, president of the Order of Pharmacists in Lebanon, which oversees the 1,900 or so pharmacies in the country, remarked that what happens in situations of delayed price increases is that “importers will ration the distribution, and then there will be some deficiency in the market,” and when this happens smaller pharmacies are the first to feel the impact because they carry very little in reserve stock.

“Whenever they sell an item, they directly buy another one, so a rationing period would be harmful for them and they feel it quickly. But big pharmacies that have a bigger stock and capital, they keep going,” said Dbeibo, adding that “… in this period you will lose your client if you don’t secure his medication.”

Dbeibo notes that a very small number of importers may even stop distribution altogether, and although this is illegal, both he and Phares pointed out that, since it is exceedingly difficult to definitively show where along the supply chain the drugs are being withheld, charges are almost never brought to trial. Both men also agree that although at times there may be less quantities of medications on the shelves, “there was no period when people couldn’t find their medicine [somewhere],” according to Dbeibo.

To put the issue in context, the annual imported value of pharmaceuticals arriving to Lebanon is some $425 million, translating into $650 million in pharmaceutical sales in the country, though about 10% of the market is considered public sector, which buys at less than market prices, and another 20% is reimbursed in some form or another by government and agencies.

Although the Minister of Health was out of the country and unavailable for comment, Dr. Walid Amar, Director General of the Ministry of Health, was able to take EXECUTIVE’s questions. He stated that the ministry is well aware of the situation and at no time have consumers and patients in Lebanon been affected or suffered a loss of supply. The minister signs the price decreases immediately, said Amar, because it is beneficial for the citizens of Lebanon, while he delays on the price increases in order to see if there might be some further change in the currency exchange market.

Tackling the costs of drugs

“I’m sure this would affect negatively the importer … but they seem to be capable to afford this situation for a short few days — the time that the market adapts to the rapid change,” Amar averred. He also pointed out that while imports from Europe have become more expensive, those from the US and other dollar-linked countries have remained stable, questioning why importers have not used this as an incentive “to push them to seek other sources for drugs.”

In illuminating the impact of the high cost of pharmaceuticals on some of the less fortunate Lebanese, Amar pointed out that the Lebanese government, through the YMCA, currently supports the chronic medication cost for 140,000 citizens, to the tune of US$5 million dollars ($3 million from government, $2 million from NGOs), while also underwriting $35 million worth of medications for 12,000 critically ill Lebanese, suffering with diseases such as cancer, multiple sclerosis or major schizophrenia.

Thus, while the margins of importers and supplies of drugs in pharmacies might be paramount to operations in the pharmaceutical industry, the most tangible impact of the rising cost of pharmaceuticals in Lebanon can be found in the people these businesses are meant to serve — the Lebanese who have to pay for and use these drugs in order to live, which perhaps, should be the motivation for all parties involved in the business.

Downtown Beirut has become so desolate and empty that one almost expects to find tumbleweeds rolling in between vacant restaurant tables. But a walk through the Central Business District can feel even more surreal, because while streets look barren, construction sites are working at full steam. Hundreds of cranes, concrete structures, excavation craters and trucks careening through an empty city center can make Lebanon look slightly schizophrenic. However, while puzzling at first sight, the high activity of Lebanon’s real estate industry is not (just) rooted in the country’s notorious resilience — it makes outright economic sense.

After a war whose destructive effects that cost the country billions of dollars, five months without a president, a parliament that has not met since November 2007 and an opposition sit-in that has paralyzed part of the capital’s business center, one could expect real estate investors to be looking for greener pastures. But the political limbo and uncertainty plaguing Lebanon are part of the very reason why right now is the time to invest in the Lebanese market. According to the annual Global Property Guide report, published in a Byblos Bank newsletter in March 2008, real estate purchase and rent prices of upscale properties in Lebanon are lower than in five other countries in the MENA region: Amman, Tunis, Marrakech, Tel Aviv and Dubai. The average monthly rent in Beirut, according to the same report, is $1,154 compared to the regional average of $1,740. But Lebanon’s real estate upsurge, as much as its prices, have to be put into context.

No comparison

Comparing the Lebanese market with that of Dubai, for example, where the average rent is $3,140 per month, does not make much sense — Dubai is a case of its own, witnessing economic activity of a speed and volume practically unprecedented in the region. Yet while Lebanon’s prices are only half of those in Dubai, the risk of a regional war and the internal political instability did not translate into a drop. Quite to the contrary. “I think we are seeing the highest prices that this country has seen in many years,” said Nabil Sawabini, CEO of Mena Capital, which focuses on real estate development and private equity fund management. In Cairo, for example, the average purchase price per square meter is $406, while in Beirut it is $1,237. Another reason for the increase in real estate activity is yet one more thing that used to cause a lot of complaints in Lebanon — the brain drain. While the Lebanese are being hired abroad, especially in the wealthy Gulf countries where there are better-paid opportunities, these expatriates are earning enough to buy a residence in the home country.

“Eighty percent of the sales we have seen over the past 18 months have come principally from Lebanese expatriates,” said Sawabini. With Mena Capital currently building three projects with a total of 90 residential units ranging from $4,000 to $8,000 per square meter, Sawabini says that probably 65% of them have been sold already. “We have more demand than supply, at least at the upper end of the market. You have many more well-off Lebanese, especially in the Gulf or overseas, who are looking to buy. We didn’t have that before. Remittances are approaching $6 billion a year, so the brain drain turned out to be positive in that sense.” And foreigners, while not coming to Lebanon for holidays, are still purchasing properties here. “As far as buyers from the Gulf are concerned, I don’t think they represent more than 20% of the market now. However, if things were to quiet down, I think that could easily be reversed and the Gulf influx would be very considerable. That is when I think we would see a tremendous boom.”

Even before this expected boom, the Lebanese real estate market has seen a surge, and if statistics are not easily available, personal experiences are revealing. “For two years until [last] December I had sold nothing,” said Karim Bassil, chairman of BREI, a real estate developer. Among other projects, he had started to build a boutique hotel in the upcoming area of Gemmayzeh. “I thought it was quite sexy to have a boutique hotel in that area, high ceilings, 40 to 50 rooms. But I just didn’t manage to sell it.” With interest rates eating up his financing, Bassil decided to transform the would-be hotel into a residential building. And it worked, as within six to seven months he sold 70% of the units. The percentage, he explains, could be still higher, but he chose not to sell the upper floors, expecting even higher prices: “I left them for later.”

In Lebanon, land is a prized commodity, if for nothing else but because it is scarce. When coupled with the oil boom in the region and the liquidity of the economy, Lebanon is a very good investment. Another reason for the rise in real estate is that construction materials are usually priced in euro. With the euro rising against the dollar, any delay in construction would just translate into higher costs — even if the building is a hotel that will be faced with very low occupancy rates.

The hotels under construction in downtown Beirut, for example, are about to be completed with no occupancy in sight, as tourism figures are dropping steadily. In this area, managed by Solidere, much of what is being built had been planned before the 2006 War. According to Pierre Achkar, head of the Lebanese Hotel Association, the last time the association got the request to issue a hotel license was in the first half of 2006.

Hotels sitting pretty

Nevertheless, not a single hotel has sold its project to another group. According to Achkar, this is “because until now, real estate is doing well in Lebanon. In general, part of the hotel business is the operation, and the other part is the real estate of the hotel. Let’s take Habtoor [which has closed its 5-star hotel in Beirut], for example. Maybe they are losing some money in the operation, but as far as real estate goes, they have made a great investment.” And this is not only because the price of the land has gone up, by 40% to 60% last year alone, according to Sawabini. “Take steel prices, for example. When Habtoor started the construction, steel was around $400 per ton. Now it is $1,150,” explained Achkar.

For real estate developers, residential buildings are at risk only while the construction is going on. Once the residential units are delivered, the risk is transferred from the developer to the final owner. But when it comes to building anything that requires future management, the prospect of a war can be discouraging, especially because insurance against war has a very high premium.

According to Jean Hleiss, general manager of ADIR Insurance, war insurance is uncommon, even in Lebanon. The reason is mainly the price. “The actual war premium is around 1% of the total value of the property, while the average insurance issued against SRCC (strike, riot and civil commotion) is between 0.18% and 0.3%.” In the case of war, the premium rises even further. “During the last war with Israel, for instance, some clients asked to be insured and the premium raised to maybe five times what is being charged now,” he pointed out. But even with the media reminding everyone of the prospect of another war, none of the people interviewed for this article seemed to believe there will be a conflict. On the contrary – the general perception is that things will get better, and real estate prices will soar.

For Elias Abou Samra, manager of a regional real estate fund at Morgan Stanley, “one has to keep in mind that all the developments in Beirut, combined, do not match the investments being thrown in one of Dubai’s new cities, or Bahrain’s reclaimed land projects.” But the small size can, in fact, be an advantage in the real estate market. “We need to put things into a regional perspective to understand how the tiny supply in Lebanon is creating a huge demand. It is a totally different game from that in the Gulf, where large scale and volume are creating the demand.” The current surge in property prices may also be due to the fact that they were low in the first place. For Lina R. Sadek, Corporate Affairs Director of Al Habtoor Leighton Group, the price increase may be just the result of the basic law of demand and supply: “When there is a slump in property prices, people will step in to buy up land and property because the prices are low, and this will in turn drive prices up.”

Monaco of the east

Lebanon, like sort of like Monaco of the Middle East, a small country coveted for its nature and lifestyle, has very limited land with unlimited appeal. Working in Saudi Arabia, Abou Samra knows the fascination Lebanon exerts over oil-rich investors. “Arab investors know the Lebanese market very well. Unlike Western investors, they are happy to take the risks of war and conflict in Lebanon. Even those who invested before the civil war in the 1960s and early 70s ended up covering their losses and making huge profits in the late 90s and until today. I’ve heard one of the biggest Kuwaiti investors say he is willing to wait a hundred years [to sell his Lebanese land] because he knows prices will catch up with the rest of the region sooner or later.”

As far as economic indicators go, Lebanon’s situation could be much worse. According to an IMF report from April 2008, Lebanon’s “economic performance in 2007 was significantly better than expected, despite the difficult political conditions. Given a very strong fourth quarter, the authorities now estimate real GDP growth at 4%.”

Considering that Lebanon’s economy had zero growth in 2006 – an initial 6% growth completely wiped out by the war, this might be a reason to celebrate. Moody’s Investors Service also had a positive outlook, and in March 2008 raised Lebanon’s rating from negative to stable.

“If you compare prices in Lebanon to prices in the region, even in the immediate vicinity, whether it be Syria, Jordan, Egypt and not to mention Dubai and Qatar, the prices here have become reasonably inexpensive, which has never been the case – Lebanon has always been more expensive than its neighbors”, said Sawabini. But would that not be a indication that Lebanon is really not in good shape? Sawabini chose to put it differently: “[That indicates] that the prices have gone up very, very rapidly in neighboring countries relative to Lebanon. So, if things were to quiet down and we have stability, then you would see the boom that we are expecting. Prices would move much, much higher than they are now”.

Mounir Doueidy, general manager of Solidere, agreed, saying “When you compare prices between Beirut and elsewhere, given the big disparity in quality, Beirut is very cheap. So it is very logical for people to come and invest here, because they believe that it is the time to buy now before prices start going up.” In the first quarter of 2006, Solidere’s sales “went through the sky,” totaling $1.1 billion. “Then came the July War, and subsequent to that the sit-in, and sales stopped, selling land completely stopped.” From mid-2007, however, sales experienced a “revival”. With around 50% of Solidere still up for sale, Doueidy believes that waiting for a political solution to the current Lebanese impasse does not make much economic sense. He argued that if investors assume that a solution will happen in the medium term, “let’s say another year, it makes sense for them to buy the land today because it takes a year or two before you can come up with the concept, preliminary design etc. If they wait a year or two, then it may be too late because prices will have gone up.” Without giving a percentage, he illustrates how much prices have increased, even during this time of uncertainty: “In 2007, for example, we were selling the built up square meter for about $1,600. This year we are not selling below $2,000.”