Real Estate

What’s the difference anyway

by Safa Jafari
written by Safa Jafari

Lebanon has been going through ups and downs, cycles of joys and woes, repeated phases of history. It waddles along both victorious and defeated. How do its people feel about this? Are they aware of the issues at hand? Do they have an opinion or a preference? Absolutely. Are they hopeful? Unlikely. The result is a numbing state of indifference.

This article is based on information gleaned from informal interviews with Lebanese citizens – although the word ‘citizen’ does take on an ironic twist, assuming, as it does, a sense of ownership, stake-holding and awareness of their rights and duties vis-à-vis their country. Of course, citizenship also implies the presence of a functional state. The aim was to see if today’s Lebanese are politically indifferent. If so, why and what does it mean?

What is indifference?

The dictionary definitions of indifference include: privation of passion, emotion, or excitement; a state of indolence or apathy, and being incapable of being ruffled or roused to active interest. Etymologically, the word means “no difference,” an unnatural state in which the lines blur between light and darkness, good and bad. Indifference is often an outcome of a crippling set of excuses. Sometimes it is based on ignorance but often comes despite knowing that things are not going well. Finally, it is choosing to ignore that kind of knowledge and waiting for things to become better, allowing the problem to continue. As indifference by definition is being passive and inactive, it also implies no change towards the better and a definite lack of planning. It is the loss of hope and the bottling up of intense feelings that may cause sudden societal rage or lead to indoctrination by extremist groups, such as we have seen in France and the UK among disaffected Muslims. Indifference, far from being stagnant, can be very dangerous indeed.

Arab political indifference

In his article “What on earth is it with the Arabs” Robert Fisk speaks of Arab apathy. Invasions, interferences, injustices and occupation come frequently and are challenged rarely. The fact is that the West objects more than the Middle East. Whether it is violence in Sudan or the removal of Saddam Hussein and the occupation of Iraq, the Arab people simply move on. The Palestinians have been feeling Arab indifference for decades; the Lebanese felt it throughout the civil war and now the Iraqis are also feeling it.

Internally, the heavy hand of the oppressive state has been historically responsible for the apathy which grips Arab societies. They can speak of injustices in other countries but not within their own borders for that is going against the law. As Adnan El Amin says, it is as if the law is to “stay sedentary, within a circle of nonchalance and disgust.”

The sorry state of Arab societal organizations is equally to blame. The Oxford-based academic, Nadim Shehadeh, recently told Al Ahram that “too much has been expected from the man on the Arab street… The people are more cynical and just want to get on with normal life rather than pursue high ideals and become revolted and frustrated.” The public is also feeling deep distrust of their representatives who, as Talal Salman told The Weekly, have started buying their survival from the United States by discreetly agreeing to American plans, while publicly denouncing the US and suppressing all forms of public resentment. The Arab public sees this, loses faith in the regimes, realizes it can neither change the regime nor the way it functions and just gets on with life.

The Lebanese Scenario

The situation in Lebanon is different. The Lebanese allow politics into every part of their daily lives. Compared to other Arab nationals, the Lebanese have more space to express their political opinions while their political energy is more consumed by internal affairs than issues in other Arab countries.

But this does not mean they are not indifferent. If indifference is defined as lack of interest or caring, then the Lebanese are not indifferent. If, however, indifference is taken to mean a lack of hope, then, yes, they are. Elie Wiesel wrote about ‘The Perils of Indifference’ in 1999, he defined indifference as the blurring between good and bad. In the Lebanese case, the people do see the difference. It is just that they are currently in a state of feeling no differently whether they experience the good or the bad – as, you see, the good cannot be so good, the good might just as well be bad. The Lebanese spoken to in these interviews realize what it is like to have a functional, developed Lebanon. But due to a state of hopelessness, they do not see this coming any time soon.

Politics politics everywhere – show me change and not despair

Politics plays a major role in daily life in Lebanon. Jokes, cartoons, comedies and even songs revolve around political reality. “It is the bread we eat,” commented one young Lebanese. One hears political discussions everywhere: coffee shops, the living room, even the gym where small TV sets airing heated political debates grab the attention of those working out.

The space allowed for venting, however, if accompanied by the possibility for action (as in joining political parties, organizations, and demonstrations) is not accompanied by change. The act of political discussion has become an art of deliberation, as in a school debating society, if not a pastime. But what happens after one has spoken one’s mind? What happens beyond polling and opinion surveys? Democracy is only part expressing one’s opinion; the other part is being heard and taking action accordingly. The Lebanese citizen is aware of this incomplete picture. Loss of democracy then results in apathy, and apathy, in turn, results in further loss of democracy. And yet the curve of hope has waxed and waned, affected by incidents, speeches, alliances and shocks.

The shock

For 30 years, the main obstacle on the road to prosperity was considered by many to be the Syrian presence in Lebanon. This alone bred inertia, as a justifying excuse was present, obvious and persistent. There was an obvious stagnation in political feeling among the Lebanese public for many years (44.6% of interviewed Lebanese youth in 1997 stated no political preference). However, a revitalization of political energy occurred with the assassination of Former Prime Minister Rafic Hariri, and the return of both Samir Geagea and Michel Aoun to the political scene. Lebanon received international attention and support, and a happy ending was perceived when the Syrian forces pulled out of Lebanon. For once, the Lebanese felt they could take their destiny into their own hands. But more recently, the feeling that different leaders had failed to demonstrate genuine concern for the state, has left the people wondering about their loyalties and judgment.

Reasons for hopelessness

It is not lack of information that makes some of the Lebanese indifferent. Information can be incomplete and it can be incorrect. It is mainly the fact that there is no new information and too much of the same morale-defeating information that has led to this inertia.

Indifference can occur as a result of a lack of awareness and interest in current issues as well as a lack of a sense of belonging to one’s country. In Lebanon, several possible reasons for indifference have surfaced:

n A feeling that one cannot do anything about the status quo, coupled with a heavy dose of cynicism.

n A lack of faith in the state, the political system, the law, the institutions, and the politicians as well as a lack of confidence in the ability to organize and achieve institutional reform.

n A feeling that the same tribal and political leaders that have ruled the country for years will continue to do so.

n Voter apathy in the election process, law and candidates.

Indifference in Lebanon

Although the 2005 elections were the first free elections in 30 years, the voter turnout was still not high. The first round turnout was 28%. In the second, third and fourth round, the turnout was between 43% and 55%. Meanwhile, citizens’ rights remain unclaimed, be they the Sheba’a dispute and war crime compensations, while national files – the disappeared, the cellular phone dispute and the quarrying scandal – remain closed. But utilitarian theory dictates that, unless the people see benefit from a certain change, they will not put the effort to bring it about. If two scenarios are similar in weight, there would be indifference in the choices on offer.

People want a dignified daily life. They want to know that they are not being robbed by the VAT and phone and water and electricity bills. They want to know where their money goes. Is the debt being paid off?

Ironically, there is a separation between daily struggle for economic and social security on one hand, and politics on the other hand, which, although very linked to the reality of the people, is often perceived as an accessory or social activity. With a growing economic gap, there has been significant growth in dissatisfaction with present political parties, and this has led to a decline in political trust. People have been marginalized by the complication of ongoing politics. As Walter Lippman pointed out in 1913, ‘indifference prevails insofar as political paradigms propose differences that are irrelevant to the lives and actions of persons.’ But maybe it was Plato who summed it up best when he wrote that, “the price of apathy towards government is to be ruled by evil men.”

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Business

Greenhouse Revolutionary

by Michael Karam
written by Michael Karam

According to Etienne Debbane, chairman and CEO of Exotica, the horticultural and contracting company, the key to success has been to exploit the synergy of opposites: war and peace, indoors and outdoors. A bit of flair, an emphasis on service, staying tightly competitive and a strong regional presence have also helped the corporate cause.

“When we started in 1978 and opened our 5,000m2 outlet in Zalka, the doubters all said, ‘these people are crazy. They have more money than sense and they will soon be bankrupt’,” he recalls.

Debbane is sitting in his office at Exotica’s 100,000m2 nursery and head office in Louaizeh in Zouk Mosbeh. “They were wrong. People were spending more time indoors because of the war and they needed something to make their living environment more agreeable. They needed plants. Till then it had been an alien concept. It was the same with the offices. We won contracts with banks, insurance companies and other major businesses to supply and maintain plants in the work environment.”

With peace, the Lebanese emerged, blinking into the sunlight. “The stress was on gardens. Again we were pioneers. Look at Fakra. It is arguably the greenest area in Lebanon. Why? Because the promoters of the development were crazy enough to go for our idea to plant around the hotel. Again we had our doubters. They said we were crazy putting plants in the snow. They will die, they said. But tell me, who builds a chalet in Fakra today and doesn’t plant a garden? Who today invites people to dinner and doesn’t put flowers on the table? We have created or at least contributed to this culture.”

A household name

Exotica’s origins are embedded in Societe Debbane Freres, the agricultural arm of the Debbane group. Etienne’s father was what he calls “a pioneer farmer” who began the importing and contracting of pesticide application in Lebanon and abroad. “I joined the group in 1971 and my father told me to bring new business ideas, so I implemented the greenhouse and plastic undercover business to Lebanon in 1971 and 1972 and then began producing ornamental plants in 1979. This is how we started the distribution company. We then moved to Kuwait and Saudi Arabia, and grew from there.”

Today, Exotica is a household name with annual revenues in the range of $10 million. With five points of sale and the mammoth Zouk nursery, it can sell you a dozen home grown roses, a 2,000 year old olive tree or ranks of fast-growing, Leylandi conifers to block out nosey neighbors. It will landscape, plant, irrigate, and maintain your garden, manicure your lawn, plant a golf course or lay a football pitch. Exotica produces 2 million plants a year and imports those it can’t grow locally or which are too expensive to grow locally. Today, the retail side accounts for 50% of business, landscaping 30% and plant production 20%.

Regional roles

Exotica has been a regional player from almost the very beginning. In 1981 it established one of the largest companies for landscaping in Saudi Arabia and for 22 years worked on palaces, universities, golf courses and sports pitches. Does this entity still exist? If not, what happened?

In 2004, the company embarked upon its second regional project and now divides its Middle East activities between two corporate entities. Exotica SAL today serves the Levant – Jordan, Syria and Iraq – and North Africa – Egypt and Algeria, while Exotica LLC, an Emirati company with local partners, conducts business in the UAE, Qatar, Bahrain and Kuwait. Both companies are looking to target regional markets with renewed vigor. “We have just built a 50,000m2 nursery in al-Rahba area of Abu Dhabi. It will be fully operational by September 2006 and is geared to outdoor plants,” explains Debbane.

In the last three years, Exotica has been more active in the region, a strategy born out of a gradual contraction in the Lebanese market. “We need to focus on countries where there is wealth and demand. Lebanon is getting poorer. You need a consumer to sell and today there is less money to spend. Big jobs have been delayed or even stopped.”

Still, the infrastructure was in place to serve regional demands, while the know-how built up over a quarter of a century of working in the region has, claims Debbane, given Exotica a genuine edge. “We are executing gardens by shipping straight from the source or Lebanese nursery,” he explains. “If you want to be a big player you have to be there as a legal entity and to have a nursery producing plants that others don’t have and to be price competitive with other local producers. And this is what we have done. Today 20% of our business is outside Lebanon but within five years, we expect this to climb to 50% with overall revenues hitting $30 million.” According to Debbane there are no plans to undertake an IPO. “There is no need. We have a very powerful partner in the Emirates and in Lebanon we are doing well.”

A unique selling point

Despite the regional push, Exotica’s main hub is still in Lebanon. The Zouk nursery is a source of immense pride for Debbane. “It is probably the largest in Lebanon with the widest selection of plants, around 3,000 items.” Debbane points out that due to Lebanon’s unique range of microclimates – tropical, sub-tropical, desert and alpine – the company finds itself in the unique position of being able to cater to all zones, including the Gulf countries. “We are probably the only company in the world that caters to all these climates.”

Self-production and slavish attention to the bottom line has also sharpened Exotica’s competitive edge. It is an area of the business of which Debbane is particularly proud. “When it comes to quality and price on the plants we produce, we are unbeatable. We are highly mechanized and professional. For instance here in Zouk we produce 1 million rose stems, using hydroponics, a soilless culture in an ultra-sophisticated computer-controlled greenhouse system. The investment has been extremely expensive but we sell what we produce and we make the best roses in the country. Whether it’s annuals, perennials, small plants, or shrubs, we are also unbeatable because we use mass, mechanized production. We handle the plant once, put it in its pot and when it is ready for sale, we unplug and sell it.”

Debbane is also keen to stress that while Exotica is a successful family business, it is run as a corporation. “We have rules. We are clearly regulated, well-organized and financially transparent. There are two ways of running a family business. There is the family way: low cost, no investment and where everyone in the family works haphazardly and then sells without calculation. We do it in reverse. We look at it as an industry. We say the end product is this. What should we do to get it at price of not more than this? How many should we produce and what are the means of producing?”

The result is a competitive pricing policy that is often at odds with the company’s glamorous image. “People are normally shocked by our the prices. They think we charge for our name. This is not true,” claims Debbane. “The name is the gravy. All our plants have prices and are fixed. This is security to the consumer. Customers can come here and book a tree and come back for it in two months.

Exotica grows 1.5 to 2 million plants each year. “Everything that we can grow that is cheaper than importing we grow and in the same vein everything that we can’t grow here or is cheaper to import we will. For example, we used to get Palm trees from the North but now it is cheaper to ship them in from Egypt. They may not be as good as ours and a few may be diseased but it is still worth it. The plants we grow here are plants that reach maturity in 1-4 years and which we can sell easily. There is no point in investing in long-term trees when the market is so uncertain and in the contracting game you have to keep overheads low all the time as a precaution against the lean periods.”

The Debbane Group

Precaution or not, Exotica’s fortunes have been firmly rooted in the solidity of the Debbane Group, without which Debbane says Exotica would probably not be around today. “We owe our success to the support of the Debbane group. We have had highs and lows.” The lows were…well, pretty low, especially a particularly lean spell at the end of the civil war. “When things went bad, no one would have come in. Who was going to pay $500,000 for 90% of Exotica when they see you are bankrupt, even though 50% of the company should be worth $4-5 million? The Debbane Group, with income from other sectors in other countries, has been the key to our success.”

Debbane is one of six family owners in the group which established Exotica and which has revenues of around $100 million. The core activities are spread over seven other companies: Societe Debbane Freres, importers and distributers of agricultural material; Sodap, Insulco and BCL, which make construction material, insulation and cement respectively, Pesco Telecom and Evert M which provide telecom and data transmission services, and Enoteca, the upmarket wine importers and retailers, a business that grew out of a hobby and which now serves both the on and off-trade. It is another area in which Debbane feels the group has contributed to new trends in modern Lebanese living. “People used to serve whisky and arak with a meal. Now it has to be wine.”

The CSR experiment

Exotica devotes 5% of its revenues to advertising, “the norm by western standards.” Given the company’s green – metaphorical and literal – profile, surely it must be heavily involved in corporate social responsibility, working among the community and leading the way to a greener Lebanon? Debbane sighs. “To be honest, most of our efforts to help the public sector have failed. We have planted roundabouts, medians and trees on pavements mostly without success because the day we hand them over to the municipality, they are not well looked-after. We have planted some areas as much as six times. If we had been allowed to do it properly they would be fantastic places by now. It kills you. I was involved in a roundabout project with Pikasso [billboards]. When we maintained it, it was fine but when we left it, it died and had to be replanted within two years, probably at a higher cost. So you can see there is little incentive for us when we are let down all the time.”

Yet Debbane has sympathy for the Ministries, who he says are underfunded. “Look at the ministry of agriculture. It has 0.04% of the national budget for a sector that employs 25% of the workforce. In 1974, we were pioneers. Today, Lebanon has fallen behind its neighbors in this field, while other have learned new methods or brought in know-how.”

Value-added service and know-how

Know-how is a key strut in the Exotica corporate structure. “You have to get the best people. Without people there is no business. The key is that we have always invested in people. We have found the best and brought in the best and trained our staff abroad on the latest techniques, buying know-how when we have to.”

As a result, Exotica has 15 technical teams supervised by engineers that are on call to visit the nation’s gardens, assessing, planting and maintaining. It is, claims Debbane, all part of the total care package. “We guarantee everything. You can call us and say, ‘I have a garden in Tyre. Can I plant lavender?

’ We will ask if you have checked your water. Is it too salty? We will check the water and the conditions and if you can’t plant lavender we will tell you why. Others retailers will just say, ‘You want lavender? Take three plants, what’s the problem? If they die, come and take three more.’ We are still maintaining gardens that we planted years ago.”

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Money Matters

An idiot’s guide to hedge funds

by Executive Editors
written by Executive Editors

As a follow up to recent articles published in this magazine on fund managers, such as Philippe Jabre and Marc Hochar, and the numerous mentions in these articles of hedge funds, we thought we should shed some light on the meaning or definition of hedge funds, their origins as well as their characteristics.
In the financial community, the term “hedging” usually refers to entering transactions that protect against adverse price movements. A “hedge fund” could thus reduce risks through a strategy that acts as an insurance policy, and brings the level of investment risk to a minimum. However, the term “hedging” or “hedge” is very misleading as most hedge funds nowadays use strategies which are not at all “hedged” or without risk. In fact, most hedge funds only “hedge” part of their exposure to a specific market or product (whether its equities, bonds, interest rate products, etc.) and follow specific sophisticated strategies. With time, the investment community started to call these type of funds as “hedge funds”, even when the overwhelming majority were mainly exploiting market inefficiencies through the use of various sophisticated arbitrage techniques.
Their origins date back to 1949, when Alfred W. Jones set up the first hedge fund. His objective was to eliminate part of the market risk involved in holding long stock positions by short selling other stocks. He was also the first to simultaneously use short sales (the act of selling securities you don’t own, by borrowing shares from someone, selling them, repurchasing them at a later date, and then returning them to the original lender), leverage and incentive fees. In 1952, Jones converted his general partnership fund into a limited partnership, investing with several independent portfolio managers and created the first multi-manager hedge fund. By 1966, Jones’ “hedge fund” had outperformed all the mutual funds of it’s time.
A “rush” into hedge funds followed and their number increased from a handful to over a hundred within a few years (remember, this was still the late 1960s). However, there were high losses and bankruptcies during the difficult stock market times of 1969-70 and 1973-74, a period that saw a number of hedge fund managers, with the exception of such stellar luminaries as George Soros and Michael Steinhardt, wiped off the financial map.

80s boom
A new boom in the late 1980s, helped the creation of a great number of new hedge funds and by the mid-1990s, hedge funds were accused of manipulating the market and creating high volatility, although an official inquiry and study by the IMF showed no evidence of such wrongdoings. The collapse of the Asian and Russian markets in the late 1990s ensured the much publicized collapse of LTCM, although the hedge fund industry recovered relatively quickly and is today continuing to boom.
Today, the established definition of hedge funds is “all forms of investment funds, companies and private partnerships that use derivatives for directional investing; and/or are allowed to go short; and/or use significant leverage through borrowing.” Borrowing includes margin borrowing against securities, foreign exchange, credit lines and loans. By significant leverage, we mean borrowing in excess of 25%. Hedge funds have three main features: they charge clients a percentage of the profits; they aim to achieve substantial returns; and they can only take a limited number of investors.

On the map
Hedge funds are characterized by their free choice of asset classes, markets, trading style, and instruments. Most are sold on a private basis and many are incorporated offshore, while for regulatory and administrative reasons, high minimum investment levels are often required. Other characteristics include the infrequent subscription and redemption possibilities, and the fact that managers invest their own capital in their funds. Finally, hedge funds show low correlation to traditional markets and are marketed as being oriented towards absolute performance (performance above zero) instead of performance relative to a certain benchmark or reference index.
With our own Philippe Jabre, it could be said that Lebanon is somewhere on the map of the hedge funds’ world. However, when one realizes that the West had been offering this kind of alternative investment source for more than 50 years, and we in Lebanon are still cogitating about petty political issues with a complete disregard for economic development, then it is understandable why we still have an accelerating brain and youth drain. Pity.

Moody’s Upgrades NBK’s Outlook to Positive

The rating agency, Moody’s Investors Service, has upgraded the outlook on the A2 long-term foreign currency deposit rating of Kuwait’s largest bank and the top-rated Arab Bank, the National Bank of Kuwait (NBK), from stable to positive. This upgrade came amid the bank’s strong performance and continuous growth, as well as to its pioneering position in the local market. NBK posted net profits of $704m in 2005, up 37% year-on-year. The bank’s total assets reached $21.2bn at the end of 2005, while its shareholders’ equity stood at $2.2bn. Moody’s upgraded Kuwait’s sovereign ratings outlook to positive earlier this year due to the further strengthening of the country’s fiscal and external positions and the successful conclusion regarding the succession of the new emir.

Emaar Q1-2006 Net
Profits Rise 14%

Dubai-based property developer Emaar reported a 14% yearly growth in first-quarter 2006 profits to $413m resulting in a $0.28 annualized earnings per share. The company’s revenues approached $610, down 21% year-on-year. Emaar, a joint-stock company listed on the Dubai Financial Market, recently announced plans to expand its investments into the education and healthcare business. Emaar’s share was last traded at AED16.35 ($4.5).

Country Profile: Qatar

Qatari authorities unveiled the country’s budget for 2006-2007. In the budget statement, revenues are forecasted at $15.6bn, expenditures at $15bn and allocations for infrastructure projects at $5bn. The 2006-2007 budget is significantly higher than the 2005-2006 budget mainly due to the assumption of an average oil price of $36/barrel, up from $27/barrel the year before. A surplus of $632m is forecasted for 2006-2007, up from one of $60m in 2005-2006. In fact, Qatar has realized consecutive surpluses for the last five years. The country’s current spending is forecasted at $9.5bn for 2006-2007, up from $7.2bn for 2005-2006, while capital spending is forecasted at $5.5bn for 2006-2007, up from $3.2bn for 2005-2006. Allocations for health services, education and housing would reach according to the budget $1bn, $1.6bn and $192m respectively. Moody’s agency has noted that Qatar’s booming oil sector has improved the country’s public finances. Its public debt has fallen from around 90% of GDP at end-1999 to 30% of GDP at end-2005.

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Economy & Finance

Hedge your bets

by Executive Editors
written by Executive Editors

Founded by Marc Hochar, a former Lebanese investment banker who had spent his entire professional life (more than 13 years) in investment banking and global markets with US investment bank JP Morgan, Melkart Capital has become the talk of Lebanese financial circles and the region. Melkart is the first large-scale international “fund of funds” to be managed out of Beirut by Lebanese specialists. In less than 20 months, the fund has attracted around $70 million of investments from high-net-worth individuals from Europe, Latin America and, to a lesser extent, the Gulf area, as well as institutional investors, in the form of large corporations, from Europe and Latin America.

Three companies
Melkart Capital is actually made up of three companies: Melkart Capital Management, a firm incorporated in the Cayman Islands, which is an asset management company specialized in global alternative investments, including hedge funds; Melkart Capital SAL, which is a Lebanon incorporated and based company, responsible for the brokerage and distribution of investment funds in Lebanon, and the Melkart Diversified Fund, which is the actual global multi-strategy fund of hedge funds. The Melkart Diversified Fund is managed by both Melkart Capital Management and by Antarctica Asset Management, an investment management firm established in the British Virgin Islands. Antarctica is an investment advisor to Melkart Capital Management, which was founded in 2001 by former investment bankers. It specializes in hedge fund management and investment advisory with around $700 million of assets under management and a research unit based in New York. Finally, it is worth noting that Melkart Capital SAL is registered as a financial intermediary in Lebanon with a capital of LBP1 billion, and is regulated by the Central Bank of Lebanon (BDL).
The “seed” money of Melkart and its flagship fund, the Melkart Diversified Fund, was initially brought in by Marc Hochar personally as well as by a small group of international investors, who were partly brought in by Antartica. With its 5-year track record and the extensive investor relationships of its managers, Antartica has been instrumental in providing the Melkart fund with investors. Antartica still plays a vital role in the management of the Melkart fund, as it provides the necessary quality research and market and industry reports, as well as all logistical support the Melkart fund might need. Fund raising was actually carried out from the start by both Melkart and Antartica who initially joined hands to raise around $70 million in 18 months. The Melkart founders/managers raised at least 50% of the total $70 million.

Solid structure
For the moment, 60% of the Melkart fund’s total is accounted for by European investors, while Latin American investors make up around 25%. Middle East investors make up for the remaining 15%. Most of the present investors are high net worth individuals, who normally invest into the Melkart fund through international asset managers and private banks. The latter offer the Melkart fund to their customers as one of the funds they officially represent. Currently, the fund does not include many Gulf investors. The aim is to start approaching these investors when a solid enough track record would have been built, as Gulf investors are usually reluctant to invest into funds or other investment products if there is not a few years’ track record. Only Antartica has a five-year track record which shows a more than decent return, while Melkart shows an eighteen months track record. For instance, the return of the Melkart Diversified Fund (MDF) for 2005, given net of fees was close to 15%, and has already reached 5.21% for the first two months of 2006. If all goes well, the MDF should yield perhaps more than 25% for 2006.
Melkart Capital’s structure is a solid one, in the sense that its management and distribution are carried out in Beirut, while the custodian and administrator for the Fund, HSBC, is based in the Isle of Man. The latter is highly regarded by fund managers, as it is the strictest of off-shore centers in terms of regulation for anti-money laundering. Given the Beirut base of Melkart Capital SAL, the broker/distributor, an Isle of Man custodian and administrator is of prime importance. The actual funds coming from investors are placed with the Melkart Diversified Fund (MDF), which is based in the Cayman Islands. The MDF places its funds into more than 30 hedge funds throughout the world with different investment strategies. The MDF is principally invested into equity (21.7%), while the rest is spread between global macro hedge funds, event driven funds, emerging markets, distressed and credit funds, fixed income, convertible and statistical arbitrage, managed futures and commodities. The auditors of the MDF are Deloitte and Touche, while Société Générale is the leverage provider (provider of cash through a credit facility) with a pledge on the Fund’s assets. The legal counsel for the MDF, Walkers, is also based in the Cayman Islands and is of international repute.

Experience
Not only is Melkart Capital’s structure solid, with big names in support and an internationally approved legal structure, but the investment management skills and strategy are also performing. The managers (Melkart and Antartica) have a strong understanding of the hedge fund industry, have expertise in risk management and last but not least, have access to top quality managers. The investment managers (Melkart’s managers, including Hochar, and Antartica’s managers) have a combined experience of 50 years in the fields of quantitative analysis and derivatives trading, which are widely used by arbitrage hedge funds to manage risks. It is also worth mentioning that both Melkart and Antartica have extensive relationships with a large number of global fund managers, who used to be their trading counterparties, and often, their working peers.
The investment strategy of Melkart is principally to choose the right funds to invest into, as well as the right mix in terms of diversification. The Melkart investment managers pay particular attention to the volatility of the funds they are contemplating in both absolute terms and relative to their peers. The consistency of returns is thoroughly scrutinized as well as the funds’ management quality and strategy.

New niche
A background check on managers of funds is also carried out extensively. This task is seriously facilitated with the help of Antartica, which not only has the experience and track record in the field, but also sufficient resources to carry out thorough checks of funds’ managers, their strategy and reputation. Melkart’s managers nevertheless pay a visit to the funds they invest in once every two to three months. They also remain prudent in their strategy, in the sense that they make it a policy to maintain three layers of hedge inside their investment strategy.

Melkart provides its investors significant added value. it provides access to top tier hedge funds


Overall, Melkart provides its own investors significant added value, in that it provides its investors access to top tier hedge funds, which are normally closed to individuals or new investors. Through its extensive relationships in the fund management world, Melkart can identify and provide privileged access to talented new managers. The MDF itself was short listed for “Best Newcomer Fund of Funds” in the HFR 2005 European Fund of Funds Awards, while the various Antartica funds were nominated during the same year as “Best Arbitrage Fund” and “Best Fund of Funds”. MDF not only provides access to closed funds, but also its relatively small size allows for quick asset allocations switches and investments, for a customized approach for every investor, for full transparency (monthly update, statistical data, etc.), for a full diversification benefit with a minimal investment size, and for improved liquidity.
By building such a sophisticated tool and making it accessible to investors, Marc Hochar and his partners have capitalized on an extensive experience accumulated during years of work spent among the elite of world finance. Melkart can hence be safely described as a solidly constructed pioneer, which should pave the way for the establishment of a new highly specialized niche in Lebanon.

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Economy & Finance

Hedge your bets

by Executive Editors
written by Executive Editors

Founded by Marc Hochar, a former Lebanese investment banker who had spent his entire professional life (more than 13 years) in investment banking and global markets with US investment bank JP Morgan, Melkart Capital has become the talk of Lebanese financial circles and the region. Melkart is the first large-scale international “fund of funds” to be managed out of Beirut by Lebanese specialists. In less than 20 months, the fund has attracted around $70 million of investments from high-net-worth individuals from Europe, Latin America and, to a lesser extent, the Gulf area, as well as institutional investors, in the form of large corporations, from Europe and Latin America.

Three companies
Melkart Capital is actually made up of three companies: Melkart Capital Management, a firm incorporated in the Cayman Islands, which is an asset management company specialized in global alternative investments, including hedge funds; Melkart Capital SAL, which is a Lebanon incorporated and based company, responsible for the brokerage and distribution of investment funds in Lebanon, and the Melkart Diversified Fund, which is the actual global multi-strategy fund of hedge funds. The Melkart Diversified Fund is managed by both Melkart Capital Management and by Antarctica Asset Management, an investment management firm established in the British Virgin Islands. Antarctica is an investment advisor to Melkart Capital Management, which was founded in 2001 by former investment bankers. It specializes in hedge fund management and investment advisory with around $700 million of assets under management and a research unit based in New York. Finally, it is worth noting that Melkart Capital SAL is registered as a financial intermediary in Lebanon with a capital of LBP1 billion, and is regulated by the Central Bank of Lebanon (BDL).
The “seed” money of Melkart and its flagship fund, the Melkart Diversified Fund, was initially brought in by Marc Hochar personally as well as by a small group of international investors, who were partly brought in by Antartica. With its 5-year track record and the extensive investor relationships of its managers, Antartica has been instrumental in providing the Melkart fund with investors. Antartica still plays a vital role in the management of the Melkart fund, as it provides the necessary quality research and market and industry reports, as well as all logistical support the Melkart fund might need. Fund raising was actually carried out from the start by both Melkart and Antartica who initially joined hands to raise around $70 million in 18 months. The Melkart founders/managers raised at least 50% of the total $70 million.

Solid structure
For the moment, 60% of the Melkart fund’s total is accounted for by European investors, while Latin American investors make up around 25%. Middle East investors make up for the remaining 15%. Most of the present investors are high net worth individuals, who normally invest into the Melkart fund through international asset managers and private banks. The latter offer the Melkart fund to their customers as one of the funds they officially represent. Currently, the fund does not include many Gulf investors. The aim is to start approaching these investors when a solid enough track record would have been built, as Gulf investors are usually reluctant to invest into funds or other investment products if there is not a few years’ track record. Only Antartica has a five-year track record which shows a more than decent return, while Melkart shows an eighteen months track record. For instance, the return of the Melkart Diversified Fund (MDF) for 2005, given net of fees was close to 15%, and has already reached 5.21% for the first two months of 2006. If all goes well, the MDF should yield perhaps more than 25% for 2006.
Melkart Capital’s structure is a solid one, in the sense that its management and distribution are carried out in Beirut, while the custodian and administrator for the Fund, HSBC, is based in the Isle of Man. The latter is highly regarded by fund managers, as it is the strictest of off-shore centers in terms of regulation for anti-money laundering. Given the Beirut base of Melkart Capital SAL, the broker/distributor, an Isle of Man custodian and administrator is of prime importance. The actual funds coming from investors are placed with the Melkart Diversified Fund (MDF), which is based in the Cayman Islands. The MDF places its funds into more than 30 hedge funds throughout the world with different investment strategies. The MDF is principally invested into equity (21.7%), while the rest is spread between global macro hedge funds, event driven funds, emerging markets, distressed and credit funds, fixed income, convertible and statistical arbitrage, managed futures and commodities. The auditors of the MDF are Deloitte and Touche, while Société Générale is the leverage provider (provider of cash through a credit facility) with a pledge on the Fund’s assets. The legal counsel for the MDF, Walkers, is also based in the Cayman Islands and is of international repute.

Experience
Not only is Melkart Capital’s structure solid, with big names in support and an internationally approved legal structure, but the investment management skills and strategy are also performing. The managers (Melkart and Antartica) have a strong understanding of the hedge fund industry, have expertise in risk management and last but not least, have access to top quality managers. The investment managers (Melkart’s managers, including Hochar, and Antartica’s managers) have a combined experience of 50 years in the fields of quantitative analysis and derivatives trading, which are widely used by arbitrage hedge funds to manage risks. It is also worth mentioning that both Melkart and Antartica have extensive relationships with a large number of global fund managers, who used to be their trading counterparties, and often, their working peers.
The investment strategy of Melkart is principally to choose the right funds to invest into, as well as the right mix in terms of diversification. The Melkart investment managers pay particular attention to the volatility of the funds they are contemplating in both absolute terms and relative to their peers. The consistency of returns is thoroughly scrutinized as well as the funds’ management quality and strategy.

New niche
A background check on managers of funds is also carried out extensively. This task is seriously facilitated with the help of Antartica, which not only has the experience and track record in the field, but also sufficient resources to carry out thorough checks of funds’ managers, their strategy and reputation. Melkart’s managers nevertheless pay a visit to the funds they invest in once every two to three months. They also remain prudent in their strategy, in the sense that they make it a policy to maintain three layers of hedge inside their investment strategy.
Overall, Melkart provides its own investors significant added value, in that it provides its investors access to top tier hedge funds, which are normally closed to individuals or new investors. Through its extensive relationships in the fund management world, Melkart can identify and provide privileged access to talented new managers. The MDF itself was short listed for “Best Newcomer Fund of Funds” in the HFR 2005 European Fund of Funds Awards, while the various Antartica funds were nominated during the same year as “Best Arbitrage Fund” and “Best Fund of Funds”. MDF not only provides access to closed funds, but also its relatively small size allows for quick asset allocations switches and investments, for a customized approach for every investor, for full transparency (monthly update, statistical data, etc.), for a full diversification benefit with a minimal investment size, and for improved liquidity.
By building such a sophisticated tool and making it accessible to investors, Marc Hochar and his partners have capitalized on an extensive experience accumulated during years of work spent among the elite of world finance. Melkart can hence be safely described as a solidly constructed pioneer, which should pave the way for the establishment of a new highly specialized niche in Lebanon.

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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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For your information

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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