Media Special

Rewarding creativity Regional ad awards handed out in Lebanon – Q&A

by Executive Staff
written by Executive Staff

Christian Cappe, CEO of the MENA Cristal Awards, president of the 2C Associés and general director of the Meribel Festival de la Publicité, struggled with local political developments to bring the awards show to Lebanon. But the organizers’ tenacity came through, and the ceremony honored the region’s best and more creative minds. Executive caught up with Cappe while he was in Lebanon.

E Describe your involvement with the MENA Cristal awards and the Meribel Festival. What inspired you to create a festival in the MENA region?

The Meribel Ad Festival was created in 2001 and for its first “edition” welcomed 300 delegates. In 2006, we received 850 delegates. This means the staff and I do our best to promote the event, searching new ideas on development and supporting networking between advertisers, clients and producers.

The MENA Cristal Awards was launched in 2005 with the aim of introducing an ambitious competition unprecedented in the Middle East and North Africa, the aim of which was to celebrate creativity in the region. Recreating the success of the Meribel Ad Festival in Europe, the MENA Cristal rewards the best works of the region with the famous “Cristal.” I really believe in this industry and my involvement is total.

E How would you describe the creative and advertising scene in the Middle East?

As Jacques Séguéla, vice president and worldwide chief creative officer of Havas Group and president of the MENA Jury said during the closing ceremony, “the level of creativity in the Middle East was very high this year, and comparable with what we can see in Europe at the moment.” It means that the standard of creativity in the area is improving faster but always keeping what is essential in the cultural identity.

E Do you see a large difference in style, caliber, etc. between entries for MENA Cristal and Meribel? Are there any regional trends that you find particularly interesting?

There is not such a difference between both events in terms of creativity and originality. The MENA region is emerging and proving to the world its capability and credibility in the industry. All the regional trends are being used in an intelligent and original way.

E Were there any entries you found particularly striking?

As organizers, we emphasize advertising and we must respect the necessary neutrality. Only the jury can judge creativity. Jacques Séguéla himself proposed to reward “Nedjma Couverture,” saying that this concept was the future: Interactivity between consumers and clients. So, the creative jury rewarded creativity, in particular the wonderful “Animals” by Saatchi & Saatchi Levant Beirut for the Ministry of Social Affairs, which won the Grand Cristal in the Film Cristal competition.

On the other hand, the Production Jury rewarded the excellence of the production of “In Games” by Grey Worldwide Beirut and City Films for the Asian Games Organizing Committee. This production was comparable to the very highest international standards.

E Did you face any problems in holding the awards in Lebanon, due to the current situation?

To be honest, of course. One of our biggest fears was the cancellation of lots of the delegates but this did not happen; in fact the response was fantastic. We could feel something indescribable. You have to live these emotions to understand. It was a hard mission but with the incredible support of the people from Lebanon and the region, we finally decided to carry on and hold it, whatever happened. I think it was the good decision. In addition, lots of the CEOs, chairmen, COOs of the biggest networks, big clients and producers were in Mzaar Kfardebian. They were happy to support the event and were amazed by the great atmosphere, the high-standard of the conferences and the quality of the winners. If I had to redo it, I would do it immediately.

E The Meribel Ad Festival is held every year in the same location in the French Alps. Will the MENA Cristal awards also adopt a permanent home? Would Lebanon be a likely candidate?

I would like to say yes. The locale of Mzaar Kfardebian is great and I do really hope the political situation will allow us to organize the next one in Lebanon. To be honest, it was quite complicated to do it this year, but the ski resort concept is magical and I am confident in the future. I believe in the MENA Cristal Awards and I believe in Lebanon.

E How have the MENA Cristal awards changed from the first
to second edition? What are some of your goals for next year,
or five years from now?

We consulted with the agencies, clients, production houses and the media to improve the quality from the first ad festival of the MENA region. The result was more competitions: Film Cristal, Outdoor Cristal, Magazine Cristal, Daily Press Cristal, Radio Cristal, Pluri Media Cristal, Cyber Cristal, and Marketing Services Cristal as well as the International Production Cristal to celebrate the work of production houses and technical industries. Our efforts were appreciated and we had the full support of those professionals who want to be involved in this initiative and who want us to develop this competition.

Furthermore, the year the MENA Jury was bigger, with 16 members representing important advertising networks and companies in the MENA area, and headed by Jacques Séguéla, a European with huge experience. For the sake of credibility and transparency, the votes cast in secret and even the jury didn’t know the winners until the ceremonies awards in Mzaar Kfardebian.

E Would you consider this year’s edition to have been a success?

Without hesitation, yes! We were the first ad festival of the year in the MENA region and we had transparency, a quality jury, great winners and exciting peripheral events. Also the fact that we [Séguéla, Dani Richa, President of the IAA Lebanon Chapter and Cappe] were received by Emile Lahoud, president of the republic and Fuad Seniora, prime minister, was a huge honor and great recognition for us.

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Editorial

Keeping the baby and the Baath water

by Yasser Akkaoui
written by Yasser Akkaoui

In 2005, the US and its allies, would have liked, by putting as much pressure on Bashar Al Assad, an internally-inspired regime change in Syria. Part of this strategy was the passing of UN resolution 1559, the architects of which were France, Saudi Arabia, the US and, exerting as much influence as they could, their allies in Lebanon.

But then Hariri was killed and Lebanon was (and still is) subjected to a sporadic campaign of instability and violence, creating uncertainty and confusion among its people.

Plan A therefore went the way of the St. Georges blast and the consensus was that a coalition of the willing, including Saudi Arabia, was drafting a Plan B to seemlessly remove the Baathists with little chance of an Iraq-style scenario developing.

But are they? While many see Syria only as a pariah state that has traditionally helped terrorists and extremists of every stripe set up an office here or launch an operation there, it might surprise many to learn that the regime has embarked full-throttle on a program of economic, judicial, banking and commercial reform.

One of the lesser members of the axis of evil has in fact styled itself as an axis of major investment. Banking licenses—both commercial and Islamic—are being issued with relative abandon and capital markets created. Real estate development is charging ahead with the likes of Emmar and Damac pouring money into mega-projects in the capital Damascus and elsewhere in Syria. Even adventurous Europeans are speculating on Damascene properties.

Yes, business plans for Syria are finding access to capital. Today’s investor community is simply not satisfied with a 10-15% return. The regional developer, financier or speculator will settle for nothing less than 25%, and it’s places like Syria—and Sudan and Kurdistan for that matter—that offer this.

Perhaps Bashar al-Assad believes that a growing economy with heavy regional investment may just be his get-out-of- jail-free card, or perhaps the investors are simply looking to get in on the ground floor with government incentives still on offer. They know their time will come, whoever is in power.

Either way, the money—and the promise of more— appears to be keeping the younger Assad afloat in some fairly choppy seas.

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Consumer Society

Ikea franchise unlikely in Lebanon

by Executive Staff
written by Executive Staff

Ikea has more than 250 stores in 34 countries, with over 310 million people visiting the low-cost home products retailer every year.

In Britain, according to one estimate, almost twice as many people visit an Ikea store on Sundays as attend church.

Not one percentile of Ikea’s annual visitor figures is likely to come from Lebanon anytime soon however, or indeed are Lebanese likely to read one of the 130 million copies of Ikea’s catalogue that were distributed last year. Neither is attendance at Lebanese places of worship likely to be rivaled by people opting to unpack and reassemble one of Ikea’s DIY wardrobes.

But why not? After all, the Swedish-created Ikea has had a presence in the Middle East since 1983 in Saudi Arabia, Kuwait in 1984, Dubai in 1991, and in Israel since 2001. In all locations the store has been a veritable hit, with enough demand in the UAE open a store in Abu Dhabi.

“We would love to be all over the world, and are growing with 20 new stores yearly,” said Charlotte Lindgren, Ikea’s corporate PR and media relations officer.

Stores are opening in China, two a year in Russia, and Japan is Ikea’s latest market.

So what’s wrong with Lebanon as a new store location? Firstly, it costs around $100 million to open one of Ikea’s aircraft hanger size stores, according to Lindgren, and involves a great deal of investment from not only Ikea but also franchisees—a price tag that would be equivalent to some of Lebanon’s larger shopping malls.

And secondly, just like there are no stores in South America or Africa, Lebanon arguably lacks enough people with the appropriate purchasing power necessary to make an Ikea store viable. Products would also have to be imported from Europe, and with the high rate of the euro right now could dampen Ikea’s competitiveness.

Equally, Lebanon does not have the expatriate population of the Gulf that needs to furnish new apartments on a regular basis as people come and go.

Although there would undoubtedly be a Lebanese market for Ikea’s designs, the Lebanese penchant for more traditional furnishings, such as handmade furniture and the ubiquitous Louis XVI style, would be an additional marketing obstacle.

And let us not even go into the state of the Lebanese economy, the political situation, and all the rest that is keeping foreign investors at an arms length.

But perhaps, and it is a big perhaps, some enterprising Lebanese might figure out a formula that could work here. After all, according to some sources, a Lebanese franchiser in Kaslik was interested several years ago in setting up an Ikea outlet.

The idea clearly remained a pipe dream however, and for the foreseeable future it would seem that Lebanese shoppers are to be confined to the traditional outlets, Khoury Home or BHV to supply furnishing needs.

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Capitalist Culture

The intifada will be televised

by Michael Young
written by Michael Young

Going back some 30 years, many Lebanese will recall that their civil war, which began in 1975, was mostly understandable to them through three mediums: newspapers, radio, and the more immediate experience of gunmen fighting in their streets. Television was far behind when it came to informing the public, or shaping its views.

There was a great leap forward in the mid-1980s, when the Lebanese Forces created the Lebanese Broadcasting Corporation. The television station not only allowed the militia to control an influential information platform when no one else did; it also (for those days) offered good entertainment, increasing the station’s popularity. It was a brilliant political gambit; but, most importantly, it was a brilliant financial one too. LBC brought much money to the Lebanese Forces, until the Hariri government’s new law on the audio-visual media in 1994 and the arrest of Samir Geagea formally took the station out of the former militia’s orbit.

Images equal political power

The audio-visual media law represented belated recognition of the political power inherent in owning a mass media outlet. The law effectively divvied up of the audio-visual landscape between major political leaders or institutions, who were granted directly or indirectly the means to get their message across. Prime Minister Rafik Hariri had his Future station, while Parliament Speaker Nabih Berri established NBN. Powerful politicians who didn’t own stations of their own invested in existing outlets, or maintained influence over stations owned by family members, such as Michel Murr in the MTV station controlled by his brother. The official Télé-Liban was gradually downgraded, though not eliminated, because President Emile Lahoud wanted his station.

In fact, Lebanon was going through two processes—both revolutionary in the Middle East: its leaders were embracing a potent new political medium, whose power was greatly enhanced by the expansion of Arab satellite broadcasting in the late 1990s; and they were doing so through private ventures. It was hardly ideal capitalism, since the audio-visual media law was oligopolistic, but it was vaguely capitalism nonetheless. And for all its faults, the audio-visual media sector was far more stimulating than what was on display in most other Arab countries.

But it was not democratic. The most remarkable example of television’s political potential came in 2002. In the Metn by-election that followed the death of parliamentarian Albert Mukheiber, MTV played a central role in mobilizing the then-opposition against a candidate backed by Lahoud and by Interior Minister Elias Murr. The election was a family affair, since MTV was used to support the candidacy of Gabriel Murr, against his niece Myrna, who was backed by Michel Murr, at the time Gabriel’s foe. But beyond that, the by-election was a referendum on the power of Syria and its allies in Lebanon. In voting for Gabriel Murr, many Metn voters were really voting against the Syrian-dominated order. MTV played the role of unifier between the diverse groups that formed the opposition coalition.

Taking mass media seriously

Gabriel Murr won the election, but this was reversed under political pressure. Murr’s victory was a red line that could not stand. The government’s harsh backlash showed how seriously it took the incident—or at least that part of the government allied with Lahoud, which saw Myrna Murr’s defeat as a personal affront. MTV was closed down, never to be reopened. There were obvious limits to what free media meant.

During the 2005 “Independence Intifada,” television stations again played a mobilizing function. That said, the old parameters of what was acceptable were basically respected. The audio-visual media were by and large conciliatory, reflecting the calculations of the members of a political class who did not want to break off contacts with each other. It was not until last year, following the summer war between Hizbullah and Israel, that media became more divisive—dangerously so.

The downside of privatization of the audio-visual media is that stations have become weapons in Lebanon’s internecine conflicts. During the rioting on Thursday, January 25, both Hizbullah’s Al-Manar and the pro-Hariri Future station fueled the worsening crisis. The essence of media liberty, no matter how imperfect, is to remain as objective as possible; or at least to avert violence. However, for Lebanon’s stations to become mere propaganda organs is precisely what capitalist culture in media, but also Lebanon’s best instincts of sectarian compromise, are supposed to avoid.

Michael Young

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Lebanon

Bias in the air – Lebanon’s political media

by Executive Staff
written by Executive Staff

The politics that have become so divisive on the Lebanese streets have reached the nation’s TV screens, prompting Lebanon’s media council chief Abdel-Hadi Mahfouz to blame certain channels for stoking sectarianism and engaging in political insults. “Media institutions are strongly asked to ease tensions and avoid transmitting news that might lead to strife,” he urged.

Lebanon has been plunged into a power struggle for three months now, ever since the Hizbullah-led opposition, mainly comprised of Michel Aoun’s Free Patriotic Movement, pitched their tents in downtown Beirut to call for the overthrow of the pro-Western government of Prime Minister Fuad Seniora.

Over the past five weeks the situation has become increasingly tense, following clashes between pro- and anti-government supporters that have left at least seven dead and 190 wounded. Purchases of automatic weapons have also reportedly risen, and in early February the government seized a cache of arms intended for Hizbullah, raising concerns that the sectarian conflict of Lebanon’s 15-year civil war, which ended in 1990, could return.

The two camps

Lebanese TV channels are split between the two respective camps: among major networks, Hizbullah-backed Al Manar TV, the National Broadcasting Network (NBN) and New TV are all pro-opposition, while Future TV and the Lebanese Broadcasting Corporation (LBC) are pro-government.

Although there are more channels critical of the government than pro, in terms of viewership LBC and Future have the lion’s share. The disparity could be minimized, furthermore, if pro-government Murr TV (MTV), which was kicked off the air by the former government in 2002 for criticizing Syria, returns to Lebanese screens.

“Every Lebanese TV channel has a propaganda leaning,” said Habib Battah, managing editor of the Beirut-based Midle East Broadcasters Journal. “Some try to be balanced, but all have their agendas. It’s pretty clear from the content they produce.”

Lebanon’s media has long reflected the country’s political and religious divisions, but sectarianism has become more pronounced following the war between Hizbullah and Israel last year.

“The interesting thing is during the July war the same footage was used on many channels, supporting Hizbullah. So sectarianism has gotten more derisive, more apparent,” said Battah.

Nabil Dajani, a communications professor at the American University of Beirut, agreed that the media are deliberately inflaming sectarianism, but he believes the blame should not lie solely with media outlets.

“You can’t only blame the media—who is behind the media? Politicians. And it’s the government’s fault for allowing the media to get away with it. There is an audiovisual law that prohibits sectarianism, but this government is delinquent and doesn’t step in,” he said.

Propaganda clips

Sectarianism and the trading of political insults are most apparent in news coverage and on talk shows. “An important event or speech will be covered by one set of media, but not by the opposing channels,” observed Battah.

One example was the demonstration on February 14, 2007, attended by hundreds of thousands of Lebanese to mark the second anniversary of the assassination of former Prime Minister Rafik Hariri. Opposition channels gave sparing coverage of the event, while pro-government channels LBC and Future TV gave extensive live coverage. “The media will also use clips taking (political) speeches out of context,” added Battah.

Future TV, owned by Saad Hariri, a member of parliament and the son of the slain former prime minister, and Hizbullah’s Al Manar TV are regarded by Lebanese media observers as particularly sectarian.

“There is intense rivalry between Future and Al Manar, from guests on talk shows to promo propaganda clips,” said Battah.

However, Nadim Munla, chairman and general manager of Future TV, disagreed that the channel is fuelling sectarianism in Lebanon.

“Lebanon is not going through normal times, so to assume or imply international criteria on Lebanese media during abnormal times is unfair,” he said in response to the Media Council’s recent statements. “All of Hassan Nasrallah’s speeches are live on Future, and we have a daily show that sums up all the news channels in Lebanon,” he added.

Moreover, Munla thinks the media council is “hypocritical” to call on TV channels to curb sectarianism, saying the council needs to start with themselves before pointing fingers, as many of its members are involved in the local newspaper market.

“They are political appointees. It is not impartial so I don’t want a lecture on how to do business,” he said.

Nonetheless, he also stated that the media should be at the forefront of change in Lebanon. Indeed, many channels are airing segments aimed at discouraging sectarianism and violence. One such montage on Al Manar showed a clock ticking back from 2007 to 1975, the year the civil war started. Attached to the clock were images from the recent clashes as well as archive footage, ending with the message “Let’s not go back” in Arabic.

A series of adverts encouraging unity around the idea of “I Love Life” have been aired on the pro-government channels, though the organizers of the campaign have stressed that they are an independent civil society gathering. Tensions are not expected to ease any time soon though, with Future TV to launch a 24-hour news channel and Michel Aoun’s party to launch Orange TV (OTV) later this year.

To the Future

Future TV expects to launch its new channel in the next eight to 10 weeks, “unless there are more unseen events,” said Munla.

The new channel is part of a major restructuring at Future, with new content on the entertainment channel and sales directed more at the Gulf region.

“The last pillar of change was to introduce a 24-hour news channel, the main reason being that in the last two years, we allocated more time to cover the news and current affairs,” said Munla.

He said the channel had regularly violated the time allocated to news, which is supposed to be limited to 20% of broadcast time, due to Lebanon’s turbulent politics.

“That affected our viewing base, and adversely affected our entertainment channel, so we will have a 24-hour news channel,” he added.

The new $10 million channel is considered a financial necessity as a result of the July war, with the conflict and the aftermath costing Future over 25% of its project advertising revenue for 2006. By launching the new channel with a state-of-the-art 1,800 m2 studio, Future TV intends to claw back its profits and regional position among the top five networks. Munla said that by the end of the year, Future hopes to return to “pre-recent event levels” and recover its market share by 2008.

News will be primarily Lebanese, but Future will also allocate 20% of coverage to European and Arab affairs, to boost interactivity and understanding between the two regions.

Meanwhile, OTV, the Aounist outlet, is raising funds through a joint stock company open to the public. Starting with a paid-up capital of $2 million, OTV has raised over $10 million via one million $10 shares to establish a terrestrial and satellite channel, and is currently embarking on a regional road show to whip up demand for the remaining shares.

Although OTV claims it will be objective, the channel’s name, recalling the trademark color of Tayyar, and thus the politics of OTV’s mascot, have prompted scepticism among commentators about how neutral it will really be unless there is greater involvement from foreign investors.

Not all bad news

The divergence of opinion on Lebanon’s TV screens may be perceived as fanning the flames of sectarianism and political divergence, but on a practical level, such a kaleidoscope of opinions can also be seen as indicative of a rather healthy, democratic media environment.

“If freedom of expression is measured in how often the opposition is on pro-government stations and vice-versa, we can be considered a highly democratic media industry,” said Munla.

From a certain perspective, Lebanese networks’ relatively open biases may be less dangerous than the illusion of neutrality propagated by channels in other countries. In Lebanon, viewers have the option of getting comprehensive coverage—they just have to watch news broadcasts from both political camps, and remember that the truth lies usually lies somewhere in between.

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Banking & Finance

Earning extra credit A surge in plastic

by Executive Staff
written by Executive Staff

Plastic is growing in the Middle East with the two leading global brands—Visa (12 million card holders) and MasterCard (undisclosed)—dominating the regional market.

During the 12 months to September 2006, Visa subscribers increased 23%; card sales value rose 22%, while retail sales volume went up 32%. In its results for 2006, MasterCard reported a growth of 46% in issued cards and a 34% increase in value of purchases, to $18 billion, across the South Asia, Middle East and Africa (SAMEA) region.

Denzil Lawson, MasterCard’s general manager for Middle East and Levant, told Executive that as of December 31, 2006, the company’s partner banks had issued 817 million cards for the brand worldwide, an increase of 12.3% over the same period in 2005.

“There is a huge potential for the growth of the payments industry in the region, and we expect that the usage of credit cards will further accelerate as consumers have a greater comfort level about making payments by using their credit cards,” Lawson said.

The United Arab Emirates is a particularly good market for growth in electronic payments. Although it is still a predominantly cash-based society—as are most Middle Eastern countries—it is more mature than others in the GCC in terms of card penetration, acceptance and infrastructure.

But Lawson noted that while the market has shown strong growth, its potential is still relatively untapped with many countries in the region having low card penetration of the banked customer base.

Among recent developments, local governmental bodies in the UAE have shown enthusiasm for automating payments through Visa acceptance—such as the Traffic & Licensing Department, and the Dubai Naturalization and Residency Department E-company.

Dubai eGovernment has teamed up with National Bank of Abu Dhabi (NBAD) to launch a co-branded Visa card that can be used for both eGovernment and day-to-day transactions. The promoters of the service say the new card provides a secure way for both individuals and corporations to conduct e-payment transactions with government departments.

According to MasterCard, the market in the Middle East is receptive to segmentation and this has enabled it to work on some innovative collaborations offering the cardholders card choices and benefits which are meaningful to them.

Ranks of Spending

According to Visa, Saudi Arabia ranks first in Visa card spending in the Middle East followed by the UAE and Kuwait. “GCC cardholders are increasingly taking advantage of the convenience and security of cards for daily shopping,” said Kamran Siddiqi, general manager for Visa International Central and Eastern Europe, Middle East and Africa (CEMEA) in the Middle East.

However, there is a downside. Credit cards can be just too convenient, with many customers forgetting just how punitive card companies can be with late payments. More than one emerging credit market has shown that a rapid rise in credit card market penetration often is followed by serious increases in consumer debt levels and, all too often, defaults.

Credit vs. Debit

The volume of credit card sales in the region is still a drop in the bucket, as MasterCard’s SAMEA turnover of $18 billion demonstrates when compared with the brand’s worldwide transactions, which totaled almost $2 trillion in 2006, generating Gross Dollar Volume (GDV) of $1.9 trillion, an increase of 14.9% over 2005.

“There are is debit card opportunities in Lebanon and Egypt, as well as the opportunity to increase the banked population,” MasterCard’s Lawson said. “Debit cards in the Middle East are predominantly used for ATM transactions. Mature markets see (point-of-sale) growth rates outstripping ATM rates.”

According to statistics provided by Visa International, the ratio of Visa debit card users to credit card users in the GCC is 4 to 1. Statistics also showed that the volume of retail purchase transactions with usage of Visa debit cards is 50% higher than the volume of transactions using credit cards.

That is good news for the card issuers, since credit cards harbor more earnings options and generate better profits to issuers than the debit cards with their remote risk opportunities.

The Visa card business in the UAE has been growing by more than 25% year on year over the last few years, and Visa’s Siddiqi said that by moving away from cash to automated electronic payments, bank deposits are deepened, thereby increasing funds available for commercial loans in the region—a driver of overall economic activity.

“The process also allows for greater transparency and accountability leading to stronger efficiencies and better economic performance,” he said, claiming that Visa’s role is beneficial not only to the financial services sector but also to the economy as a whole. “Recent studies have shown that card payment is a catalyst for economic growth and can help grow a nation’s GDP by 0.5% to 1%,” he added.

Fraud prevention

Although credit card companies are doing all they can to combat illegal activity by introducing chip-and-pin and security numbers, some credit card owners still appear to lose all sense of logic when it comes to giving people confidential information about their cards.

Commenting on fraud, Siddiqi said that Visa takes pride in the fact that the level of fraud associated with Visa card transactions from cards issued in the Middle East is currently one of the lowest in the world.

“This stems from a variety of reasons including the ongoing collective efforts of the industry as a whole. From Visa’s end, we support our member banks with product and technology development and risk management of online payments,” he said, adding that Visa is also actively involved in fraud forums and seminars with both member banks and local enforcement authorities.

“Constant innovation in new technologies such as chip cards also helps to mitigate the level of card fraud risk,” Siddiqi said.

In Lebanon

Economic growth and disposable incomes in the Gulf region are larger than the respective figures in the Levant and North Africa. Between heavily underserved credit card markets such as Egypt or Algeria and the frontrunners in plastic payments in the GCC, Lebanon occupies a position in the middle.

Figures released by Lebanon’s central bank show that the number of credit and debit cards issued at the end of September 2006 reached 1.257 million cards, down 1.9% from the second quarter of 2006, but up 10% on the year.

Banks—especially the retail-focused banks in the top segment of the market such as Audi, Byblos, Fransabank, and Credit Libanais, as well as foreign banks HSBC and Standard Chartered—have ridden the local credit card train in Lebanon for a good while now, building their card programs around the standard parameters of staggered spending limits and special feel-good factors for the wealthiest and most profitable customer groups. But the Lebanese banks have also developed lifestyle cards and co-branded cards that appeal emotionally to air travellers, fashion fans, cigar smokers, compulsive mall goers, or simply central bank employees.

Payment card usage by the resident card holders in Lebanon increased 24.2% to an average monthly amount of $44.4 million in the first nine months of 2006 when compared with the same period in 2005. With an increase of 4.01% to about $850,000 in monthly average, card usage by visitors and non-residents in Lebanon showed much lesser growth last year, hardly surprising in light of the tourism malaise caused by the war last summer.

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Comment

Paris III provides some relief but debt situation still perilous

by Mounir Rached
written by Mounir Rached

The exuberant Paris III conference provided $7.6 billion in concessional pledging; certainly, a positive outcome as concessional loans—loans with flexible terms for the borrower—are more favorable than market borrowing in terms of debt service cost. The donors pledged $1.3 billion in private sector loans reflecting their concern that the sector has been constrained by stringent high-cost financing. A key issue is how these pledges, when they are realized, will impact government finances.

Taking away the $1.3 billion earmarked for the private sector through the voluntary intermediation of the private domestic banking sector and $750 million in grants, leaves $5.6 billion available for government financing between now and 2011.

Preliminary reports indicate that out of the $5.6 billion, budgetary support (funds not requiring conditionality) is not expected to exceed $1.3 billion. Of remainder of the financing, $4.3 billion will be tied to the donors’ reform package, implying a rise in spending by an equivalent amount to implement the conditions set by donors.

Debt accumulation with Paris III assistance is therefore expected to reach at least $11.8 billion by 2011 to finance the rise in fiscal deficits reflecting the increased capital spending associated with reform (excluding the additional interest payments associated with debt service). As a result, the total debt could rise to $52 billion and the debt ratio to 167% unless a significantly higher growth rate is realized. Alternatively, debt accumulation without Paris III financing was expected to reach $49 billion, 158% of GDP, as a result of cumulative projected deficits over the same period.

Yes, Paris III disbursements may not necessarily mitigate the debt burden and could indeed make it bigger. However, this is still certainly much better than what would be anticipated without the implementation of a reform program, which would see the debt increase to an unsustainable 180%. This highlights the significance of the reform program, and the need for higher grants in the aid package. Privatization and mobile licensing could further enhance the debt outlook through debt write-offs and enhanced growth potential.

Paris III financing, however, provides added benefits: debt maturity structure and debt service will improve in comparison to alternative sources of financing, mainly market borrowing. Further debt diversification by the government—by practically doubling the official debt—would reduce exposure to market pressure, secure better credit rating on international markets and possibly reduce the vulnerability of the banking sector as the government seek recourse to alternative financing.

The tax and expenditure package designed to bring revenue and expenditure to 25% and 27% of GDP respectively by 2011 is also step in the right direction. The higher VAT and higher receipts from Global Income Tax could compensate for the revenue loss resulting from the European Free Trade Agreement (EFTA) sequenced tax reduction—12% annually to be eliminated completely by 2015— on selected imports originating in the EU. However, VAT needs to be streamlined to preclude tax cascading. Most of the gain in expenditure decline could be generated from terminating transfers to EDL, which make up 3.5% of GDP alone.

The tax on interest income earned by residents and non-residents, estimated to raise revenues by 0.5% of GDP, deserves a careful review as it lowers the effective interest rate earned and may lead investors to reconsider keeping their funds in Lebanon.

Other elements in the recovery documents, such as pension reform, are positive and reassuring, but there are governance and accountability concerns in other areas that are themselves issues earmarked for reform. A well-articulated plan with a comprehensive timetable for all reform is needed if a reform plan is to be held up for public accountability.

The main challenge for the government is to proceed rapidly in implementing the proposed reforms with a high priority placed on accountability, governance and transparency. Allowing access and monitoring by independent citizens’ oversight groups is one way to regain public confidence and ensure a credible and effective implementation of reforms.

Dr. Mounir Rached is a senior IMF economist and founding member of the Lebanese Economic Association. The views in this article are those of the author and don’t represent those of the IMF.

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Comment

Middle East coming out as top spot for emerging markets

by Fadi Chahine
written by Fadi Chahine

So, you are an emerging markets investor, or concerned about the volatility in the US or European markets. If you have worries about a slowing of Chinese investments, or you believe a global financial bubble is about to burst, you may want to consider pouring some of your assets into the number one emerging market in the Middle East: Saudi Arabia.

Experts say the safest emerging markets are those which are flush with liquidity. This allows investors to keep investing and buying, even when an emerging market undergoes a correction.

Case in point: Saudi Arabia and the GCC. Although the Saudi stock market and its smaller neighbors experienced substantial corrections in 2006, their fundamentals have remained strong and analysts said the drop was softened by their abundant liquidity. We all know the story of the oil price boom of the past two years and how it swept billions of dollars in windfall revenues into GCC economies, driving their stock markets up.

Until February 2006, GCC bourse indices broadly mirrored the upward price movements of oil. But then the investors caught on to the notion that price-to-earnings ratios of 30 to 40 times have moved beyond reason. It has been well reported how retail investors, who jumped on the bourse bandwagon late, lost their (borrowed) shirts in the downturn.

However, the second half of the story is that the fundamentals of corporate health—at least for blue chip firms—in GCC markets are today better than recent stock prices suggest. This has a lot to do with the way in which the high GCC oil revenues have percolated into the economy and created growth potential.

Should you trust Gulf markets, especially the Saudi Stock Exchange? You may want to take a cue from the prince, and this is not Machiavellian talk. In early February, Al Waleed bin Talal, nicknamed by Time magazine as the Arabian Warren Buffett, announced that his company, Kingdom Holding Company (KHC), has approved a plan to invest around $2.5 billion in the Saudi stock market. The money will mainly go to the banking, media and real estate sectors.

Middle East markets trending upward despite volatility

Still concerned? It is true that some Saudi investors in spring 2006 tried to prop up the Saudi bourse through loudly-announced share buying that slowed the slide but could not stop it. But this is different.

Al Waleed’s modus operandi is to buy strategic stakes in global brand name companies during times of distress on the stock exchange, and to work closely with management to engineer a turnaround. Al Waleed sees the markets in the Middle East, where most of his money was being invested since 2004, as “trending” upward.

Al Waleed’s confidence appears to be well-placed, as the latest figures of corporate earnings for the listed companies have registered strong and consistent growth in the last five years. At $458 billion, the Tadawul Stock Exchange is the fifth-largest in market capitalization within the global emerging market universe, and the most liquid.

After a 32% drop in market capitalization as of early 2006, valuations improved and positive projections are expected for the next five years. SABIC, the petrochemical and construction company for example, is selling at 15 times the expected 2006 earnings, down from a peak of 40. American and European banks, which have long scoured GCC countries almost exclusively to reel in high net worth clients, are increasingly paying attention to the development of these markets. The analysts of these global banks now recommend bouquets of strong but undervalued Saudi companies.

Sound good? There’s just one catch: To invest you must be a Saudi resident. So start making friends in Riyadh.

FADI CHAHINE is the Managing Editor of Regional Press Network (RPN)

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The battle for the South

by Nicholas Blanford
written by Nicholas Blanford

The battle is on for hearts and minds in South Lebanon. Taking advantage of the devastating Hizbullah-Israel war last summer, the government of Prime Minister Fuad Saniora is hoping to undercut Hizbullah’s traditional dominance of the border district through a two-pronged approach of external financial assistance and international diplomacy.

The former is being conducted through a novel scheme of allowing nations to “sponsor” the reconstruction of southern villages. The purpose of direct funding is to bypass the state’s turgid bureaucracy and allow money to reach where it’s needed with minimum delay.

According to government-compiled statistics obtained by Executive, as of February 8, 2007, $145.5 million has been pledged to fund the reconstruction of 241 villages in South Lebanon and the western Bekaa; foreign direct funding accounts for $121.1 million of the total. The largest contributor is Saudi Arabia with $64.9 million for 42 villages, followed by the United Arab Emirates with $23.2 million for 16 villages and Kuwait with $19.2 million for 17 villages.

Gulf sheikhdoms rebuilding the South

Separately, Qatar is funding the reconstruction of four towns and villages in the border district—Bint Jbeil, Ainatta, Aitta Shaab and Khiam. Qatar has so far provided $34 million in housing assistance, according to the government figures. The Council of the South estimates total damage in the four towns at $124.5 million.

Apart from Syria, which is sponsoring two villages with a $3 million contribution and Indonesia which also is sponsoring two villages with $784,000, all the state sponsors are from the Gulf.

The political ramifications of the state sponsorship are not lost on Hizbullah. Indeed, it is especially ironic that Qatar—a country that houses the largest US base in the Middle East and has economic relations with Israel—is sponsoring the reconstruction of four towns in South Lebanon where Hizbullah fought its most stubborn defense against the Israeli onslaught last summer. Among the 42 towns and villages being sponsored by Saudi Arabia are Hizbullah strongholds such as Nabatieh and Zawtar Sharqiyeh.

Hizbullah has decided to bite its tongue and say nothing about the sources of funding, although it is fully aware that the motives behind it are not purely altruistic. By allowing key Sunni Arab countries a stake in the villages of the South, the government is hoping to chip away at the district’s reliance on Iranian funds delivered through Hizbullah.

To that end, Seniora is promoting the idea of constructing community libraries in southern villages complete with internet access to potential sponsor countries. In a recent conversation, Seniora explained to me that he hoped to open up the villages to the outside world through the internet.

Seniora’s preoccupation with South Lebanon is evident from a military map he keeps on a stand in the corner of his office in the Grand Serail. The map is covered in a red rash of dots marking Israeli cluster bomb strikes during last summer’s war.

The prime minister has invested much of his diplomatic and political energy in trying to convince the international community, chiefly the Americans and leading European nations, of the wisdom of an Israeli withdrawal from the Shebaa Farms. His seven-point plan—drawn up during the war as part of the negotiations over what became UN Security Council Resolution 1701—recommends that the Farms be turned over to the jurisdiction of UNIFIL pending a formal agreement between Beirut and Damascus on the sovereignty of the 25-square kilometer mountainside.

Resolving Shebaa Farms a necessity

Resolving the “bleeding wound” of the Shebaa Farms has become a cornerstone of the government’s foreign policy, Seniora says, and he wastes no opportunity to raise the subject with his international interlocutors.

“I don’t think there is an official in the world that has not heard of the Shebaa Farms,” he told me recently in an interview.

In 2000, the UN ruled that the Shebaa Farms is Syrian territory occupied by Israel, and that the Jewish state was not required to abandon the mountainside to fulfill Resolution 425 which called for an Israeli pullout from all Lebanese land.

It is a mark of Seniora’s diplomatic tenacity that the UN has agreed to take another look at the sovereignty of the Farms and to assess whether a modus vivendi can be reached that is satisfactory to all parties.

UN cartographers are presently attempting to delineate the geographical perimeters of the Farms, after which it will be up to the UN to assess what do next. Seniora hopes that an Israeli withdrawal from the Shebaa Farms will remove the last raison d’etre for Hizbullah’s military wing. What is the need for a resistance if there is no longer any occupation to resist?

However, Hizbullah long ago finessed this argument by declaring that the resistance is required for as long as Israel remains a threat to Lebanon. Such a nebulous, open-ended condition means that Hizbullah would retain its arms until at least the conclusion of a comprehensive Middle East peace—far longer than Seniora and his political allies care to contemplate.

Seniora believes that the level of foreign support for his government will be measured by the international response to his Shebaa Farms initiative. “This is one of the very important tests of support for this government. Economic support is essential, but not sufficient. We need the political support as well,” he says. He added that he was seeing the “first signs of readiness” from the international community to support an Israeli withdrawal.

Seniora’s actions may be limited

But that readiness may not translate into action. The US is reluctant to give Israel the necessary coercive shove for a withdrawal from the Shebaa Farms because of the fragility of Israeli Prime Minister Ehud Olmert’s domestic standing. The Olmert government may well yet collapse due to the continuing political backlash from the Hizbullah-Israel war. That argument is heightened by the fact that Israel can be offered no guarantees that Hizbullah will disarm if the Shebaa Farms are liberated.

“Hizbullah’s arms are an obstacle to the [proposed Israeli withdrawal from the] Shebaa Farms rather than a solution,” one Western ambassador told me recently.

For now, Hizbullah has chosen to fight its battles on a political level against the government in Beirut rather than militarily against Israel from its traditional stomping ground south of the Litani river. But that may not last much longer. Hizbullah has indicated it is willing to mould some form of national resistance force—similar perhaps to the Hizbullah-trained and -directed multi-faith Lebanese Resistance Brigades, which participated in attacks against Israeli occupation forces in the late 1990s.

If the confrontation between the government and the opposition continues to stagnate, Hizbullah may begin to look anew at the military possibilities in the South—further complicating Seniora’s efforts to reach a peaceful solution.

NICHOKAS BLANFORD is a Beirut-based journalist and author of Killing Mr Lebanon – The Assassination of Rafik Hariri and its impact on the Middle East

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US presidential race heats up

by Claude Salhani
written by Claude Salhani

For the first time since 1952—since Dwight D. Eisenhower was in the White House—neither the incumbent president nor his vice president is in the running for the top job in the country. George W. Bush will have served two terms, making him constitutionally ineligible, and Vice President Dick Cheney? Well, realistically, his chances of being elected are about as good as his hunting skills.

The result is that the floor is wide-open and there is no shortage of candidates from both sides. But who would be most beneficial for the Middle East, especially as the Arab lobby in Washington is still light-years away from being able to influence a presidential election?

On the Democrat’s side, the leading contenders are Hillary Clinton, a senator for New York; Barak Obama, a senator from Illinois; and Sens. Joe Biden of Delaware and Chris Dodd of Connecticut. Another candidate outside of Congress is John Edwards, the former one-term senator from North Carolina and vice presidential candidate in the 2004 elections.

On the Republican side there is Sen. John McCain of Arizona; Sen. Sam Brownback from Kansas; former mayor of New York, Rudy Giuliani; Massachusetts Governor Mitt Romney; and possibly even former House Speaker Newt Gingrich—to name just a few.

While it is still far too early to draw any conclusions on the Republican side, early polls place McCain and Giuliani as the leaders of the pack, although the buzz around Republican circles predict the party’s nomination is likely to go to a more conservative candidate; Romney is a possibility, but his Mormonism might not play will with evangelical voters, who tend to be suspicious of the faith.

So far, most candidates have avoided touching on the morass that is Middle East politics, other than to weigh in on the war in Iraq, viewed from a domestic perspective; should the US stay the course, as President Bush advocates, or declare victory and bring the troops home? Without getting into too much detail, overall, Democrats favor a pullout while Republicans say the US cannot afford to abandon Iraq. Although the Democrats realize that quitting Iraq cold-turkey is unrealistic, many Republicans recognize that the war will not be won through military means alone.

Regardless of who grabs their party’s nomination as a first step in the battle for the ’08 presidency, and ultimately wins the hearts and minds of the American people, Iraq will remain a major player in the US presidential campaign.

From Hillary Clinton to John McCain, Iraq, and now Iran, are the top items of concern when it comes to foreign policy. As for the crux of the Middle East issue—the Arab-Israeli dispute—most presidential contenders are happy to steer clear of the thorny subject as long as possible. That is usually until the televised debates, when the front-runners have to demonstrate their understanding of world politics and how they would handle those issues.

So where does that leave the Middle East? Pretty much in the same mess it has been in, except maybe for Lebanon.

While most, if not all presidential contenders—Democrats and Republicans alike—are likely to come out in support of Israel in any Mideast dispute, they are also more likely to continue Washington’s support of pro-democracy movements, while mistrust of Damascus should play in Beirut’s favor and continue to ensure US support for a legitimate Lebanese government.

The bad news for Lebanon, however, might be in the new American president’s support of Israel. Again, from Hillary Clinton on the Democrat’s side to Rudy Giuliani or John McCain on the Republican’s, chances are they will show greater support for Israel than for Lebanon or the Arab world. Seeing that Israel is not about to forgive or forget its most recent entanglement with Hizbullah in Lebanon last August, there are good chances that the Jewish state will opt for a re-match, once a new occupant is in the White House.

Bush continues to back Lebanon’s government. In his State of the Union last January, Bush made a point of mentioning the assassination of Industry Minister Pierre Gemayel, stressing his administration’s support of a free and democratic Lebanon. In a private discussion with a group of journalists and think tank analysts in Washington in February, Amin Gemayel defended Bush, declaring: “Say what you want about Bush, it was thanks to his support that Syrian troops finally withdrew from Lebanon.”

CLAUDE SALHANI is International Editor and a senior political analyst with United Press International in Washington. 

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