Economy & Finance

Precious metal?

by Executive Editors
written by Executive Editors

There is almost unanimity on the precious metals among market participants. Almost every analyst, every brokerage house, and all speculative type players have their eyes glued to gold and silver. There has also been a drag effect from other markets, such as oil and copper, and since historically, they tend to move in tandem, the commodity boom has been eye-popping. The backdrop for the rise in metals has been near perfect in terms of rationale. The fans of precious metals base most of their argumentation on the global financial excesses, the looseness of central bank policies which weaken currencies and their gloomy outlook on the world in general, from a geopolitical perspective. More recently, the advent of China on to the scene as a large buyer of metals, especially copper, has added yet another compelling layer of positivism on to the view. Precious metals are seen by many as a unique store of value in a turbulent world, and given the performance of gold and silver in the last four years, it is a tempting argument.


Since 2001, silver is up nearly three fold, (300%) and gold about 250%, since the beginning of 2006, they have risen nearly 20%, dwarfing all other asset classes. So the purchasing power of silver and gold has gone up significantly faster than inflation and paper assets. So it is understandable that some are getting excited, especially that some of the fundamental arguments in favor of investment in precious metals are compelling. So is it time to take the plunge, or at least to consider precious metals in your overall asset allocation decision? The excess excitement, media hype and the technical backdrop, paint, for the contrarian investor, a different picture though, one of caution ahead.

Need to diversify
Although precious metals have attracted a lot of attention on their own merits, namely that they are perceived as a hedge against inflation and protected in case of outbreak of war and terror, perhaps the super spike in oil has played a part in their rise. Central banks, having spent most of the 1990s selling their inventory of gold are now scurrying to buy back as they look to diversify their assets away from the monolithic US Dollar. The reasons or pretexts behind the comeback of precious metals vary from one country to another, but on a global basis, most central banks have spent the last decade injecting liquidity into the system. So this rise in money supply across the globe, averaging nearly 8%, certainly helped, and with interest rates unusually low from a historic perspective, there was little to hinder the move up, and demand for physical gold in Asia added fuel to the nascent fire. There are even some sound and well formulated arguments that given the irresponsibility of central banks and the FIAT system of currencies, gold (and to a lesser extend silver) will end up replacing paper currencies completely.
They argue, somewhat correctly, that the fragility of the global financial system and the trend toward competitive currency devaluation, i.e. countries loosening their monetary reigns in order to compete in trade, will lead to a systemic breakdown and gold’s function as a store of value will take on a new dimension. It is true that central banks have been on a reckless money printing binge, and the money supply figures worldwide paint a picture of a mad rush to maintain liquidity high and avert a global recession. While we may agree that in the medium to long term, there are many imbalances in the global financial system, some large overvaluation in equity markets, and an excessive debt and real estate bubble, and that gold will be possible many times more expensive in a few years, it is unlikely to continue rising from current levels due to a multitude of reasons, the main ones being the overstretched technical condition.
The decline on the dollar, the rise in demand for commodities from China, and the concern over geopolitical risks (Iraq, Iran, and risk of terrorism) may have all constituted facilitating factors for precious metals revival and most portfolio managers and fund players are now looking at precious metals as an integral portion of their assets. The managers that had included metals in their portfolios have seen a positive impact from the rise on their overall returns, and the presence of gold (and oil) is a must in any portfolio, but the timing of such inclusion is crucial. While these asset classes serve to cushion the portfolio in times of crises, as gold and silver tend to be negatively correlated with traditional asset classes, they are not always safe to own. Currently, the technical analysis of metals, and to a lesser extent oil, points to lower prices ahead.

Bubble?
Analyzing the technical position of any commodity is a two step approach: first we look at the chart patterns, and next we look at the level of commitment of traders report. As can be seen in the charts here, the charts are painting a picture of excess. The pattern of the rise is almost vertical in its latest rise and this, coupled with a high degree of excitement on the part of the media and the public is a warning sign. This kind of action reveals a bubble-type environment, where the attitude seems to be, “get in before it’s too late”, a notion often associated with major tops, not healthy trends. This may seem like anecdotal evidence, but this type of enthusiasm for any market belies a simple fact: everyone involved is expecting a similar outcome: a rise in prices.


Another key factor in looking at commodities is the distribution of contracts in the futures market, is the Commitment of Traders Report, which shows which type of trader is holding and selling. There are two broad categories of traders: the commercials, i.e. traders involved in the commodity on a production level, and the speculators, which are mainly punters of the stuff. For a market to rise in healthy and balanced manner, demand must stem mainly from the commercials that use the futures market to hedge their production, and the speculators must on aggregate be selling. This is where you have a healthy balance between “genuine” and speculative demand.
At the time of writing, both silver and gold are in a position where speculators are aggressively buying and the commercials are selling, this is very frequently the nail in the coffin of the bull market. Silver will hit major resistance near $15 and gold will find it difficult to move much above the $650 area. In all likelihood, investors looking to add these assets to their portfolios must wait for lower prices and a more balanced set-up of players in the futures market. Due to the advent of Exchange Traded Funds, small investors no longer need to buy futures or physical commodities to participate, they can use the Barclays GLD and soon SLV actively traded on Amex to buy and sell. Again, this timeframe will probably mark the highest point in the precious metals and technically the charts point to at least a 25% drop before they are safe to own again.

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Feature

Jazeera goes global

by Executive Editors
written by Executive Editors

Al Jazeera’s forthcoming English language channel has the potential to be one of the most exciting projects in the world of television journalism in years.
After the Arabic channel’s controversial but ultimately successful coverage of the Afghanistan and Iraq conflicts, the Qatar-based channel has developed a reputation for brave reporting and risk-taking.
As a result the Al Jazeera brand is considered young and edgy and was voted as the fifth most influential brand in the world by a Brandchannel magazine in 2005.

Launch delayed
Al Jazeera International, as it will be known, says it aims to tap into the English language market and cover global affairs with the same maverick spirit it has shown Arab viewers.
The channel was supposed to appear on our television screens this month but has been delayed once again and as curiosity over the project grows, there are rumors that the ambitious network may be struggling in its attempts to crack the English-language market.
Al Jazeera International has still not fixed a launch date, but say they will start broadcasting sometime this year, after failing to meet a launch target in November 2005. The channel says the delays are a result of technical problems.
“There is too much at stake and we owe too much to our viewers to launch on an arbitrary deadline. We want, first and foremost, a quality product. Our technology consultants will offer us a slightly revised timeline for launch, but in the big scheme of things, we don’t expect too serious a delay from our target” spokesperson for the channel told EXECUTIVE.
Despite the advantages of Al Jazeera’s “rebel” image, the name also carries baggage, and the team of British TV executives brought into launch the channel has had a tough job trying to convince some elements in the West of the network’s credibility.
The trouble is that Al Jazeera Arabic has something of an image problem. It has been accused of having links with Al Qaida terrorists, Iraqi insurgents, and of pushing an anti-American Islamist editorial line to its 50-million-strong Arab audience.
Still, while the channel’s airing of hostage videos and Osama bin Ladin’s statements, raised eyebrows, it made for enthralling television news, and many of these scoops would likely be jumped upon by any news organization in the world.

Bad image
But although the charges are mostly unfair, there is still deep-rooted animosity towards the channel in the American administration and some other Western governments. The channel remains banned from Iraq, one of its cameramen is imprisoned in Guantanamo Bay and its correspondent Tayseer Alouni has been jailed in Spain for links to “terrorists.”
As a result Al Jazeera International has found it hard to gain acceptance in some circles. The English venture has still not found a US cable provider that will carry the channel and talks with media giants such as Time Warner and Comcast appear to have come to nothing. In comments to the US press, the cable carriers deny their decision is political and say that it just doesn’t make economic sense to carry the channel, as it is unlikely to be popular in the US.
Although Al Jazeera has found carriers in most other regions in the world, many in the media world question who will make up the new channel’s audience. Al Jazeera International has sent out mixed messages over whom they plan to target. Initially they said the channel would cover affairs in the developing world, but more recently however they say they want to seek a wider range of viewers.
“People with questioning minds and who are seeking a fresh perspective on the news, one that is not limited to one viewpoint of one nation or people – one that addresses concerns around the world,” said the channel’s spokesperson.
In order to achieve a global view, the management team has spent the last year setting up studios in Kuala Lumpur, Doha, London and Washington as well as bureaus across the world.
Some media analysts are skeptical however and say that the channel will target too wide an audience, making it unappealing to specific groups.

Gossip and intrigue
The venture has attracted publicity due to high-profile signings such as veteran British journalist Sir David Frost, BBC’s Rageh Omar, and Nightline correspondent David Marash, and has been poaching talent from other networks with the help of fat salary offers.
All of this would not be possible without the Emir of Qatar, Shaikh Hamid bin Khalifa. Although the Qatari ruling family has tried to play down the links to the channel, the reality is that it has total control over the network. The emir’s nephew is chairman of the board and the family sees the network as a key part of their plan to use huge gas revenues to transform Qatar from a remote desert backwater to a center of finance and trade that will rival Dubai.
The family has given millions of dollars to the Arabic channel since its launch in 1996. Al Jazeera Arabic and Al Jazeera International are likely to rely on this support for the foreseeable future as the network is starved of advertising due to Saudi Arabia’s opposition to the channel and its attempts to starve it of revenue by manipulating the Arab advertising sector.
The bankrolling of Al Jazeera International by the Qatari royal family is the stuff of media executives’ dreams. Although the budget for the English venture is unknown, the Qataris have evidently been generous. Al Jazeera International’s London studios are located at one of the most prestigious addresses in London: No. 1 Knightsbridge.
The budget also allows the channel to build what it describes as “the most sophisticated technology ever deployed for an international news network.”
With this kind of money and power being made available it is no surprise that the network is a hotbed of gossip and intrigue.
The latest Al Jazeera news to hit the headlines was a report that the channel’s London offices were broken into and several computers containing highly sensitive information were stolen.
The thieves apparently ignored valuable equipment and headed straight for the files and computers suggesting that the break-in was industrial espionage.
“We lost several contacts books and hard drives containing email records and details of things like what people like Frost and Omar will be doing, and how much they’re being paid,” an unnamed employee at the channel told the Independent daily.
According to insiders at the channel the management team has also faced internal feuding – a problem familiar to anyone in the upper tiers of media management.


Last month the managing director of Al Jazeera Arabic, Wadah Khanfar was appointed as the director general of the entire network, which in addition to the English and Arabic channels also includes a sports channel, documentary channel and children’s channel. The 38-year-old Jordanian Palestinian also secured a seat on the network’s board.
In the same week of his appointment Khanfar said in remarks to the press that Al Jazeera International’s launch would be delayed until late this year.
Crucially, the fact he spoke for Al Jazeera International and contradicted the official line raised questions over the position of the top tier of Al Jazeera International’s management who have a history of tense relations with the Arabic channel’s management team.
In an internal memo Al Jazeera International managing director Nigel Parsons played down Khanfar’s comments and said his appointment had been expected.
“Working ever more closely together will only make us stronger. There is no need for anxiety,” he told his staff.

Internal feuding
But internal sources at the network say there is concern within the channel over Khanfar’s appointment.
“Senior management, including Al Jazeera International head Nigel Parsons and his number two, Steve Clark in particular, don’t like at all the appointment of Wadah Khanfar as Director General of the Al Jazeera Network, nor his appointment to the board,” said one member of staff at the network. “They are scared that he will interfere and they are right, he’s already started signaling I’m the big boss messages,”


Tensions between the two camps are partly a result of the larger salaries of the AJI team but there were also deeper fears among many Arab journalists over the number of Britons being employed at the network. With a few exceptions most of the top editorial management at the channel are British, leading some at the network to dub the English venture “Al Jazeera on Thames”. The appointment of an Arab to the top position in the network is likely to counter these accusations.
“From a traditional Al Jazeera point of view, many within Al Jazeera Network are happy that the British club that is the AJI management has finally been checked by an Arab and they want more Arab’s within the senior hierarchy and at all levels,” said the network staff member, who asked to remain anonymous.
“There is a lot of jealously and fear over Al Jazeera (Arabic) losing the limelight, news focus and Qatari money being thrown in Al Jazeera International’s direction,” the source said.
Although we will have to wait a few months before we see a Doha dateline on our screens, when it does launch Al Jazeera International looks certain to attract as much controversy as its Arabic counterpart.

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Q&A ibrahim tabet

by Executive Editors
written by Executive Editors

Last month, following a regional meeting in Nicosia of the DDB network’s agencies in the MENA region, a decision was taken to create DDB Levant an agency, based in Beirut, that would consolidate its network in the the Levant countries and serve as a regional creative hub. DDB Levant’s management team is formed of Ibrahim Tabet: Chairman CEO, Georges Joujou, COO and Regional Creative Director and Mazen Mehio, Director New Business Development. Strategies DDB will now be headed by Randa Tabet. Ibrahim Tabet spoke to EXECUTIVE about the new corporate entity, it mission and its role in an industry beset by regional and local challenges.

E How, when, where and why was DDB Levant conceived?
We have been trying to set up this new entity for a while. We had a meeting a month ago in Cyprus with the DDB management worldwide where DDB Levant was formed and announced officially. Unlike our competitors, namely Impact BBDO and Saatchi & Saatchi, DDB had agencies operating independently in each country of the region. Up till now, DDB is rather a federation of agencies. We are less integrated than other networks.

E You say that DDB Levant’s mission is to, coordinate and develop the network’s business in Lebanon, Syria, Jordan and Iraq. We know about Lebanon but what can you tell us about the size, level of business potential for the other three markets and DDB Levant’s strategy for them?
I cannot talk about Iraq yet because we haven’t tried to assess the potential there. We have other priorities. Lebanon is our main market for the time being among the three countries. As you know, the consolidated billing of all agencies in Lebanon is $150 million in terms of size, whereas the media market is worth $100 million. Lebanon is a source of talent in the region, and a source of production. It is more interesting to shoot in Beirut than in the Gulf. Regarding Syria, the total media expenditure is around $35 million which is very low if we were to compare Syria to Lebanon, Syria being three times bigger in terms of population. But we feel that we have a potential there. We have been serving the Syrian market for three years and we have big clients such as BEMO Bank and Saudi-Fransi Bank. This gives us a foothold in Syria. From this stepping stone, we had an association agreement with Publivision. We have been satisfied with the collaboration and they have joined DDB to become Publivision DDB. We feel that there is a greater growth potential in Syria than in Lebanon. The links with Jordan are less evident. The Jordan DDB has been running for eight years, but proximity plays a role, meaning we have more business with Syria than Jordan.
E What is the difference between Strategies DDB and DDB Levant?
Strategies DDB is an agency that has been operating only on the Lebanese market. Now we have set up new partners. All the former local accounts will remain with Strategies DDB, while the regional accounts will be moved to DDB Levant. They are two agencies operating under one roof, with joint resources in terms of media, creative, and administrative backup. They are also presided over by one chairman, which is myself.

E Do you see a time where Strategies DDB will be absorbed by DDB Levant?
It is Strategies DDB that founded DDB Levant.

E When Lebanon was a hub, the GCC was not as developed as it is now. In a way, it could be argued that the advertising landscape has changed to such a degree that it is not realistic for Lebanon to try and regain its old position. But Lebanon must carve a new niche of what exists now.
Absolutely. You can never go back to the past. Can Lebanon regain “partly” its former role of regional hub? We can be a regional hub for production. As far as film production is concerned, we are a regional hub. It is definitely the case for TV film production. A small survey conducted by the Lebanese advertising agency association, found out that 80% of the income of film productions companies is from film produced in Lebanon for the Gulf. Regarding advertising per se, we are unfortunately reduced to our local market, which have been stagnant if not shrinking for the past two years.

E So it is not Lebanon that’s the hub, it is Lebanese talent.
Yes of course. Our business depends on where the local headquarters of the regional multinational advertisers is based. All these have chosen Dubai as a center of their operation in the Middle East for various reasons … political stability, services etc … yet after the Syrian withdrawal there is a window of opportunity in Lebanon. We have a competitive advantage different that that of Dubai, namely cost, talent and environment advantages. If a better legal framework is provided, then we can regain the hub.

E Magazines are often forced to include client driven information in their editorial in order to secure ad revenue. Do you think we will ever see the day when clients will advertise in a media, especially print a medium, for the content and readership?
I was not really aware of this situation. It is interesting for me to know that clients are mostly interested in having a biased editorial (line). As far as I am concerned, for the type of clients I handle directly, I am much more interested in having an unbiased, quality editorial content than something led by advertising. The media is also the message in terms of credibility and the quality of readers.

E 2005 was not a vintage year for the advertising sector. In your opinion what have been the highs and lows for the Lebanese ad industry? Were their any bright spots in 2005?
First of all, in 2004, we had a healthy growth, whereas 2005 was a setback. We managed to compensate for the terrible loss of the first six months. The total year losses were about 5%. We tried to cope by convincing our clients that even in difficult times they should carry out brand building. Yet convincing existent clients is difficult, unless you acquire new clients.

E What about now? The country is still living an atmosphere of uncertainty. Do you think ad agencies are tightening the belts?
2006 had a good start but with the national dialogue there is again a climate of uncertainty.

E And the future
DDB is the second or third largest ad agency in the world in terms of size. It is the most awarded agency in terms of creativity. We have figures to support that. However up till now, DDB doesn’t have the same ranking in terms of size and creative reputation in the Middle East as it has elsewhere. One of our challenges is to bring up the ranking and creative reputation in Lebanon and the region to a ranking which is at least comparable to the worldwide ranking. We have a new regional management in London. The Middle East was not a top priority for DDB but I can imagine that now that the price of oil is rocketing to $60 a barrel, they realized that it should be a priority market after Japan and this is good news for us.

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Phonecalls are cheaper. Faouzi Khoury and Sons file a lawsuit in the US against DaimlerChrysler. ChateauKefraya increases exports. Lebanon’s poultry industry loses out over bird flu fears.

by Executive Editors
written by Executive Editors

Faouzi Khoury puts Daimler Chrysler in the dock
Beirut-based automobile distributor Faouzi Khoury and Sons last month filed a lawsuit in the US state of Delaware against car manufacturing giant DaimlerChrysler Corporation and Chrysler International Corporation.
The dispute, for which court hearings began on April 21, arose after Faouzi Khoury accused DaimlerChrysler of reneging on several contracts. These included the delivery of 90 specialized Dodge Ram pick-ups, converted to military field ambulances and destined for the US Army in Iraq.
In late 2005 and early 2006, Faouzi Khoury had won several contracts with the US military in Iraq. It now alleges that DaimlerChrysler not only failed to deliver the 90 Rams necessary to fulfill one of those contracts, but also made a direct and “unauthorized” bid for a separate contract to supply 151 specially armored Dodge Durangos to KBR, a subsidiary of the US-based Halliburton company.
“We discovered that DaimlerChrysler undercut us for the Durango contract from their Dubai regional office, with the tacit approval of head offices,” Elie Khoury, General Director of Faouzi Khoury and Sons, told EXECUTIVE.
“This was against the guidelines of their office presence in Dubai, from where they are not allowed to distribute armored Dodge, Jeep or Chrysler vehicles. They knew that we were making a bid, and had even given us a complete quote to supply the cars to us. They then used our contacts and connections to win the bid themselves – losing us a margin of $8.5m”
Khoury says his firm was effectively cut out, losing valuable customers built up over a number of years. “Our relationship with DaimlerChrysler goes back to 1991 and has been excellent,” he says. “We’ve even won awards for our performance in the region.”
Michael Palese, a spokesman for DaimlerChrysler, rejected the accusations in the lawsuit, which was filed jointly by Faouzi Khoury and its US partner, Khofaz USA.
Palese claimed that DaimlerChrysler never accepted the contract for the 90 Rams, adding that the firm was already involved in legal action with Faouzi Khoury to receive payments of some $5m for over 800 field ambulances that had already been delivered.
Elie Khoury calls this accusation “totally absurd and untrue,” saying that DaimlerChrysler’s arrangement was to be paid directly by the US Army, not through the Lebanese distributor, and that police vehicles, not ambulances, were involved.
A ruling from the Delaware Chancery Court is expected in the near future.

Kefraya on the move
It has been a good 2006 so far for Chateau Kefraya Lebanon’s second biggest producer. The winery’s flagship wine, Comte de M (which first came to the world’s attention in the late 90s when it was championed by the great Robert Parker) has received a new plaudit, this time from Frenchman Michel Phaneuf in his Le Guide du Vin 2006, in which it is the only Lebanese red to be awarded five stars as well as the only Lebanese wine to be nominated as one of the elite Les Grappes D’Or. Elsewhere the winery is also upgrading its viticultural infrastructure in what what sales manager Emile Majdalani calls, “a quantitative and qualitative expansion.” According to Majdalani, the winery, which was founded by Michel de Bustros in 1978, now ready to exploit the 60 ha (600,000m2) of noble grape varieties, such as a Syrah, Chardonnay, Viognier and Muscat Petits Grains, planted in 2002.
He also confirmed that Les Bretèches, Kefraya’s (and possibly Lebanon’s) best-selling wine is undergoing, “a constant yearly improvement,” modifying the blend to phase out the increasingly out of favor Cinsault grape and replace it with Syrah and Tempranillo. Furthermore, Majdalani announced that more sophisticated lab work had resulted in the better grape analysis which would be reflected in a better quality wine by the time it reaches the consumer.
Majdalani admitted that overall sales for 2005 had dipped by 9% on 2004 but said that sales of the high end labels such as Château Kefraya and Comte de M remained stable, “showing the local great level of loyalty to the brand’s upper-range products.”
The good news is that Kefraya’s export strategy became focused in 2005, especially in the UK, after the winery retained the services of respected distributor ENOTRIA, giving it greater clout in the mainstream market. Kefraya, which exports to 35 countries, also punched above its weight in Russia and the Czech Republic. The result was that overall exports increased by a record 15% in 2005.

Raising standards
While overall Lebanese exports for 2005 increased by around 8%, in Syria, Iraq, the UAE, Saudi Arabia, Switzerland and Turkey, exports to Europe have declined primarily because Lebanese goods, especially canned food, are failing to meeting the EU’s stringent import regulations. “Around 70% of rejections were for canned food, 15% sauces and spices and 8% dairy products and fruits and vegetables,” said Dr Ali Berro program director at the Economy and Trade Ministry, adding that many items, around 38% of rejections, were discovered to contain unsafe additives and colorants, salmonella, and pesticides.
Enter the Economy and Trade Ministry’s Quality Program, funded by a Euro15 million EU grant and designed to upgrade the quality of Lebanese products and services for export to EU nations.
“We are working on 3 levels,” explained Berro. “The first is to establish a national quality policy to align our rules with international norms and more specifically with those of the EU, while in the area of food safety, we have finalized, with UNIDO, a draft law on food safety. When we talk about quality, we are talking about 5 major pillars: standardization, testing, accreditation, metrology, market survey inspection.”
The second, according to Berro is institutional. Lebanon has been granted Euro6 million to spend on lab equipment for testing and calibration. “The bulk of our activities are supporting laboratories, private and public. There is a condition that those laboratories commit to get international accreditation, or else they will not get our support. There is only one laboratory, the industrial research institute, which is accredited by the German accreditation board. We are working to get the rest of the laboratories accredited internationally.” There is also training for technicians and participating in a European inter-laboratory comparison scheme, whereby from the tests (called proficiency testing), samples are sent to European accredited laboratories and the same samples are sent to Lebanese laboratories.
The third pillar involves the private sector as the ministry offers support for those companies seeking ISO accreditation and training and rehabilitation of factories. We will be providing a technical information center where we supply the private sector with all information about export requirements of international countries.
The latter could not have come soon enough. A staggering 52% of items rejected in Europe, the US and Australia were for nothing more than labeling and packaging irregularities mostly caused by ignorance on the part of Lebanese manufacturers.

Chickening out
Lebanon’s poultry industry is losing about $9 million a month because of lingering consumer concerns about avian influenza and recent reports that the virus has killed birds in a host of countries in the region, according to Nabil Shuman, general manager of the Lebanese Poultry Company.
January was the worst month for poultry growers, Shuman said. That month a drop in sales of 70%, compared to pre-bird-flu-scare levels, was registered. Today, the decrease stands at a still deadly-earnest 40% to 50%. Shuman believes that a protracted campaign is needed.


“The campaign will have to last a year or two, not two or three months because you need to continuously educate and remind the public. We will always have fears in the media and in neighboring countries – and we might have problems in our country. In developed countries, where people are well-educated about the problem, where there are government education campaigns, like in France, the drops in poultry sales are less drastic and of shorter impact. That’s what we need to achieve here.”
Shuman said he had already launched a small educational advertising campaign in January but had discontinued it because of a lack of funds. The chronically-illiquid Lebanese government has pledged the poultry farmers indemnities for losses already incurred, as well as $150,000 for a future communications campaign, Shuman said.
He added: “So far we have promises, words, but nothing has been put into action yet.
Besides, he went on, “it’s not clear how much they will be giving us. The losses are huge.”
Meanwhile, supermarkets are also recording bird flu-related losses. At the Hazmieh Monoprix outlet, it has been one long downhill slide. “Sales have dropped for the last four months, beginning with 25% four months ago, growing to 30%-35%, and now we’re almost at 50%,” said Peter Ward, food purchasing manager for ADMIC – the company that runs BHV, Monoprix and Geant Casino in Lebanon. “Meat sales are up by 30%. But we’re still losing around 10%.”
“The bird flu problem won’t be solved in a few months,” warned Shuman. “Producers and consumers are going to have to learn to live with it. It’s going to be a bumpy year.
“We’re all in danger of shutting down if we’re not able to increase consumption. Many of us have already shut down and the remaining few are in a difficult situation.”

Cashless Card returns
After 19 years, Cashless Card, the original and only Lebanese credit card, has been given a new face lift following the acquisition of 65% of its shares by the Canadian company, Skymark Financial Group, which has identified the potential for growth within the business. Local partners include Audi-Saradar Group, Lebanese Canadian Bank and Federal Bank
The take over will enable Cashless Card to establish an international portfolio of products to include credit, debit and repatriation cards. It becomes Cashless Card International.
“There will be greater focus on the features and services as well as the use of state of the art technology to provide our current and new customers with added benefits and flexibility,” said Khalid Ataya, Cashless Card’s Chairman. For its part, Skymark will be investing, “significant” resources and funds into developing the cashless card business and brand during 2006.


“We recognized and have designed a totally flexible card program that provides issuers and cardholders maximum flexibility and choice in how their cards are able to be used,” said Sallam Ayache, Vice-Chairman of Cashless Card. “Each card program is able to be issued by different partners but can also be restricted to certain merchants, products or geographical regions or even designed for specific banking solutions as loan-financed accounts or Islamic accounts.”
The Cashless Credit and Debit Cards will be available in four value groups, starting with the highest as the Ambassador, then the Platinum, followed by the Gold and the Regular.
New products – such as insurance – will be available to offer greater value to the consumers – the card offers lower interest rates and cheaper annual fees – to allow them more flexibility in spending and management of finances. Some of the special services and products will be targeted at the frequent traveller or business men to provide them with peace of mind.
At present, there are around 5,000 points of sale in Lebanon excepting Cashless Card as more than 300 ATMs all around the country.
Cashless Card was formed in 1987 as a local market credit card solution by Charles Sassine. He is currently Vice-Chairman and credited with playing a key role in the partnership between Cashless Card and Skymark Financial Group.”

Coffee mania
Over the last few years, Lebanon’s coffee market has grown by more than 400%, as entrepreneurs attempt to emulate the success of coffee-shops like Starbucks and Dunkin Donuts, and predominantly young customers continue flocking to the ‘trendy’ hang-out spots.
Against this backdrop, coffee product and machine provider Nestle Nespresso is launching its new business-to-business Nespresso Business Coffee Solutions machines, which range in price from $295 + VAT to $495 + VAT and are expected to be snapped up by offices – which account for around 80% of Nespresso’s out-of-home business.
Also hitting the market in Lebanon is Nespresso’s Gemini Generation of coffee machines – price-wise, though, they aren’t for the faint-hearted. The Gemini will be retailing at around $3,500. That’s because it’s a chrome-finished, fully-automated, programmable, double-head brewing and extraction system affair.


Needless to say, the Geminis will target high-end restaurants, hotels and cafes, high-end event caterers and luxury retail outlets.
“The Lebanese are very big coffee drinkers and the hotel, restaurant, and café sector is becoming more sophisticated,” said Jean Zoghzoghi, director of DIMA sal, exclusive distributors of Nespresso products in Lebanon. “Hotel, café and restaurant owners are becoming more and more quality-conscious. They want the best coffee. They want the best machines. With such a rich market, the market for premium espresso is growing.”
Zoghzoghi expects double-digit annual growth in sales of the new machines, despite competition from seven or eight providers of other brands, and a type of consumer some coffee sector insiders say is more interested in hanging out in a trendy coffee shop than savoring the aroma, acidity, body and flavor of the coffee.
“Yes, you have the trendy aspect of going to a coffee shop, but you also have more and more people who really enjoy a nice coffee and more and more people are aware of the difference in the quality of coffee,” Zoghzoghi said. “They look for the flavor taste and body and aroma. That’s why they are willing to pay a premium to have good coffee at home.”
Not everyone is convinced. “The Lebanese don’t know what a good coffee is,” countered Adib Maksoud, operations manager for coffee providers The Roaster. “They see things in terms of coffee shops and restaurants. They look for special offers. They don’t look for quality coffee.”

Money for votes
Elections and cash have always been cosy bedfellows, but some enterprising minds have been recently been drawing up their own imaginary polls – and making a handsome buck or two in the process.
While the presidential question continues to preoccupy the country’s political leaders, it has also spawned internet and SMS campaigns to find out which presidential “candidate” can garner the most support amongst the general public.
Voting began back in February, when the first such website, www.lebanonvoting.com, was launched with the simple premise of allowing surfers to cast their vote online for one of seven political figures.


The poll closed in late March, and according to the site’s developer, Rabih Kanaan, enjoyed an overwhelming response. “In total we’ve had 470,000 attempted votes from all around the world,” says Kanaan, “but due to people trying to vote twice through the same e-mail address, only around 90,000 have actually counted towards the final result.”
So seriously did many political supporters take the online poll that they set up new e-mail accounts or even domain names to be able to submit multiple votes. “We’ve got a long blacklist of IP addresses [the ID of an individual computer] and domains that have tried to vote more than once,” says Kanaan, who adds he was even contacted personally by a number of political parties regarding the site.
Now, some bright spark has taken the idea a step further. Thousands of SMS messages have been dispatched to Lebanese mobile phones, urging the public to reply, register their preference for a future president and pay up to a dollar for the privilege. Whilst EXECUTIVE was unable to identify the creator of this inbox-terrorizing scheme, it seems that he or she is generating easy money.
“It’s a relatively simple system to set up,” says Madonna Kmeid, IT manager of Actel, a regional firm which provides mass SMS mailing services. “Contracts vary from case to case, but to send out 10,000 text messages, let’s say, a client can expect to pay around 6 cents per SMS. When someone texts back with their vote, that costs them either 90 cents if they’re an MTC Touch subscriber or $1 for Alfa.”
Of this end-user cost, says Kmeid, a healthy 40% is taken by the mobile firm, with the remainder split 80-20 between the client (the person who had the idea) and the SMS mailing company.
This means that whoever dreamt up the SMS presidential poll is making up to 40 cents profit on every vote submitted. A lucrative affair, and a marketing method which is becoming increasingly popular for companies, individuals and even the Internal Security Force, who are releasing traffic contravention warnings by SMS.

Booming downtown
Fans of Solidere have had plenty to cheer about. For starters, Gulf investors from the Abu Dhabi Investment House presented a plan to develop the downtown’s biggest project yet, the $600 million Beirut Gate complex adjacent to Martyrs’ Square. With 178,000 square meters of built-up area, the new project would not only be a substantial addition to Beirut construction activities, the financing method via a $158 million second tranche in a private placement demonstrated that regional investors indeed are ready to substantiate their faith in the Lebanese real estate market.
Then came Solidere’s profit announcement for the last year. The company in charge of the development of the Beirut Central District announced record results, achieving net profits of $108.5 million in 2005, more than double of its profits in 2004.
On top of these results that continued Solidere’s performance trajectory of good growth years after the meager days of the recession between 1998 and 2003, the company’s chairman, Nasser Chammaa, could announce new land sales in downtown Beirut to the tune of $1.1 billion in the first three months of 2006, which outclassed the 2005 sales of $253 million booked by the company.
For the future, Solidere would emphasize on optimizing its income from leasing of properties, with the Souks finally nearing completion, and it would seek to branch out into projects elsewhere in Lebanon and even internationally, as consultants and planners for high-profile urban projects.
But even these enormously improved results were not the last word. In late April, a Kuwaiti group said that it would build a project in Lebanon that was again worth almost double the amount of the Beirut Gate project heralded at the start of April. Located on a 20,300 square meters sea-view property to the northeast of the Annahar Building, this development would be valued at about $1 billion.
How much good these Gulf investments and other new projects in the center of Beirut will do for the local construction and job market, is anybody’s guess. But they vindicate the validity of the concept behind the reconstruction of the Beirut Central District and are certain to not only bring money to Solidere.
While local observers expect that the latest good fortunes of the downtown would drive Solidere shares into new regions that hitherto were only dreams, the profit and new sales announcements at least in the immediate term didn’t do much for Solidere’s share prices, which continued to fluctuate in the $21 to $23 band on the BSE for the two weeks after the profits announcement.

Cheap calls
The Lebanese Telecommunications Ministry last month offered the nation’s phone users a rare nice surprise by announcing a tariff cut for international calls. The new tariff environment sets per-minute rates for major international phone destinations at LL 700 during the day and LL 500 for nighttime calls. These rates apply to Arab countries, Europe, the US and Canada, as well as Japan and Australia, according to the website of the Telecommunications Ministry.
Rates to most other countries, including African and Latin American nations, were adjusted to LL 900 (day) and LL 700 (night) while daytime calls to a small group of countries, for example island nations in Oceania, are priciest at LL 1,200 per minute.
As the rate adjustments reflect a lowering of communications costs to key countries by 35 to about 44%, the revision of international phone tariffs was welcome news to corporations in sectors such as trade, finance, and media for whom high connectivity costs have long been an impediment against operating from Lebanon. However, the same corporate customers were left wondering why Lebanese authorities were unable to make true on announcements that the rollout of high speed internet access via digital subscriber lines (DSL) would start in late March.
The promise, made in February during the signing of a memorandum of understanding between the Telecommunications Ministry, sector firms, and service providers, was replaced last month by estimates that deployment of DSL lines could start around September. This reminisced of earlier telecommunication technology initiatives, most specifically the establishment of an ISDN service that was delayed ad nauseam.
But the country’s poor track record in implementing consumer-friendly telecommunications is nothing compared to the other pain which ghosts from telecoms past caused in April when the Lebanese government had to cancel the cash components in planned new Eurobond issues in attempts to ward off court action to freeze Lebanese government assets in Europe and the United States.
This was due to claims by LibanCell, former operator of one of Lebanon’s two cellular networks, who tried to coerce the government to pay some $266 million which international arbiters had awarded the company as compensation for the government’s premature cancellation of its BOT contract for the LibanCell mobile phone network.
Lebanese politicians and finance experts were quick to assure that the country’s credit situation was not going to suffer under the cancellation but the whole affair smacked strongly of the same kind of embarrassment that the government suffered last year when European bankruptcy administrators had temporarily impounded an MEA jet to obtain payment of a much small arbitration debt from the Lebanese state.

Keeping with the market
Changes in the global economic climate will impact investment and financial markets in 2006 and 2007. Individual and institutional investors should be aware of these “turning points” and expect that “fundamentals rather than liquidity will drive asset prices,” Michala Marcussen, the chief economist for Paris-based Societe Generale Asset Management (SGAM), told Lebanese investors and clients of SGBL Bank and the Fidus financial firm.
Focusing on development forecasts for the US, Japanese, and European economies, Marcussen presented expectations for increased inflation risks, an end to the global excess in liquidity, and renewed depreciation of the US dollar which SGAM expects to stand at $1.30 to the euro by end of the year.
European companies recently could improve their profits even as employment outlooks for the Euro zone countries remain subdued, US corporations are set to increase investments and the Japanese economy is moving into a new virtuous economic cycle of growth driven by domestic factors, according to the assessments by SGAM’s chief economist. And with China being the largest single contributor to world GDP growth in 2006 and 2007 in percentage terms, “the Asian producer will become the Asian consumer”.


As external surpluses will continue to shift from Asian producers to the Middle East and Russia, Marcussen predicted that Middle Eastern oil producing countries will assume greater roles is matching the continuously increasing current account deficit of the United States. But beyond these increases in the influence of Middle Eastern oil producers, the region’s capital markets are still of marginal attraction for international investment houses and asset management firms, as the presentation by SGAM showed, which is the asset management arm of leading European banking group, Societe Generale. SGAM representatives focused in their promotional presentations on funds which the firm manages in the United States and said that assets under management by SGAM are based to 61% in Europe, 32% in the US, and 7% in Asia.

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Editorial

Grow up!

by Yasser Akkaoui
written by Yasser Akkaoui

With the rate of political assassinations slowing, life is returning to our city. The Lebanese have proved that they have little time for bad memories and even less interest in a propensity to save.
We are big spending, short-termists who have learned to live for the moment, but with such a precarious lull in the violence, we can’t but live each day as if it is our last.
Politically, the respite in targeted killings has been interpreted as a sign that, as usual, a deal was made between the Americans and the Syrians at the expense of Lebanon of course. However, judging by the relentless American pressure on Syria, the nation’s collective intelligence, this time at least, could be wrong.
The Americans simply decided not to use Lebanon as a front against Syria. They realized that some Lebanese politicians were capable of sacrificing their country, fragmenting its society, destroying all what has been rebuilt and witnessing the liquidation of all its politicians and thinkers (while the rest flee), all for the sake of other nations. The risk of loosing whatever democracy is left in this country would definitely have made the Americans look bad.
Simply put, Lebanese politicians are easier to tear apart than bring together. They are also unable to sit at a table long enough to reach an agreement. And if, by some miracle they do, they are experts in tearing up previous understandings. Our politicians always seem to look for la petite bete to start a war of words. And all the while, as their standing shrinks along with their petty quarrels, regional tensions take on nuclear proportions. One wonders how low they are prepared to go. The private sector has lost interest and has decided to go its own way, disappointed by its so-called leaders who have refused to grow up.
In this issue, we remember Dr. Basil Fuleihan, who was part of a movement for change at a time when huge ambition, not cheap sniping, was the order of the day.
At least, one year on from his death, the seeds of this dream of a beter Lebanon are still bearing fruit. Last month alone, the BCD, the much-maligned but nonetheless resilient, symbol of a new Lebanon, saw the investments from Kuwait and Abu Dhabi, of more than $1.2 billion. With this demonstration of faith in the face of an uncertain future, one is forced to ask who the true Lebanese are. Those who want to build or those who wish to dismantle.
The true Lebanese are builders.

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Feature

Yasma Fuleihan

by Executive Editors
written by Executive Editors

The February 14 bombing that killed Rafik Hariri and turned Lebanon upside-down also threw a spotlight on the achievements of Basil Fuleihan, the quiet man behind the Paris I and II agreements as well as much of Hariri’s economic policies. Fuleihan had been sitting next to Hariri when the bomb exploded. Miraculously, and despite being horribly burned, he survived the blast. He was flown to France but, despite the best care available and the efforts of specialist Dr. Herve Carsin, Fuleihan succumbed to his injuries on April 18. The country has commemorated the first anniversary of his death. The Finance Ministry’s Finance and Economic Institute has been renamed in his honor, and the Prime Minister, Dr. Carsin, and many others joined in a candle-light march to dedicate a square near the Phoenicia hotel in his honor. His widow Yasma Fuleihan has stepped out from her private existence to head the Fuleihan Foundation, a non-profit dedicated to continuing Basil’s legacy. She took some time out from her hectic schedule to talk with us about their time together, his views, and his legacy.

E Tell me about when you first met Basil. Did he know when he moved back to Beirut that he would be there for good?
We first met in Washington, two months before he left to Beirut. When he decided to go back, the people at the IMF told him, “Any time you want to come back here, this is your place and you are welcome.” But he seized the opportunity.
Even back when he was young, he was always reading about history, thinking about how he could help his country. While he lived in the states, he followed the news, politically, economically, socially. It was always in his mind that he would return to Lebanon whenever he had the opportunity, to give the best he could offer.
I was in Geneva, I lived for many years there, and then I moved to Washington to continue my studies. And that’s where I met him, even though when we were kids we lived right near to each other.
Something happened when we met – there was a very strong chemistry, somehow we knew that we’d get to know each other and understand each other. We shared a kind of common philosophical way of understanding.

E How did he get to know Rafik Hariri? And when did he decide to make the transition into politics?
The relationship started with Mr. Hariri, in 1994, when Basil was the head of UNDP project at the Finance Ministry. Hariri got to know Basil because of his ability in negotiations, and the way that he could come up with solutions to complicated problems. Things that were perceived by others as problem, that other people approached in a complicated negative way, Basil was able to see as simple and approach in a simple way. Hariri found that by talking to Basil he would find that somehow the thing was not a problem, that the solution was there, the puzzle was not there.
They started to have a close relationship. Hariri would call him early in the morning and they would talk.
In 1998, the government changed, and since Basil was so close to Hariri, he didn’t want to stay. He taught a course at AUB, but he also started preparing. He was starting to think about Paris I, and about other projects, so that even if he personally didn’t come back, when Prime Minister Hariri came back he would have projects planned that he could work on.
I remember when Basil told me, when I was pregnant in London, that Prime Minister Hariri had asked him to be a deputy. At first, I told him, “no”. In Lebanon, it seems that every ten to fifteen years there is turbulence and instability. I wasn’t happy about him going into politics, because politics is not easy. You take a risk.
He had a very interesting job offer at an investment bank in London, and I was trying to convince him to accept it, but he was not interested. He didn’t feel that he could produce anything. He loved public service, and wanted to serve his country. Investment banking, sure he could have made a lot of money, but it wouldn’t have given him the same satisfaction.
He always used to say, “We’re Lebanese, and if we don’t give to our country, who’s going to give? If we’re not going to be part of reconstruction, who else is going to?”

E How did he approach the media, and public life in general?
It was very important to him to do the job, and to be productive. He was not into the media, he did not want to go on TV. There were a few times he went on TV to be interviewed, but that was because Hariri asked him to. He never talked in public about his achievements and what he achieved – of course we talked privately about everything that he did. Doing something effective was what gave him personal satisfaction.

E What was his philosophy in dealing with people?
He always treated people on a professional level and with respect. He used to believe in each person and in their human capacity. He used to say that everyone has a capacity and is able to do anything if he or she wants to. We each have something special we can give to society, but each one has to discover that for himself or herself. Basil was always natural, he was himself, he never tried to be somebody else. He had a fine sense of humor.

E Others have said that Basil had absolutely no prejudices, he was not sectarian at all.
When we got married, we had our marriage outdoors, and many of the guests didn’t know before the service what religion we were. Were we Muslims, or Druze? They didn’t know.
He used to say about Lebanon that we have this richness of different religions and cultures. We need to exchange our cultures, but not to treat these differences as negative, because at the end of the day we are human beings. We need to work on our exchange of culture and on accepting each other the way we are.

E How did he feel about returning from being an expatriate?
He loved New York, he loved Washington, but for him Beirut was a part of him. Basil used to admit that we have difficulties, as other countries have difficulties, and we need to try to find solutions. He used to advise people who wanted to come back not to have high expectations. Work hard, but never have high expectations of the outcomes. If you come in with low expectations and work hard, you’ll be surprised and pleased at what comes out.
It seems like he has gotten a lot more famous after he died than when he was alive.
He was a low profile person. I was surprised, too at the attention. I always knew how he used to think about things, his liberal way of thinking about every thing. It’s true, usually, that after someone dies, we (generally speaking) take notice of them. And he was not the type to talk about his achievements.

E Did you wish he would take more credit?
No. One of the things I told him when he ran for parliament was it is important that we keep our private lives the way they were, him and me and the children. I didn’t want us to be part of his public life. So all his public functions, receiving people as a deputy, took place in his office.
Somehow since this tragedy happened, things have been changed.
What he did at work and his achievements, he used to tell me his plans, that he was going to do this and this and this, very much excited. When he used to walk on the streets, he liked it. He liked it the way it is. With all the pollution, the noise, he liked Lebanon the way it is. Now, for me and the family, we feel like a part of us is here, because he’s here. And we are part of him.

E What did he want to leave as a legacy?
Before the tragedy, the problems he was working on for the last two years, after he was out of the government – he was always optimistic. He would say that “no, in only two or three months, once the elections are finished, we will be able to work on the economy, on social services.”
The Fuleihan Foundation will be a think tank dedicated to socio-economic development, to finding solutions through conferences, seminars, and so forth, and to following Basil’s liberal vision of society. We’ll be concentrating on the welfare of citizens. Instead of trying to decide on issues from on high, we’ll be studying the gaps in the needs of the citizens, and to find through discussions solutions to these problems.
Our first initiative will be a competition for students in all universities and vocational schools, between 18 and 30, rewarding the best research paper in IT and innovative government.
I can’t go into a lot more detail because we’re still learning. It will depend on what the research and discussions come up with, and what happens on the ground. But one thing we need to do is help our young people, who get educated in Lebanon, but then have to look for opportunities abroad. We’re trying to find a way for young people to explore their capabilities here, to have opportunities in the country so they can stay.

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Special Section

Talking Retail

by Executive Editors
written by Executive Editors

Elie Abou Khalil,
Head of Retail Products Development Department, Byblos Bank
Byblos Bank started a card business a while ago. In 1998, we launched, together with the ABC department store in Dbayeh, the ABC Blue Card. It was a joint Byblos Bank-ABC card. The card was designed specifically for the retailer. It works only for purchasing at the ABC malls, not for ATMs. The card has a preferential interest rate, so the customer can either pay 100% of his due with no interest payment or as little as 5%-10% and then the interest charged will be preferential – one of the lowest rates in the market. Cardholders benefit from special offers at ABC. In the event of discounts, cardholders can benefit from them a few days before everyone else. ABC also informs cardholders about anything that is new.


When Byblos Bank launched the card, credit card programs were not as common as today. The card was launched amid a very aggressive marketing campaign and was a big success. The number of cardholders increased, because the conditions of acceptance and so on were better than those in the market in general. It was very good. We had a substantial number of cardholders. More recently, in 2004 and 2005, although we still have the card and it is active with the cardholders, we are seeing more and more of a trend towards international branded credit cards. The customers are showing a preference for one card that can be used at different points of sale. Even though the two main ABCs constitute two of Lebanon’s most important department stores, we’re seeing a trend in the market in which customers are moving towards one card that they can use anywhere and not at one specific outlet, with which they can withdraw cash, and which they can use on the internet. Today, the ABC card is an additional card. It’s not the only one you have in your wallet. We have around 1,000 ABC cards in circulation. We have had some cancellations, but the number of ABC cards in use is still at an acceptable level.
We won’t stop offering the card. There will always be demand for specific retailer and proprietary cards, from people who like to shop at ABC. It’s becoming more of a loyalty card belonging to the two institutions rather than a regular card offered everywhere. Cards of this type will continue to exist because of the extra benefits – the special offers, promotions, brochures, and information. A lot of cardholders, especially females, still want this card.
The card is for everyone, but the balance is towards females, the shoppers. Females in general like shopping. It’s a hobby. That’s why the tendency is more towards female than male, and towards an age group of 21 to 40, 45. That’s the main target customer base. The limit on the card starts at $500 and goes up to $10,000 for important customers. Usually it’s around $2,000 to $3,000.
Initially, we had to educate the consumer because people were mainly cash users and to a lesser extent check users, so when they got the card we had to teach them how to use it and take advantage of the benefits, and how to pay a portion of their balance and finance the other. It was a learning curve. Today, we see from the market that most cardholders, and especially the younger targets for the ABC card, know how to use the card.
The default rate for retailer cards is higher than for regular cards. That’s how it is everywhere in the world and Lebanon is no exception. It’s customer behavior, probably because the terms and conditions for retailer cards are looser because you cannot offer the card only to high net-worth individuals. The acceptance criteria are looser. That’s why you have the higher default rate. It’s still acceptable though. It’s around 40 or 50% higher than for the regular cards.


4Randa Bdeir,
Senior Manager, Electronic Banking & Business Development, Bank Audi
We have a collection of credit cards called the Banque Audi Card Collection, grouped under the slogan ‘Enjoy.’ It’s the Enjoy Credit Card Collection. We use the word ‘Enjoy’ because the credit card is always attached to enjoyment. You use it for travel, shopping, to rent a car. Within the collection we have five categories: Enjoy the Luxury; Enjoy the Classic; Enjoy the Convenience; Enjoy the Lifestyle; Enjoy Amex; and Enjoy the Colours. The products within each category conform to the category title. So in Enjoy the Convenience we have an internet credit card. We have not only segmented the social pyramid by income but have also created a cross-section of segmentation according to behaviour and preference. For example, for cigar lovers we have the Montecristo Visa Platinum. They get cigar-related gifts with it. The behaviour and preference segmentation is now the fashion all over the world. It’s no longer about whether or not someone is rich. Even if people aren’t rich, but have certain preferences, you target them.
The Shine Card is part of the Lifestyle Category. It targets women who like to look at themselves. The card is a mirror. You can’t find it anywhere else in the world. Bank Audi invented it. It is made exclusively for us. In order to have the mirror made we had to deal with a lot of security issues with Master Card, involving the chip that is in the card. It had to be moved. The woman can take the card, look at herself, put on lipstick, and give it to the waiter. It is two-in-one. We have also attached to it a lot of benefits of interest to women. They involve spas, makeup, powder, body treatment, and lingerie. We have agreements with about 10 or 15 partners who deal with products that interest women, for example the spa and health club at the Phoenicia Intercontinental, the Nautilus health club, Diesel Jeans, and AIZone.
The card was released on 29 March. We invited 300 ladies to a big party, a brunch at the Eau de Vie restaurant at the Phoenicia. I gave a presentation about the ‘shining’ women of the world, in seven categories, including: Political leaders; Sexy and Glamorous; Successful Businesswoman; and Sporty Women. I named some of the most famous women in the world in each category. So for example under Sexy and Glamorous I put Marilyn Monroe and Brigitte Bardot. For Political Leaders I put Condoleezza Rice and Margaret Thatcher. Under Businesswomen I put Martha Stewart. Then we asked women which of the ‘shining’ women they would like to be, held a draw, and gave away ‘shine-related gifts, like a cell phone, an expensive nightgown, and an iPod for ‘sporty’ women. Everyone got a gift bag as well with expensive makeup and so on. Some of the guests are our clients, some are friends, and some are potential clients.
I chose the mirror and the word ‘Shine,’ because usually when you look at yourself you want to shine.
Our branches have said the card has been a success so far. We launched it a few weeks ago, and so far we have issued two or three hundred. I don’t want to distribute too much, not more than 1,000.
There are women who care a lot about their femininity and those who don’t. I am targeting the woman who cares about her femininity, who likes to go to spas, who likes to have a mirror in her bag. I’m targeting not just any woman, but specifically that kind of woman.
The limit on the card can be anywhere from $500/month to $500,000/month. We don’t care. You find very rich women who have millions of dollars and are like nuns. They wear eyeglasses. They never look at the mirror. They don’t care about powder. And sometimes you find a secretary who makes $500 a month, but who every five minutes looks in her mirror, and puts on lipstick. It’s all about ‘the woman in you.’ Sometimes you’re rich and don’t have a woman in you. Sometimes you’re very poor but have a woman in you. Purchasing power is of course very important but by targeting preference, lifestyle and behaviour as well, you target all customers.
Some men have said: Why have you created this card for women and nothing for us. I said: You have the Montecristo card. They said: We don’t smoke. So I should start targeting men with something they like. I have to innovate. I will see. I observe people. I am a very sociable person. I go out a lot. I have many friends. Until now I have been observing women. From now on I will begin to observe men.

4Antoine Raad,
Deputy General Manager, Information Technology Division, Credit Libanais
We are one of the major issuers of Master Cards and Visa Cards. We also deal with some local and loyalty cards. We were the first to issue credit cards in Lebanon, in 1985. We started to issue cards in our branch in Cyprus. The card at that time was aimed at a certain segment of the population – at those who traveled and would use it abroad. Starting in 1992, we made a very big effort to get outlets here to accept Visa and Master Cards. This, in conjunction with the increased number of ATM machines, allowed banks here to issue credit cards and people to use them. Today, a total of around 1.2 million cards have been issued in Lebanon, which is a significant number compared to other advanced countries. It shows that banks have improved their card portfolios and are linking them to different retail products. It has enhanced the retail banking sector.
We offer different retail credit card products. We have different programs with different merchants based on loyalty programs. You can accumulate points in some places. And you can redeem the points within the different outlets. Or you can redeem them according to a catalogue of products, like travel tickets, gifts, utility products and so on. There are two different possibilities: We have specific merchants who have their own loyalty cards and we are linked to them, and we have our card on which you can accumulate points every time you use the card, and redeem them. Credit Libanais deals with around 8,000 merchants, and we have equipped around 6,700 of them with ATM machines.
Banks are now converting to retail products. Today, people are educated and are asking for the cards. Also, the policy of the government to transform all salary payments from cash to bank transfers into domiciliated accounts has helped enhance this trend.


There is very strong competition, just like with other products in the banking sector. We compete on a variety of aspects: interest rates, fees, and other indirect revenue. We also compete on quality of service and variety of product, by addressing different segments.
We also have co-branded cards which are specifically retail cards. Credit Libanais is co-branded with Metro for example. These cards are a specific product used only inside certain retail outlets. For them, the conditions are slightly different. The loyalty program allows you to redeem from the same retailer. The limit for those cards is from $300 to $700. We don’t have a higher default rate on them than on other cards because we apply the same criteria for applicants.

4Manager Personal
Financial Services, HSBC
HSBC’s internet credit card was launched in 2001. It is named the “In-Site” Virtual Card and was created specifically for use in remote shopping environments like the internet, and for mail order and telephone order transactions. It offers interest-free credit for up to 56 days. For security reasons, our internet card has a low limit, does not have a magnetic strip or a signature panel, and cannot be used at retail outlets or for cash advances. We also monitor unusual activity on the card and may contact the customer to verify a suspect transaction. All purchases are insured against loss, theft or accidental damage for up to 30 days from the day of receipt. There is also the offer of free supplementary cards and standing instructions for automatic debit from the HSBC account to cover a specified repayment percentage of between 5% and 100% of the outstanding credit card balance.
Lebanon, like other markets, has witnessed growth of internet usage. Along with internet usage comes e-shopping. However, Lebanese people rarely shop online from Lebanese retailers. Online shopping transactions more likely relate to product orders from overseas, due to pricing or product availability.
Currently, we are witnessing an expansion of online shopping, for example in the domain of virtual online agencies. Even existing retail businesses and airlines are encouraging their customers to shop online by reducing the fees of online shopping.
Online shopping can not be performed without an internationally-accepted credit card. That is why an internet credit card is essential for customers who would like to shop online. Other customers need their internet credit card to register for certain exams online, to pay memberships for certain online clubs, or subscriptions to international publications.
The availability of the card complements HSBC’s drive towards alternative delivery channels, particularly Personal Internet Banking, which witnessed 100% growth in penetration during 2005.
Global online shopping is witnessing an increase in the number of customers. For Lebanon, it is still limited. Globally, 28% of internet users have either shopped online or plan to do so in the next six months. The United States has the greatest proportion of online shoppers, with 32% of internet users shopping online.
If customers follow the safety instructions dictated by the internet Credit Card and hardware/software protection, online shopping is secure. Trusted sites are the key. There are certain security measures that the customer has to take before entering any personal data on the website.
HSBC In-Site Virtual Credit Card stresses the security issue, and has been designed with maximum security features to give the customer both the convenience and the peace of mind of secure online shopping. In addition to the card’s safety features, like the low limit, the absence of a magnetic strip, etc, we have a special team dedicated to monitoring any unusual or suspected transaction on the credit card.

4Georges Aouad,
Head of Retail Banking Division, Bank of Beirut
We offer three kinds of cards: debit cards, deferred payment cards; and revolving credit cards. The debit cards are known here as Visa Electron cards. Any purchases are debited directly to your account. If you have money in your account you can use them. They can be used for cash withdrawals and for purchases at points of sale worldwide. This kind of card was developed by Bank of Beirut. If someone’s salary is domiciliated at Bank of Beirut and fits our criteria, he is automatically granted four times his salary as an overdraft on his account.
Another kind of debit card is the shopping card, which was developed under the same system by Bank of Beirut. We named it shopping card because usually people use that kind of card only to withdraw cash. Of the Visa Electron cardholders, 80% use it to withdraw cash from ATMs. The Shopping Card was developed under the Visa Electron scheme. You can use it the same way, to withdraw cash from an ATM, and to pay for purchases in shops. We developed it as a shopping card because we wanted to divert the attention of our clients away from the Visa Electron concept towards a shopping card concept, telling them that they can also do their shopping with the card. It has been a very successful card for Bank of Beirut.
We have around 45,000 Visa Electron cards including the shopping cards. The shopping cards were recently developed, and we currently have between 10,000 and 12,000 in circulation. There remains big potential for the shopping card. You must recall that we are a retail-oriented bank, so we target institutions, large companies, in the public and private sectors. So when we acquire 1,000 employees from one public institution, we have gained 1000 visa electron cards. There is no limit. We have an aggressive retail banking strategy. We expect card numbers to rise significantly. The only difference between the deferred payment card and the shopping card is that if you don’t have the available funds you cannot use your shopping card.
The shopping card and Visa Electron cards are available to lower income persons.
A person with a monthly income of $500, for example, can have a shopping card, with a limit of four times his salary, if he has been employed for two years.
In an innovative scheme, the shopping card can be linked to our savings accounts. So if you have a savings account with us you don’t have to open a current account to have the shopping card with a pre-approved limit of $1,000.

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Special Section

Michel Abchee

by Executive Editors
written by Executive Editors

Michel Abchee Admic’s CEO talks about the difficulties of opening a mall in 2005 and how he plans to bounce back

Since its humble beginning in 1997, Admic has become one of the leading players on Lebanon’s retail landscape. EXECUTIVE talked to Admic’s CEO and chairman Michel Abchee about how it all started, last year’s seismic impact on the retail sector, the opening of City Mall and his increasing belief in Murphy’s Law.

E How did it all start? You completed your studies in the United States and thought: let’s go back to Lebanon and start a retail empire?
“Not at all. We came back to see what the opportunities were without really having anything in mind. However, having lived abroad for a long time and seeing the Lebanese retail market, we thought there may be space for a department store. So, we did some studies, looked for a location and decided to build the BHV/Monoprix shopping complex at Jnah.”

E A lot of people expected it would not work …
“As was the case with City Mall, most people were very skeptical about the location and thought it could never work. However, we were convinced that if we would do a professional job in creating a one-stop-shop with quality products and an emphasis on entertainment, people would come anyway, certainly seeing the fact that many Lebanese have lived abroad. What’s more, ‘everything under one roof’ was a novelty in Lebanon, but not abroad. So, we thought why would it not work here? Why wouldn’t the Lebanese like to park their car easily, go shopping and enjoy themselves?

E And BHV/ Monoprix Jnah turned out to be a success from the start?
“Not really. BHV opened in December ’98 and had quite a slow start, partly because Monoprix only followed in June ’99. Now, many people thought the second was opened to save the first, which was not true at all. It was always meant to be one integrated project and of course we had preferred to open the whole complex in one go, but sometimes there are certain circumstances that cause delay and force you to open in phases. Same with City Mall last year. So, we had to face all this early skepticism, but as soon as we opened Monoprix, as soon as the project was completed, sales picked up and the Jnah project became a huge success.”

E If you have to put it briefly, in what way did BHV/ Monoprix change Lebanese shopping habits?
“Two things. First of all, it offered a large variety of quality products, which before perhaps were on offer, but only in many different locations. Secondly, we offered extremely sharp prices. Many people asked how we could do it. The answer is small margins and big volumes. We were able to buy big quantities. Don’t forget BHV/ Monoprix was in that time the biggest shopping complex in the country.”

E Following the success story in Jnah, you opened a second Monoprix in Ashrafieh December 2000. To what extent was that a different experience?
“That was quite a different experience, because we took over Abela’s supermarket. We modernized it, made shopping more convenient, more comfortable. Overall, it was somehow easier than opening BHV/Monoprix in Jnah because in Ashrafieh there was an existing client base.”

E What came next?
In 2003/ 2004 we opened three more Monoprix supermarkets in Zouk, Baabda and Verdun and we started preparing the City Mall project.

E Admic often does not go for the most likely locations. How do you choose?
“A lot of people ask me that question. Of course there’s the ground rule, the cliche ‘location, location, location,’ but it’s more than that. We look at the infrastructure surrounding the building. It no coincidence for example that bridges and the new highway to Broumana are being built around the City Mall. What’s more, within the mall we offer an infrastructure suitable for international retailers, both in terms of location and concept. A lot of constructors in Lebanon overlook that aspect.

E Admic’s latest project, City Mall, is the biggest mall in the country. What are the main characteristics?
“City Mall’s has a total built up area of 201,000 m2, of which 80,000 m2 are leasable. Main anchor tenants are Geant and BHV, which is to open in October 2006 and will be the largest department store in the Middle East. Apart from that, we have a string of leading local retailers such as Aïzone, Virgin, Vera Moda, and both established internationals brands and international newcomers such as Top Shop, River Island and Whistlers. We recently opened the ‘Toddlers Club,’ a large children’s playground, which will add an important dimension to the entertainment side of the mall. In June, we will open the food court and cinemas, which will increasingly bring the mall to life in the evening.”

E Again, many people believed the mall would never work. And, at first, the mall did not work very well. How come?
“As was the case in Jnah, many people believed the City Mall could not work because of its location and certain geographical boundaries that are said to exist in this country. I don’t want to go into the details of that, but let me just say that we have lived abroad long enough to believe that with the right product and right formula one can overcome any boundary. True, at first Geant and the mall did not do well. The plan was for the City Mall to open in a flourishing Lebanon. Everyone thought 2005 was going to be a top year, instead the earthquake struck. Today, a lot of people try to play down the impact of the assassination of Hariri and the bomb attacks and assassination that followed, but the retail and distribution sector suffered enormously. Perhaps, the City Mall was extra unlucky as several bomb explosions took place in the mall’s direct vicinity. As a consequence of the insecurity, a lot of international retailers, based regionally in Kuwait, the Gulf and Saudi Arabia, decided to slow down their investments in Lebanon, as long as the situation was unsafe. So, City Mall opened in June 2005 with an occupancy rate of 40% to 45%, while 70% is the norm. Finally, let’s not forget the state of the global economy with the high Euro, high oil prices, and high cost of imports. You know, it’s like Murphy’s Law states, once one thing goes wrong, everything goes wrong. Now, I never believed in that, but after last year I might start to believe in it.”

E Has the situation improved today?
“Contrary to what many people believe, things have picked up considerably. Since the assassination of Gibran Tueni, the situation has been relatively calm and since last November international players have started to come back. We currently have an occupancy rate of some 90%. So, yes, City Mall has underperformed in 2005 and Admic suffered in 2005, but we’ve overcome the worst and are now going uphill, granted things stay as they are. People should realize though that you do not recover from a bad year within a year. It takes time. And I’d like to add that safety in itself is not enough. We need an active role of the government to promote Lebanon as a safe travel destination, as we need foreign visitors to make the country perform.”

E What about the other Admic components? Could you give us some figures regarding Admic’s general performance?
“We just closed the books last March, but I don’t like to give figures. What I can say is that BHV/Monoprix in Jnah has a yearly turnover of some $80 million. All five Monoprix outlets booked a small increase in sales, while BHV sales remained stable. As said, Geant did not perform as planned, but is picking up. City Mall with one year of delay due to the circumstances mentioned above we are now where we wanted to be almost a year ago.
E How many employees work for Admic?
“Well, we’ve come a long way since we started with 2 people in 1997. Today we employ some 1500 people, which doesn’t include some 300 people who are part-time employed as cleaners or security guards. When BHV opens we will have another 300 people added to the payroll. What’s more, Admic generates a considerable amount of indirect employment as we hire transport companies, suppliers, advertisement agencies.”

E In brief, what is Admic’s philosophy, the key to success?
“First of all, to offer a wide range of quality products. Secondly, comfort and convenience. Shopping should be more than shopping, it should be a pleasant experience in terms of parking, service, accessibility, entertainment etc. Thirdly, to be very price competitive.

E Do you think the completion of the Souqs project in 2007 will be a threat to the success of City Mall?
“No, I don’t think so. The two are complementary. The Souqs will complete the development of downtown and predominantly cater for the high-end market. City Mall is based in the peripherique (suburb) of Beirut and feeds on the city’s exit. If you look at it, we are based at the south, east and north exit of the city. Thank God, there is a sea in the west, otherwise we would be there as well (laughs)”

E Does Lebanon have room for even more malls?
“Yes, I think so. The whole retail business is undergoing change and the trend in retail is towards organized shopping. In that context, Lebanon is in fact rallying behind global developments, so I think more malls will open. Now, if they will be all successful is a different story. That all depends on things like location, mall design and tenant mix.”

E What will the future bring for Admic?
“2006/2007 will be a period of consolidation and reflection, in which we will decide upon our next step, which can be in Lebanon or in the region, as the trend is going towards regional markets. But that’s all I can say for now.”

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Special Section

The art of retail in the capital

by Executive Editors
written by Executive Editors

A look at Beirut’s major shopping districts

Despite a year of bombs and instability that has seen robust economic growth slow to a trickle, the Lebanese, especially the wealthier residents of Beirut, ably supported by liquid GCC nationals, have hardly stopped spending on consumer items and related services. Although retailers, including restaurateurs, took a knock in February, March and April in 2005 following the assassination of Rafik Hariri, overall retail figures for last year fell only by 15%, ensuring that the $3.5 billion sector is holding steady while, by and large, rents in the main shopping areas have also held their ground. It could, many agree, have been much worse.


The Beirut retail market has become highly competitive in the last 15 years, with, in addition to the natural evolution of traditional retail hubs, the arrival of shopping malls, which have become bigger and better since the first monstrous generation sprung up at the end of the war. And like most urbanites, Beirutis seem to appreciate the convenience they offer. Just look at ABC Ashrafieh and City Mall in Dora on a Sunday.

Traffic nightmare
Beirut’s shopping districts have developed in a haphazard way in the last 30 years. The civil war drove shops and shoppers out of the city’s traditional heart, the Burj, and into the most unlikely places as suburban areas such as Kaslik, Furn al Shebak and Mar Elias were transformed into localized hubs and throughout most of the post-war period shopping areas in Beirut remain unchanged. On the rehabilitation of the BCD, has produced the kernel of a central hub but it is still a work in progress and will not achieve its full potential until the completion of the long-pregnant Souks shopping mall.
The main high street centers in Beirut are the BCD, Hamra, Verdun, and Sassine. These four areas cater to very different customers and are in different evolutionary stages.
What of the environment? One major negative that affects how we shop is the near total lack of control imposed on the city’s traffic. Walking along many streets in Beirut involves negotiating your way around cars parked on the pavement, only to then be faced with the risk of being run over by another vehicle as you step out on to the road. Cars double, in some cases triple, parked, often on the pavement are the norm across Beirut and are mostly tolerated by the local police. This is not going to help the high street retailers win their battle with the malls, and retailers in these areas should understand that they should try and provide proper parking for the customers rather than the pavement in front of their shop.

Old divides
Another unique aspect of the high street retail sector in Beirut is the hangover of the civil war. Whether it is a result of petty sectarianism or dark memories of the conflict, some residents of the Beirut and the suburbs still have a problem with crossing to the “other side” and shopping in either West or East Beirut. Although it is difficult to believe that this is still a factor, many retailers insist that it matters, and in the current atmosphere is unlikely to change any time soon. Although the BCD is unlikely to be affected by the problem the other centers still cater largely to a local population, and will likely do so for the foreseeable future. Ironically, retailers should see it as strength not as a weakness.
The Beirut Central District
The BCD area has the potential to be the jewel in Beirut’s shopping crown. The rehabilitated Nijmeh Square is the most visited destination in Lebanon and the district is the most fashionable in the Middle East. The area immediately around Nijmeh, especially Rue Maarad, is crammed with cafes and restaurants, and in the warmer months the streets are packed with people smoking nargileh, chatting and watching the world go by.
Further down the hill, Rues Allenby and Foch are amassing all the big retail names including a four-floor Aishti emporium. Although there is little to be found that will suit those on a budget, the area features most of the chain stores in Lebanon as well as the designer labels. The area is easily accessible by car and for the time being has adequate of parking. Rents in the area are the highest in Lebanon and are between $800m2-$1200m2.
The Souks project will in theory boost the area but the project has yet to secure a permit for an anchor and there are questions over who will rent there when most of the big names already have stores in the BCD and who will take the department store plot. In 2001, Admic, who had the franchise to bring Les Galeries Lafayette to the BCD were primed to sign, but delays have put this deal on the back burner.
Despite its huge potential, the BCD has recently been brought to a standstill by the national dialogue talks, which saw the whole area being cordoned off and streets closed to cars. Walking through the streets required multiple frisks and to top it off the Lebanese army moved a few armored cars onto the streets and positioned snipers on the rooftops. As any retailer will tell you, this is not the kind of atmosphere that attracts customers and many shops and restaurants in the area gave up and closed while the talks took place. Those that stayed open might as well have been closed. Although this extreme situation is unlikely to be repeated it is an example of the risks that a Beirut city center location involves. The security around the parliament and the sandbagged ESCWA building is likely to continue and could also affect the retail sector in the area.
Finally, the district is experiencing a residential construction boom at the moment and although this is likely to work in the area’s favor, there is a risk that the sale of residential apartments to GCC buyers and expatriate Lebanese might strip the area of soul and at worst create a ghost town due to the part-time residents.

Verdun
Verdun is considered by many to be the premier shopping street in “West” Beirut, and some retailers in the area argue that the area is on a par with the BCD. Take a walk past Starbucks or Le Pain Quotidien and you will see the usual suspects in suits puffing cigars and fiddling with their Nokia 9300s.
Verdun is more a hill than a street and more a collection of shopping malls than a row of shops, starting at the eastern end with the resuscitated Concorde Center and ending at Corniche el Mazraa. In between there are Verdun 730, 732 and Dunes shopping malls with a sprinkling of boutiques. The area is more up-market than Hamra and includes high-end shops such as Zara, Timberland, several jewelry stores, restaurants and cafes. The street is centered on Verdun 730 and 732 and the cafes in these malls are a major pull. Retail rents in the area are roughly around $1,000/m2/year but at the turn of the century were as high as $1,600/m2/year. The area is also very popular with GCC tourists who can stay in the Holiday Inn adjacent to the Dunes Center or one of the many other hotels situated on the nearby Corniche.
The area will soon benefit from two new mall developments, the V5 and the V2. V5 will be a 5,000m2 mall in the center of Verdun and V2 will be a development located near the Concorde center. It is unclear what kind of affect the BCD’s ultimate ascendancy will have on Verdun. They are clearly angled towards the same customers, but potentially there is enough of this kind of business to keep both Verdun and the BCD alive and kicking.

Sassine
Sassine has benefited hugely from the arrival of the ABC mall, which has been designed so that it blends seamlessly into the surrounding street networks. Shoppers in ABC can nip out into the surrounding district, shop and then head back into the mall again. The area is centered on Sassine Square, which features several cafes all of which are popular with locals and the square is arguably the center of “East” Beirut. From Sassine the area includes Independence Avenue which heads down from the square to Sodeco and includes high-end shops and the Gabriel Hotel. Rents in the area are between $800/m2/year-$900/m2/year.
Sassine has, as the retailers like to say, something for everyone. Aside from the more expensive clothes shops on Independence Avenue, the back streets of Sassine have plenty of cheaper stores. The area has a guaranteed customer base due its popularity amongst local residents who don’t want to shop in the BCD, or further a field.
However road access is a big problem. ABC is a big mall served by small streets and on a Saturday evening the traffic of shoppers, cinema and restaurant goers can overwhelm the area. The roads are simply inadequate to cope with the level of traffic.


Hamra
Beirut’s only genuine high street, Hamra is an old favorite for many residents in the capital. Blessed with large pavements, cafes, a good mix of shops where you can find clothes, books, electronics and music, the area has virtually everything you need for a day’s shopping. The institutions of AUB and LAU give the area a city center atmosphere and the area still retains one or two Ottoman buildings as well as some interesting examples of 70s architecture.
Although the area went through some tough times in the early post-war period, recently it has experienced a come back and several chain stores and cafes such as Radioshack, Roadster, Starbucks, Body Shop, Vero Moda have moved into the area. Although this modest gentrification caused some casualties, mainly the much-missed Modca cafe, on the whole it has worked in the area’s favor. Retail rental in Hamra is approximately between $400-$700/m2/year.


However Hamra suffers from the traffic problem. The one-way system around Hamra Street and Makdessi Street moves at crawling speed and more often than not is at a standstill during the daytime, and there is also a shortage of parking spaces. Furthermore the unimaginative use of space in Hamra has done little to boost the area. Without a more organized and daring approach by the local businesspeople Hamra is unlikely to return to its pre-war glory days. The problem is compounded by tenants who still pay old rent. This situation also hampers the natural retail evolution.
Hamra has arguably the most potential of all the shopping areas in Beirut. Its city center atmosphere and large student population is likely to guarantee a high level of visitors. Hamra however is likely to feel the arrival of the Souks in the BCD area and although the district has been already been a drain on the district it is only likely to pose more of a threat over the coming year.

And finally
Two districts that are very popular among Beirutis are Furn al-Shebak and Mar Elias. These area clearly do good business and vacancy spaces in these areas are very low. Rental rates in these areas are between $400m2-$500m2. The low overheads allow Beirut’s small businesspeople to set up shop here and as a result prices are negotiable and competitive.

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Special Section

National Icon

by Anthony Mills
written by Anthony Mills

Mercedes-importers T. Gargour & Fils were not spared the economic winter that beset the first half of 2005. The company had expected it to be a bumper year with sales hitting 500 units but instead witnessed a 5% drop on 2004, when the company sold 437 units.


The good news is that, although unit sales dipped, revenue rose by around 15% – or $8 million – from $52 million to $60 million because Gargour & Fils were able to sell higher bracket models, in particular the new S-Class.
“Last year, we sold a lot of the most expensive model, the S-Class, which was introduced in September 2005,” said Gargour & Fils Deputy General-Manager Joseph Zoghbi. By the end of the year, Gargour had sold over 75 units of the flagship model, which in Lebanon sells for between $130,000 and $200,000. Marketing-wise, Gargour went all out on the year-saving S-Class. “We invited our clients to a big event, a dinner, a show,” Zoghbi recalled.

Marketing offensive
The push paid off. S-Class sales helped push Gargour & Fils into an undisclosed profit. Selling Mercedes in Lebanon is a challenge despite the nation’s love affair with the German legend. Local prices range from $40,000 for the smallest Mercedes car, the C-Class, up to a staggering $1million, or thereabouts, for the exclusive SLR MacLaren. In a few weeks Lebanon will be treated to the new V-Class which will retail from $35,000.
But while the high end models are performing, could it be that the nation is bored with a brand that, as well as luxury excellence and performance is also synonymous with taxis and social climbers. Might the Lebanese consumer be becoming more discerning? According to Zoghbi, this is nonsense. “No. On the contrary. Everybody in Lebanon wants a Mercedes. Overall, including used cars, the best seller in Lebanon is Mercedes. Not everyone can afford a new one though.” Zoghbi said no figures were available indicating what portion of Mercedes sold annually in Lebanon was used. But he said that used cars accounted for around two-thirds of all cars sold every year.
Not one to be put on the back foot, Zoghbi even insists that unit sales are actually on the way up, despite the political blips. “Politics affects sales item figures. But since 2000 we have been going up. Business was affected in 2005 because of the political situation and the bombs, but we were expecting to sell more than 500 cars. And the year had started that way. January was a very good month, as was February, until the assassination. The political situation really affected us. We hope that it will improve in 2006. We expect to sell more cars this year, especially since we have new models coming in.” He said he conservatively expected to sell “around 500” cars in 2006, more than 100 of them the V-Class, sales of which he predicted would continue to rise in 2007. And projected revenue for 2006? Similar to 2005, he said.

After-sales
Among the new models expected are the sprawling, luxurious “American-size” R-Class – a new-concept blend of MPV, estate and off-road ingredients as well the more compact, but still equally innovative, “European-size B-Class.”
Zoghbi said that in the luxury S-Class-type segment, Mercedes had no competitors in Lebanon. In pure overall unit sales figures, though, BMW, as a rival German manufacturer also associated with luxury, is the primary competitor. “And now the Japanese are entering the luxury segment in Lebanon with cars like the Nissan Infiniti. We must be concerned by them,” he admitted, before asserting confidently, not to mention predictably, that, “everyone in Lebanon wants a Mercedes.”
Gargour & Fils go back a while. They’ve been importing Mercedes since before the Second World War. In fact, they were the pioneers of Mercedes sales across the Middle East.
“In the 1950s, we were very aggressive in the market,” said Zoghbi. “You can still see in Lebanon, as old taxis, some of the Mercedes that we sold in the 1950s.”
Lebanon’s 15-year civil war, though, took a massive bite out of business for Gargour. “During the war, business was very bad,” mused Zoghbi. “But Gargour kept on all the employees. They lost money, because of the lack of business, but they didn’t kick anyone out.
“After the war, they invested in the Mercedes dealership again. We have since reached European standards, mainly on the after-sales side – which is very important. We have invested a lot in after-sales, in tools, training and equipment. We have German people taking care of it. Today, we are considered an after-sales leader in the Middle East.”
Gargour pays particular attention to the luxury element in its marketing campaigns, but is increasingly also trying to lower the customer age bar. “Everyone in Lebanon considers Mercedes as a luxury brand,” Zoghbi explained. “We focus on that. But we are trying to attract younger buyers. We want to hit more modern young people with the B-Class. That will be our marketing objective for 2006 with the B-Class.”
The idea, Zoghbi went on, is to make of younger buyers lifelong Mercedes customers. And the earlier they are reeled in, the more [more expensive] cars they are going to buy. “If they buy the B-Class today, tomorrow they will buy the E-Class,” said Zoghbi.

High taxes
Again, Zoghbi preferred opacity. He declined to divulge the average age of a Mercedes buyer in Lebanon, reverting to his favorite mantra: “Everyone is a Mercedes buyer. Everyone wants one. If they can’t buy a new one they buy a used one. Mercedes is the brand everyone who can considers first.” He also declined to reveal how much Mercedes spends on marketing annually, repeating: “It’s a secret,” before adding, “We don’t spend that much. Compared to other German and Japanese dealers we spend less.”
In addition to political instability, Lebanon’s vivacious trade in fake car parts also eats into Mercedes revenue. “It’s a problem,” complained Zoghbi. “We are working hard on it with the government, with Mercedes lawyers, and customs officials” – whom Gargour helped train last year to better spot the counterfeit parts. Zoghbi said the newly-trained customs officials had since stopped and destroyed “a lot” of fake parts. Mercedes has also periodically launched campaigns in local newspapers warning of the potentially life-threatening peril associated with bogus parts. Zoghbi said there was no estimate of the cost to Mercedes in Lebanon, of the counterfeit parts trade here.
In chorus with other dealers in Lebanon, Gargour & Fils complains about the high taxes on imported cars, taxes which, especially with high-end models, jack up the end price – in the case of the SLR MacLaren to almost 100% of the car’s base value.

Lobbying for change
Lebanon’s car importers association has long been lobbying the government to reduce taxes, but to no avail, despite the suggestion the loss in customs revenue would be more than compensated for by a rise in VAT revenue generated by increased sales. “Last year, only 15,000 new cars were sold in Lebanon,” Zoghbi complained. “If they reduced customs and registration fees, people would buy more cars more often and the government would actually make more money.” Gargour & Fils in particular could sell 50% more cars, he said.

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