Business

MENA Forum

by Executive Staff
written by Executive Staff

The 5th Middle East and North Africa Development Forum will take place in Beirut from April 6-9. Led by Middle East and North Africa think tanks in partnership with the World Bank Group and the United Nations Development Program (UNDP), the event will be dedicated to making reform work in the MENA region. EXECUTIVE talked to World Bank representative for MDF Chantal Dejou, MDF head of Secretariat, Hana Salah and Oussama Safa General Director of the Lebanese Center for Policy Studies (LCPS), the MDF’s local partner, about the aims and expectations of the conference.

E Lebanon recently won the bid to host the 5th Middle East North Africa Development Forum (MDF). How intense was the competition?

CD: As this is the 5th edition of MDF, we as organizers have past experience. The LCPS, as a leading partner, has taken part in the dialogue and in the organization of the MDF. The competition was intense and fierce among the regional local partners, but Lebanon was chosen because we felt there was a sense of momentum and historical change in the country during 2005.

E Who are the main competitors?

OS: Well to be honest, the challenges were more with internal competition rather than external competition.

E What gave Lebanon its edge?

CD: 2005 was a good example of the dynamics that affected Lebanon. The demonstrations and the involvement of the youth in particular were of interest to the MENA region. In addition, Lebanon is a country that offers high quality services. It is cosmopolitan, has connections with the rest of the world and offers wide media coverage.

E The bidding team needed the support of the private sector. How difficult or easy was it to generate interest in the turbulent year that was 2005?

OS: It was a double edged sword. On the one hand, there was uncertainty and on the other, it demonstrated belief in Lebanon. The Lebanese private sector has proved a very high level of maturity in seizing the opportunity and the need to develop such an event in Lebanon, especially in the hard times we are going through today. None of the first batch of sponsors, and they include, and I have a list here, Banque de la Mediterranee, Byblos Bank, Bank Audi, Team Holding Group, MTC Lebanon, the Central Bank, Middle East Airlines, Blom Bank, Averda Servus and Fidus, agreed to lend their support to this event for commercial reasons. They simply wanted to show their commitment to the country in an event that conveyed to the world what Lebanon is all about. Others are following their lead. Lebanon has everything it takes to become a tiger economy, whether it is in terms of infrastructure or the human element. The private sector found in this forum the opportunity to show the region and the rest of the world Lebanon’s willingness embrace change.

E What are the aims and objectives of MDF5?

CD: In the MENA region, change is needed. But what is most important is how to make it happen. The way forward is through the empowerment of the agents of change, from the government and the Parliament. The MDF is the point of departure for fostering networks, community participation, and a process for building coalitions. One essential feature of this forum is that the MDF should be a dialogue led by the forces of change in the region itself. We also want to make sure that new types of participants, those perhaps who are not normally included in the debate, like mayors and municipality officials, are also included.

E Why specifically did you choose the theme The Political Economy of Reform?

CD: Within it are the crucial themes of governance in all its forms, private sector development to support of SMEs (small and medium enterprises), and trade reforms. We will also be addressing gender and the role of women in promoting development; the role of youth and the role of local governments and lastly the role played by NGO’s at a local level to promote project development.

E Key note speakers are an increasing must have in today’s conference circuit? Who is being courted for MDF5?

CD: We will have a high level of participants not only from government ministers, but also opinion makers from the civil society and key figures from the private sector. I do believe in the peer pressure actors in the region. Fuad Seniora, the prime minister of Lebanon has been invited to open the first session and a number of ministers across the region have been invited, as well as leading figures in the Middle East such as Amr Moussa from the Arab League.

E MDF5 offers many organizational challenges? Can you tell us something about the numbers involved – delegates etc – and who are your strategic partners in the execution of the conference?

CD: We are expecting between 500 and 600 people with a high level of guests and participants. Organization is heavy but we have a have the LCPS on our side as our conference planner; the secretariat of the MDF is posted for the MDF partners at the World Bank and that is why we are working as a team. We also have an associate partner here in Lebanon, which is the Lebanese Transparency Association. Now we are entering into the intensive phase of organizational process. Also MDF partners across the region are working on their selected themes for the past two years.

E What impact will the success of MDF have on the image of Lebanon?

OS: I cannot quantify it but I can qualify it. I think MDF5 is going to be the event of 2006.

E What is your nightmare scenario?

OS: We are optimistic, and we have chosen not to discuss this issue (laughs). Lebanon has a long history of enduring the knocks and bouncing back. It takes a lot to throw us off our stride and short of a full blown regional conflagration I cannot see the conference being postponed or cancelled. In fact last year the Arab Economic Forum was held in the wake of the Hariri assassination and we responded by dedicating the event to his name. We are confident of success. We have to be.

E What systems do you have in place to ensure the results of the studies and discussions at the forum are implemented?

OS: In fact, speaking as a partner, not just as an organizer, we and the other partners (UNDP and Lebanese Transparency Association) will be taking advantage of MDF to first build local and regional support for our follow up and plans for our research agendas. Second, we will use the impact of MDF as much as possible to disseminate and at the same time, solicit feedback on what we have done. I think this will be the beginning of new work. For us for example, we are going to work on declaring a regional network of professionals.

CD: There is one important thing in the guidelines which are agreed upon together by the MDF partners, it is that there should be an action plan and a proposal from what we have learned across the region for supporting reforms and how we are going to promote it in the years to come. It is also important to have donors to support and implement the action plans. In fact there are international actors (Italy, Spain and Sweden) that are very interested in supporting such action plans. Things that happen here will have a real impact on the future.
 

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Society

BSE snapshots

by Thomas Schellen
written by Thomas Schellen

Solidere

Listing date: September 30, 1996

Number of listed shares

Class A 100,000,000

Class B 65,000,000

Opening price

Solidere A (Ten to one stock split on 06/01/1997) $113.5

Solidere B (Ten to one stock split on 06/01/1997) $116

Market capitalization (as of 31/12/05, source BSE)

Solidere A $1.8 billion

Solidere B $1.2 billion

Solidere was incorporated in 1994 as company for the development and reconstruction of the Beirut Central District (BCD). The firm’s capital was formed land and cash. Property owners in the downtown received share allocations based on judicial appraisals, the A Shares. Investors subscribing to the Solidere Initial Public Offering received B Shares. Initial restrictions differentiating the share types were later removed and A and B shares have traded in very similar ranges in recent years. Solidere shares are listed on the Beirut Stock Exchange and, since March 2005, on the Kuwait Stock Exchange.

Work on the BCD progressed at a rapid pace between 1994 and 1998, but slowed down significantly in a period that lasted until around 2003. In 2004 and 2005, the company started to pursue a revised strategy that stretched much of the original 10 to 12-year development plan into a 20-year plan. Solidere is in many ways synonymous with the economic fortunes of Lebanon and the share set the trends and dominated the volume of trading on the Beirut Stock Exchange since its reopening in 1996. The company, and its shares, saw an early period of good demand and active trading that lasted about two years. With heightened regional security worries and a domestic recession, the shares retreated in a following period and slumped to below 50% of their $10 (after share split) issue value. In early 2004, share prices embarked on a solid recovery, aided by an ingenious incentive program for shareholder-developers of real estate in the BCD. By mid 2005, and supported by the oil-driven liquidity surge of regional investors and by strong upsides of both Lebanese shares and properties, Solidere shares were serious buy recommendations for local, regional, and international investors, and traded above $24 at time of this writing in late January of 2006.

Lebanon’s late Prime Minister Rafik Hariri was the leading force behind the establishment of Solidere and his family controls over 7% in Solidere shares, while the total number of shareholders approaches 35,000. Hariri was associated widely with the ups and downs of Solidere and when he was assassinated in February 2005, share prices dropped abruptly but recovered again quickly. In 2005, the company posted net profits of $51.06 million for the first nine months of the year, more than double its profits a year earlier. In January 2006, the company announced a property deal with an Abu Dhabi-based investment firm, which intends to develop a project with a total foot-print area of 229,871 square feet and a built-up area of almost 1.9 million square feet.

Banque Audi Saradar Group

Listing date December 29, 2004 GDR

Number of listed shares

6,198,823 (GDR)

Opening price $23.50 (GDR)

Market capitalization (as of 31/12/05, source BSE)

$371 million (GDR)

Audi Saradar was formed in June 2004, through a merger-acquisition agreement between Banque Audi and Banque Saradar. Joining in the largest banking sector consolidation event in Lebanon’s history, the group combined the retail and general market position of Banque Audi with the private banking and investment banking capacities of Banque Saradar and confirmed the group’s position as one of the top Lebanese banks with regional capacities.

The corporate envelope of Audi Saradar Group in Lebanon entails Bank Audi, Audi Saradar Private Bank (ASPB), Audi Saradar Investment Bank (ASIB), Libano-Arabe Insurance (90.75% stake via ASIB), and other entities. Internationally, the group includes three fully owned subsidiaries, Bank Audi (Suisse), Bank Audi (Jordan), and Bank Audi Saradar (France), along with a (direct and indirect) 47% stake in Bank Audi Syria, a joint venture with Syrian investors and a 2% stakeholding by Saudi investor Abdullah Abdulaziz Al Rajhi. Major shareholders in Audi Saradar Group include the Deutsche Bank Group, the Audi family, the Saradar Holding, Kuwaiti and UAE-based investors. In January of 2006, Audi Saradar announced a capital increase from $900 million to $1.5 billion. As part of the increase, Egyptian investment firm EFG-Hermes Holding acquired a 20% stake in Audi Saradar by obtaining 75% of 10 million new shares issued at $60 per share, for $450 million.

With total assets of $10.9 billion at the end of September 2005, Audi-Saradar reported a net profit of $74 million for the first nine months of 2005, compared to $48.08 million in the same period of 2004. In 2004, the bank closed another $100 million preferred share issue, in addition to a $60 million capital increase, related to the issuance of new common shares dedicated to the shareholders of Banque Saradar sal, following the merger acquisition with the bank in June 2004 Audi’s GDRs, which had traded below $25 in January of 2005, gained strongly throughout last year and surged amazingly with the start of 2006 from $59.85 at the end of 2005 to more than $90 in late January of 2006. Audi Saradar has initiated processes to acquire a bank in Egypt and open an operation in Saudi Arabia and is also reported to have plans to enter the Iraqi market.

BLOM Bank

Listing date November 2, 2001

Number of listed shares

4,389,601 (GDR)

Opening price $20

Market capitalization (as of 31/12/05, source BSE)

$292 million (GDR)

BLOM Bank has been the leader in the Lebanese banking sector for many years in terms of assets and profits. The group’s domestic network includes the investment banking subsidiary Blominvest Bank and insurance firm Arope. Internationally, BLOM operates subsidiaries Banque Banorient in Switzerland, Banque Banoarabe in France, and Banque du Syrie et d’Outre-Mer in Syria, incorporated in 2004.

BLOM Bank holds a 39% stake in the Syrian joint venture bank, in addition to which the International Finance Corporation holds 10% and Syrian investors own 51%. After receiving approval by Egyptian regulatory authorities in late 2005, BLOM Bank acquired 96.77% of the shares in Misr Romanian Bank, a bank with a small network in Egypt and an operation in Romania.

In January of 2006, BLOM Bank announced that it had changed the name of Misr Romanian Bank to BLOM Bank Egypt and intended to buy the bank’s remaining shares circulating in the market. Major shareholders in BLOM Bank include the Bank of New York and several Lebanese and Syrian families. Trading below $30 at the start of 2005, the price of BLOM GDR appreciated to $66.50 at the end of 2005 and climbed to the high $90s in late January of 2006, under predictions that further gains are likely. The acquisition of Misr Romanian Bank, along with a planned capital increase and further expansion projects made BLOM Bank increasingly attractive to investors. Unconfirmed reports from late last year said that BLOM Bank intends to also list shares on the Dubai International Financial Exchange (DIFX).

With assets standing at $11.3 billion at the end of September 2005 and customer deposits of $9.4 billion, BLOM Bank reported a net profit of $90.2 million for the first three quarters of last year, an increase of 28.5% compared to the same period of 2004. BLOM also increased its capital fund to $811.66 million, up 12.42%, in addition to which it undertook a $100 million preferred shares issue on October 25.

Byblos Bank

Listing date

May 14, 1998 Common listed shares

September 15, 2003 preferred callable shares

December 23, 2005 Priority listed shares

Number of listed shares

Common listed shares 68,354,909

Preferred callable shares 333,400

Priority listed shares 68,688,309

Opening price

Common listed shares $3.14

Preferred callable shares $100

Priority listed shares $2.50

Market capitalization (as of 31/12/05, source BSE)

Common shares $161 million

Preferred shares $37 million

Priority listed shares $158 million

Byblos Bank Group is the third largest bank in Lebanon where the bank succeeded over the past ten years to achieve growth through a combination of acquisitions of smaller Lebanese banks and local operations of existing international banks ABN Amro and ING Barings. The bank pioneered numerous retail products and is a leader in several consumer lending products.

The group’s portfolio of domestic subsidiaries includes Byblos Invest Bank and insurance sector firms Adonis Insurance and Reinsurance Company (ADIR) and Adonis Brokerage House. In ADIR, Byblos controls 64% and collaborates with French Group, Natexis Assurances Banque Populaire, which holds a 34% stake. The international presence of the group is rooted in Belgium-based Byblos Bank Europe, a 99.95% subsidiary. Since 2003, the Byblos Group has actively pursued regional expansion, establishing new subsidiary banks in Sudan and Syria and initiating the acquisition of Al Rayan Bank in Algeria. Khartoum-based Byblos Bank Africa, in which Byblos holds 65%, is a joint venture with the OPEC Fund for International Development and the Saudi Arabian Islamic Corporation for the Development of the Private Sector, which hold 20% and 10%, respectively. The group’s stake in Byblos Bank Syria amounts to 41.5%, in addition to which the OPEC Fund holds 7.5% and Syrian investors own the remaining 51%. Byblos Bank Syria assumed full operations in December of 2005. Byblos Bank announced in late January that its net profits for 2005 increased by 28.5% over 2004 and reached $69 million on strong growth of its international business and its fee-based income. Total assets for 2005 reached $7.6 billion with an increase of 8.5% when compared to the bank’s $7 billion in assets at the end of 2004. Customer deposits grew by 2.8%, to $5.6 billion and customer loans advanced by 10.8%, to $1.5 billion. In a step to boost liquidity of its shares, Byblos Bank announced, after an extraordinary general assembly in January 2006, that it would list all its shares on the exchange by mid February. The bank also plans a capital increase in the range of $300 million to $450 million. Byblos common listed shares, which had traded below $1.50 in early 2005, closed at $2.36 at the end of December 2005. On the last Friday of January, the share closed at $3.85. In late January, Byblos preferred callable share and priority share were trading at $103 and $3.42, respectively.

Bank of Beirut

Listing date

April 11, 1997 Common shares

April 08, 2004 Preferred callable class B

December 30, 2005 Preferred shares class C

Number of listed shares

Common listed shares 13,535,945

Preferred callable shares B 3,000,000

Preferred callable shares C 2,920,000

Opening price

Common listed shares $3

Preferred callable shares B $11.56

Preferred callable shares C $11.56

Market capitalization (as of 31/12/05, source BSE)

Common shares $134 million

Preferred B $36 million

Preferred C $73 million

Bank of Beirut was one of Lebanon’s fastest growing banks in the period from 1990 until 2005. The bank pursued an active expansion strategy and was a leader in development of funds products listed on the bourse. Its network of subsidiaries includes an insurance brokerage in Lebanon, a unit in Cyprus, and a UK subsidiary. Shareholders in Bank of Beirut include UAE-based Emirates Bank International, with an 8.73% stake. The bank has a representative office in Nigeria and has plans for expansion. Bank of Beirut recorded a net profit of $16.31 million in the first nine months of 2005, an increase of 11% compared to the same period of 2004. Bank of Beirut’s investment funds in Lebanese and US dollar denominated currencies recorded impressive growth in the past two years. For the first six months of 2005, Bank of Beirut announced consolidated net income of $11.2 million, up 6.1% when compared with the same period in 2004. Net interest income increased by 2.1% to $33.3 million and net commission earnings rose by 33.1% to $10.1 million. Net profits on financial operations grew by 4.4% to $44.6 million. Total assets reached $3.95 billion, and customer deposits totaled $2.7 billion. Bank of Beirut common shares, which had traded below $8 in the first half of 2005, closed at $9.90 at the end of December 2005. On the last Friday of January, the share closed at $10.95. Preferred B and C shares traded at $12.10 and $25, respectively, in late January.

Rasamny-Younis Motor Company (RYMCO)

Listing date February 6, 1998

Number of listed shares

10,000,000

Opening price $3.75

Market capitalization (as of 31/12/05, source BSE)

$11 million

Founded in 1957, RYMCO is the first and only car dealing company listed on the BSE. The company, which is the distributor of Nissan, Infiniti and GMC vehicles in Lebanon, claims to control 17% of the Lebanese market share.

According to reports, the Kuwait-based Kharafi Group owns a stake of 12.80% in RYMCO and Lebanese investment bank Middle East Capital Group (MECG) owns 4.17%. In the first quarter of 2005, RYMCO’s showed a 70 to 60% year-on-year drop in net profits to $120,343. In spring 2005, MECG successfully closed a $20 million offering of automobile-backed receivable securities for RYMCO, the largest such transaction in Lebanon and one of the largest in the region. The shares in RYMCO traded at $1.10 on the last Friday of January.

BEMO

Listing date January 11, 1999

Number of listed shares

5,333,334

Opening price $3.25

Market capitalization (as of 31/12/05, source BSE)

$19million (Listed shares)

BEMO ( Banque Européenne pour le Moyen-Orient) is a niche bank with strong capacities in corporate and private banking.

Although its asset volume of less than $1 billion places it outside of the Lebanese banking sector’s top segment by size, BEMO is considered one the country’s more innovative banks. The bank’s profit curve has been very positive in recent years, moving from net profits of $650,000 in 2003 to over $1 million in 2004 and surging even stronger in 2005, with net profits reported at $2.1 million in the first half of the year. BEMO has an investment banking subsidiary, BESC Investment Bank.

In 2003, BEMO entered a partnership with Saudi Arabia’s Banque Saudi Fransi, which took a 10% stake in the Lebanese bank. The two banks collaborated in setting up a new private sector bank in Syria, Banque BEMO Saudi Fransi, in which BEMO holds a stake of 22% while Banque Saudi Fransi holds 25%.

Due to the small number of circulating shares, the volume of trading on BEMO stock on the BSE is relatively small. BEMO’s shares surged to the $6 trading range in late January 2006 after closing 2005 at $3.50. As in the case of other shares on the BSE, BEMO benefited from the rush on Lebanese equities and stocks from Gulf investors.

Societe Libanaise Des Ciments Blancs

Listing date January 22, 1996

Number of listed shares

Bearer shares 6,000,000

Nominal shares 3,000,000

Opening price

Bearer $6.875

Nominal $6.875

Market capitalization (as of 31/12/05, source BSE)

Bearer $7.5 million

Nominal $4.5 million

Société Libanaise des Ciments Blancs saw its business drop as a result of the recession. The company did manage to post a $2.73 million in net profits for the first-six months of 2004, up from a net loss of $1.2 million in the same period the previous year. In 2004 sales were up by 55% to $43 million, while cost of goods sold (including distribution fees) increased significantly by 76% year-on-year to $21 million. In turn, total assets stood at $316 million, growing 4% on a yearly basis. The company did not publicly disclose its revenues or profits in 2005. At the time of writing, Ciments Blancs Bearer and Nominal shares are currently traded at $1.64 and $1.50 respectively.
 

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Real Estate

Building Lebanon: NGOS do their bit

by Safa Jafari
written by Safa Jafari

As Lebanon wraps up an extraordinary year of tragedy and hope, the world’s international bodies continue to execute their projects for the development and well being of Lebanon and its people. Executive looks at the achievements of some of Lebanon’s major NGOs in Lebanon as well as their plans and expectations for 2006.

Greenpeace

During an active 2005, Greenpeace launched its “Peaceful Energy” campaign with a boat tour from Europe to the Mediterranean, stopping in Beirut. Debates were opened in 16 countries about the importance of tackling climate change and the need to switch to renewable sources of energy, such as the sun.

In 2006, Greenpeace Lebanon will run three campaigns in parallel around the Mediterranean, promoting investment in renewable energy. Greenpeace is also currently working on an Arab world media project, which should transform the office in Lebanon into an environmental media resource in the Middle East and Arab countries.

United Nations Children’s Fund (UNICEF)

UNICEF aims to contribute to the national objectives of reducing the rates of infant mortality and mortality of children under five, with a special emphasis on the overall physical, cognitive, emotional and psychosocial development of young children within its childcare and development program.
 

The UNICEF’s learning program assists national efforts towards increasing enrolment, improving the quality of education, and decreasing school dropout rates. It played a key role in bringing the issue of increasing the age for free and compulsory education to parliamentary hearings in 2002. This year, UNICEF launched in partnership with the private sector the Adopt-A-School project that provides basic services as well as equipment, training and guidance to poor public schools.

In 2006, UNICEF wants to increase the number of schools in most deprived areas in Lebanon and shall be working on knowledge transfer and capacity building for teachers and administrators through orientation provided by leading private schools in Lebanon.

A program that continues from the year 2005 through to 2006, is the youth empowerment and protection program, which contributes to providing youth with skills and knowledge for the future. This program covers projects and studies on: national youth policy, situational assessment on children deprived of family care in Lebanon, children in need of protection from violence, exploitation and abuse in Lebanon, mine risk education, young offenders in Lebanon and HIV/AIDS programs.

United Nations Development Program (UNDP)

The UNDP Lebanon office works jointly with the Lebanese government within a Country Cooperation Framework (CCF), which outlines a joint national work plan for five to six years. The three main pillars are governance (including public sector reform; institutional development and e-government; fiscal reform; institutional development; and strengthening the structure of parliament), poverty reduction (including the re-integration of the displaced; post-conflict socio-economic rehabilitation of south Lebanon; and regional development in Akkar) and environmental and natural resource management. In its initiatives, UNDP integrates advocacy and the promotion of a national development dialogue; gender and development; youth participation; partnerships and resource mobilization; and management and support.

UNDP has recently started working alongside the Lebanese government on its Lebanese-driven National Commission on Electoral Law Reform. It has also been working on a project called Towards a National Dialogue on Corruption, which targets Lebanese administration and the judiciary and economy with the objective of strengthening transparency and accountability in public institutions in Lebanon. It is in the last stages of the launching of the National e-Strategy for Lebanon project, which aims to outline the roadmap required for a national e-society covering IT, infrastructure, institutional and legal frameworks and human resources. In 2006, the organization will also be finalizing its project supporting the judicial documentation and research center at the ministry of justice.

United Nations Economic and Social Commission for Western Asia (ESCWA)

With an objective to promote economic cooperation and regional integration through advocacy, research and advisory services, ESCWA in Lebanon published a study, External Debt Management in the ESCWA region in 2005.

ESCWA’s operational activities include the pilot project for post-conflict reconstruction in south Lebanon, in addition to a project on employment creation through the development of micro and small agro-industries in south Lebanon.

In 2005, ESCWA launched the Lebanese chapter of the Arab Integrated Water Resources Network (AWARENET) and advised the ministry of environment on strengthening the link between the national Environment Action Plan and the office of the prime minister. A presentation was made on Agenda 21 and the role of local authorities in implementing various projects for sustainable development.

Another study was issued titled, The Situation of the Handicrafts Industry: Needs and Challenges in Lebanon and Selected Arab Countries, and a sub-regional workshop was held in Chikka in Lebanon on Training Researchers in Local Community Development. ESCWA also advised the National Commission for Women on reporting on the Convention on Elimination of all Forms of Discrimination Against Women, in addition to its initiatives on technology, employment and poverty alleviation.

United Nations Educational, Scientific and Cultural Organization (UNESCO)

Due to UNESCO’s key role in capacity building for education sectors and eradicating illiteracy worldwide, the United Nations General Assembly asked UNESCO to take on the role as coordinator for the United Nations Literacy Decade project (2003-2012), addressing deprived populations under the banner: Literacy for All: Voice for All, Learning for All.

The University Students for Literacy program emerged at the Arab Regional Conference on Higher Education as a means of extending the role of the university in community development. In Lebanon, the University of Balamand’s Faculty of Health Sciences, started collaborating with UNESCO on the concept of each university student giving at least one person an opportunity to acquire literacy.

The UNESCO office in Beirut has been working on three major projects: the establishment and institutionalization of comprehensive, decentralized Educational Decision Support Systems in Arab States; Focusing Resources for Effective School Health to enhance the quality and equity of education in the region; and HIV/AIDS preventive education.

In addition to its usual series of conferences, workshops, training courses and events; UNESCO in Lebanon has also started implementing a regional project on Multi-Purpose Community Learning Centers.” This project, to be implemented in Lebanon, Syria, the Palestinian refugee camps, Egypt, Sudan, Morocco and Yemen, aims to promote human development; develop networks for education; build capacities; as well as act as a center for culture, education and information provision.

United Nations Population Fund (UNFPA)

With the goal of supporting the Lebanese government in meeting its population and development goals over the period of 2002 to 2006, UNFPA works to bridge regional gaps in access to basic social services; reform the education and health sectors; develop initiatives targeting youth; support the empowerment of women; protect the environment; collaborate with non-governmental organizations, the media and the private sector; foster aid coordination; and build national capacity in the management of social development initiatives.

UNFPA is the executing agency for the Integration of Population and Development in Planning and Programming. In the sub-programming area of Reproductive Health, UNFPA is working on the, integration of quality reproductive health services into primary health care. Here, essential services such as family planning, antenatal/postnatal care, adolescent reproductive health counseling, and the prevention and management of reproductive tract infections, including sexually transmitted diseases and HIV – will be included in 50 selected centers, in addition to the 150 centers supported under the previous program in all six governorates. Efforts will be made to reinforce women’s participation in decision-making about their fertility behavior, with emphasis on improving counseling services, education, communication activities and increasing male involvement.

United Nations Relief and Works Agency (UNRWA)

An organization that faces high demand yet relies exclusively on voluntary funding, UNRWA remains Lebanon’s sole agency for a large population that suffers unstable and unsanitary living conditions: the Palestinian refugees. UNRWA’s general director, Richard Cook, however, informed Executive of promising developments. During the last 12 months, UNRWA conducted classroom improvement, life-quality and infrastructure projects. The European Commission funded UNRWA to execute a major infrastructure rehabilitation project, completed by the end of 2005, in five camps: Bourj al Shemali, Rashidieh, Mieh Mieh, Beddawi and Wavel. Funding is being sought for the rehabilitation of the remaining camps in 2006.

Last year also witnessed positive interaction with a cooperative Lebanese government. UNRWA started its five-year Medium Term Plan (2005-2009), which was devised “to restore the living conditions of Palestinian refugees to acceptable international standards and set them on the road to self reliance and sustainable human development.” An UNRWA university scholarship fund benefited 35 students in 2005.

A multi-million dollar educational project will be launched in the year 2006, providing more schools and better educational facilities. UNRWA will also cater to the training and needs of teachers, children with special needs, and school dropouts. Other projects include the Siblin Training Centre for the provision of job opportunities for young refugees. Upcoming projects include work on the Al-Bass Camp water supply and drainage system, as well as the rehabilitation of 144 shelters all over Lebanon. UNRWA continues to provide its core services of relief while fundraising for individual projects and medium term plans.

United States Agency for International Development (USAID)

In its work in Lebanon, USAID is currently working within its 2003-2005 strategy, which has been extended to 2007 for implementation and focuses on three strategic objectives:

1. Economic Opportunity: which focuses on strengthening: agribusiness and light agro-industry, information and communication technology and rural tourism. The program also supports the government for membership in the World Trade Organization and helps survivors of landmines and their families lead productive lives.

2. Through its governance objective, USAID works on building the capacity of local municipalities in managing resources efficiently and transparently, increasing the responsiveness of Parliament, as well as supporting civil society.

3. On the environmental level, USAID’s program focuses on increasing the use of appropriate environmental management practices, supporting waste management and improving participatory approaches in water management. Through its strategy over 2003 to 2007, USAID Lebanon will focus on expanding economic opportunities and investment through rural/urban integration in the major economic sectors as well as in “growth poles.” It will be accelerating economic reform by working on policy, legislation, and intellectual property rights to encourage trade and foreign investment.

It will strengthen foundations for governance by improving municipal services to Lebanese citizens; tackling issues such as transparency and accountability in government and privatization and e-government. Rural development and public-private partnerships are a priority within the Global Development Alliance.

USAID Lebanon projects are identified under 14 categories: irrigation, agricultural roads, potable water, community centers, health centers, sewage networks, schools, access roads, income generation, environment awareness, environment protection practices, reforestation, waste management and training.

World Bank

During the year 2005, the World Bank sponsored several initiatives in Lebanon, including the Managing Procurement and Logistics of HIV/AIDS Drugs and Related Supplies; Quality and Public/Private Partnership for Health Services, and opening a library for the South Lebanese Society for the Blind.

The portfolio in Lebanon for the International Bank for Reconstruction and Development (part of the World Bank Group) consists of seven projects for a total commitment amount of $321.82 million. They include projects on revenue enhancement and fiscal management technical assistance; education development; the first municipal infrastructure project; the community development project; the Baalbeck water and wastewater project; the urban transport development project, and the project for cultural heritage and urban development.

The International Finance Corporation continues to fund infrastructure enterprises. The Multilateral Investment Guarantee Agency has received in the past decade more than 20 international applications for investment in Lebanon in the finance, infrastructure, telecommunications, and tourism sectors. It is performing a needs assessment for the Investment Development Authority of Lebanon.

The World Bank is working on a new initiative that empowers Lebanese youth to voice their views on governance issues. Shaping the Future is the theme of the Lebanon Development Marketplace competition and grant program for the year 2006; addressing pressing social, economic and political concerns of Lebanon’s youth.

The Bank’s Country Assistance Strategy for Lebanon (2005-2008) includes the following themes: elections and a youth parliament, accountability and transparency on a national level and local level, empowerment in political parties, empowerment in student councils, the anti-corruption network, Diaspora-to-homeland links, publications and media outreach.
 

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Economics & Policy

Lebanon’s Fragile Strength

by Faysal Badran
written by Faysal Badran

As we keep hammering in many articles, the end game for a country like Lebanon is to attract and keep foreign investors. The thinking goes that foreign investment in the private sector will serve to offset the debt-laden public sector and help fuel economic growth. As eloquently put by our economics minister, economic growth needs an increase in job creation. This is a national interest issue. What is puzzling, when one watches the political landscape, besides the ineptitude of most politicians and their thirst for individual enrichment, is how little they are focusing on the need to get this economy going.

Back in the Hariri days, despite all what has been said and done, there was a clear emphasis on getting the economic engine running. The best testimonial to the good work done by Hariri is in fact the current behavior of all asset markets in Lebanon. Many pundits and critics often speculated that Hariri held the country together, and while this is being revealed from a political perspective now, from an economic point of view, it is now clear that he had developed a deep conviction among investors that this country is for real.

The risk now, is that the resilience we spoke of in the December issue, ie the continuing flow of capital, will be jeopardized by political wrangling. What is astounding, is that part of the body politic is fiercely opposing the internationalization of the Lebanese question, while what the Lebanese economy needs, is exactly that.

After 30 years of total Syrian tutelage – and I use the word generously – Lebanon is now in a position to bid for its sovereignty. This, from an economic perspective has profoundly positive implications. It has placed Lebanon on the map in terms of the global money game. Sound simplistic? Not really.

Internationalization

The missing link that is stopping Lebanon’s economic acceleration is its adherence to an international agenda. If one looks at Turkey for instance, it is clear that once there is a genuine sponsorship of economic and fiscal steps by the international community, there are certain rules and guidelines that must be respected. Turkey could not have achieved the economic growth and embarked on the path of development economic integration, without the backing of the World Bank and the IMF.

Lebanon is no different in many respects. How do we expect the international economic and financial entities to back us, without delivering on the most basic framework that governs international relations? Many political talking heads reject in a vociferous manner for instance, privatization. How can any fiscal balance be restored if privatization is not backed and implemented? More pressing yet, is how Lebanon can reap the benefits of strong Sovereign debt ratings by Moodys and Standard & Poors, without achieving full sovereignty. All these hot issues reveal what a critical crossroads Lebanon is at. On one hand, we have seen a fairly stable, albeit anemic economy, with strong advances in major shares thanks to regional interest, and hot real estate transactions, and on the other a deep division inside the political panorama as to how much “internationalization” there should be.

In essence, there is a clear disconnect between what is occurring on the economic (and financial) front, and the political mood. Take for instance the mega deal announced by Audi Saradar Group to raise its capital by $600 million coupled with a large Egyptian group’s 20% stake in the bank. On that same day, the political news was horrendous. This dichotomy shows that most politicians are not aware of the economic opportunity that lies ahead for Lebanon, and that as the political bickering continues, players with fundamental belief in Lebanon are pouring money into the country’s private sector. It is the epitome of Lebanon’s contradictions, that an Egyptian investment bank is showing more faith in the country than many of its politicians. What needs to happen politically is clear to all. Lebanon is on the doorstep of normality with the international community, it needs to address its internal incongruence with one thing in mind: prosperity. This cannot be achieved by challenging the world, upon which it is entirely reliant to get its fiscal and economic house in order. This is also clear evidence that outside money is chasing Lebanese assets. Bank shares are soaring; finally joining their regional brethrens. Solidere, the epitome of Hariri’s reformist thrust, is witnessing unprecedented flows from all sorts of investors. This represents a positive factor going forward, but it also, perversely, is a source of vulnerability. These moves in asset markets are a clear vote of confidence, but if the political scene is not calmed, it may all go to waste. Simply put, once investors have put their money in a country they believe in, the onus is on the politicians to encourage them to continue, creating a virtuous circle. It is a fair bet that that most of the investors in Lebanon feel that the internal issues will be resolved, and more importantly that true reform is on the way. The money that has come in will now be in a “show me” mode, requiring immediate action from the policy makers. If the political gridlock results in excessive delays in reform, and by that we mean privatization, then investors will be as quick to bail out as they were to hand their money over to the Lebanese private sector.

Lebanon is a country operating well below its economic potential. Its pluralistic fabric is a source of strength, in a fairly dogmatic and monolithic regional environment and it has magnificent kinetic forces: high literacy, high profile and wealthy Diaspora willing to invest, and a stellar role in helping reshape the whole Arab world. These attributes should be protected and harnessed in order to reach potential.

In many ways, Lebanon can be a standard bearer for change in the region. Prosperity is the best glue to keep together often diverging views of national identity and foreign allegiances. It is clear that change is inevitable both in Lebanon and in Syria, and we are clearly on a path which will better the economic performance of both, but in order to lubricate the process and defend the gains achieved, we must focus on the economic agenda, and let it drive the political one, not the other way around. However, one worries that the drive to privatize for instance will be portrayed as“internationalization” and stall, because without privatizations and reform of the public sector, the flare up in Lebanese assets and the relative stability of the economy will go down the drain. Lebanon is now in a position with a lot to lose, and therefore those who claim to protect it must bear that in mind.
 

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Economics & Policy

The long and winding road to beirut

by Joey Ghaleb
written by Joey Ghaleb

Between the first round of investigations by the Mehlis Commission and the killing of MP Gebran Tueni, the “Beirut I” donor conference briefly became news.

National interest peaked in September 2005, a week before the Annual Meetings in New York of the World Bank and the International Monetary Fund (IMF), when Prime Minister Seniora, surrounded by foreign ministers from several countries, talked about a “Made in Lebanon” government reform plan.

That was then. Today the plan is in tatters as Lebanon hurtles towards dangerous political polarization. It has been said before, but it should be said again and again: Lebanon can not ignore its horrendous economic situation and put reforms on hold indefinitely.

After the Paris II Conference, the late economy minister, Dr. Basil Fuleihan warned that Lebanon has a history of missed opportunities. He has sadly gone and his call has gone unheeded. Only now are we beginning to appreciate the special attention Lebanon received on that day in November 2002.

“National crime”

If one accepts that Paris II was a unique event for such a small nation of 3.5 million citizens, Beirut I must be seen as an equally rare opportunity and in my opinion it was a once-in-a-generation opportunity. Riad Salameh, governor of the Central Bank, is reported to have gone as far as saying that to miss [a donor conference] would be a “national crime.”

When the Lebanese team prepared for Paris II, it had its work cut out convincing world leaders that Lebanon had turned a new page and was ready for genuine reform. The United States, the IMF, and the EU weren’t buying it, the government’s plan remained embargoed until the last minute and was never actually endorsed by IMF. What was achieved at Paris II was down to the efforts of the late Prime Minister Rafik Hariri’s personal initiative and international connections that stretched from Malaysia to France.

In September the donors were more forgiving. Unlike the period preceding Paris II, when the government signaled its intention to hold another donor conference, the international community and international organizations couldn’t signal their support fast enough for a Lebanon they saw as finally being on the up. The message was loud and clear: “Tell us what you want, present a credible plan, and we are ready to help.” The international community was so convinced that Lebanon had turned a page that the government was no longer required to indulge in the painful rounds of lobbying it did in 2002. The only remaining question was whether Lebanon was ready to introduce reform and understandably a credible, national plan was requested by the international community.

Donors had learned their lessons too. Unlike Paris II when an upfront assistance package was offered, any aid from Beirut I would be conditional to meeting milestones in the reform plan, limiting donor risk if the government failed to deliver. This only added to the government’s determination to show political will, and a national consensus backing reforms by developing an economic reform plan was built. The idea was it would be debated in Parliament – instead of some cabal of technocrats – to galvanize national support and strengthen the ability to deliver on the commitments afterwards. There was no stopping the Lebanese government now. A competent team including senior officials from the ministries of finance and economy, the Central Bank and the prime minister’s office began preparing what was known as the “Beirut Paper.”

This plan included introducing structural fiscal reforms such as tax increases and the elimination of inefficient state programs, privatizing state-owned enterprises, trimming the public sector, modernizing and liberalizing the domestic economy, and committing to the integration of Lebanon into the global economy. The World Bank and the IMF were kept abreast of developments and a deadline was set for late October 2005 with the conference penciled in for late November.

No pain, no gain

The effectiveness of the reforms was judged by the ability of the government to meet through various instruments certain fiscal thresholds and multiple scenarios were projected. On its end, the ministry of economy and trade tasked an intra-ministerial working group, including all line ministries, to develop the social pillar of the Beirut Paper, as a decision, and it was a commendable one at the time, was taken to depart from previous plans whereby only fiscal and monetary chapters were covered, opting instead for a comprehensive socio-economic plan.

The government recognized it could no longer ignore social policy and more specifically the need to mitigate the potential negative impacts of reform measures on the poorest segments of society. Sadly, the initiative of developing an extensive social reform agenda, which was endorsed by the World Bank and welcomed by the public, was later deemed unattainable in the allotted time. As a result a more realistic downscaled approach was adopted.

And so the preparations for Beirut I went on into the last quarter of 2005, but there were often delays brought about by political upheaval. And then came the doubts. Observers began to wonder if, even with the apparent support by the international community, the government could deliver what were seen as painful reforms, especially when in November, flying in the face of economic sense, it bowed to political pressure to subsidize the price of fuel.

The ghosts of Paris II returned to haunt. Could we really now expect major reforms, including painful tax hikes to be approved a priori by Parliament when the country had just witnessed the government buckle so easily during the fuel debate? Would any national debate of the reform plan lead to one retreat after another, effectively emptying the Beirut Paper of all its reformist identity?

But still, the international community continued to show support for Lebanon and the nation waited for the publication of the Beirut Paper and the setting of a date for Beirut I. But the process dragged and the momentum slowed. By October, the government, which had not publicly divulged the main recommendations of the Beirut Paper, had to accept that the Melhis Report had stolen its thunder.

No public debate

After originally planning for late November, December 15 was set as the new date for the conference but Melhis’s second installment pushed it back into January 2006. The government put a positive spin on the delay, arguing that it would buy it more time to firm up its plan and engage a wider spectrum of stakeholders. In any case, it would be foolish to rush things, do a botch job and lose international support. Then MP Gebran Tueni was assassinated on December 12 and a new political crisis crash-landed on Seniora’s in-tray. Donor conference? What donor conference?

So there we have it. Was it all bad luck or did the government commit cardinal errors? It may have been hesitant or delayed for political reasons a proper debate over economic reforms but the media and civil society are also partly to blame as they had a role in mobilizing public opinion, and did not apply enough pressure on decision-makers and politicians. Why wasn’t there been any debate and discussion about the donor conference? Had they forgotten that the national debt had surpassed $37 billion? With the exception of some half-hearted attempts to discuss economic issues, often with a socio-popular twist, when was the last time a forum or a televised debate properly addressed economic reform? The ministers of finance and economy had tried to ring the alarm bell but their public interventions and press conferences were obviously not considered newsworthy as they were barely covered.

But the nagging feeling is that the government doesn’t have the stomach to push through the Beirut Paper. Does it really think it can hold a donor conference in such a volatile national atmosphere, be it in February or March? The security situation is troubling but what is equally worrying is the real risk of international support fading away. The international community has sometimes shown more enthusiasm for Beirut I than the Lebanese themselves and foreign diplomats have not missed an opportunity to remind us that the proper time to hold this event is now. That message was repeated over and over since day one but we should not fool ourselves thinking that interest in Lebanon will last forever and that the international community will wait indefinitely for the government to give the green light for them to start pouring billions of dollars in financial and technical assistance.

Window of opportunity

Obviously, the postponement was not a decision the government wanted. But credibility is a fickle mistress. Already we are hearing whispers from many circles that Lebanese officials are not serious. Why are they not acting? We have a window of opportunity where the whole world, including previously reluctant parties, is offering its full support, requesting in return only that we introduce and implement reforms Lebanon itself recognizes as of paramount importance. As they say in America, it’s a no-brainer. The urgency is not internationally-imposed, but domestically-driven. The ills of the economy are home made and maybe insurmountable if we are left to our own devices.

The reply of some pundits and policy-makers, using real politic logic, is that the issue of launching the debate on the Beirut Paper is essentially a matter of proper timing and, they claim, forcing the economic agenda during turbulent political times may undermine the economic reform efforts and destabilize the climate further, hence the delay. In short, necessity pushed the government to gamble – and lose – on a risky date.

But, by the same logic, others argue, equally compellingly, that the government is guilty of a major miscalculation. Should it not have predicted – in the midst of the Mehlis investigation – that its plans would be upstaged by more dramatic political events? In not doing so, it has rallied the international community only to tell them to stand down. Patience is being tested and it is a commodity in limited supply. If the holding of a donor conference was indeed a strategic must, as foreseen in the New York last September, could the government not have set a viable timetable – say for Spring 2006 – rather than embark upon a series of cancellations?

Sadly, the political crisis in Lebanon looks like it might actually derail the efforts of reform and silence the voices of change by politicizing any economic agenda irrespective of its content and objectives. The alternative is probably a Plan B, whereby the ministry of finance adopts a “shock and awe” tactic in the shape of presenting for approval, and without any further delay, before the Council of Ministers a bold, reformist 2006 budget proposal – as it is expected to be, – while the prime minister goes public with the Beirut Paper and schedules the conference for the earliest date, putting the ball in the court of the general public, thus cornering the non-reformists and forcing politicians to face their national responsibilities. They have nothing to lose.

Dr. Joey Ghaleb was formerly the chief economist and senior advisor to the minister of economy and trade. He wrote this commentary exclusively for EXECUTIVE.

 

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Economics & Policy

Semaan Bassil

by Executive Staff
written by Executive Staff

The Byblos Bank Group, Lebanon’s third largest financial group, started the year 2006 with decisions to list all its shares and increase its capital by a massive amount, right on the heels of a $164.8 million rights issue by which the bank doubled its share capital to $329.6 million in the last quarter of 2005. EXECUTIVE inquired with Semaan Bassil, vice-chairman and general manager, about the latest strategy moves of Byblos Bank, whose new joint venture subsidiary in Syria also started full operations last month.

E After increasing its capital not long ago, Byblos Bank is preparing for a full listing of its shares on the Beirut Stock Exchange and is also considering a further capital increase. Could you outline the development of Byblos Bank’s new relationship to investors and the Lebanese stock market?

In the past, Byblos was mainly focusing on building its business in Lebanon and the region and it didn’t approach institutional investors with a lot of PR. That was because we sensed up until recently that nobody was interested in Lebanon and there was little trading.

Then a number of things started happening concerning Byblos and the market. First, there was more optimism in Lebanon after the new government declared all the reforms and started preparing a new page in the country’s history and because of the changes that are happening.

On our part, after feeling the need to expand our markets further, we said it is a good time to strengthen our capital and also to make Byblos better known among institutional investors. Thus we held two road shows in the past three months, in Europe and the United States, before doing our capital increase – I am talking here about the previous capital increase which we already closed, not the one that we might have in the near future. Several institutional investors looked at Byblos and saw that Byblos has a good story. They saw regional expansion built upon a strong local franchise, plus they saw that our P/E ratios were very low compared to other banks listed. The foreign institutional investors, who didn’t know Byblos before because we were not advertising our bank, really discovered Byblos and three to four institutional investors took between 1% and 2.5% each.

E How did this influence the performance of Byblos shares in context of the overall market development?

At that time our share was trading at $1.5, and even less. After the road shows, a lot of interest emerged from the Gulf and from Lebanon, and the ball began to roll. The price of Byblos started to go up, as did that of the other banks. All the banking shares are being traded actively by Gulf investors and also by Lebanese. But because Byblos started from a very low base, it went up very rapidly.

E Do you see a new environment on the bourse?

Up to perhaps the last quarter of last year, daily average trading on the Beirut Stock Exchange used to be around $1 to 1.5 million. Then suddenly in the last quarter of 2005, daily volumes reached $15 million, and today, it reached $40 million.

E Is this what led you to list all your shares on the BSE?

Until now, we had only one third of our shares listed. The main reason why we are listing all our shares is because there is an appetite, which had not been the case before. We said, since there is an appetite on Byblos shares today, why don’t we list all the shares to create more liquidity and satisfy all this appetite?

E Has everything been set for the measure, including the date?

Because there is already demand on our shares and we want to satisfy this demand, the step is imminent. What we are waiting for now is approval from the Central Bank and the BSE. This is an administrative issue and we expect the listing within two to three weeks, in early February. The date is just an administrative matter.

E As the second step after the full listing, you would look at a new capital increase. How would this increase differ from the one you did last year?

The reason why we did not list our last capital increase in any exchange was that it was an increase through a rights issue for the current shareholders. It was not open to the public unless some shareholders decided to not subscribe and sold their rights. The future capital increase that we may do will take different options into consideration, as the bank wants to make sure that we list where we can achieve more liquidity and more exposure of the bank to international investors.

This is always under the point of view where the investor feels more comfortable. We are moving from being inwards and only looking at our business to becoming closer to the investors in our shares.

E Do your have your eyes set only on the BSE or would you also consider listing in other markets, such as the DIFX or a European exchange?

It is not limited; it could be on one, two or three exchanges, depending on where it adds more value to the investor. We could list in London, Dubai, other Arab markets, whatever decision we take will be to see added value to the investor. What we want is to increase liquidity and facilitate trading to local and international investors, this is our concern.

E Is it correct that you are considering a range of $300 to $400 million for your capital increase?

The range which we are considering is actually between $300 and $450 million. But this will become final after we finish our due diligence internally, because we want to make sure that any capital increase is bringing added value to the bank.

E In parallel to your own capital increase, Lebanon’s two other large listed banking groups, Audi Saradar and BLOM, have also been involved in major steps for raising their capital above the $ 1 billion mark. Are you three a new breed in the Lebanese banking sector?

The reason why I think that these banks are differentiating themselves is that they have been going international. Because what do they actually need the capital for? It is to buy banks or strengthen the capital of banks that they have already set up overseas.

E Do you see a growing gap between the three and the rest of the financial industry in Lebanon?

Yes, because this is already evident in the market shares. The number one has perhaps over 16% in market share and the second one is not far behind. Then it drops to 10-11% which is our share, and then it goes lower. There is increasing concentration, because larger banks are becoming larger because of their aggressive strategy by buying banks locally or going outside.

E Would you identify further differentiation marks that allow these banks to expand on several levels at once, other than sheer size?

The reason why they can do that is not only that they have the capital but also that they have the system and the people. Capital, as you know, is very easy to bring. Two factors are involved. Banks first have to be open-minded to open their capital, because to open the capital dilutes existing shareholding, and that requires a level of maturity. Secondly, you have to have the system and people, to deploy the capital in an effective way. Some banks have been investing in system and people and can deliver this readiness to open up and the capability to deploy the funds.

E Are there any potential downsides affiliated with this trend and with raising capital by such large margins as we are seeing?

The challenge for Audi, BLOM, and us in increasing our capital is to be able to maximize the adequate return on this investment in an acceptable period. When you increase your capital, you dilute your shareholding, so the P/E ratio will go up. The challenge is how quickly the banks will be able to deploy the capital and get returns. The more the banks are ready in terms of system and people, the quicker they will be able to convert this capital into adequate returns.

E How about the issue of competitiveness? Does it increase the challenge if the three banks expand into larger markets and thereby might venture into territories that bigger regional banks in the GCC might be interested in?

I am going to places where the spoilt GCC banks will not go. By spoilt I mean that most GCC banks either do not pay interest on their deposits or have easy funds from government agencies. They are self-sufficient with siphoning profits in the easy way of doing money. These banks are not going to go into markets where we are going, like Sudan, like Syria, or like Algeria. I don’t think that banks in the Gulf are ready to go into these markets yet, because they are not used to these difficult markets.

E What are the longer-term perspectives on this issue of increasing competition?

In the longer term, this is a challenge for banks like us. Today, we have been in Sudan for three years. If we stop developing in Sudan and sit on our laurels, this is definitely a wrong strategy. Sooner or later an Arab or even a local bank will come and start driving the rates down. That’s why the bank is expanding the network and is not limiting itself only to lending to international corporations but trying to learn the market and with time go into the middle market and even consumer banking. It is the strategy of Byblos to go into such markets to build home bases, not only to set up one bank branch which was the traditional way for Lebanese banks which have set up their European subsidiaries which mainly were following the Lebanese clients.

E It seems that Sudan has already started attracting a measure of interest from Gulf investors, in areas such as real estate. Couldn’t that also extend to finance?

I can tell you that today there are five new banks that open up in Sudan but four out of the five are not banking groups. They are only private investors who believe that by having a lot of money and setting up banks, they can make a lot of money. Of course, this is going to affect prices and create competition. But it is our advantage that as a bank, we run the bank in Sudan and provide all the back office from Beirut, because we have the organization.

E Markets in Algeria also have shown a recent development due to the country’s growth in oil and gas revenues. Were you lucky in choosing Algeria?

We must be always lucky. When we chose Sudan, we were told we were lucky. When we choose Algeria, we are told we are being lucky. I think it is having a vision and be forward looking.

E Do you expect financial markets in Algeria to pick up in the near future?

We should be careful because Algeria has for years been talking about privatization and has been accumulating large foreign reserves. Algeria has a huge potential but the issue is that they are slow. They don’t have yet a real financial market or stock market and 80% of the economy is state-owned. It is the right moment to start looking into this market but it is going to take time and that’s why we are there for the long term.

E The slowness of processes in Algeria also seemed to have some bearing on the completion of your acquisition of Rayan Bank. Is the licensing issue progressing slower than hoped for?

Yes, but that helped us in a way because in the meanwhile we used our time and efforts to start operating in Syria, where we are now fully operational since December and, besides the head office, acquired one branch location in Damascus. Thus I think the situation in Algeria is positive in the sense that the opportunity is still there because things are slow and because we are not just sitting there and waiting for the license.

E To return once again to the capital increase, do you have a dream composition of the shareholding structure in Byblos bank after going fully public and increasing capital?

In any market, you need a little bit of everything. You need the institutional investor, you need the individual investor; you also need speculators, because these three forces make the market. We would like to have a combination of investor profiles; it will be great if we have most as medium term investors, in order for them to give us sufficient time to prove to them that we can give added value. That’s why we sometimes try to focus on these investor profiles when we do road shows. We believe in the story we tell them, we believe in the management they see, that the company can add value over the next three, four, five years.

E Could you already provide us with any numbers regarding your results in 2005?

I would say the results for 2005 are very encouraging. We are very conservative in that we don’t like to make too much publicity in advance but I think shareholders this year will be very much satisfied. Just to confirm the result of our expansion, I can tell you that in 2004 the international operation represented 4% of total profits. In 2005, it represented 14%. What I am trying to say is that the growth in our business and the profitability levels will mainly come from outside Lebanon and then would pick up in Lebanon when the reform would happen and provide more lending opportunities.

E Would you set any ceiling to the share of international profits in the revenue structure of Byblos Bank? Would it worry you, for instance, if the international profit share would hit 40 or 50%?

No, if I can reach 40 or 50 [%], I will be very happy – because I am entering into markets that are new and I want to be the leader in those markets.
 

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Finance

Jihad Azour – Minister of Finance

by Executive Staff
written by Executive Staff

Lebanon’s finance minister assesses the impact of this year’s political turbulence on the economy and maps out his plan to balance public finances as the country gears up for another donor conference.

E How badly were the country’s public finances affected by this year’s political upheaval?

It had a negative impact on public finances, although the political upheaval had already started making itself felt on the economy before the assassination of [former premier] Rafik Hariri. His death and the ensuing events exacerbated them. The impact manifested itself in a reduction in revenues due to the reduction in economic activity. The various governments at the time did not take the necessary measures to keep the level of the budget deficit stable, i.e. they did not correct the reduction in revenues with a reduction in expenditures. What I did after I became minister of finance was to stabilize the public finances in a bid to improve the primary balance of the budget, that is to say all the government’s operations outside debt. I improved the collection of revenues and I programmed the expenditures, with an objective of improving the primary surplus. In three months, we were able to improve the primary surplus by 300 billion Lebanese pounds, which represents 1.1% of GDP. The other problem which emerged after the assassination of Hariri was a financing problem. Severe pressure was exerted on our currency and the treasury has problems financing itself, so it had to turn to the central bank. Therefore, interest rates went up and an abnormal situation was created by the fact that the treasury was financing itself through the central bank. I took the decision to pre-fund all the treasury’s needs in order to avoid an increase in interest rates. This created greater confidence in the market as the treasury was again perceived as being liquid enough. It also reduced any pressure on interest rates and the Lebanese pound.

E Which sectors of the economy suffered the most from it and what do you think their chances are of a rapid recovery?

Expectations for tourism were very high this year and this sector was badly hit. Still, we have witnessed a recovery of the sector during the last three months. In fact, economic activity in the last three months has compensated for the first half of the year, which was very difficult for all sectors, mainly tourism, but also other sectors linked to internal consumption. For instance, the balance of payments, which was showing a deficit of $1 billion, recovered substantially during the last few months – we will be almost in a balance by the end of the year. Exports also went up in the third quarter, as did certain other activities. So we have started recovering progressively most of our lost economic opportunities and we are expecting a slight growth of less than 1% for the year. The Lebanese economy demonstrated a tremendous level of resilience this year.

E Did the events of 2005 ultimately serve as a political shock more than an economic shock to the country?

It was a severe political shock that had an economic impact. However, because of the improvements we had in 2003 and 2004, where we witnessed strong improvements in growth, in public finances and in the monetary indicators, we were able in 2005, to overcome one of the strongest earthquakes we have had on the political level in the last 15 years. Had those events not happened, we would have had an excellent 2005, in terms of growth, investments, a reduction in the budget deficit – in all the economic indicators basically.

E Looking forward to 2006, what are the three biggest challenges the ministry intends to face down?

The first one is to seize this window of opportunity that is the donor conference and to transform it into a program of reform, which will stabilize the economy by reducing the level of deficits. This will be achieved by making the economy grow faster. It is a challenge that requires that we convince the Lebanese of the necessity of undergoing a major transformation program, which will aim at meeting the objectives I just mentioned, as well as strengthening social stability in this country. The second challenge is to finalize a new vision for the ministry, which will articulate all of our reform plans, ranging from completing the modernization of the process for customs, to land registry, public finances and debt. We aim at not only completing the reforms but also improving the management practices of the ministry and to increase its level of accountability and good governance. The third challenge is to strengthen partnerships with the private sector, the NGOs and other parts of the community, most notably youth. We have created a joint commission with the private sector to go over all the problems it faces and to address them with clear targets. For instance with regards to exports, our new motto is: “Multiply by two, divide by two.” We want to multiply our exports by two over the next two years, and divide the costs and clearance time by two. We are also working with youth to develop an economic agenda for them, so as to give them the incentive to stay in Lebanon.

E To what extent is this program influenced by Prime Minister Fouad Seniora’s plan from last year, which proposed large spending cuts? Will any of this be exhumed for future use?

Of course it is influenced by it. But you can’t ask people to make additional efforts if you are not doing your homework yourself. We have to make the government more efficient and effective. We have to increase productivity. We have to reduce the waste in spending. And for that purpose, we at the ministry of finance have launched a new initiative with NGOs that are experts in fighting corruption. We are also working with the World Bank on an agenda for good governance. We have to reform the expenditure system in this country, we have to modernize the way the government functions and reduce unnecessary spending, before we can ask people for any additional contributions.

E Does this include promoting e-governance to slim down the bloated bureaucracy and make it more efficient?

Absolutely. For instance this ministry launched three months ago a new service for the taxation process, whereby you can download declarations and send in your declaration electronically. We have also automated all our payments, using modern payment techniques. With regards to customs, we are introducing a new system that will enable all clearance procedures to be done electronically. Additional services, especially e-services, will help people save time and money.

E E-governance also has the added benefit of eliminating the middleman between the citizen and the state, thereby reducing the risks of corruption. Does fighting corruption figure prominently on your agenda or do you view it as a necessary evil for now?

No, I don’t view it as a necessary evil at all. As I mentioned, we started this commission with experts on corruption to figure out how we can reduce it, how we can improve the level of accountability, as well as governance. In addition to this we are taking immediate measures at the ministry. We have issued circulars internally to remind the civil servants of their duties and to not accept any corruption. If there is any act of corruption, we will take immediate action. However one also needs to take into consideration the fact that fighting corruption requires long-term motivation. It is by changing processes, by automating transactions, by strengthening the control over your employees, by changing laws, that you will make a difference.

E At the end of the day though, the biggest drainage on public finances does not come from small-scale corruption at the level of civil servants, but from the large money swindling operations that politicians engage in, such as what we have seen with Casino du Liban. Do you believe that the passing of a new election law that would change the political map of the country and make politicians more directly accountable to their electorate, could be an efficient measure to reduce corruption at the political level?

Corruption takes place at various levels and comes in many forms. Some are related to small transactions, others are more organized. Therefore, the way to fight corruption is to focus on the types of risks you have. You need to be serious about it, which is why we set up this commission of corruption experts. In principle, any improvements of our institutions are favorable. This reform is very important, as is changing other laws as well, in order to improve the level of accountability. But changing laws is not enough, it’s also a matter of culture. It goes beyond the regulatory framework. People have to put more weight on economic issues when evaluating an MP. They also have to ask their MPs for more accountability. And thirdly, the government needs to provide them with basic services, to prevent people from going to their MPs to ask for personal favors. So it’s a comprehensive change that is required, and the government is working on it.

E We’ve talked about cutting down on public expenditures and waste, let’s look at potential revenues for the government. Will the gas price cap be done away with? And if not, how can the ministry justify letting a potentially major source of state revenue slip away due to political calculations?

Firstly, it is very important for people to know that the government is presently providing approximately $1 billion in subsidies, especially to the energy sector, to compensate for the weak management of EDL and to make up for rising oil prices. The government subsidized gas prices to maintain them at a certain level and lost a lot of revenue due to this. Taxpayers are paying for these subsidies, because at the end of the day, the government has no other resources but fees and taxes. Secondly, we should not look at any one element of these subsidies on its own – it’s all part of a package. The program the government is working on has various pillars. The first pillar is to improve the macro-economic situation by reducing the debt over GDP. For that you have to reduce interest rates and the stock of debt over the reserves and you have to improve your primary balance. There are two ways of going about this: either you reduce your expenditures or you increase your revenues. We are focusing on cutting down expenditures and on increasing revenues by improving the management of the tax system. But the bottom line is that this is a social choice. If we are not able to achieve our objectives only by reducing expenditures, we will be forced to increase taxes. And if we have to do this, our objective is to have a balanced tax burden, not to focus on one type of taxpayer or one type of services. It will broaden in order to reduce the burden on the individual citizen. The second pillar is to liberalize the economy. However, economic privatization is going to be done differently this time. We will not transfer any monopoly from the public to the private sector. It will be done in a participatory manner, giving people the opportunity to invest. And we want these sectors to create jobs. The third pillar is a growth agenda: we need to improve the business environment by modernizing the laws, streamlining the procedures and supporting fast growing sectors, such as IT and tourism where you have value-added.

E Is there no social aspect to the government’s program?

There is. The fourth pillar of our program is strengthening the social safety net. The government is spending more and more money on social services every year. On the other hand, social services are deteriorating and social indicators are going down. To correct this, we have to reform social spending, improve its efficiency and create social safety nets. This will require mapping out where we have vulnerable groups and see how we can help them. We have high levels of leakages. For instance, the government is spending a lot of money on wheat subsidies, but when studying the system more closely, you find that only 15% goes to the farmers. The problem is if you stop giving subsidies, you create social problems. That is why an improvement of social management needs to be undertaken. So to go back to the initial question about gas subsidies, it all falls under the deal that various parts of society need to make. If we agree that we want to improve the stability of our macro-economic situation, to improve growth, to seize the opportunity to get international support, then we all need to share the burden of reform.

E By postponing the donor conference, Seniora suggested that the world is not ready for another round of lending to Lebanon. The list of possible demands is long, but what absolutely must be done before any such conference can be held?

First of all, we need to [engage in] dialogue more over the vision we have in the cabinet, in order to transform it from a vision into a program. We also need to consult with the various stakeholders to develop a national agenda, so that the majority of the Lebanese and the political groups will back the political reforms. The reforms will take at least five years, so this requires commitment. On the other hand, the dialogue with the international community needs to continue. We’ve had a series of meetings with government representatives, we are coordinating regularly with international institutions such as the World Bank and the IMF, and we may have a gathering of experts in Beirut in January to prepare for the February donor conference.

E What lessons will you take from the Paris II round so as to avoid falling into the same pitfalls?

Firstly, we are taking several technical lessons on how to use all this money and conduct the operations in themselves. The second lesson is the great reaction of the market and the economy. After Paris II, even before any payment had arrived in Lebanon, we witnessed a major shift in the economic outlook: interest rates went down, capital inflows became substantial – very important changes were brought about. This is why we must view this opportunity as a turning point in Lebanese political history. It is remarkable how quickly people react to positive news in this country. Thirdly, this must not be viewed as a government program. It must be perceived as an economic agenda for the whole nation, from which everybody will benefit. That is why everybody should fight for making it happen. And last but not least, is the issue of credibility. We have to show that we are credible, as much to ourselves, as to the investors and to the international community. We must show that if we commit to something, we will deliver.

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Looking Back

The unlikely quartet

by Michael Young
written by Michael Young

In November, during the French book fair in Beirut, the magazine L’Orient-Express – previously the monthly supplement of the daily L’Orient-Le Jour – was published as a special 10-year anniversary issue. The idea was the brainchild of the former editor, Samir Kassir, but when he was assassinated last June, it was up to the onetime staff members to prepare the content without the guidance of the irrepressible man who had been the magazine’s vital force.

The regret one felt in knowing Kassir never saw the issue was nothing compared to the disappointing reality of the aftermath of his death. The far-too-constrained national reaction showed how cheaply he had gone, so unacceptable coming from a Lebanese society that had, by the time Kassir was killed by a bomb placed under his car, regained its sovereignty. At the essential moment of newfound emancipation, an avatar of that effort, a writer who had risked his personal safety for years to condemn the order the Lebanese had lately demonstrated against, was virtually forgotten. That’s why the anniversary issue of L’Orient-Express was a bittersweet experience; it pleased the insiders, those who knew Kassir, but it also proved a mere sideshow for the society as a whole. Through that indifference, the Lebanese effectively forgot a part of their post-war self, and not by a long shot the least attractive one.

Four different lives, one Lebanon

It says much about the contradictory nature of Lebanon that four of the prominent deaths recorded in 2005 – those of former premier Rafik Hariri, the providential businessman who rode into the country on a white checkbook; Basil Fuleihan, his protégé and among the best and brightest of the returning wartime generation; Ghazi Kanaan, long the tough cornerstone and cynical broker of Syrian power in Lebanon; and Kassir, the prodigal son, who alighted from Paris and used his talents of writer and polemicist as an antidote to the worst of the new order – offered up a striking image of post-war equilibrium. Each complemented the other in some way, even when they were antagonistic. What ensued was a Levantine compromise, but one, also, destined to shatter amid the false expectation of indefinite steadiness. The greatest irony of all was that the four died as their ambitions were either about to be fulfilled, or had been.

The face of post-war Lebanon

To describe what Rafik Hariri meant for Lebanon after 1990 has been done ad nauseam. In all respects he embodied the energy of reconstruction after the conflict, was the indispensable agent of economic confidence, and, through his death, showed he had the power to play a post-mortem trick on a Syrian regime that had for years used him to advance its interests, while also mistrusting his every move. What made Hariri dangerous was that unlike his foes, he had a striking vision for Lebanon. It was flawed, hubristic, narrow, elitist, unaccountable, and, for all of those reasons, helped generate the crippling debt Lebanon faces today. But a vision there was, and it had a place in the modern world, so unlike the cheerless substitute offered by Syria and Hariri’s foes, where the choice roles were left to intelligence officers, and where the ambient philosophy was essentially the same as practiced by organized crime rings.

Orbiting Hariri

Hariri was the axis of the system in which Fuleihan, Kanaan and Kassir navigated. While Fuleihan was so closely tied to the late prime minister that drawing a boundary between the two seems almost absurd, he was also something distinct: an embodiment of the best that Hariri had managed to attract in the early 1990s: the 30-something university graduate, preferably with a degree from a foreign institution, devoted to the art of making money, and crafted in the best ateliers of urban mobility in London, Paris, or New York. Beirut was awash with such figures in the immediate post-war period (it still is), and while they were naturally drawn to a prime minister who offered them status, they were also often the antithesis of what Hariri himself had been.

Like many a returning Lebanese in those years, Fuleihan was a man of theory, hungering for action, and to achieve that objective he needed to hitch his fortunes to a man of action like Hariri. Fuleihan’s intelligence ensured he would succeed, but countless others, fighting for the limited number of stools in the Hariri set, were either denied entry, or found themselves banished to a mediocre anteroom, far from the inner circle, moving among the sycophants the prime minister was so good at turning to his advantage, but who were otherwise eminently forgettable.

Samir Kassir’s most memorable encounter with Hariri showed another side of post-war Lebanon, and of Hariri himself. In 2000, Kassir had written a now-famous article criticizing, without naming him, the then-head of the General Security service, Jamil Sayyed, and more generally the role played by the army in Lebanese life. Sayyed responded by threatening Kassir and ordering carloads of agents to pursue him for weeks, relentlessly, at times aggressively. One evening, Hariri asked Kassir and the editor of As-Safir, Joseph Samaha, to join him at a swanky Beirut restaurant. The point was not to feed the pair, however, but to have them follow him home in their car, enclosed within the confines of his motorcade. When the General Security agents tried to follow, Hariri’s guards blocked their path, earning Kassir a momentary reprieve.
Hariri was not the first or last politician who shielded Kassir against arguably the most powerful man in Lebanon. But the incident showed something about both men: for Kassir, free expression and provocation were oxygen, and he was willing to go to the line in defending it, though his pen had often been directed against Hariri. For Hariri, Kassir was more than just an enemy of the security services and men he loathed, he was also an expression of what Hariri, sometimes reluctantly, imagined Lebanon to be. The late prime minister did not like criticism, but he was willing to argue with his critics without dispatching goons to exact retribution; and he anyway preferred co-opting others to threatening them. Kassir was never co-opted, but Hariri never held that against him. Indeed, why should he have?

Free men

Kassir, much like Fuleihan, was part of that exiled Lebanese war-time generation that came home after the fighting stopped. Yet where Kassir was a man boisterously of the left, Fuleihan always seemed more the solid burgher, levitating above ideology. That was the façade: anyone who knew both men could recall how Fuleihan was readily a militant in his days at the American University of Beirut, while Kassir, while never abandoning his leftist roots, steadily became more bourgeois as he kicked into his mid-40s. Sometimes opposites, toward the end objective allies, Fuleihan and Kassir distilled the post-war cosmopolitanism of Beirut, the very same that was overpowered by, and somehow coexisted with, the hard, rural stewardship of the fourth man who died in the past year, Ghazi Kanaan.

In the same way he could acknowledge the importance of a freethinker like Kassir, Hariri could just as pragmatically accept the reality of Syrian hegemony over Lebanon, and work with its top administrators. Of all the strange relationships in post-war Lebanon, the bond that existed between Hariri and Kanaan was surely the oddest. Whatever brought together the businessman and the intelligence agent, the visionary and the anti-visionary, the natural co-opter and the unambiguous enforcer?

Many things, in fact: their shared appetite for power, their instinctive grasp of how best to achieve their mutual interests, their successes as men of action, and their dislike of abstraction. At play between Hariri and Kanaan were near perfect market forces, as both regularly resolved their differences by finding an equilibrium between what both were after. Kanaan ran Lebanon like a country estate, and Hariri, technically the lord of the manor, accepted him as the foreman he could not fire. The prime minister’s critics pointed to this as proof that he was an essential prop in the Syrian order; Hariri’s defenders argued that, under the circumstances, smooth collaboration with Kanaan was far better than a confrontation the Lebanese could not win. Perhaps, though one must measure the implications of Hariri’s policy: it did at times let him do what he wanted, but by allowing Syrian interference in every aspect of decision-making, it also institutionalized Lebanon’s sense of dependency. Paradoxically, as many a journalist would admit, Kanaan was little concerned with the excesses of a free Lebanese media. It was revealing that Kassir’s problems were primarily with the post-1998 order set up by President Emile Lahoud. Kanaan rarely directed threats against journalists; Kassir’s difficulties were provoked by the Lebanese over whom Kanaan presided. It was his misfortune to pay the price for the desire of Lebanese security officials to prove themselves to their Syrian superiors. Yet how ironic that before Hariri’s murder, it was much easier to mock the Syrians than it was to attack Lahoud. Syrian rule allowed this latitude to the Lebanese media, and those like Kassir took advantage of this. What he did not realize – his own killing being the warning – was that once the Syrians withdrew, the margin for such expression would disappear.

Staying on good terms with Syria

In understanding Hariri’s relations with Syria, it is important to grasp that he was no revolutionary. A conservative businessman, he preferred stability to the potentially destructive unpredictability that a break with Syria could have led to. Hariri’s ambition at the end was not, as the hagiographists have written, to take Lebanon out of Syria’s orbit; it was to widen his own margin of maneuver inside that orbit. In the weeks before his death, Hariri had made clear to the Syrians he would not take on his electoral lists the more egregious of their supporters, as he had in the past – in effect announcing that he planned to make the parliamentary elections a real contest. But at best, he and other opposition candidates hoped to win around 50 or so seats. This was no coup against Syria; it was an effort to re-impose the equilibrium that Hariri had put to good use in the days before Lahoud and Rustom Ghazali replaced Elias Hrawi and Ghazi Kanaan.

What Hariri didn’t grasp was that, for his enemies, this would anyway be misunderstood as a bid to overturn the Syrian order. They feared Hariri’s triumph because he would have easily won the round. Instead, he got too close to the sun, and paid the ultimate price. Yet it was not so much the game that was too big for Hariri; it was Hariri who unwittingly proved too big for the game. For a supremely self-assured man, this descent into momentary modesty proofed fatal, as it did for Fuleihan.

If we are to believe what we hear about Kanaan, in his final days he was unhappy that everything he had built up in Lebanon had collapsed. It’s difficult to imagine a hardy survivor of the Baathist order devoting any time to nostalgia. It’s equally difficult to lend credence to official Syrian reports that Kanaan killed himself in response to a hostile campaign in the Lebanese media. No such campaign was waged, and Kanaan was not someone to let words get him down. In fact, if anything was likely to have killed him, or caused him to kill himself, it was that he posed a mortal threat to the worried Syrian regime he served. His adeptness highlighted its incompetence. At the threshold of his crowning moment, when he could have for the first time imagined exercising absolute power, Kanaan may have fallen victim to his prospective success.

As for Kassir, he was on a cloud after the Syrian withdrawal in April. On the eve of his death he was described as being his usual confident self when discussing political changes. He was very far away from imagining that his murder was already in the final stages of preparation. Kassir had won and his years of effort had paid off. Afterwards, it was clear that his was the accomplishment not of money or power, but of ideas. In being the first to die after Syria’s pullout, Kassir proved how essential his weapon was in destabilizing the enemies of free expression.

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Real Estate

BCD property prices stay on the rise

by Peter Grimsditch
written by Peter Grimsditch

Despite the political turmoil of 2005, Lebanon’s real estate sector saw activity and prices remain relatively stable. Solidere sold more land than ever before and both Gulf Arabs and Lebanese nationals continued to invest in hot properties. The Beirut Central District remained (and still remains) the axis around which everything else revolves, and experts predict the short term can only get better.

According to the Lebanese Order of Architects and Engineers, the number of construction permits and overall construction experienced a dip compared to 2004 levels. By November 1, 2005, 9482 permits had been granted for a total construction area of 5,839,354m2, while for the whole of 2004, 11,258 permits were granted for a total area of 7,719,348m2.

About half of all permits were issued in Mount Lebanon (4,657), followed by south Lebanon (1888), Nabatiyeh (930), Beirut (913), the Bekaa (799), and the north (295). In terms of space in square meters, Mount Lebanon led the way (3,116,845m2), followed by Beirut (968,601m2), south Lebanon (648,742m2), the north (422,876m2), the Bekaa (375,687m2) and Nabatiyeh (297,603m2).

All things considered, Solidere performed remarkably well in 2005. While much of Beirut and Lebanon appeared to adopt a wait-and-see attitude, Solidere sold some 300,000m2 of land in the downtown, more than ever before. The price per square meter of built up area (BUA) in the Beirut Central District (BCD) increased from some $1,000 in 2000 to $1,200 last year and some $1,400 today. The price is even higher along the seafront, where hardly a vacant plot of land remains. An equally luxurious fourth complex, as well as a handful of luxury hotels (including the Hyatt and Hilton) will, next year join the high-end residential Platinum, Beirut and Marina Towers. Worth some $1.5 billion in investments, the area overlooking the marina has already been dubbed Beirut’s “Goldern Strip.” Investors who wish to develop along the downtown seafront will have to wait until 2007, for the completion of the land reclamation project known as Solidere II. However, assuming that the political and economic situation in Lebanon remains stable, they will have to reckon with m2 of BUA.

Solidere cleans up

Solidere declared over the first nine months of 2005, a profit of $51.1 million, while its increased liquidity allowed the company to reduce debts from $234 million by the end of 2004, to $130 million by the end of 2005. Shareholders were able to cash a 32% profit per share, compared to a 2% profit over the same period last year. The share price rose to $14 at the end of 2005, while experts, some say rather optimistically, predict shares to hit $20 in the near future.

According to a study by Ramco Real Estate Advisers, some 4.5 million square meters have been bought by Gulf Arabs since 2001, which represents a total of 270 transactions at an average of 17,000m2 each. About 900,000m2 were sold in 2005, which illustrates the fact that Arab investors so far remain positive about the future of Lebanon. For the first time ever, Kuwaiti nationals bought more land than Saudis.

The sale of land is not only meant for the construction of towering residential projects and hotels, but also smaller luxury villas, roughly within the geographical triangle of Beirut, Bhamdoun and Faqra. Due to the increasing anti-Muslim climate in Europe, Lebanon’s winter capitals of Faraya and Faqra witnessed an increased construction of chalets, villas and even a palace, as Arab nationals rather ski there, than in Gstaad.

Arab nationals remain among the main buyers of high-end real estate in Lebanon, yet it seems Lebanese expatriates increasingly buy and invest, especially since the retreat of the Syrian army last April. The high-end seafront residential properties are predominantly bought by Gulf Arabs, (60% to 70%), while more inland, in areas such as Saifi and Wadi Abou Jamil, about 70% of clients are Lebanese. And sales are booming. Many apartments are sold even before the foundations are laid. Marina Towers and Park View claim to have sold all their apartments, while Beirut Tower claims to have 80% sold and Garden View, 60%.

Looking elsewhere

While the BCD area remains the natural center of gravity for Lebanese real estate, other major investments continued to take place along the coast, in Ain Mreisseh, Raouche, Ramlet el Baida and at the Corniche. Also, several major developments saw the light in the narrow strip between downtown Beirut and Ashrafieh, most notably the Sursock Towers, the landmark high-rise building with 500m2 of luxury apartments at Tabaris, designed by Pierre Khoury Architects.
The ongoing gentrification of Beirut with the downtown area as its center continues in other areas beyond Ashrafieh, such as Zoqat al Blatt, Kantari and the upper end of Zoqat al Blatt, where investors have bought large apartment blocks. Outside Beirut, no major developments have taken place, with the exception of Yarzeh, Baabda and to a lesser extent Hazmieh and Naccache.

Following the success of the 37,000m2 ABC mall in Ashrafieh in 2004, 2005 saw the opening of the giant City Mall at Dora and the smaller Metropolitan Mall in Sin el Fil. The City Mall measures no less than 200,000m2, of which 75,000m2 are meant for retail, including a hypermarket and department store. The Metropolitan Mall, part of the Habtoor group, offers another 14,000m2 of retail space on the market. It remains to be seen how both will perform, especially the latter in the largely untested Sin el Fil.

After a six-year delay due to political bickering, 2005 also witnessed the go ahead for the $120 million Souqs project in the BCD. Due to be completed by 2007, the Souqs will offer another 60,000m2 of retail space on the market. While the rent in ABC and City Mall lies at around $800m2, the price per square meter in the Souqs is expected to be around $1,000.

Verdun will soon witness another retail development with the announcement that the V5 shopping mall will be open for business in 2008, adding a further 50,000m2 of retail and leisure space when it is completed (see interview with Horizon CEO Abdul Hafiz Mansour on page 180). While there is a widespread consensus among project developers and real estate experts that Lebanon does not yet offer enough retail space per capita, it remains to be seen if malls are the answer and if all available retail space can be made profitable. One thing is certain, with the increased competition, especially after 2007 to 2008, rents in certain areas and malls will come down.

Office works

The market for office space remains Lebanon’s least significant. Following the success of office buildings such as the Nahar building and Atrium, a few new state-of-the-art office buildings have been nearly completed in the BCD, including Two Park Avenue. Prices are hitting $300m2 per year and there is demand for modern buildings. The same cannot be said about first generation offices built by Solidere in the heart of the city. Occupancy rates are at about 65%, due to a combination of factors, most notably their small size and limited parking space. Rents there are much lower at some $150m2 to $250m2. Rents in Hamra or Ras Beirut too are much lower starting at $50m2 going up to $175m2. Popular among business and embassies is also Rue Charles Malek between Tabaris and the improving Sin el Fil.

The new Monot?

While six years ago you could barely get a coffee in Gemaizeh, today people jam the streets especially on the weekend to visit the dozens of café’s, clubs and restaurants offering anything from Cuban cocktails to sushi. While Gemaizeh has seen rents triple – hitting $500m2 per year – Rue Monot, which held sway for much of the previous eight years has seen prices tumble from $500m2 per year to some $250m2 to $300m2 per year. With the increased popularity of the area however, problems with noise and parking have increased and the character of the area has changed from slightly alternative to more and more mainstream. Some say the first generation bar owners and clientele are already looking elsewhere. The next cool area? The word on the street is that the savvy operators will move to Hamra with its flat, pedestrian sidewalks. Watch this space.

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Real Estate

A positive wrap up for real estate in 2005

by Executive Staff
written by Executive Staff

Vincent Najarian

General manager of C.A.R.E. real estate consultants

E The real estate market, especially the high-end residential market, has appeared to ride out the crisis of 2005. Can you explain this and what is your forecast for 2006?

“We remained positive throughout 2005, and are very upbeat about 2006. The signs are good. Only one week after the death of [former premier Rafik] Hariri we bought two major plots of land for some of our clients, which brings the total number of projects we manage and promote in downtown Beirut to 17. What’s more, Solidere booked record sales this year and saw its price per share increase to $14. I think there are several reasons why Beirut remained attractive for investors. First of all, the risk factor these days is equal in a lot of places. Just look at what happened in London and more recently in Amman. Or take Riyadh, which with its many checkpoints almost looks like Beirut in the 1970s. Secondly, ever since 9/11, our Arab clientele feels less and less at ease in the USA and Europe, a sentiment which has only grown worse with the increasingly anti-Arab, anti-Muslim climate in Europe. Look at the Paris riots recently. People are just not comfortable wearing a scarf or going to the mosque, which in Beirut is of course no problem whatsoever. Thirdly, with the high oil price there is a lot of cash in the region, which is increasingly invested in Arab countries, rather than in the USA or Europe. Finally, other than Europe, Lebanon has always been a service oriented industry, in which Arabic is the language. One should note however, that the money flowing into Lebanon is but peanuts compared to what is currently invested in the Gulf, especially in Dubai. The recently signed contract to construct Palm Island, which is one out of many, is worth about $4 billion. Yet, in my opinion, Dubai is not really a competitor to Beirut. Apart from the high-end seafront developments, such as the islands that are sold to a highly affluent international clientele, 70% of the towers being constructed on the coast are actually meant for a Pakistani/ Indian clientele. Believe me, it is mainly an Indian dream to own a house in Dubai. Most Arabs see Dubai as a weekend destination, a stopover, not as a place to settle down. For that, they would rather come to Beirut.”

Rachad Dernaika

CEO of RED for property development

E How do you see the difference between the high-end real estate developments in Dubai and Beirut? Is Beirut the next Dubai?

“Dubai has experienced an unprecedented volume of towers being built in the last several years and it’s anticipated that it will continue to do so at the same pace for the foreseeable future. As long as demand surpasses supply, Dubai knows theoretically no limit in the number of towers it can build, due to the simple fact that Dubai has ample land. Beirut on the other hand has limited land space and as such will never be able to supply an abundant number of high rise buildings.

Therefore, once the political situation in Lebanon stabilizes, this limited availability of land should drive all real estate related prices quite high up, especially seeing the increased demand and limited supply. Even during the past turbulent year, we have continued to see an aggressive interest in real estate, both in plots of land and high-end finished products. This, we believe, is due to the long term confidence in the future of the country. What’s more, the rare readily available high-end apartments coupled with the fact that such products take five or six years to materialize, will be another contributing factor to driving prices higher up in the near future. From a price point of view, we see Beirut real estate booming like in Singapore or Tokyo, rather than Beirut.”

 

Raja Makarem

General manager of Ramco Real Estate Advisers

E What was your overall impression of 2005?

“Following the death of Hariri, it was as if people held their breath for a moment and waited for things to come. Consequently, the sector experienced a brief lull. However, the situation went back to normal remarkably quickly, while prices never collapsed. Certainly after the withdrawal of Syria, the mood was extremely upbeat. Not only did Arab nationals continue to invest, but also, and increasingly so, members from the Lebanese Diaspora. More or less the same developments took place after that awful speech by [Syrian President] Bashar al-Assad last November. For a moment, I was shocked and I thought this is going to be a big blow to the sector, but the very next day I signed two major contracts for my clients. The bulk of the business, both in terms of numbers of transactions and value, was situated in and around Beirut. I’d say about 90%. In fact, areas outside Beirut, such as Aley, and Bhamdoun, experienced a slight stagnation. So far, Saudi and Emirati nationals were always the most active on the Lebanese market, but this year for the first time Kuwaitis bought more, some 225,000m2 out of a total of 900,000 m2 in 2005. The general consensus in Lebanon and abroad seems to be that things will only get better in 2006 and in the near future.”

Bernard Khoury

Architect

E Seeing the construction frenzy in Beirut in recent years, what is your opinion about the state of architecture in Lebanon today?

“Beirut is of course a very ugly city, however interesting it may be in its complexity. One interesting aspect is that it’s an almost entirely privately developed city. There is hardly any state intervention. We have a very thick and complex building code, yet one which only restricts you not to construct more than you are allowed and which lacks any vision of how the city should look like. In that sense, Lebanese developers and architects bear a great responsibility and it is about time they take it, for we have examples of great architecture from the 1920s until the 1980s, but the last 25 years have been catastrophic.

“Architecture should be an intelligent response to a certain urban complexity and it should be attractive, attractive, attractive. It seems however, most architects prefer not to think, but just apply the recipe. They seem stuck in postmodernism, which was thrown overboard all over the world except here, and so all we see is the typical straight-lined high rise. I’m convinced that the conventional construction concepts most developers use will not last. The future belongs to those who develop concepts more adequate to the times we live in. If someone buys a house, you have to give him a dream, as it’s the investment of a lifetime. And I want to stress that this is not incompatible with financial success, on the contrary. Great designs sell. It is a challenge for developers and architects to come up with daring solutions, within technical, financial and legal limitations. Take balconies. The law allows you to spend 20% of the total space on balconies and yet all we see are these tiny extensions, which are essentially just there to collect dust. But this is not Alaska or Dubai. This is the Mediterranean. We can live outside nine months a year, so why not work with large open staircases and balconies?

“In downtown, Solidere has set its own standards, which in itself is a good thing. However, to me, the result is rather disappointing. It’s all beige and yellow, with one red disaster in the middle called “Caracalla.” Now, Solidere claims to only work with internationally renowned architects, but that’s only partly true. Firstly, they are hardly renowned and secondly, they only sign for the concept, after which local people take over. So, the result is hardly their signature. Take Ricardo Bofil. Pronounce his name anywhere in Europe and you get slapped in the face. He is the Richard Kleiderman of modern architecture. Unfortunately people here think that’s the same as being Amadeus Mozart.”

Michael Dunn

Chairman, Michael Dunn & Co.

E “Seeing the many shopping malls that have been built in recent years, do you think we have reached the limit or is there still room for growth? And what will be the consequence for a traditional high street such as Hamra?

“Given political and economic stability, and a further increase from 2004 tourist arrivals, I think there is still room for more well constructed and well situated shopping malls. Compared to international standards, Lebanon still does not have enough available retail space per square meter, per inhabitant. I particularly have a lot of respect for the ABC mall, and I think the Souqs will do well. Even though so far only the south wing will be constructed, it will definitely be the finishing touch to downtown Beirut as a shopping destination. A shopping area such as Hamra or Verdun for that matter, can compete and complement the newly constructed shopping malls. They will just have to make themselves more attractive for visitors. In Hamra, that means first and foremost that the municipality gets its act together and does something about the horrendous traffic and parking problems. As long as those are not solved, Hamra will never pick up. It seems to me however, that no one cares and that they think that everything will get back to the good old glory days by itself. I truly do not understand that.”

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