Business

Left Redundant

by Peter Speetjens
written by Peter Speetjens

The owners of the Lebanese Sugar Factory in Majdal Anjar claim to have lost millions of dollars due to the government decision to abolish the sugar beet subsidy system and have sued the state to obtain compensation.

Ahmed Ajami has worked as a guard at the National Sugar Factory since 1975. Today there is not much left to guard. Apart from a brief spell in 2004, the factory has been closed since 2001. A large heap of white stones, which used to be boiled to distract the calcium needed to refine sugar beet, is the only sign of what life use to be like. “During the sugar beet season, the factory employed over 250 people, mostly from Majdal Anjar, like me,” he sighed. “Of course we are all anxious about the government’s final word on sugar beet. It is our livelihood that’s at stake.”

Situated just outside the border town of Majdal Anjar, the Lebanese Sugar Factory was established in 1958. Through the years, its initial capacity of some 350 tons of sugar beet per day was gradually upgraded. The factory closed in 1985, when the government was no longer able to pay subsidies. The factory reopened in 1992 after the civil war.

”My father was one of the factory’s founding members,” said Raif Kassem. “It was the first factory in the Bekaa valley. By 1985, we were already going back and forth between the United States and Lebanon, but when the factory closed, we decided to permanently base ourselves in Los Angeles.”

Kassem started a business, enjoyed the American way of life, and had no intention of coming back. Then in 1991 he got a phone call from President Hrawi. “He asked me to come back to Lebanon to reopen the factory,” he said. “Later, the Ministers of Agriculture and Economy also contacted me and they all insisted I should come back to reopen the factory, and so I did.”

According to Kassem, the aim of reintroducing sugar beet subsidies was threefold: to replace the farming of illicit crops, to plant a crop that is good for crop rotation and to create employment. However the factory was far too small for modern needs. Kassem claims to have invested some $12 million in new equipment, everything from sorting machines to cooking pans, which he imported from Germany. The factory’s capacity was increased from some 1,700 tons in 1991 to some 2,500 tons of sugar beet per day in 2000. “The cost of processing sugar beet depends first of all on the quantity of beet involved,” he explained. “The bigger the quantity, the lower the price. Given a quantity of 180,000 tons of sugar beet with 16% sugar content per beet, the cost of producing 1 ton of white sugar is $330. Given a quantity of 300,000 tons, the cost will decrease to $275. About one third of that amount is fuel related, as it takes 62 liters of fuel oil to refine 1 ton of sugar beet.”

The government would receive the factory’s invoice and pay for the cost, plus the operator’s fee. According to Antoine Khoury, Director General of the Office of Sugar Beet and Wheat at the Ministry of Economy the government paid the factory $70 million between 1992 and 2000. “Some people accuse us of making lots of money,” Kassem continued, “but the opposite is true. Over the years, we were only able to earn back some $6 million on our investment of $12 million. As a result, we are in a terrible financial situation. In fact, because of the losses at the factory all our other businesses are suffering.”

After trying in vain to convince the government of its dire financial situation, the Kassem family has sued the government in two separate trials, one to reinstall the subsidy system, the other to obtain compensation for the $6 million loss it suffered. “The subsidy system was introduced by law,” Kassem argued, “which means that legally you cannot change that by a simple decree, as the government did in 2000. It needs a parliamentary vote. Secondly, we came back on the request of the government in the mutual understanding that we would be able to make a living. Now, if the government wants to change the system, fine, but give us a period of say 3 years, so we can adapt and earn back our money.”

This appears to be what the Seniora government had in mind when it suggested keeping subsidies in place for another three years, when it capitulated in the face the farmers’ threat to blockade Beirut last October. However, according Kassem’s son Amer, this will not be sufficient to successfully keep the factory operating.

“It is still not clear what the government intends to do,” he said. “It seems they want to take 2004 as starting point, when only a limited amount of some 50,000 tons of sugar beet were produced, and then reduce the subsidies by 30% per year. However, the factory needs a minimum of 200,000 tons to be profitable.”

As a compromise, some have suggested to cut all agricultural subsidies by 10% to 15%, instead of getting rid of just one. For political reasons however, the annual $65 million that goes to tobacco farmers in the south seems untouchable.

Meanwhile, the world market may come to the rescue of Lebanese sugar. The Lebanese government’s main argument is that producing sugar is too expensive compared to world market prices, but ever since the WTO’s decision regarding the European sugar regime (see box II), the price of sugar has been steadily rising.

“It’s not just the WTO decision,” said Kassem junior. “The price of sugar is connected with the price of oil. Every time the price of oil increases, Brazil increases its production of ethanol (alcohol made out of sugar that is used as fuel), with as a consequence that the world supply of sugar goes down and prices rise. Currently the price of sugar is about $420, which is not too far a cry from the $500 which the government charges sugar importers to buy Lebanese sugar. But then again, look at at it another way. Is $15 to $20 million a year too high a price to pay to keep the Bekaa valley alive?”

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Business

Sowing the seeds for disaster

by Peter Speetjens
written by Peter Speetjens

Bekaa farmers and Lebanon’s Sugar Beet Cooperation argue that Lebanese agriculture cannot survive without government support. Like most farmers around the world, they oppose today’s belief in free trade and insist that the wealth of agriculture cannot be measured in terms of price of profit alone.

“If there is no support for sugar beet while the growing of hashish remains banned, agriculture in the Bekaa valley will collapse completely,” said farmer Ayoub Kazoun, from Qab Elias, a small town south of Chtaura. “It’s already happening. There are families living here in Qab Elias, who cannot pay for heating or electricity and banks are confiscating homes left and right. The situation is disastrous.”

Kazoun used to grow sugar beet, but now plants mainly potatoes and animal feed. Unlike most Bekaa farmers, who lost tens of thousands dollars last summer due to the Syrian border closure, Kazoun escaped financial disaster, as he grows his potatoes exclusively for a French firm. Still, he hopes for a return of sugar beet subsidies.

Kazoun admits the main reason for reintroducing state subsidies on sugar beet was not, as many people claim, to offer an alternative to illicit crops, even though the production of hashish, to a limited extent, had entered the mid-Bekaa by the end of the war.

“In the early 1990s,” he said, “the state of Lebanese agriculture was in very bad shape for a number of reasons. We had just come out of the war and our farming methods were outdated. The world market was way ahead. What’s more, due to the fixed exchange rate between dollar and Lebanese pound, our crops were, and still are, too expensive to export. So, Lebanese farmers were in need of support.”

So, sugar beet was reintroduced because it is a labor intensive crop, which does not face direct competition from neighboring countries. However in reality sugar beet must deal with intense competition from the world market (see Box II).

The crop’s seasonal cycle involves preparing the land and planting in March. In early summer, the fields need weeding and by the end of August it’s time to harvest. For weeding and harvesting, seasonal Syrian workers, mainly women, are hired for some LL10,000 a day. Other costs include water – beet is a thirsty crop – and pesticides. “By 2000, it cost me some $300 to $350 per dunum to grow sugar beet, almost $200 of which was to rent the land,” said Kazoun. As one hectare produces some 5,000 to 7,000 tons of sugar beet, this was still a profitable venture. “As the subsidy depended on the total weight of sugar beet and the amount of sugar per beet, the government paid after the harvest,. So, we got paid LL120,000 ($80) per ton with a 15% sugar content. For every percentage more or less, the price would increase or decrease with LL 8,000 to LL 13,000, depending on the year.”

Although the government only paid at the end of the year, every spring the Sugar Beet Cooperation would give the farmer a certificate stating how much sugar beet he or she had planted. As the certificate guaranteed a more or less fixed income, a farmer could walk into any bank or shop to get a loan or buy a car on credit.

For many years, it was these certificates and the end-of-year-cash-handouts that made the Bekaa tick. “In the first few years we would not reach a sugar content of more than 13%,” said Kazoun. “In the beginning everyone tried to produce the biggest possible beet. Of course, they only got bigger because they were full of water. What we didn’t realize was that smaller beet, with less water, actually contained more sugar. It was only by 1996 and 1997 that we reached 15%. Last year, 10% of my beet had a sugar content of 19%.”

Corruption and bad practice

With practice, farmers got better, yet it was not long before the sector faced allegations of malpractice. It was alleged that laboratory workers were persuaded to fix sugar content results and that the weight of a truck load of sugar beet could be upped with a little cash incentive.

“It’s a myth,” said Kazoun. “Look, a farmer, and especially an Arab one, does not like to admit it was his fault when his beets have a sugar content of only 13%, so he’ll blame the lab and factory. Now, of course at times there were favors given here and there, like anywhere else in the country, but nothing out of order. Don’t forget there were employees of the Ministry of Economy present every day to check data regarding weight, quantity and sugar content.”

One of the most important problems farmers faced was the fact that the factory had a limited capacity of some 1,600 tons of beets a day in 1992 (although it was increased to 2500 tons by 2000). Farmers could only bring a limited quantity of sugar beet every day, a situation that takes on critical importance when fresh beets begin to lose both weight and sugar as soon as they are harvested (sugar ferments when exposed to the sun). Time was money for the farmers and in the rush to get to the factory many heated scenes ensued.

Kazoun believes that the whole system should be better organized with modern storage and cooling facilities. He also feels that proper irrigation should be introduced. Today, water is still mainly pumped from wells. This is costly as it uses fuel oil and badly affects ground water levels. In 2000, when over 7,000 hectares were planted with sugar beet, the pumping even led to water shortages.

“If subsidy system is better organized, I’m convinced that the government can pay 30% less in subsidies, while the farmers make the same,” says Kazoun. “The problem is, that the government only looks at price and profit. Last year, it claimed that selling sugar beet for animal fodder was better than selling it to the factory to produce sugar. What they didn’t say, is that as a consequence the price for hay decreased.”

According to Kazoun, another misconception surrounds wheat, which the government also wants to stop subsidizing. This may sense from an economic point of view, as it is cheaper to import, but the farmer will point to the fact that wheat is a winter crop and so, unlike a summer crop such as sugar beet, cannot easily be replaced by another. “If the land is not used in winter,” said Kazoun, “it will affect soil fertility, which will lead to an increase in the use of pesticides the next summer.”

Mohamed Mais, Director of the Sugar Beet Cooperation, could not agree more. “Price cannot be the only factor in determining what to grow,” he said. “There are socio-political factors involved as well. American farmers cannot grow cotton without state support. Europe cannot grow anything without aid. The same is true for the Bekaa. If price is the only factor to take into consideration, what are you going to do with all the farmers? How can they live?”

Last summer was particularly bad after the Syrian border blockade. “Summer is traditionally top season for farmers,” said Mais. “In July and August, they produce among other things some 2000 tons of potatoes a day, some 100 to 200 tons of onions, and some 500 tons of other vegetables. As Syria closed its borders, most of that just rotted away.”

Both Kazoun and Mais believe that if the subsidies were to disappear, there would be no alternative for farmers than to return to growing hashish. And, if price and profit are the only factors to take into consideration, why not? Hashish is easier to grow, does not need water, and is much more lucrative.
 

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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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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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Finance

Building up the financial markets

by Executive Staff
written by Executive Staff

Jean Riachi

Chairman, Financial
Funds Advisers



E How could UN sanctions on Syria affect Lebanon’s finance sector? What can we expect from Syria in the long term, after possible regime change or crisis resolution?

I don’t think UN sanctions on Syria would affect Lebanon’s finance sector. I don’t see how they could affect it. They might affect the transportation sector, the industrial sector but I don’t see what effect they could have on financial markets or banks in Lebanon, other than maybe the freezing of some Syrian accounts in Lebanon, which cannot be negative. So, I don’t think sanctions would have a significant effect on this country’s finance sector. On the contrary, if there are any sanctions which affect Syrian institutions, that might affect the level of activity of Syrian nationals through Lebanon. They’re mainly commercial banking issues.

So far, although the assassination of former prime minister [Rafik Hariri] has created some fears, it has also created some optimism. Capital markets, fixed income and equity, have shown positive trends this year. Fear has been balanced by hope. The trigger was economic rather than political, which means that for the equity market the performances of the companies themselves justified the upward trend of stock prices and for the fixed income Eurobond market I believe that the better tenure of the budget deficit and the liquidity that we have had in the country have sustained the bond market. So I don’t believe they went up because of the assassination of Hariri or its results, such as the withdrawal of the Syrians, as people say. I think the reasons were here.

As for a financial sector in Syria, you have state commercial banks administrated by the state under a socialist system. The few private banks that have opened are too young to have any significant impact on the economy so you can’t even talk about a financial sector in Syria.

There are two scenarios. Either they comply with international requests and everything is okay with them and I think that then they will initiate a lot of reforms, or they maintain a situation of confrontation, which makes them into a sort of fortress, and they find ways of getting around the sanctions. They’ll find ways to finance their economy through neighboring countries. But that would have a retarding effect on any efforts to reform the banking sector. They would go backwards. I can’t imagine anyone willing to promote reforms in a state of siege.

Marwan Abou Khalil


 Head trader, Gulf Finance


E How will the opening of regional exchanges in Dubai and Cairo affect the performance of the Beirut Stock Exchange (BSE)? Can we expect the BSE to respond positively to the regional competition, especially in light of the expected privatization initiatives, or has it missed the boat?

The BSE is a different case from Dubai or Cairo. We need political and economic stability first. Dubai and Egypt have them. When we have them here, we can have expansion. We hope, nonetheless, that the opening of the exchanges in Dubai and Cairo will have a positive effect on the BSE. However, I expect some capital to go from here to there. We have seen a Lebanese company go public and it wasn’t traded on the BSE. It was traded on the Dubai stock exchange. That was a negative thing for Lebanon. In the short-term, the opening of these two exchanges may have this kind of negative effect on the BSE. But in the long run I hope it will help the Lebanese markets. Maybe in the short run Lebanese companies will be listed on the exchanges in Cairo and Dubai. But maybe as hope returns to this country, new foreign funds will be invested here, through these exchanges. In the long run, maybe we will become like them. We hope so.

We are afraid that the BSE will miss the chance to reap the benefits from any privatization. But if there is a good political climate and renewed faith in our country we will be able to attract foreign capital investment in the privatization process. But we hope that the privatization process is reflected on the BSE, and not on foreign ones. Privatization of big companies here would result in market capitalization and in a greater volume on the BSE. For the moment, we have Solidere and two or three other big companies. That’s all. The other companies are small companies. They never give dividends. They don’t care about the stockholders. The privatization of government companies here will help the BSE, provided it occurs with the right timing. I don’t think the timing is right now. The BSE is not moving. Since March we have had about the same price for Solidere shares, between $12 and $13. We’re waiting for a boom. It’s a fundamentally excellent company. But we need political stability. That’s why I think we should wait for the right timing for privatization, when we have foreign investment. It’s pointless privatizing a company, if when it is launched, no one wants it. The amounts generated will be small. It will bring a low volume to the BSE and it will become a black mark on the record of the BSE.

Faysal Barbir

Investment adviser,
Arab Finance Corp



E What will the impact of privatization and administrative reform within the public sector be on Lebanon’s financial markets?

We are on the verge of some very important structural reforms. Privatization is something that Lebanon needs in order to go forwards. Financial markets, in particular, need such reform. We’ve been seeing lots of demand from regional and even local investors, as well as from European and American financial investors, whether they were high net worth individuals, companies, investment banks, or huge brokers who now regard Lebanon as a very interesting emerging market and are now willing to diversify into our country given that we have a more stable political scene now. In terms of the Lebanese markets, we need privatization in order to increase our tools of investment and the opportunities that we can present to those investors who are willing to take this risk and invest here. If you look at our equities market, it’s really very small and limited, even though Lebanon benefits from a pioneer banking sector and the best banking and finance people in the whole region. It’s really contradictory that we have such a small equities market. I believe that now with all the money that’s present in the neighboring countries, in the Gulf region, mainly due to high oil prices, the whole region has boomed so much that people really are interested in moving money here. But it will come here if there are the opportunities and tools I mentioned. If we privatized some of the public companies, we would have these tools. We need more listings.

We also really need administrative reform, because there’s lots of corruption. We need a more efficient system and a more effective team. For the moment, everyone is working individually. This way of thinking needs to be gotten rid of. The problem is that the system is too politicized. You can’t really create something if you’re putting the wrong people in the wrong places. Unfortunately the whole country is like that. But I think we’ll get there.

We already have the willingness. And there have been sneak previews of possible success with demand for sovereign or corporate Eurobond listings, and hopefully by the summer MEA will be listed. Another is EDL, and another the telecoms industry. So we’re getting there. We are on the right track. The only problem is the short-term political pressure.

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Insurance

The hopes of insurers go up in smoke

by Thomas Schellen
written by Thomas Schellen

Insurance industry representatives in Lebanon recently acknowledged that they expect 2005 to end pretty much as a lost year for business, in line with the “no-growth” environment for GDP and overall economic performance. However, the detailed impacts on sector profits this year cannot be tallied for several more months – with the additional caveat that credible assessments of cumulative performance by all the 50 registered insurance and reinsurance companies still remain elusive in a sector which continues to keep even experts guessing on the real positioning of many companies.

On the national level, the November 2005 research figures released by international reinsurance firm, Swiss Re, assess Lebanon’s premium production at $577 million in 2004, comprised of $180 million in life and $397 million in non-life insurance. With an average of 15.5% annual growth from 1999 to 2004, the 9.3% inflation-adjusted increase between 2003 and 2004, represented a decent result for the year 2004, and expectations for 2005 had initially been for good continued development.

Sclerotic growth

Rates of insured-ness have undoubtedly progressed over the half-decade since antiquated Lebanese insurance laws of the mid-20th century were revised in 1999. But as the practices of local insurers stand, public disclosures of financial results are not a given and the numbers that are available are often inconclusive as to the industry’s health, profitability and growth.

The large estimate range on Lebanon’s macroeconomic parameters – beginning with population size and GDP – does not help much either, as demonstrated by the variance between the Swiss Re assessment of Lebanon’s insurance density and penetration and that of other authoritative sources. Swiss Re gave figures of a per capita expenditure on insurance of $163.8 (density) and a 2.82% share in GDP (penetration) for last year, while the 2005 DAIR handbook by i.e. Muhanna ratings services, quoted a lower density of $144.25 but a higher penetration of 3.04% – not insignificant variations of 13% in one and 8% in the other direction.

However, such variations in evaluating insurance results are actually common for many developing countries and more than exposing information gaps on a market like Lebanon, they may say something about the need to improve research methodologies and form global institutions for this financial sector, which shows less worldwide independent monitoring than banking. But by the undisputed baseline understanding that Lebanon has about a 0.02% share in global insurance premiums, it clearly remains weak in many insurance areas, although according to Swiss Re’s numbers, Lebanon’s life insurance market improved significantly more than the non-life sector in 2004, increasing by 27.4% versus 2.6% for general insurance. But if measured by expectations voiced by important insurance minds four years ago, life insurance growth is still a disappointment. Where managers had hopes of achieving a premium portfolio of $1 billion in the second half of the decade, the real growth of the past three years falls significantly short of this.

Insurers that are owned by banks or affiliated with international sector firms are often viewed as the companies best positioned to survive in the Lebanese market, yet not all perform equally. In 2004, some bank-affiliated firms were presenting outstanding results in comparison to their peers while some players in the same segment saw their claims’ ratios grow much more than their premiums.

In this context, it is worth noting that the banking industry’s performance split is by and large top-down. Large banks essentially set the pace for the industry for both quality and compliance with international standards, while a handful of the smaller banks may be withering on both counts. But although the concentration of market shares at the top of the insurance sector is similar to that in banking (a few banks and insurers account for over 80% of activities in the respective realms), experts frequently caution that mere size of a Lebanese insurance firm does not provide a high certainty of across-the-board quality.

Neither premium volume nor data currently available on capitalization, reserves and total assets offer enough information to determine the sector’s leaders and losers as long as asset quality or loss ratios can be obfuscated in resistance to public scrutiny.

An unsettling reality in this regard is that the Lebanese insurance sector is still as far away from effective consolidation as it was five years ago and that transparency is largely amiss. Questions over advancing regulations and the monitoring of firms loom as large as ever and there is much room for improvement in promoting insurance awareness and governance quality gains within private and public protection providers.

Much-needed initiatives for the advancement of insurance did not progress in the political arena in 2005. The issues of pension planning and reforming the national social security network received no legislative attention, nor did tax benefits for life insurance or the 2004 draft for a new insurance law.

No sign of leadership

The latter issue is not of little concern – and it is also an indicator that the insurance industry itself is not just a victim of political foot dragging. The new law, said its advocates in the spring of 2004, would make Lebanon a role model for insurance legislation in the region, and allow the country’s insurers to reap the benefits.

The private sector insurance stakeholders, who have tried for years to repair the sector’s image, thus are still some distance away from projecting a cohesive front. This inertia could have consequences for the perception of Lebanon as a regional insurance power, based on the fact that insurance reforms and regulatory improvements in other markets appear to be taking effect.

The sector’s outlook is not without question either. By the track record of industrial and consumer behavior in Lebanon over the past five to ten years, corporate and retail customers have been inclined to treat insurance as expenditure during hard economic times. This dampens expectations that the industry will achieve strong improvement until the general economy shows some real gains.

The friendliest short-term prospect for local insurers could be profitability from their secure underwriting business. This is in the context of increases in global reinsurance rates. Although a cost factor for insurance companies, the last major incline in reinsurance rates at the end of 2001, allowed local companies to even out rate structure imbalances by hiking rates up under reference to the hardening of the international insurance market. This, say local analysts, has resulted in stronger underwriting profits in the past four years than companies were able to realize before 2001.

While the 2001 to 2002 reinsurance rate hikes were triggered by 9/11, the possibility of newly softening rates this year was voided by the natural catastrophes of the past 12 months. For the Lebanese market, analysts said that while it is too early to tell if local providers would notch up their rates once again by pointing to international conditions, the hard global market would be helpful in maintaining profitable underwriting rates.

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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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