GCC

Prime Pictures

by Executive Staff
written by Executive Staff

Talaat Captan is not exactly the typical Hollywood producer. He started his career as a domestic and international distributor of motion pictures, moving into the rarified airs of movie production. His films have ranged from science fiction (Prototype) to psychological thrillers (Living in Peril) and action (Ground Control). Captan has also mastered the technical side of movie production as owner of companies such as Air Hollywood, Apex Stocks and Prime Pictures

E How did you get into the movie industry?

I left Lebanon for the United States 30 years ago. After graduating from business school, I worked in a company that specialized in production as well as distribution of movies. I then made the leap to the field of international movie production and licensing. The movie industry is an extremely challenging one. I did not want to work in the studio system where politics reign and preferred to achieve my objectives on my own, by launching my own production house. I also served as a director on the board of the American Film Association (AFMA) for four years, but I lost my seat on the board after 9/11, when things started to become very difficult for Arabs working in the American film industry.

E You also own Air Hollywood, how does this particular activity complement your other operations?

While producing the movie Ground Control with Kiefer Sutherland — which looks into the world of air traffic controllers — I identified the industry need for proper airplane mock-up studios, which prompted my decision to open Air Hollywood. The company features four aviation-themed stages, seven planes and a fully dedicated prop rental and fabrication house. Air Hollywood attracts major Hollywood studios as well as production companies working on films, television programs or commercials. Sets can be booked for $14,000 per day, with average rental periods varying between two to three days. However, some productions have used our sets for more than three months. Certain scenes of Lost have been shot in our studios.

All my companies are related to the entertainment industry. As an example Apex Stock is a stock footage company that provides users with scenes of airplane landing or take off, horses running wild, or Paris in the 1950s that can be used in movies. We also own the TWA 65mm library, which is a great asset in the movie industry. Apex has partnerships with big industry names, such as Getty images and National Geographic, among others.

E With two companies in the US, what brought you to the Middle East?

I am a co-founder of Prime Pictures, a company that specializes in theatrical and home entertainment distribution for a variety of studios such as Paramount, Dreamworks, and Hallmark among others. We also own a number of theatrical screens in the Middle East, with Cinema City in Beirut as part of our landmark projects. In addition, we are opening another mega theater complex in Jordan as well as one in Dubai, in the new Merdef area. We strive to achieve excellence in the theater industry, this can only be attained by providing audiences with the right theater atmosphere as well as a unique viewing experience. The Middle East is a market that is growing steadily. I would like to contribute to the regional industry by producing movies filmed in this part of the world. I have also two movie projects lined up for now, however I am still not at liberty to disclose any information.

E Are producers predominantly brought into a movie or do they seek projects?

It is a bit of both. In the United States, things are much easier because you can depend on the Writers Guild: authors either come up with a story or are asked to write a “treatment” for producers. If the treatment is approved by producers, it will be turned into a script. In the Arab region, the process is much more difficult, as the environment is less structured. Many Arab scriptwriters also find inspiration in other movies, without trying to rely on their talent.

E What management qualities are most important for movie producers?

A producer is the person who holds the whole movie together and handles more particularly its financial aspect. I am familiar with both sides of the movie business, namely production and distribution. A producer has to constantly keep in mind the marketable features of a movie and if, and how, it will appeal to audiences around the world. He needs to consider the movie’s performance in the main markets, foremost the Unites Sates, Germany, and Japan, so forth and be a few steps ahead of everyone. Approaches also vary among different movie genres. As an example, horror pictures might be easy to produce but will eliminate a certain category of audience, due to their nature. Comedy is the hardest type of movie to produce, because it very difficult to make Americans, Japanese and French laugh at the same joke. In terms of production, the US always represents 50% of a movie’s budget, as it usually generates a large proportion of a film’s revenues. As a rule, it is very difficult to produce a movie for less than $10 million, because it will be only viewed in a handful of theaters in the United States.

E How do you perceive the Arab cinema industry?

The Arab movie industry still lags behind other countries. One look at international movie festivals will reveal the relatively low participation of Arab productions. In comparison, Iranian movies are faring much better than Arab productions and are regularly featured in festivals around the world. I personally loved the Lebanese movie Caramel, which was full of talent. The region is in need of such movies. I have also noticed during my frequent trips around the world that Arabic movies are never shown on international TV channels. Arabic producers need to start working on international movies that can be released in English, which will add to their marketability.

E What changes do Arab countries need to introduce to further develop their movie industry?

Censorship is an essential issue that needs to be addressed around the region. Scripts have to be submitted to governing bodies in order to obtain authorizations for filming. In other countries, movie scripts will only be submitted against a government’s financial contribution to the film. The industry is also plagued by low budgets, which amount very often to less than $1 million, which is ridiculously low. However, large budgets do not necessarily guarantee a film’s success, because it also depends on proper budget management. Governments need to encourage movie funding and try to attract trustworthy producers by either offering tax cuts, facilitating the work environment or offering more affordable accommodation.

E What countries in the Middle East do you believe have the most potential in terms of movie production?

Lebanon offers great opportunities but its movie industry is hindered by its unstable situation. Libya is one country in the region that has not been filmed for more than 30 years! It is time to feature its beautiful landscapes in movies around the world.

E What can be the role of Arab movie producers on the international level?

They can promote a positive image of the Middle East. In the United States people can’t differentiate between Arabs, whether they are Iraqi, Lebanese or Palestinians. Arabs are many cultures within one. Movies can help educate people and change their perceptions.

E Where do you see the movie industry in a few years?

Technology is growing at an incredible rate. In a few years, people will be able to view more than 500 movies by using a small box. I think advances in special effects will significantly affect the film industry and movie making will become less and less time consuming.

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GCC

Making movies

by Executive Staff
written by Executive Staff

Away from the media blitz, the glam and the blinding spotlights inherent to Hollywood, Arab movie production has embarked on its own journey through the seventh art. Talent is everywhere, emerging in the far corners of the Arab world. Executive sheds new light on the region’s industry.

The movie and TV-series production industry in the Arab world is still not sufficiently developed as most features are still imported from the West, said Hani Tamba, director of After Shave (Beyrouth après rasage) and soon-to-be-released Melodrama Habibi. “Unfortunately, it seems that much of Arab energy and funds are poured into the production of video clips instead of films.”

Egypt remains the largest producer of movie and television series, with most other regional countries far behind. Up to 80% of Arab production originates on the Nile. But change is afoot. Recently, a number of Lebanese have gone into producing or co-producing feature films, even if others keep focusing on producing TV commercials and video clips because of their large price tags, with Lebanese productions ranking among the best, according to Tamba.

For the love of the industry

The movie industry exhibits a two-dimensional typology, according to Sabine Sidawi, Lebanese producer of Taxi Service, ZoZo and Yanousak. On one end of the spectrum there are the  large productions such as those shot in Hollywood, Bollywood and Egypt, and on the other end movies shot by independent producers. “Lebanon falls in the latter category which boasts very artistic movies, but lack adequate funding. Many directors, producers or technicians are not in the movie business in Lebanon for the money, but simply for their love of the industry,” she reckons.

The average cost of a movie is difficult to assess as prices vary from one project to the other. Tamba explained that most Lebanese films have relatively modest budgets with directors often producing their movies independently, while a lucky few are able to co-produce with foreign funds. “It is difficult to provide a precise figure, but some movies have been priced well under a $1 million.”

Mario G. Haddad, chairman of Les Fils de Georges Haddad & Co., owner of Empire Cinemas and president of Empire International, exclusive distributors of Colombia, 20th Century Fox and MGM in the Levant and the Gulf countries, estimates movie budgets in Egypt to fluctuate between $1-2 million, with some going up to $5-8 million. “Egypt is certainly a giant in terms of movie production and market size, when compared to other Arab countries,” he explained. Of course, the country’s sheer size is by itself a massive advantage, as movies appeal to a wide audience. In terms of viewing, Egypt and the Gulf countries, where movie theaters are one of the prime places of entertainment, are the biggest markets, with around 7 million entry tickets sold every year in the UAE alone.

For Sidawi, governments play a major role in promoting their national movie industry and liberalizing regulations, reducing red tape and lowering taxation on the film industry. As this will encourage a new breed of producer, as has been  the case in countries such as Tunisia and Morocco. “The king of Morocco is helping support the movie industry. He has recently established a new movie studio and post-production centers, as well as handing out around $300,000 to jumpstart any film project,” underlined the producer who believes such measures will lead to the creation of an independent Moroccan movie industry in a few years.

Similar measures have also been undertaken by the king of Jordan. According to Sawsan Darwazi, managing partner of Jordanian production house Pioneer, the country’s movie industry is still at a nascent stage. Significant improvements have been achieved with the creation of the Royal Film Commission, which sponsors the film industry. As she pointed out, “Recently, two universities started to offer communication art and media courses, which, in a few years, will undoubtedly help promote a new breed of producers, directors and technicians.”

Finding the financial backing

However, the Jordanian producer admits that the movie industry is yet to fully blossom, as most productions are either comprised of drama series or made-for-TV films. “The only recent big Jordanian production is Captain Abou Raed, which was financed by private individuals who pooled their funds.”

Different techniques also play into movie production. Sidawi underlines that movies are usually shot using 35 or 60mm films, or using video footage which is later transferred on film. The different stages in film production — script writing, development, preparation for the movie by selecting actors and music, shooting the film — can only take place after producers have secured financial backing for their movie. In Lebanon shooting may take up to 6 to 8 weeks, whereas this phase is extended to a few months in the US as big production houses can better handle added costs. Post-production — editing, mixing and integrating special effects to the film — requires and additional four to six months, followed by the actual movie distribution.  At this particular stage the lack of funding often compels producers to trade exclusive rights to their movie against TV ads. But as Sidawi points out, “Such agreements grant TV stations exclusive rights to movies, which are not necessarily shown. This practice ties the hands of producers who will have to wait for the exclusive contract to come to end in order to show their movie.”

In such a difficult work environment, combined Arab-foreign productions are not just popular, but rather inevitable, as Arab funding is scarce, explains Tamba. In Jordan, many movies are co-produced with either European or Gulf countries, especially TV films or series. Sidawi estimates that the lack of funds and the need to co-produce with a foreign country may steer movie production away from its original path and into a direction that is not naturally its own. “For instance, European producers will integrate their own perception of a country into a movie, one that is not necessarily favored by their Arab co-producer.  This affects the type of movie we end up producing,” she said. Hani Tamba looks at collaborations with a more positive eye, believing that European co-producers often add a fresh perspective to a project as well as a different know-how. “Co-production is a matter of finding the right alchemy between two countries,” he declared. In Egypt, as Haddad pointed out, the issue of co-production is less tricky as most producers operate independently and do not need to rely on foreign countries to finance their movies.

Empire International’s president emphasized that one main challenge faced by movie producers in the region is crossing the cultural boundaries between countries, saying “As an example, Lebanese movie producers are confronted with two main problems: language or dialect in which the movie will be filmed and its scope. The Lebanese movie Ghnoujet Baya generated around 200,000 admissions locally but very little outside of Lebanon, as it reflects our local specific culture.” On the other hand, movies such as Nadine Labaki’s Caramel have fared very well in Europe, where in France alone it generated around 500,000 to 700,000 admissions. But despite its international success it did not stir much interest in the UAE.

Haddad believes that over the next few years, movie production will face new challenges with the rapid evolution of technology allowing for movie downloads from the internet and facilitating pirating, which indirectly led to the Hollywood writers strike over compensation for content distributed online. The lack of proper viewing has also affected the sector although many changes have been introduced in recent years with the emergence of massive Cineplex in various Arab countries. In the end, the cinema owner knows that both go together. “Movie viewing and production are intertwined: the first acts as a powerful locomotive for the second and contributes in developing a real movie culture.”

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GCC

GCC offsets the West

by Executive Staff
written by Executive Staff

The change happened slowly, over a period of months. Day by day, the stock of green-back American dollars in Sudan’s central bank has decreased. And day by day, the bank’s stock of multi-colored Euros increased. By the opening weeks of 2008, the Bank of Sudan had deliberately and determinedly set a course for a dollar-free economy by switching almost all of its foreign currency reserves into euros and a basket of other currencies. It was the latest and most dramatic manifestation of a growing economic separation between Africa’s largest country and the world’s largest superpower — a split caused by more than ten years of economic sanctions imposed by the US onto Sudan over reports of humanitarian atrocities, first during the country’s north-south civil war, and later during the Darfur conflict.

Euros fill the gap

At first glance, the American exit might look like an economic disaster – particularly since a number of European companies have also shown signs of limiting their involvement in Sudan, citing the risk of getting caught up in American sanctions.

But as every student of economics knows, international trade abhors a vacuum. When one major trading partner leaves the stage, another is bound to be waiting to take its place. In the currency markets, the gap left by the dollar was filled by the euro. In the commercial, financial and investment sectors, say analysts in Sudan, the gap left by American and increasingly European investors and companies is being more than made up for by companies based in China and, increasingly, the Middle East. “Investors are coming in from both China and the Middle East,” said one Khartoum analyst speaking on condition of anonymity. “Part of it is to do with the new flood of oil and part to do with the relative security that followed the end of the civil war in 2005.” But at least part of it is that they are coming in to take up the slack left by the West.” The trend is clear to see in the financial indicators published by the Bank of Sudan. In 2005, $299.2 million worth of Sudanese exports headed out to Saudi Arabia, Yemen, Libya, the United Arab Emirates, Jordan, Syria, Iraq and other states labeled as “Arab countries” by the bank’s statisticians. Just a year later, the figure had jumped to $444.2 million. And in the first three quarters of 2007 — the most up-to-date statistics available — $305.2 million worth of Sudanese exports had already headed out of the country’s ports and airports towards the Middle East.

Exports are only one small indicator. At the same time as a number of Western companies announced they were leaving sanction-hit Sudan  — including Rolls Royce, Hilton Hotels, Germany’s Siemens, Switzerland’s ABB and Canada’s CHC Helicopter — a host of Middle Eastern names have been arriving or boosting their existing involvement. Sudan was one of Africa’s top four recipients of Foreign Direct Investment in 2006, according to the UN’s World Investment Report of 2007. The country pulled in more than $3 billion, mainly through its telecoms and petroleum industries and the privatization of state-run companies, hardly any of it from the West. Again, large chunks of that foreign direct investment came directly from the Middle East.

The GCC steps in

The increased Middle Eastern involvement is obvious practically everywhere you look in Khartoum, the country’s economic powerhouse. The most obvious arrivals – thanks largely to their overwhelming marketing budgets – are the mobile telecoms giants of Kuwait-based Zain, which bought the then state-owned operator Mobitel, and Canar, an arm of the UAE’s Etisalat. But beyond the phone system, barely a week goes by without an announcement of another investment and another arrival. In February, the Kuwait Fund for Arab Economic Development said it was going to loan Sudan $59 million for a major dam and hydropower project on the River Nile — its second major investment in the scheme. Sudan’s delighted Minister of State for Transport, Roads and Bridges, Dr. Mabrouk Mubarak Saleem, said the cash injection was only the beginning when it came to Kuwaiti investment in Sudan.

A Kuwait Fund envoy is about to fly in to inspect a range of other potential road and transport projects. This is after the Sudanese minister for Transport and Roads made a visit to Kuwait in which he received audiences from, among others, the emir and ministers from Foreign Affairs, Finance and Electricity. US sanctions enforcers have noticed a strange pattern emerging after they started adding named state-owned companies to their list of black-listed Sudanese enterprises. “Immediately after the sanctions were announced, the Sudanese government took steps to sell off government assets that we had identified,” said Adam J. Szubin, head of the US Treasury’s Office of Foreign Assets Control (OFAC). Sudan was clearly trying to get targeted companies out of state control and as far away as possible from sanctions, Szubin added. And the people to whom Sudan tended to sell those state-owned assets came predominantly from the Middle East. In December, media reports suggested that the Dubai Islamic Bank unit, of the Bank of Khartoum, planned to buy smaller Sudanese rival Emirates and Sudan Bank. A month later, Sudan’s national bank told the Sudan Tribune that it might have to sell its 10% stake in the new merged company to make sure the new corporation was not targeted by the US.

In January 2007, Bahrain’s Al-Salam Bank said it had succeeded in snapping up a controlling stake in Sudan state-owned El-Nilein Industrial Development Bank, one of almost 100 companies specifically blacklisted by the U.S. Months before that Dubai-based Emaar Properties and Amlak Finance had also claimed they were after El Nilen shares. Whether or not OFAC was right in saying the sanctions had pushed Sudan into selling the stake, the sanctions certainly hadn’t made the sale any less attractive, said Shawgi Azmi, then director of the Sudanese National Company for Securities, a unit of government-owned Bank of Khartoum. “This deal proves that Gulf investments in Sudan are still pouring in despite the political situation and the pressure from the international community on the country,” he told reporters.

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Levant

Lifting the ban

by Peter Grimsditch
written by Peter Grimsditch

One of the best-selling English-language books on Turkish politics is Turkey Unveiled by Nicola and Hugh Pope. Any updates may make them question the title. On February 9, Meclis (the Turkish parliament) voted through constitutional changes lifting the ban on wearing headscarves in public universities by 411 votes in the 550-seat house. To get the required two-thirds majority, the ruling Justice and Development Party (AKP) controversially depended on the support of the ultranationalist National Action Party (MHP), the third largest group in parliament. What was in it for the MHP has not yet been revealed.

While opinion polls say the move is supported by more than 60% of the electorate, the headscarf has been a point of bitter contention between Islamists of all stripes, and ardent secularists, who include the influential army and the largest opposition party, the Republican People’s Party (CHP), which traces its lineage back to Ataturk. For those in favor of lifting it, the ban was an elitist law which prevented the devout from going to public universities, entrenching the social and economic divisions that have been an (often unspoken) reality for much of Turkey’s modern history. For those that support the ban, there is an array of anxieties. Some fear that girls who prefer not to wear the headscarf will be subject to peer pressure to do so. Others worry that it may be a step down the road to blurring the absolute separation of mosque and state. There are even some who view it as the harbinger of restrictions on other behavior, such as drinking alcohol.

The headscarf ban is seen by many as a guarantor of the secularism of Turkey’s educational system.  Furthermore, the symbolism of headgear in Turkish history should not be underestimated. Founding father Kemal Ataturk famously banned the fez because of its Oriental connotations (giving European milliners the perfect chance to offload their unfashionable, unsold homburgs). Ironically, the fez had been introduced to Turkey to replace the turban by the modernizing Sultan Mahmud II.

Security is not threatened

However, the more ardent secularists may prefer not to mention the fact that the constitutional articles just repealed were not laid down by Ataturk at all, but by a military junta in 1982.

The day the vote to lift the ban passed there were no security incidence — and certainly none of the “chaos” predicted by a headline in Turkey’s best-selling newspaper, Hurriyet. Protests were vocal — but small — compared to the demonstrations held by secularists last year, when Prime Minister Recep Tayyip Erdogan was reported to be considering contesting the presidency.

As Erdogan pointed out, with oblique reference to Hurriyet’s headline, while tensions are running high over the headscarf issue, compared to other moments in the republic’s history, the law has passed largely without disturbance.

Prophecies of a return to the street warfare and political killings that bedevilled periods of the 1970s were unlikely, given that the two groups involved this time — moderate and conservative Islamists on one side and secular, social-democratic middle-classes on the other — are less prone to violence than the far-right “Grey Wolves” and student radicals of 30 years ago.

Erdogan has repeatedly stressed the AKP’s commitment to secularism and pluralism. “Nobody will force anybody to cover [her head] in this country,” he said on February 17, 2008. “If such things happen, we will fight against this with all of our institutions.”

The somewhat muffled response to the actual passing of the amendments may indicate that the opposition has largely conceded defeat. The AKP’s economic record has robbed the CHP and others of the opportunity to attack its competence. The timing of the headscarf issue was no accident. More than that, and given public support for lifting the ban, the opposition risked looking more and more like an out-of-touch elite from the big Western cities. It must now look for other battles to fight, perhaps looking at where the AKP has had more limited success, such as in eliminating pockets of poverty in some areas, and moving forward on EU accession.

Even before its crushing defeat at the polls, there was a consensus forming that the CHP’s leader since 1992, Deniz Baykal, very briefly (four months) deputy prime minister and minister of foreign affairs in the mid-1990s, should step aside. Some new blood (and new arguments) in the CHP could help it regain its pre-eminence, and recent events may hasten even the limpet-like Baykal’s departure.

Meanwhile the alliance over February’s Meclis vote and the recent military incursion into Iraq has taken the wind from the sails of the ultranationalists of the MHP, though the party will want its pound of flesh for supporting the AKP. The government, for the meanwhile, looks stronger.

Another reform — or change, depending on how it is viewed — the AKP is keen to push through is an overhaul of Turkey’s system of local government. Currently, the country is divided into 81 provinces, which are then subdivided into municipalities and city municipalities. The government proposes increasing the minimum size of a municipality, and giving more independence to provinces. The government would devolve control of education, healthcare and religious affairs to provincial level.

Istanbul’s administrative reform

Istanbul currently contains more than 70 local administrative units, making a complex mosaic, which, some say, leads to a somewhat inefficient method of government in a country which has only recently thrown off the slight that it is ungovernable. Thus the national government has drawn up plans to consolidate some of the districts, particularly those in which the population has changed considerably in recent years. While these plans appear to make administrative and democratic sense, some allege that they are designed to gerrymander Istanbul’s electoral districts in favor of the AKP in the run-up to the local elections.

Perhaps most controversial is the proposed division of the municipality of Kadikoy on the Asian side of the Bosphorus. Kadikoy is a bastion of the opposition Republican People’s Party (CHP), the second largest party in parliament, and renowned for its staunch secularism. It also has a large population of members of the Alevi sect of Islam. Alevis as a whole have been staunch opponents of the AKP, accusing the party of Sunni chauvinism and attempts to co-opt them into neutered community organizations.

Opponents of the Kadikoy split say that the government is trying to dilute the CHP’s effective vote by dividing it between AKP-dominated areas. Furthermore, there are fears about the proposed move of the central bank headquarters to the district from Ankara, which critics say will lead to the establishment of a financial district overwhelming the residential area. An unspoken concern for the CHP may also be that AKP voting bankers will move to Kadikoy and the surrounding suburbs. The proposed local government reforms have been almost drowned out of the news agenda by the headscarf issue, which is indicative of the symbolic importance of the latter in Turkish politics.

Another area that could be affected by these events is Turkey’s application to join the European Union. In 2007, progress slowed considerably. One of the main issues was the suspension of several “chapters” of negotiation over accession by the EU due to Turkey’s refusal to open its ports to ships registered in the Republic of Cyprus; the opposition of France’s President Nicolas Sarkozy, amongst others, has been another blow. There has also — indeed, consequently — been a significant weakening in the Turkish electorate’s support for accession; a majority are now opposed, according to most polls.

EU membership

Partly perhaps due to the symbolism of the headscarf question, the government has vocally restated its commitment to EU membership, with President Abdullah Gul declaring 2008 “the year of Europe,” a call echoed by some of the Cabinet.  “Turkey cannot turn back from the point we have reached in regard to civilization, modernization and Westernization,” said Meclis speaker Koksal Toptan, the second ranking official in Turkey’s state hierarchy and an AKP moderate. “There will be no change here. Turkey cannot give up on its target of membership of the European Union, which is part of its Westernization and modernization process,” he added.

There may be AKP internal politics at play here. There are rumors that Erdogan is losing enthusiasm for the European project. Gul, on the other hand, though previously seen by some as Erdogan-lite, is portrayed as staunchly pro-accession. Whether this is a sign of factions developing in the previously impressively united and disciplined AKP, or a case of “good cop, bad cop” is uncertain. But despite enthusiasm from Toptal and EU chief negotiator Ali Babacan, traction on European accession will be minimal without movement on Cyprus. Greek Cypriot voters unceremoniously turfed out the hardline President Tassos Papdopoulos in the first round of the presidential elections. That could have paved the way for a thaw in the iceberg dividing the two parts of the island. The accession to the Greek Cypriot post of the Communist Demetris Christofias after the second round of polls on February 24 could have eased the way to some progress, though he could scarcely be described as enthusiastic for reunification, despite his most recent words. Not wholly negative is perhaps a more fitting description. In any case, Erdogan may well have made the concept academic. Lifting the headscarf ban and under suspicion of trying to fix local administrative reform in his favor will hardly endear him to opponents of Turkish entry into the EU. The Turkish prime minister appears to have bigger domestic fish to fry and observers could be forgiven for thinking that his own enthusiasm for accession has sunk to the same level as that of the European Turkosceptics.

PETER GRIMSDITCH is editorial director at the Oxford Business Group.

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Levant

Opening up

by Executive Staff
written by Executive Staff

With private finance still in its infancy in Syria, private equity has yet to get up and running, but the foundations are being laid for a sector that could be as hot as elsewhere in the region.

Spearheading the direction private equity could take in Syria are holding companies, which were introduced to the market over a decade ago by the likes of former Lebanese prime minister and businessman Rafik Hariri.

But it has only been in the past few years that holding companies have started coming into their own, spurred on by the economic reforms implemented since the death of Hafez al-Assad.

The de-regulation of the finance and banking sectors has been the most crucial change, creating a more competitive financial environment as well as prompting businesses to pull up their socks and adapt to the new climate.

“Holding Companies are a new concept entering the terminology here,” said Dr. Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment. “Businessmen are thinking of setting up holdings, but don’t know the benefits and what it’s all about.”

New Company Law

Indeed, holding companies were not mentioned in Syrian law until 2000, in Law No. 7, which allowed for special tax treatment, and the recently enacted New Company Law has a section on holding companies.

Two Syrian holding companies are at the forefront of this fledgling sector. Souria Holding was established by 24 investors in early 2007, with a capital of $80 million, and is behind the entry of international supermarket chain Spinneys into Syria.

The biggest venture, Cham Holding, was established with a starting capital of $360 million by 70 Syrian investors, with business moguls Nabil Kuzbari the president and Rami Makhlouf the vice-president. (How last month’s decision by the US Treasury Department to freeze Makhlouf’s assets in US financial institutions, as well as prohibiting US citizens and firms from engaging in any business contacts will impact on Cham Holding remains to be seen.)

With the management largely consisting of repatriated Syrians who have had professional experience in the Gulf and the West, the company’s mantra is to “lead the private sector into the new era,” said Bahaa Issa, British-Syrian head of communications.

Part of this involves — as always — the creation of a brand identity to put Syria back on the international business map.

“Our vision is to be at the head of the train of the new economy, and we want to position ourselves as the opportune delivery system for the Syrian economy,” said Issa.

Cham Holding is focusing on six industries, including: BENA, for hospitality and property development; the Cham Capital Group, for finance and banking, capital finance and insurance; SANA for energy and power generation; health and education; and a new private airline Cham was recently granted a license to operate, Pearl Airlines.

According to Issa, Cham Holding plans to “create 50,000 jobs in the next five years, which would indirectly create 600,000 job opportunities.”

Since its launch in 2006, Cham has entered into a raft of strategic partnerships and joint-ventures. In December, it inked a $5 million partnership with British-US company Gulfsands Petroleum, which works in the US, Syria and Iraq. Cham has a 65% controlling stake, with the aim of acquiring high-value energy projects in Syria, and possibly Iraq.

In addition, Cham has entered into a joint-venture with three Kuwaiti firms to tender for large utilities and other infrastructure contracts in Syria, and is reportedly in discussions with Siemens to establish a ‘clean-coal’ power station. Encompassing projects valued at over $1 billion, Cham is also behind the Hejaz Railway station shopping mall, which has yet to get off the ground despite the foundations being dug more than two years ago, reportedly due to resistance from heritage groups.

More than greenbacks

Cham is bringing more than greenbacks to Syria, acting as consultants to the government and striving to introduce corporate governance and regulatory compliance through its own example.

“Compared to Dubai the challenges are tremendous,” said Mohanad Moussly, chief Risk and Compliance Officer. “Here the government is working with the mindset that the public sector is the best provider of services to the public, and to go into critical areas of industry. This mindset is changing, but public sector employees are hesitant about change.”

Holding companies as well as private foreign banks in Syria are hopeful that the upcoming Damascus Stock Market — which was slated to open in the first quarter but looks more likely to start later in the year or early 2009 — will spur on greater de-regulation and attract further capital to Syria. That will also include the entry of private equity firms.

Currently, there are few firms capitalizing on the opening of Syria’s economy. The UAE’s SHUAA Partners, a private equity arm of SHUAA Capital, has however invested $100 million in Syria, to enter the mobile telecom sector.

“We want to invest more in Syria. We have $100 million to deploy in equity and more than just equity when you factor in leverage. We want to go into three markets in Syria:  telecoms, financial services, and real estate/hospitality,” said Jamil Brair, SHUAA Partner’s senior vice president.

For the time being, Syria has further to go before there is a more profound entry of venture capitalists, private equity firms and the like, but holding companies are giving an idea of the direction a more capitalist Syria will resemble.

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Levant

Aviation taking off

by Executive Staff
written by Executive Staff

Fitting in to what appears to be the private sector’s modus operandi when investing in Syria in the wake of economic reform, private airlines are only this year taking to the skies, three years after the law had been amended. In 2005, Damascus allowed private investment in air transport for the first time in 60 years, during which the national carrier, Syrian Arab Airlines (SAA), enjoyed a monopoly.

But it has only been in the past six months that the private sector has started to capitalize on the liberalization of the market, with Damascus granting licenses to three private Syrian airlines, of which Sham Wings is the first to get underway with a charter flight to Sharm el-Sheikh in early February of this year.

This seemingly cautious approach to investing in Syria reflects the banking sector’s trajectory into the market, only setting up shop years after private banks were formally allowed into this formerly socialist economy. But the recent flurry of activity in aviation is indicative of the changes the economic reforms in Syria have brought about, with the time lag between the liberalization of the sector on paper and actual developments on the ground creating the conditions for a more viable aviation industry.

Rising tourism numbers

“The main reason for us to set up was the rise in tourists and Iraqis in Syria,” said Salim al-Sawda, technical director of Sham Wings Airlines, which was established by Iraqi and Syrian private investors.

In the past three years, investment in the tourism sector has surged from $400 million in 2004 to $2 billion in 2006, while the number of tourists visiting Syria has spiked from 2.5 million in 2005 to 3.1 million in 2006, according to the Central Bureau of Statistics. And if Iraqis and Lebanese were to be included in the figures, the number of visitors would stand at 4.4 million in 2006, versus 3.4 million in 2005, a rise of 29%.

Indeed, with an estimated 1.4 million Iraqi refugees in Syria there is a ready market for air links between Damascus and Baghdad, which until February had been dominated by Iraqi Airways (IA). Now Sham Wings offers flights, directly competing with IA at $567 return (due to high insurance costs at the Iraqi end).

Sham Wings, the country’s first charter airline, has started with one aircraft, a 147-seater McDonnell Douglas MD-83 leased on an ACME basis from an Egyptian company, that way getting around the US ban on the Syrian aviation sector.

The airline plans to buy aircraft “one by one,” said Sawda, and is currently in discussions to by a European-made Folker-100 jet. “We have already increased our timetable, not only to Iraq, but also Sharm el-Sheikh and Alexandria, and we will open a new line to Istanbul, as well as to Ukraine and Belarus. Our destinations will be ones not covered by Syrian Airways.”

The airline, which plans to be profitable within the next two years, is to be joined this year by Syrian al-Nisr Airlines (The Eagle), established by Syrian private investors Al-Harith al-Assad and Mayyar Arnous, and by Pearl Airlines, which is backed by Syria’s Cham Holding. Both airlines have been granted international licenses but have made no statements on intended destinations.

Other licenses are also pending, for cargo, charter and non-charter airlines, said Flight Commander General Hazim al-Khadra, director general of the Syrian Civil Aviation Authority.

“The policy of Syria now is to open the market in the field of aviation. But there is no Open Skies Agreement, only to Bassil al-Assad Airport in Lattakia, as we cannot do it at Damascus International Airport (DIA) since we must have more than one national carrier that can compete with other airlines, let alone the capacity of the airport itself,” he said.

Airport expansion

With the number of tourists visiting Syria increasing by 20% in the past year, and foreign investment flooding in, the country’s airports are witnessing a turnaround, with a 10.5% increase in passengers to 3.485 million last year.

According to al-Khadra, “This is a result of the action plan drawn by our leader, Bashar al-Assad, towards the development and rehabilitation of modernizing Syria.”

As part of the country’s second five-year plan for the 2006-2010 period, some $3.75 billion is forecast for infrastructure developments in the transport sector. Much of this is earmarked for port and road development, but aviation is also getting a much needed boost.

In January, Malaysia’s Mahibbah Engineering won a $59 million construction contract at the DIA to rehabilitate and upgrade the passenger terminal building, roads, car parks and parking apron.

This is just the start of major projects to expand the ageing airport, said al-Khadra, with plans on the drawing board to increase DIA’s current capacity from 1.5 million to 3.5 million passengers a year. “With the next fifth action plan there will be another terminal, catering to 7-8 million passengers, maybe in the next five years.”

The number of international airports is also to be increased, from the current five — Damascus, Lattakia, Aleppo, Deir al-Zor and Qamishle — to eight, with Homs, Tadmur (Palmyra) and Al-Raqqa to get airports of their own.

Al-Khadra said bids and tenders to build and upgrade facilities would be open to international bidders, and there was potential for ground services at the airports to be privatized, pointing out that “This all depends on the development of the economic situation in Syria. Nowadays, Syria values investment from everywhere.”

The number of airlines operating out of Syria could also increase from the current 40 that fly out of Damascus, but that is all “related to the political situation in the region,” according to him. “For instance, European and American airlines are not allowed to operate out of Syria. This is a consequence of the US ban against Syria.”

The US ban on Syrian aviation is one of the biggest hurdles the sector faces, not only in terms of increasing flight destinations and enticing operators, but in particular for the national carrier. Under the 2003 Syrian Accountability and Lebanese Sovereignty Restoration Act (SALSA), Washington placed a ban on all US exports to Syria, a ban on US investment in the country, and a ban on Syrian flights to the US, among other regulations. Under such sanctions Syrian Airlines is unable to upgrade its ageing fleet of Boeing and Airbus aircraft, last added to over a decade ago when in 1996 the US granted a special waiver to the airline to purchase used Boeing aircraft from Kuwait and two Airbus A320s in 1998.

“It is a big problem because US aviation interferes with the aviation industry, the spare parts for commercial airlines in particular, which maintain the safety of passengers. And these passengers aren’t only Syrians, but also Europeans, Americans, Asians and so on,” said al-Khadra. “Even Airbus is included in this ban as they cannot sell Syria any Airbus aircraft or spare parts because the Americans are between 10-15% shareholders in these companies.”

The other option for SAA is to buy Russian aircraft, but he said they lacked the American-made Airborne Collision Avoidance System (ACAS), which is essential for air safety and a requirement for commercial aircraft by the International Civil Aviation Organization.

Diversifying Syria’s air sector may therefore be the only way to get around the crippling US bans, for unless SAA gets spare parts, the airline could be permanently grounded — if planes don’t actually fall from the sky — as private Syrian airlines take to the skies.

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Egypt’s foreigners

by Norbert Schiller
written by Norbert Schiller

For foreigners and the Egyptian aristocracy, the 1952 July Revolution marked the beginning of the end of their rule. Gone were the Muhammad Ali dynasty and the influence of the British, Italians, Greeks, French, Levantines, and Turks. Now there was a disgruntled military in charge and it was led by a young and charismatic officer named Gamal Abdel Nasser. His first order of business was to change the nature and make-up of the government, most notably changing the country from a monarchy to a republic. As a way of minimizing foreign opposition, he assured those concerned that their interests would not be touched. After purging the government, he turned to land reforms breaking apart feudal farms and distributing the land among landless peasants. Then, after successfully nationalizing the Suez Canal in 1956, his government turned to the industrial, financial and commercial sectors, forcing the vast majority of foreigners, who had believed that their interests were safe, to leave the country, many penniless. With the old-guard out of the way and the foreign influence gone, Nasser finally turned to the Eastern block for military assistance and backing.

Even though Nasser’s socialist reforms have been in place for the better part of the past 50 years, present-day Egypt is more like it was under the King, though not as chaotic and elitist; a trickle-down effect has in fact created a thriving Egyptian middle class. But the economic power stills lies with the Egyptian elite, albeit a different circle, and once again foreigners are allowed to settle, own businesses, buy property, and build a future. In fact, this past year Egypt was named by the International Financial Corporation, the World Bank’s financial arm, as the world’s top reformer. It achieved this by cutting the minimum time required to start a business, lowering fees for registering property, and relaxing bureaucracy for construction permits. Last year, Egypt also emerged as the number one recipient of direct foreign investment in Africa beating South Africa.

On a recent trip to Egypt, I visited the Red Sea resort town of El Gouna, one of the most exclusive resorts in the country. While admiring the Abu Tig Marina with all its multi-million dollar yachts, I ran into an elderly gentleman who was asking for directions to a particular shop. There was nothing unusual about his request except that the man, who was obviously European, addressed me in Arabic. At first I thought that he was short sighted, because I, too, look very European, and to avoid embarrassing him I responded in Arabic. He responded with a big smile, thanked me, and walked off in the direction where I had pointed.

I didn’t think much of the encounter until a few days later when I was invited to dinner by a friend who wanted to introduce me to a few Europeans who have made El Gouna their home. The group was small and included the Italian women who owned the restaurant where we were eating, two Italian sisters, an Italian man who was the manager of the local casino, and my Lebanese friend who runs the winery in El Gouna. The conversation started out in Italian, but because neither my friend nor I could follow, the group began to split with some switching to English and the others French except for the elder of the two sisters who continued on in Italian. When she finally realized that I didn’t understand a word she said she switched to Arabic which came naturally to her. I asked her if she spoke English or French and she said, “not very well.” I then told her the story about the elderly European man who also spoke to me in Arabic. She asked about where I had seen him and if he was wearing locally made sandals. I said: “Yes, he was wearing shibshibs and I met him in the Marina.” She started laughing so hard that everyone turned around to see what was going on.

Her younger sister then jumped in and in English explained to everyone that the elderly gentleman was none other than their father who had been born and raised in Egypt to Italian parents. After finishing his studies he started his own successful textile business in Cairo. “Everything was going well for him until 1961 when Nasser began nationalizing all foreign owned businesses. My father thought that he was immune and continued on with his business as if nothing was happening until one day, in 1964, our family business was nationalized and we were forced to leave the country.” With nowhere else to go, and very little money, the family moved to Italy. The eldest daughter had also been born and raised in Egypt learning both Arabic and Italian at the Italian school. The younger sister was born after they had already left Egypt. “Italy was always my home but my sister and especially my father were really never able to assimilate back in our ancestral country and my father always wished to one day return to Egypt.”

A few years ago the elder sister visited the Red Sea and was so charmed by El Gouna that she bought a home there. The younger sister followed, also fell in love with the place, and bought a home there also. Suddenly the father, whose wife had passed away, became very lonely without his daughters and insisted that they bring him back to Egypt. Thus, when he was already well into his 90s, his daughters brought him back to Egypt and bought him a small apartment. “My father never felt at home in Italy, he always wanted to come back to Egypt even if it is just to die.”

With foreign investment at an all time high, maybe this nonagenarian may be able to pick up where he left off and start another business in the land of his birth.

Norbert Schiller is a Dubai-based photo-journalist and writer.

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Editorial

Fighting words

by Yasser Akkaoui
written by Yasser Akkaoui

This month’s Private Equity report represents not only a first for Executive in terms of size, content and execution, but I believe it has propelled the way regional business is reported to a new level. In essence, Executive has set a new benchmark.

We want the regional businessman — the chairman, the CEO, the fund manager, and the business owner — to see Executive as his magazine — the name after all is not a coincidence. We want Executive to be a magazine that monitors his/her business environment; that engages him/her on a personal level; that offers an open forum for discussion and encourages transparency in an increasingly transparent world. We will not so much judge as moderate.

The nature of communication has changed and so must the way we communicate. The media might remain the same but the methods of disseminating new data and telling the new business story must embrace the new dynamism that stretches from New York to Beijing via the increasingly important Middle Eastern gateway.

In this new and exciting era, awareness is high and business is changing, especially in the Gulf, where change is effected at a phenomenal rate. Yet the region is small and intimate and one of the deliberate aims of this and future special reports is to reflect this intimacy. To bring together the key players and accurately report how they perceive doing business in their own words; the new front line dispatches if you like. We want to be the magazine of record for those who shape business.

In doing this we have had to set new standards for ourselves. We must be extra diligent if we want to connect with the business community on its level. We can not rest on our laurels nor can we allow ourselves to just “get by”, month after month, as long as annual projections are satisfied. A good business will not operate like that and a business magazine that wants to maintain a keen edge cannot either. To truly report business it must abide by the same standards, and work under the same pressure as the people it reports.

Fighting words?

You bet.

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Lebanon

BLOM Cedars Balanced Fund – For Lebanese, by Lebanese

by Executive Staff
written by Executive Staff

Recently, BLOM Invest has launched an investment fund, the BLOM Cedars Balanced Fund. The fund is an open-ended mutual fund with weekly subscriptions and redemptions. It is a balanced fund in that it combines two asset classes: Fixed income from bonds, which comprise 75% of the fund, and a maximum of 25% invested in stocks. The fund will invest only in Lebanese securities, both stocks and bonds. Executive talked to Michel Chikhani, head of Asset Management, and Bechara Bardawil, portfolio manager at BLOM invest to discuss this new entry into the family of Lebanese funds.
 

What is so unique about this fund?

Bardawil: It is unique in that it is the only all-Lebanese fund that actually has a component that invests in Lebanese equities. The previous funds in Lebanon all invested in fixed-income securities only. The idea behind the fund is to enable our retail customers to participate in the Lebanese capital markets with minimum capital, starting at $5,000. They would participate in this basket and take advantage of any recovery that these capital markets should enjoy in case the situation in Lebanon stabilizes and would enter into a phase of catch-up with the rest of the region. Basically, this is a way to boost the return they are getting on their deposits especially in the climate of declining interest rates on the US Dollar.

Chikhani: Features such as weekly redemption and subscription allow investors to move into the fund more frequently, and eventually, if they want to move out from the fund, they can. In terms of the process of management, the risk management is very different because you have two asset classes — one of them is equities and the way we deal with equities is very different from how we deal with fixed income.

There are three aspects that are immediately striking: The low buy-in rate, the focus on Lebanon and the weekly redemption. Can you expand on these three aspects?

Chikhani: Concerning the low buy-in rate there are a lot of people that have savings and who are depositors. These people are potential investors, but unfortunately no one is addressing them as such. These potential investors are not able to take advantage of any of the opportunities that an investment could bring, instead they are just putting their money in bank deposits. If you take into consideration any country where you have people with small amounts of money, they still have access to investment vehicles. We started with $5,000 because any amount less than that we don’t see as being an investment.

We have two tranches of units, which is another unique aspect of this fund — one of them capitalizes and another distributes. Currently, people know more about interest rates and the bond market but very few understand the stock market. If one looks at the stock market from the perspective of the BLOM Index then it was very rewarding to stay invested in the Lebanese stocks. We don’t have a lot of Lebanese stocks but their performance has been significant for any one wanting to invest in them. However, in order to approach these markets you need professional people in terms of investing and this is what BLOM Invest is offering in this fund.

Was a weekly redemption approach taken so investors could easily get in and out?

Chikhani: It is much more to get in than to get out, because if someone has money he does not wait until the end of the month to decide to enter into an investment. People don’t want to lose time waiting for an opportunity. If they believe they have to invest, they want to do it now and this fund will give them the opportunity. All are liquid investments and as this is an open ended mutual fund there is no need to place money on a monthly basis. The weekly redemption is also for those that want to get out. If someone wants to redeem units to the fund, most likely the client needs this money for something else, so why should he wait a month to get his money out?

What is the recommended amount of time that people should leave their money in for it to properly mature?

Chikhani: As long as it takes to realize the expected annualized return. Otherwise, we recommend two to three years, the optimal being three years. Also, it is important for this fund that, since it has opened a window to the equity side, it will accompany the investment universe of the equity for the next 15 years. So basically, if we have more stocks that are going to be listed on the Beirut Stock Exchange or Lebanese stocks that are going to be listed abroad, it is going to be able to give access to the development of the financial markets as well. It is not to be restricted to what is available today in the market only.

Now, the proportion of 25/75 is one that we think is the most conservative knowing that the universe of stocks is very limited and quite correlated. However, with time we may change this within the prospective of the fund, or launch other funds once the underlying proportion has changed. We give the investor the opportunity to invest in everything that is available through a balanced formula, which we believe is conservative. And over the long run, we continue to offer investment vehicles that portray the Lebanese market universes in terms of liquidity, availability and instruments.

Bardawil: Although a lot of high net-worth individuals were interested in this fund, the bulk of people that this fund is aimed at are not the type of investors who would invest overseas, say in the US, Europe or China. The people attracted to this fund, psychologically, like to be close to where their money is invested. They know Solidere and the major banks and are living the economic and political situation everyday. For them it makes sense to invest in their own country.

Chikhani: We are very keen for the investors to know exactly what they are investing in. We don’t want people to think that we are offering something that we are not. That is why we kept the proportion of fixed income at a high level to protect the capital, although we don’t think the stocks will fall to zero. We took the maximum the stocks are going to fall, which would be a theoretical zero, and made sure it was protected. Although many investors have a lot of money, they are not the main target of this fund. We think that the retail market needs to be more educated and the road is long. What we are doing is conservative, heavily controlled but at the same time not static and forward looking, and certainly it is for the benefit of our customers.

It is very interesting that you focus on the Lebanese market. Is it not a high risk and unstable environment to invest in currently?

Chikhani: There is still a very wide gap between interest rates, the differentials between what we can get inside Lebanon and outside. Investors in Lebanon are all invested indirectly in the same instruments that we are talking about. We are talking about the fund that invests in securities in which the underlying investment is $30 billion already held by Lebanese whether this is eurobonds, directly or indirectly through the banks, or it is the stock market. So we are not trying to find some illiquid markets that we want to be in. We think that there is a sufficient underlying state in the market, which is already held by Lebanese and or institutions in and outside Lebanon that can justify the launching of a fund with such instruments. Now concerning the instability, the Lebanese market has proven resilient and uncorrelated to other markets. The volatility of the market is quite controllable and very low. We have seen major events taking place in summer 2006 without too many incidents on the market. If we take into consideration the risk of the instruments that we are involved in, we take into consideration liquidity risk, or counter value risk, or default risk, each component, whether fixed income or equity, has a different risk. We believe that by investing with deposits on the one hand, through papers from the central bank and commercial banks, through papers issued from the Lebanese government and through equities that are not held by the Lebanese government we are offering a nice combination for investors, which is 40-50% invested inside the government debt. We are betting on the dynamics of Lebanese corporations and their momentum outside the country, namely Solidere, and the main banks as well as other companies that may step in. We have valued many banks and see that their PE ratio and price book ratio are much lower than at other banks in the region, and so they are at attractive prices despite the unstable political situation. All the companies on the Beirut Stock Exchange have the desire to expand internationally, so it makes sense to include them in the portfolio.

Thus, although the political situation is unclear, many other issues have been quite stable in the country, in terms of development of business and the international development of business. The valuation is still low and we believe that all these criteria mean that it makes sense for investors to step in. We believe that the assets in which we are investing today are under-priced. The question is not just “Why now?” It is a question of valuation in a certain point in time, how much we want to value our investments in stocks and equities. The whole environment gives us a very decent price to step in.

What rate of return do you expect?

Chikhani: We believe it to be a between 8% and 12% plus.

Bardawil: This is annualized over a period of three years.

Chikhani: The benchmark is to be able to exceed the deposit rate and to give something that will compensate for the inflation rate, while also keeping this investment liquid, which is why it has a weekly redemption. For us, 8-12% is a very decent return.

How has the fund been received so far? 

Chikhani: The initial subscriptions have been more than expected and we are continuously receiving new ones.

Bardawil: There have also been very few redemptions, which means that people are not getting cold feet about this. Hopefully, our efforts, at BLOM, to instill in our retail customers the culture of long-term investment are succeeding.

Chikhani: But this is also because people know why they are investing as well. We have provided enough awareness in our branches and our staff to convey the message to our customers. And now we are moving broadly toward the market, but the product is not just dedicated to be sold in the Lebanon, but around the world.

 

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Lebanon

Recycling – The potential of garbage

by Executive Staff
written by Executive Staff

Garbage is a nuisance. It threatens public health and nature, as well as sticking around for generations to come. Disposing of it is an issue with which every country has difficulties, and only few have a handle on the problem. Burning trash and open landfills are part of the regular practice of most waste management services but for many reasons, neither of these is a good solution. However, waste can be controlled, and what we toss into bins as rubbish could be a money maker and even help the environment. All that is needed are the right governmental policies and the creativity of ingenious entrepreneurs.

Consumption behavior in Lebanon is different than the West. A typical Lebanese garbage bag is filled with nearly 70-80% organic matter, mainly food remains and paper. This can be compared to the trash content of New Jersey, where organic material makes up only 40%, according to Ziad Abichaker, CEO of waste management company Cedar Environmental. The remaining 20-30% of local trash consists of plastic, glass, metals, textiles, and miscellaneous material. Of the total waste content, only textiles — which account for less than 10% — are currently not recyclable in Lebanon, nor can they be sold to recycling centers abroad.

State of affairs in waste regulations

Waste collection, or the hiring of a collection service, is under the authority of the municipalities. However, regulations have not caught up with the times. As Abichaker pointed out, open dumping remains the main disposal method not only in Lebanon but in the whole of the Middle East. Open dumping, or landfills, means that all garbage, including recyclable materials and organic substances, is simply thrown together in one area. He explained, “They are used to the idea that garbage is waste, something to be disposed of.”

Not only is it a shame to waste materials that could be used again, this approach is an environmental hazard that leads to sink holes, methane gas explosions and fires from the organic materials rotting away.

Sukleen is the largest waste management service in Lebanon and operates within Greater Beirut and Mount Lebanon, with the exception of Jbeil (Byblos). Ill-equipped and under-

funded, most other municipalities are getting buried by their own waste. Jacopo Monzini, technical officer for the Italian Cooperation for Development, a general directorate of the Italian Ministry of Foreign Affairs, said that as 90% of municipalities are not covered by the Sukleen contract and therefore must deal with waste removal themselves, “They don’t know what to do with their waste nor have they any idea how to treat it.”

Ali Darwish, president of Green Line, a Lebanese environmental NGO, thinks that this is a national problem and thus requires a policy at the national level rather than policies that are decentralized and individualized for each municipality.

Currently, only an estimated 5% of recyclables (plastic, glass, metals) are being recycled and less than 20% of organic items are turned into compost, according to Wael Hmaidan, executive director of IndyAct, the League of Independent Activists. And, he said, at present cities such as Saida and Tripoli do not have recycling programs.

The Saida “garbage mountain” is a good example of an open landfill and its ramifications. The garbage site, 45m high and 150m long, has a total volume of around 1 million cubic meters. The landfill is a mixture of municipal solid waste but also contains industrial, hospital, and slaughter waste. Pockets of methane gas are formed inside the mount from the decomposing organic material and regularly catch fire.

The garbage mountain is a travesty both in terms of public health and the environment. Besides being an eyesore on the coastline and the terrible smell, the mountain is leaking chemicals into the ground water used for drinking and garbage regularly falls into the sea. Just in February alone, as a result of a winter storm the garbage mountain dumped an estimated 150 tons of trash into the sea.

Unfortunately, aggregate statistical information remains unattainable. According to Sukleen’s own estimation Lebanon produces 4,000 tons of waste per day, with Greater Beirut and Mount Lebanon alone accounting for 2,300 tons, but nobody knows for sure. The Italian Cooperation, through its Ross Program, has been working to collect data to fill this void. “If you don’t know how much waste you are producing, it’s impossible to plan,” explained Federico De Nardo, project coordinator at the Italian NGO. “You have to know how much raw material you are getting.” The Italian Cooperation is also collecting data on the amounts of material collected by the municipalities to forecast needs and help them to manage their waste and recycling. A major effort is the reorganization of recycling programs that previously had been random, and often resulted in potentially recyclable material to become unusable for recycling companies. By correcting this problem, the waste has also become more valuable.

Several NGOs have called attention to solid waste management and lobbied for stronger regulations and more efficient collection processes. However, most of their cries have gone unheard. In the past, development aid to Lebanon had included waste management. USAID has funded several facilities, but once the project had been completed these proved to be unsustainable. The Italian Cooperation is now rehabilitating five of those facilities to make them sustainable and restart recycling in the south.

NGOs are also battling the perception of many in the government that recycling is neither profitable nor worth the effort. But as Green Line’s Darwish pointed out, one perfect counter-example is the fact that hundreds of people are living from individual recycling collection efforts in the suburbs.

Out of the high density polyethylene (HDPE) plastic that makes up most plastic objects like, shampoo bottles, vegetable containers and flower pots are made. PET plastic, used in most drink bottles, is also recycled locally. Metals have to be shipped abroad to be recycled because of the high energy needs of their recycling plants.

With per-ton prices at $1,000 for aluminum, $400 for HDPE plastic, $250 for PET plastic, and $90 for other metals, the informal sector has become involved in picking through trash bins for extra cash. “The informal sector you see collecting cans and cardboard are now actually organized companies,” explained Hmaidan.
 

Sorting at the source

Sorting garbage is a multi-stage process. The most effective takes place at the source, i.e. when you throw your garbage away. Several projects are aiming at getting citizens to sort their waste at the bins themselves. In South Lebanon and the Bekaa, the Italian Cooperation has begun a public awareness campaign and provides public trash bins dedicated to organic and inorganic waste. “It’s very important for the municipality, as they can more efficiently separate the recyclables and get some income from recycling,” explained De Nardo. However, sorting bins is not a national policy and there are few working sites despite calls for more.

Composting

After sorting the organic from other materials, the waste is then processed in two ways. The recyclable materials go to specific recycling plants and the non-

recyclables make their way to landfills or are burned. The organic matter that should not be in landfills is converted into compost to be used by farmers as a soil enhancer and goes through an approval process for agriculture use. The Italian Cooperation, for their part, complies with European standards for composting. De Nardo insisted that there is a demand for compost in the South because of soil depth and mineral deficiencies as well as the lack of animal farming.

The business model for setting up a waste management plant is difficult. Cedar Environmental’s Abi­chaker explained that for the municipalities, setting up a recycling plant rests solely on the part of the investor as they operate under the assumption that the investor puts up all of the money for the plant (around $400,000) and they give the plant the garbage for free. However, he explained, “It’s not profitable now because if I have to put up the initial investment and operational costs, the break-even point takes between 7-8 years while the lifespan of the project is only 10 years.”

According to him, when Europe and the US faced the same problem with waste management they instituted what became known as a “tipping fee”: The public sector gives the plant a flat rate per ton of waste collected. With the tipping fee, the break-even point is shortened to that of a normal industrial plant of 3-4 years.

Getting paid by ton

The tipping fee isn’t without its critics. For Darwish, however, being paid by weight gives very little incentive to separate the refuse for recycling without stricter recycling policies in place but instead lends itself to collecting more and more. “When you get paid by the ton, you have more interest in collecting more tons to dump into your site.”
 

This situation, he said, has led to the problem with the Naameh landfill just outside Beirut. Instead of separating the waste and landfilling only those parts that could not be recycled or composted, the focus moved to simply collecting more. The landfill had initially been projected to run for 10 years. Because of open landfill policies in place the dumping ground reached its capacity halfway through and had to be expanded.

Lebanon’s most famous waste collection and recycling company, Sukleen, is a giant operation with around 1,200 regular employees and 1,800 cleaning operators. Its activities are handled by two main departments: City Cleaning Operations for the municipal solid waste collection, street sweeping, recycling, in addition to special operations, and Vehicle Maintenance & Repair. Both departments operate with the common objective of providing the best quality services for the community, in conformance with the ISO 9001: 2000 quality standard. The City Cleaning Operations units work around the clock. Sukleen keeps abreast with the latest technology in the waste management sector through, for instance, the implementation of the Fleet Management (FM) system, which is a monitoring system to evaluate the drivers’ performance and the vehicles parameters. As part of the FM, all vehicles have Global Positioning System (GPS) units that allows routes audit, planned versus actual routes comparison, and thus increases operations efficiency.

Sister company to Sukleen, Sukomi Waste Treatment runs four plants using a state-of-the-art technology for sorting. The final disposal of waste rejects and bulky items takes place at two different sanitary landfills, operated and managed by Sukomi. Both landfills were designed and constructed, and are operated, managed and controlled as per the British waste management standards and codes of practice. Both Sukleen and Sukomi are owned by Averda, one of Lebanon’s largest companies. Unfortunately, data for revenue is not available to the public.

Cedar Environmental operates nine facilities on a small, decentralized model in communities of around 25,000 people — located mainly in the south in Naqoura, Aitaroun, Jbaa, Queia, Qabrikha, Khirbit Siyum, Chakra and Kfarsir, and two in the north (Douma and Jbeil) — which makes for easier manageability and cuts transportation costs. Yearly revenue is around $1-2 million. The waste management company sorts out the recyclables into their different categories. Plastics are then further sorted by type, shredded and sold to other recycling plants. Organic materials, as usual, are made into compost. By using their odorless “Dynamic Composting Technology” in the process, Cedar Environmental has not faced the same NIMBY (not in my backyard) problems with which other operations have to contend. Altogether, Cedar Environmental is able to recycle 98% of the waste.

In order to be profitable, the company had to find innovative ways outside of the low tipping fee provided by municipalities and the recycled materials they sold. As a major innovation, Cedar Environmental has been able to produce a fertilizer out of their compost that has been authorized for use in organic farming. The quality of the compost can fetch $100 per ton instead of the non-

profitable regular compost.

Abichaker is working on an awareness campaign for farmers to make the switch to organic farming, which can get double the price of ordinary produce. Cedar Environmental is also doing a bit of its own organic farming to use as an example of just how profitable making the change can be.

He avers that “the switch is going from a quantity paradigm to a quality paradigm.” If farmers would come on board, he argued, Lebanese produce achieve value added and could serve the growing, very lucrative market for organic food. “Ultimately, I believe, we could be leaders in this kind of agriculture.”

 

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