Business

Pipe Dream

by Thomas Schellen
written by Thomas Schellen

In the Lebanese economy, trade houses and regional distribution ventures have long resided at the nexus of business success. And while at first it may look unassuming, the import and distribution of plumbing supplies, sanitary wares, heating equipment and tools is a fascinating part of this crucial but underreported economic activity. Georges Khoury & Co is one of the leading players in this particular industry.

Based in Beirut, the enterprise, which employs around 100 staff, supplies locally manufactured as well as imported tiles, pipes, bathroom fixtures and related materials to commercial and individual customers. Founded in 1937, the company’s operation in Lebanon looks back on almost 70 years of action in its sector. For the past three years, the firm has also been running branch operations in Syria and Iraq.

Business in this subsector of the building industry currently is, “slow in distribution and good in projects, and this is symptomatic,” business development manager George Khoury told EXECUTIVE. This situation is symptomatic for the country’s economic mood, he elaborated, in that individual clients of the middle to lower middle income groups hesitate to invest in building new homes or undertaking major renovations whereas larger investors, such as hotel and up-market property developers, show more optimism about Lebanon’s potential.

With warehousing space of some 20,000 square meters between all its locations, Georges Khoury & Co manages an inventory of some 10,000 stock keeping units (SKUs) ranging from items of less than a dollar to luxurious shower cubicles running at $20,000 per unit.

According to Khoury, the company is large in its sector on the Lebanese enterprise scale and a medium to large player in the highly segmented regional building supplies sector. Due to company policy, however, he would not disclose turnover figures or the amounts which the company invested into building its operations in Iraq and Syria.

Politics don’t much impact the business of Georges Khoury & Co but the fortunes of the local economy are likely to reflect directly upon the performance of the company, which achieved good business with major project developments and can show a contract to supply the Four Seasons Hotel on the Beirut waterfront as a recent example.

Being able to win such contracts has a lot to do with having a track record of experience and knowing contractors, consultants and developers in Lebanon and beyond. Having this track record gives Khoury confidence that the firm will be able to tap into the lucrative market for large real estate developments and outright mega-projects that are emerging in Syria.

Gulf boom

Khoury said that working in the reconstruction of Lebanon primed the company to be a strong contender for projects in the Levant that range from hundreds of residential units to entire communities designed from scratch, mostly by Gulf–based developers and financiers. What gives Georges Khoury & Co and other Lebanese firms an additional edge in this new market is the fact that the building materials suppliers and contracting firms in the GCC countries are already highly stretched in handling the construction boom in their home markets, he added.

Besides strong industry contacts, the manager referred to technical knowledge and consistent development of human resources as key factors for success in the sanitary wares and plumbing supplies business, as much as for any modern business today. While they may not always look the part, the humble drain and the average faucet are more than just off-the-shelf components. Selection of appropriate systems even in the budget end of the market influences the long-term performance of a building project, whether individual home or apartment complex, and produces substantial consequences for long-term operating costs and replacement needs.

Regional expansion

On the top end of the market, technical expertise is also a crucial factor in representing manufacturers who measure their products by performance improvements of shower thermostats that respond to water pressure changes three-tenths-of-a-second faster than rival products, and seek to distinguish bathroom technology with names such as “dreamspray” and “silkmove”. The space at the top of the global faucet and bathroom systems manufacture is a hotly contested realm where players seek to woo the competition with innovations such as household water recycling systems that allow for discarded water from your kitchen sink to be re-used in flushing the toilet.

Georges Khoury & Co carries products of around 25 manufacturers, among them three Lebanese brand producers, Lecico, Uniceramic, and Future Pipes. For other suppliers, the company relies on manufacturers from all price ranges and many countries. China, for instance, is not the only good source for low-cost products, Khoury said, pointing to Turkey and Egypt as very competitive regional producers and referring to the latter country comparable to China in terms of labor cost as well as productivity.

Representing such a wide range of suppliers, means that a distributor plays different roles for different corporate partners. High-end manufacturers in Europe run strong marketing and presales departments on their home turf but in a market like the Eastern Mediterranean, the distributor acts as more than a wholesaler, Khoury said, and is a partner in promotion and brand building of the products he carries.

The same may not apply in relations with local manufacturers, which make their own investments into acquiring market share and may view distributors merely as one in a number of equal channels to market. This creates interesting questions on the role of intermediary companies and the value they add in representing international vis-à-vis local brands.

Sitting in a first floor office in the Beirut suburb of Sid al Bouchrieh, George Khoury is a third generation family member in the management of Georges Khoury & Co. He just returned from scouting market and industry developments at a sector trade show in Egypt. His desk is lined with neat miniatures of Dutch houses in a testimony to his admiration for this European country.

Role models

His admiration for the Dutch relates in part to the similarities between Lebanon and the Netherlands, he said, as far as the widespread abilities of both peoples to converse in several languages and their success in trade.

Among business role models, Khoury expressed high esteem for the management of Kuwait’s PWC Logistics company, which transformed itself within a few years from a local to a global enterprise and logistics provider to such picky clients as the Pentagon.

While the business development plans for Georges Khoury & Co are not quite as high-flying, the company appears to be working on reinventing itself, although Khoury would not reveal details. But he is adamant in describing the strengths he sees in the Lebanese, praising the country as a series of micro-economies. “I call the Lebanese market dynamic. It is constantly changing,” he said.

Georges Khoury & Co. still derives the bulk of its turnover from the local market but Khoury anticipates many changes for the sector at large and for the company. “The future is outside [of the country],” he said, but “Lebanon is our strong base for the region, it provides us with our strength, the people that work for the company.”

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Business

Black gold black ops

by Michael Young
written by Michael Young

Why is it that in Hollywood movies, the Middle East is always best understood by characters that are jaded? Watching George Clooney in Stephen Gaghan’s film Syriana, that obligation is again respected. Clooney, who portrays a CIA agent and won an Oscar for his role, shuffles through the scenes comatose with cynicism, burdened by his past manipulations, buffeted, too, by the perfidy of the American government.

It’s fun, but Syriana, like its misleading title (Syria plays no role in the story), is a misleading film. It’s often an inaccurate, anachronistic compilation of tendentious postulations about oil politics in the Middle East, thrown out as complex truth to an unsuspecting audience.

In a nutshell, the main plot involves an American oil company trying to regain oil drilling rights in an unidentified Arab emirate that has just awarded those rights to a higher-bidding Chinese company. The person behind the China deal is the reformist son of the emir, who feels it only natural, given his country’s interests, to hand the contract to the higher bidder. The emir’s other son, however, a lightweight, is used by the American company to invalidate the Chinese contract in its own favor. His reward is to succeed his father. It’s not giving much away to say that the CIA helps ensure this succession, thus benefiting American oil.

Syriana is supposedly based on Robert Baer’s book See No Evil, an account of his days in the CIA. Baer was stationed in Beirut in the mid-1980s, and, since leaving the agency, has made a career as pundit on the Middle East and the intelligence community. In fact, Syriana has very little to do with See No Evil, and far more with Baer’s second book, Sleeping With the Devil, describing how the US, because of oil, has looked the other way on Saudi Arabia’s troubling relationships with militant Islamic groups.

Hypocritical

That theme has nourished a bevy of post-9/11 films and non-specialist books about the Middle East, most prominently Michael Moore’s documentary Fahrenheit 9/11. Most of these efforts are paper thin when it comes to understanding regional realities. But that’s hardly news: popular culture has always depicted the Arab world ineptly-not necessarily degradingly, but usually shallowly. To an extent that’s understandable, since few cultures display subtlety in portraying very different ones in their popular media. The thing is, Syriana is utterly frivolous in depicting something the director and producers should have known something about: the United States.

Like Moore, Gaghan falls back on an old theme in the film-making repertoire: the malevolence of large corporations manipulating vile governments. No beef there, but given that Hollywood is an invention of large corporations, the criticism is a trifle hypocritical. And as Peter Nolan and Sacha Kumaria have written about Syriana, the idea that multinationals control oil markets is laughable. “The reality is that the heart of the oil industry, the vast fields in the Persian Gulf, Russia and elsewhere, are already the private preserve of governments, who own 80 percent of the world’s oil reserves, shutting out foreigners and the private sector.”

No less laughable, they note, is expecting that the CIA will readily murder those obstructing the welfare of US oil. The relationship between big oil and government is undeniably cooperative at times, just look at the current Bush administration; but it’s not invariably so: during the Clinton years, the administration was not pleased that American oil was cutting deals with an Iraq under sanctions. But Gaghan’s point is different; his aim is less to be accurate than to offer a cautionary tale about American politics; and here, too, his intentional ambiguity is disturbing.

Myth

Baer’s memoirs cover the Clinton years, and Syriana seems to take place before 9/11. However, it is not Bill Clinton’s legacy that the film-makers are going after (Gaghan and Clooney are voluble Democrats). Rather, if the release date of a film says anything about its message, then it is the current Bush administration that Syriana is warning against. And while no one would deny Bush has been an aficionado of big oil, he has also been far more willing to address democracy issues in the Middle East, despite American oil politics, than Clinton ever was.

More than ever, the Middle East has become Rashomon-like in its capacity to serve as a vehicle for very personal interpretations of the US government, not necessarily substantiated by facts. That may be fine for American film-makers and actors, but it doesn’t help anyone learn more about the region, oil markets, or about US politics for that matter.

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Business

Growing brand

by Executive Staff
written by Executive Staff

In October 11, 1990, as the Lebanese civil war entered its final phase, Charles Ghostine received a phone call that would change his life. However, the Former National Liberal Party politician, who had anticipated returning to practicing law, did not expect much to come of the invitation to meet the Chateau Ksara board members.

In fact the meeting was seen as an inconvenience more than anything. “At the time, I lived in Beit Merri. I had to drive down to Beirut, park some distance away and then negotiate the various checkpoints on foot to get to Ksara’s offices on Avenue Charles Malek,” recalls Ghostine. “During the meeting, Albert Sara suggested I take over running the company. The last managing director was Jean-Pierre Sara, who had left the company 1987. Since then, Chateau Ksara had drifted.”

Ghostine knew nothing about wine, but had earned a reputation as a wartime leader and an organizer with a sharp mind. He had served for a period on the Executive Committee of the Lebanese Forces and in the early years of the war had been responsible for the defense and day-to-day running of Sodeco. These skills, and his reputation for hard work and honesty, were what the board wanted to exploit. “They recognized the need for crisis management,” says Ghostine. “Maybe in a normal situation I would not have been the man for the job but it was a crisis.”

Ghostine promised to think about it, but not longer after the war reached its bloody denouement and he thought that perhaps the offer had been superceded by national events. “I thought that was that and went back to practicing law. There was a lot of work at the time, disputes to be settled quickly out of court and so on.”

But call back they did, on January 17, 1991. By this time Ghostine was up to his ears in legal work, but admits it was difficult to say no. “I arrived at work on January 21 and immediately began looking at the files. I then went to Zahleh, a town I had not been able to visit for some time. I went to Ksara’s caves (underground cellars) and immediately felt something magical. Even though Syrian soldiers were still there, I was convinced there was something to be done with this company. I knew I could restructure it even though at the time I knew nothing about wine. By the time I reached Beirut I knew it could be done but it would take at least five years.”

According to Ghostine, everything that could go wrong with the company had gone wrong. There had been no investment since 1984 and very little since 1973. Before that, the previous owners, the Jesuits, had not really ploughed much money into what was an aging infrastructure. Ghostine also discovered that, although Ksara had a 12-year agreement with Jesuit brothers at the Tanail convent to provide 1,000 tons of grapes a year, this amount had had decreased to 200 tons and the winery was forced to buy grapes – at that time the traditional Cinsault, Grenache, Carignan and Ugni Blanc – from individual farmers in the village of Kefraya.

Today, 15 years after joining the company Ghostine pulls out his personal notes from his early days and reads out aloud. “1991: The winery is in bad shape. Staff moral is low, equipment is aging and there is a reliance on the local wine producers.”

One of the first things he had to do was sort out the grape situation. It would be a path that would lead to one of the most visionary moves in the history of modern Lebanese wine.

After the 1991 harvest, he went to meet the local farmers. “They all wanted to meet with me, as Ksara was, even then, the biggest producer and therefore it was up to us to set the price,” he explains. “It was a strange experience for me and a huge responsibility. I had to negotiate with 30 farmers after just six months in the business. I needed all my previous skills to hide my ignorance. In the end, I agreed to an increase in the cost of the kilo of grapes from 27 cents to 29 cents. They had wanted to double it but I think in the end they were satisfied.”

Noble grapes

Then came the biggest challenge, the bid to plant noble grapes – Cabernet Sauvignon, Syrah, Chardonnay Merlot and the like – essential to any step up in terms of overall product quality but which no one, not least the local farmers, believed would thrive in the Bekaa’s relatively untested terroir. There was a little Sauvignon Blanc and a bit of Cabernet Sauvignon, but nothing on a huge scale. In any case, the farmers made their calculations in terms of yield and these “new” grapes would take three years to mature and even then would give fewer grapes. “They all told me I was mad,” recalls Ghostine. “They told me that I was a lawyer and knew nothing about grapes. They said, don’t you think if we could plant these grapes we would have planted them years ago.”

Nonetheless, Ghostine was determined. The problem was he also had to find more land to plant. The company only owned 25 hectares in Ksara and he needed more autonomy. “I didn’t want to have to deal with the farmers every year to buy 1,500 tons. I wanted to control the quality of what we were producing.”

Ksara planted their first new vines in Mansoura. The farmers were reluctant to pull out their old grapes as they did not want land left fallow. They took some convincing, but Ghostine paid them double. In 1993, Ksara made a new agreement with the convent at Tanail to plant and buy Cabernet Sauvignon and Syrah, and, on land owned by the Schneller Institute in Kherbet Kanafar, the winery planted a further 40 hectares. “We told them we would finance everything during the lease period. We planted all the land in one year. I remember Elie Maamari (see page 56) was digging in the snow to finish in time. By the time we had finished we had planted Sauvignon Blanc, more Cabernet Sauvignon, Merlot, Chardonnay, Semillon, and Clairette.”

Still there was resistance to the idea of noble grapes. “There was no understanding of the concept. We had to work hard to instill the culture that started the concept of long-term agreements. Still in 1994, we were able to plant more grapes in Tallet Noub (45 hectares) and in the Itani property (40 hectares). The message eventually got through, Says Ghostine. “We were paying more for better quality grapes. Now they all do it.”

Rehabilitation

Ksara wanted to show the market that it was in control of its own grapes and its own vines so that no one could say that it didn’t have its own vineyards. “Today we control all our grapes and we are ISO Certified.”

Then came a revamping of Ksara’s range of wines. Ksara’s most visible wine had until that point been the Clos St Alphonse, but the new management felt it needed to lose its old fashioned image. However, as Ghostine points out, they couldn’t change image without changing the product. The winery had to wait three years until the new grapes were ready before it could change the labels and packaging. “We waited, even if it meant losing out to Chateau Kefraya.”

Ghostine insists that the support he had from the board was crucial to the company’s rehabilitation. “They believed in the brand’s potential although back then the extent of the dream was to be the market leader. We had no idea that we would be where we are today in terms of selling our wines in so many countries, although Mr. Chaoui had made it very clear from day one that one of my key missions would be to take the name of Ksara abroad. So from early on we looked at France, Germany, Finland, Sweden and Canada, where we were the first Lebanese wine to be sold, as well as the US, Syria, Egypt and Jordan.”

But what of the staff, whose morale had been eroded by a lack of leadership and focus. Ghostine had to rally the troops. “I gathered the staff and I told them we are here for what is inside this bottle before all else. I told them I wanted the wine to be delicious and we would exert all our efforts to make good wine. I told them I didn’t care about packaging. If the wine was good, the label was not important.”

But Ghostine also admits he had to find out how to reach this high standard. He looked at the existing equipment. “I asked if we had stainless steel vats and if not, why not and why were we still fermenting in cement?” He went to the wine fairs and sourced the equipment needed by a modern winery but he needed the money. Once again the board made the funds available. “Whatever I asked for I got. Since the first year we started investing intensively heavy. Close to $1 million a year. Today we have no debts.”

Same brand new image

Marketing was also key to rebuilding the winery’s image. Ksara’s television ad for Ksarak is widely held up as one of the best Lebanese clips in modern times. Filmed in the Bekaa it captures all that is good about rural Lebanon and, with its young-couple-in-love motif, breathed new life into the brand and the company. “The ad had an impact,” explains Ghostine. “It positioned the company as a Lebanese brand, a young product that hinted at a better past.”

In 1991, the company released what new wines it could, starting with the hugely popular Gris de Gris. The wine made an immediate impact abroad. “I went to a contest in Holland with the Gris de Gris, our arak, an excellent Reserve du Couvent and a Sunset rose and came back with five gold awards,” beams Ghostine. “We came back with a video and when we aired it on TV, we were accused of staging it. He grins. “Can you imagine?”

New wine maker

In 1993, the Syrians vacated the premises and it was also time to hire a new winemaker. Noel Rabaud, the French winemaker who was first hired in 1975, was still on the payroll. He visited Ksara five times a year to oversee the viticultural and vinicultural processes. But he was also working as a consultant in France for nearly 70 wineries. Ghostine knew that if Ksara were to forge ahead with its new program it needed someone full-time. In 1994, he hired James Palge, who is still with the company to this day.

“Palge was nearly disowned by his parents, who were worried about him going to work in a war zone,” recalls Ghostine, who had received than a dozen CVs for the job including interest from a Monsieur Bouat, a former Ksara winemaker who had worked for the Jesuits. “We nearly hired him but in the end we wanted a younger man. He was very disappointed.”

In June 1994, Ksara unveiled the Cuvee de Printemps, while the Gris de Gris was by now consistently selling out. Ksara then began to produce new labels and revise its pricing strategy. By the end of the year, the three year plan was complete. Ksara had planted new grapes, hired a new wine maker, developed the range, landscaped the winery, and bought new equipment.

Today, Chateau Ksara’s reputation as Lebanon’s biggest and oldest winery is secure. In producing 2 million bottles the winery harvests nearly 2,000 tons of grapes from its 300 hectares, an average of nearly 7 tons of grapes per hectare. “Some wine countries will obtain yields of as much as 14 tons per hectare,” says Ghostine. “We will not do this.” And even the farmers have stopped complaining.

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Business

Story of survival

by Executive Staff
written by Executive Staff

Château Ksara began life in 1857, when Jesuit brothers inherited and began farming a 25 hectare plot of land situated between Tanail and Zahleh. The brothers recognized the potential of Ksara’s terroir and convinced their superiors that it should be used to grow grapes for viniculture. They had no formal training in either viniculture or viticulture, but they were solidly educated in agriculture and the sciences and in those days that was enough. Applying what they knew, they produced Lebanon’s first “dry” red wine and in doing so, laid the foundations of Lebanon’s modern wine industry.

At the end of World War I, France was mandated to govern Lebanon and before long, its military and administrative machine moved in, bringing with it thousands of French soldiers and civil servants, for whom wine was an integral part of their diet. Ksara was in a position to supply Lebanon’s new landlords.

Pre-war years

By now, the winery had become a commercial concern. The monks had expanded their range of grapes and planted Carignan, Muscat and Ugni Blanc. The period was one of unprecedented growth for Lebanon’s little band of newly-established wine makers that included Château Musar, Vin Nakad and Domaine Des Tourelles.

By the time the French left, Lebanon had embraced the French experience with a passion that can still be felt today. Wine may still have lagged behind Arak, but its embodiment of all that that was France was enough to sustain demand. During the next 30 years, Ksara maintained its position as Lebanon’s most popular wine and as Lebanon grew into a cosmopolitan and convivial hub, where western tastes were adopted.

In 1972, the Vatican encouraged its monasteries and missions around the world to sell off any commercial activities. By then, Ksara was a profitable entity, producing over 1 million bottles annually and representing 85% of Lebanese production. When then order to sell came through, the winery was optioned to a local businessman, Jean-Pierre Sara, who, one year later, assembled a consortium of 15 investors, all of whom were convinced that the winery represented a sound investment. On August 15, 1973 the winery was sold for LL 10 million, (then $3.2 million).

Until that point Ksara had been making eight wines and liqueurs – the Vieux Millenisme, Clos St Alphonse, Ksara Rose, a Blanc de Blanc, a Vin Mousseaux (a sparkling wine), Karine and Kina and Vin D’Or. The new owners introduced the Sunset and the Reserve du Couvent. The Château wine was not introduced until the 90s.

Even though war broke out in 1975, the forward thinking Jean-Pierre Sara appointed a full time oenologist, Noel Rabaud, a Frenchman, who moved to the Bekaa with his family. Rabaud lasted a year before having to flee in 1976, when it became apparent that foreigners were at risk of being kidnapped. He would however come back three to four times a year to help with the harvest and offer technical assistance till 1993.

Growth and recovery

During the war, not one harvest was missed, even in 1982, the year of the Israeli invasion. Still, the conflict was a moveable feast, flaring up at random across the country at sporadic intervals. Not knowing where the next round of fighting would occur, meant that Ksara, like many of the other wineries, was forced to rethink its entire distribution strategy. Understandably, exporting was also difficult, but the company was able to send between 15-20% of its production abroad, mainly to France.

But the longer the war dragged on, the more the company began to feel the strain. The years 1987 to 1991 were a bleak period. When the guns fell silent, Ksara had fallen behind Château Kefraya in terms of market share and morale was at an all time low.

At the end of 1990, the board decided to appoint Charles Ghostine a lawyer and former National Liberal Party politician with formidable organizational skills. It was to prove to be an inspired move. Ghostine, with the backing of an aggressive board of directors, set about one of the most remarkable corporate turnarounds in recent times.

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Business

Putting Ksara on the map

by Executive Staff
written by Executive Staff

In the March issue of EXECUTIVE, we reported that, Lebanese wine producers exported around 2.2 million bottles of wine in 2005, a year-on-year increase of 13%.

Over the same period imports of foreign wines dropped from 977 tons in 2004 to 874 tons in 2005, a drop of 11%. The UK is once again the biggest importer of Lebanese wines, followed by France, the US and Syria. Château Ksara, Lebanon’s oldest and biggest wine producer took the lion’s share of Lebanese wine exports in 2005 with an impressive 40.5% market share of all Lebanese wines sold abroad and in doing so recorded a 16% year-on-year increase of its foreign sales. “Basically we sold 1 million bottles abroad,” said managing director Charles Ghostine, who cited Syria and the UK as the main growth markets with year-on-year growth 50% and 30% respectively. The winery’s mid priced red, Reserve de Couvent, again proved to be the motor behind the export surge making up 38% of all Ksara’s international sales.

And it is all down to one man.

Dreams

Export manager Elie Maamari is enjoying a rare moment in his Beirut office. On the wall is his winemaking degree from the University of Toulouse and his Chevalier D’Ordre du Merite Agricole from the French government for services rendered. Across from his desk is a map of the world on which Maamari has placed pins in every country where Château Ksara has a presence. “My dream is too fill as much of that map as I can. We are in 23 countries, but we should be looking to China, Taiwan and Hong Kong. Did you know that in China they planted 50,000 hectares in one year? This is out of this world!” When you stop to consider that Lebanon has at most 1,700 hectares under wine vine, it is easy to see why Maamari is in awe.

It is mid-January and he has just returned from the two-day Decanter Fine Wines show in London. “Most of the people who come to the stand they have only heard of [Château] Musar,” says the man who began his career at Ksara in the accounting department in Beirut in 1978. “They come looking for something else and they are pleasantly surprised. I tell them it’s a different process of vinification, fermentation; it’s a different wine altogether. I tell them if they are looking for Musar, they won’t find it here.” He pauses. “Don’t get me wrong, Musar is a unique wine. You won’t find a wine like it anywhere in the world.”

Maamari enjoys seeing the reaction on people’s faces when they first taste Ksara. He is supremely confident in his wines that he knows it is just a matter of spreading the word. “Mostly they were pleasantly surprised by the quality to price ratio of the Reserve du Couvent, but they were also impressed with the Château Ksara 2001 and 2002, the Cuvée Troisième Millénaire and the Chardonnay. They come to taste one or two wines and end up staying for the whole range.” He laughs. “When people stay, it’s a good sign."

In the UK, Château Ksara has proved that, like Massaya and more recently Château Kefraya, joining forces with an established distributor, in this case the House of Halgarten, is crucial to breaking into the $14 billion UK market, one that could finally establish Lebanon as the ultimate boutique producer.

And Maamari is bullish. “This year exports are beginning to show,” he beams. “Halgarten agreed to our marketing plan. I asked for 10% growth and they promised 25% and I am sure they will do it. Now we are in more than 90 English restaurants and wine bars. We are moving beyond the Lebanese restaurant sector. That said, we are present in every Lebanese restaurant in London, Oxford and Brighton. The important thing is that are they re-order and they are. We are really very optimistic.”

Restaurant trade

And he should be. Lebanese food has proved to be the best ambassador for Lebanese wine. It is the third most popular ethnic food in the UK, a position it has reached through offering vegetarian dishes in an age of healthy eating and national paranoia over the dangers of eating beef. Château Ksara is the house wine at Noura and Marroush, which has 17 restaurants in London. “Marroush takes 6,000 cases (72,000 bottles) from me each year. On each table he has a special wine list with the history of Ksara on one side and the history of Marroush on the other. All 11 of our wines are on it. Sure there is another, separate wine list, but who wants it when you have all the Ksara range.”

Maamari admits that it is slightly more difficult to break into the off-trade, although there are signs that a Lebanese wine might eventually make it onto the coveted supermarket shelves. “We are focusing on [leading UK supermarket chain] Waitrose. They like the Reserve, but it takes time, as much as two years, to get a decision. What we have on our side is that, unlike many new world countries, Lebanon does not have thousands of producers and we can offer value for money, if we can sell in the £5.99 ($10.50) range.”

Ksara’s announcement that it will increase production to 2.7 million bottles over the next four years will not have come soon enough for Maamari’s customers. “Demand is already exceeding supply and I am notifying my suppliers that I am already out of Chardonnay 2004, while this has been the case with the Reserve du Couvent for two months now.”

Currently Ksara’s fourth biggest market, Maamari believes the UK will eventually take the top slot, overtaking Syria, France and the US. “The French market is defined by the Lebanese on-trade,” he explains. “There are 122 restaurants in France and not more than 50 in the UK, but there are fewer opportunities in the off-trade. Of the other markets, Sweden is a loyal customer. “My agent orders like clockwork. He takes a container every 40 days.”

Sentimental attachment

Maamari was appointed sales manager after he spent three years in France studying wine making. He admits that he was reluctant to leave his beloved wine making (a job he had fallen into during the war when Ksara’s French wine maker was absent for long periods). “It was like changing careers, but there are choices to be made and decisions to be taken. However, one thing was certain: I was convinced by the quality of the wines and I knew we would make progress when European consumption increased. My first job was to hit the Lebanese restaurants and convince them to move away from selling cheap Bordeaux just because it came from Bordeaux.”

Spreading the gospel to those who can influence wine drinking is another challenge. Château Musar still looms large in the consciousness of many a wine critic. “It is not easy to convince the big names such as Tom Stevenson, Jancis Robinson and Oz Clarke that there are other wines than Musar, but we are getting there slowly. They have the power to sell wines. They are celebrities they have newspaper columns.”

Still the good news is that Lebanon’s strength lies in its relative rarity. Maamari admits that he had no idea how much wine the rest of the world produced until he went abroad. “It’s strength is its rarity. Halgarten finds it easier to sell Lebanese wine than Australian because there is so much competition. They consider us a jewel in their crown.”

Sitting in his office, Maamari can look back with pride on a remarkable journey in wine. “It has changed my life. And wine is a great communicator. When wine people are gathered you can sit down with someone and talk for hours about wine and then you realize you don’t even know his name. When I joined Château Ksara I could have been joining any company. Wine meant nothing to me. In fact I nearly joined Sohat. Now I am a trained oenologist and a member of the French oenologist committee and the French association of oenologists. I am also a permanent member of the OIV wine tasting board. Winemaking remains my first love. Whenever, I go to Ksara I feel sentimental. Remember, I worked there for 11 years.”

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Finance

We’ve said it before and we’ll say it again

by Nicolas Photiades
written by Nicolas Photiades

Back in September 2005, this magazine published an article about the possibility of holding a donors’ conference in Beirut in December 2005. In the same article, the magazine expressed serious doubts as to the conference taking place in the medium-term, let alone in 2005. The main reasons for these doubts were built on the fact that as long as there were paramilitary organizations in Lebanon, and as long as the various UN resolutions (particularly 1559) were not implemented, a donors conference would remain a vivid fantasy.

Indeed, it is becoming increasingly apparent that potential donors, led by the United States, are insisting that not a single penny will be disbursed to Lebanon as long as weapons are still held by organisations other than the Lebanese army, UN resolutions are not fully implemented, and economic reforms, particularly privatisation, are not put into practice.

Donors have been burnt before in Lebanon with both the Paris I and II conferences, where much had been promised by Lebanon. These promises were not delivered, mainly due to political squabbles between the late former Prime Minister Rafik Hariri and President Emile Lahoud. At Paris II, there was no insistence on the part of the donors (which included France and the European Union), and supranational entities (such as the IMF and the World Bank) for arms held by Hizbullah and Palestinian groups to be surrendered to the army.

Missed the boat

It is clear then that Lebanon, by failing to deliver on privatisation, has missed the boat and burnt its bridges with international donors. Conditions for lending or donating much needed funds are now tougher, and require serious political commitments from the current Lebanese government. The political situation is also less straightforward than what it was back in November 2002, with brinkmanship being the name of the game today among the various political and religious groups. While the Seniora government is hoping it can kick start privatisation as soon as possible, other groups are blocking the way by using their seats in Parliament. In other words, the Lebanese economy is tied in a Gordian knot, whose disentanglement will be key to future economic prosperity.

The Lebanese government now has to show significant good faith by announcing with convincing commitment the resumption of the privatisation program. It has to take the bull by the horns and start with its privatisation program even if there is no clear sign that a donors’ conference is going to be held. This time, the Lebanese government has to take the first step and deliver before getting any funding from international donors and lenders. The government will have to convince the various political protagonists that privatisation is an urgent necessity and that its resumption is the first sign that Lebanon is in the right step to sort out its political and economic mess.

What the various quarrelling factions will have to understand is that the country won’t be able to get much needed cheap funding without a minimum effort from their part, which is summed up in the resumption of privatisation. Surrendering arms and implementing UN resolutions are also key conditions, but they can be smoothed up over time if the government shows a strong will to privatise inefficient public institutions.

Talking about inefficiency, Lebanese public utilities and other companies are high on the world’s shame list of badly managed government organisations. Their transfer to competent private hands, who would come in the form of strategic institutional investors and a demanding retail investor base, would transform the Lebanese economy beyond any current politician’s wildest imagination.

It is unacceptable that a company such as EDL remains in the hands of Lebanese politicians. It is indeed, mind-boggling that a majority of the population is still going through electricity rationing for the greater part of the day while paying outrageous bills. Other public companies are equally inefficient and need to finally deliver decent service to a long-suffering population. Enough said. Privatisation is long overdue.

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Business

Democracy Dilemma

by Michael Young
written by Michael Young

As the United States has turned spreading Middle Eastern democracy into a top foreign policy priority, it has also seen the broad boulevard of simple ideas on the matter turn into a warren of blind alleys. While the complexity of the problem must not mean discontinuing efforts to push the region’s states and societies toward openness, those interested in such an endeavor have to be aware of the headaches involved.

The most obvious initial question is what kind of democracy should the Middle East be asked to endorse? If it’s traditional liberal democracy, where people are allowed to vote regularly in transparent and unmanipulated elections, where there is a transfer of authority from leaders and representatives to elected successors, where there is freedom of expression and association, and where markets and exchanges are free, then that would be grand. But how realistic is this?

Take the case of Arab minorities. If liberal democracy is interpreted as one person one vote, or majority rule, then minorities, religious or ethnic, will feel far more threatened than reassured by democracy. By the same token, while many Arabs probably favor a regular, democratic transfer of power to new leaders, they would not necessarily see this as part and parcel of a smaller role for the state, particularly in economic affairs. And in some countries democracy may lead to instability, perhaps through the arrival to power of hitherto marginalized groups, for example Islamists, so that secular voters may fear the consequences of free elections.

A second question is what happens when Arabs, including Arab liberals, consider liberal democracy merely as an extension of American power? The fact is that instead of using American support to buttress indigenous democratic efforts and then afterwards shaping the consequences to serve their own national interests, Arab democrats often, simply, get hung up on America. As Barry Rubin has written in a book on the Arab struggle for democracy, liberals have not only argued that American assistance undermines Arab democratic efforts, some have insisted “that indigenous Arab reform [is] the best way to avoid US domination and intervention.”

Foreign help needed

What this liberal attitude leaves unsaid is that American or broader Western intrusion is often indispensable to protect Arab liberals against autocratic leaders, but also against another enemy they must increasingly address these days: Islamists. It also fails to mention that the myriad problems of the Arab world are not primarily related to “US domination and intervention,” but entail essentially domestic issues such as abuse of power, economic underdevelopment, mediocre education levels, stifled civil space, and much more. In other words, setting reform up as a barrier against the United States is a very narrow, indeed downright dishonest, justification. However, it is also so widespread that any outside effort to advance open Arab societies can be quickly labeled “neo-colonialist.”

A third question – one with consequences for secular Arab liberals – is whether Arab societies are that keen to embrace the whole package of liberal democracy? Societies in the region are often deeply conservative, so that while they may reject the violence used by Islamists, they do not see his as a compelling reason to play down the pivotal role of Islam. Similarly, this conservatism is easily manipulated by nationalist regimes as a means of enhancing their own power while aborting outside calls for change, which are swiftly tagged as efforts to weaken Muslim values.

All these obstacles, to which one might add the inhibiting insistence that nothing can truly advance in the Middle East before the Palestinian problem is resolved, mean that democracy promotion is destined to be a bumpy ride for its advocates, especially the US. And the Bush administration’s belief that things will improve thanks to more aggressive public diplomacy is bound to be disappointed, since the image of the US is so deeply, often preposterously, stilted in its disfavor.

So what can be done? Very little. At best, outside powers, mainly the US, must continue insisting that democracy is of vital concern to them, but also accept that the region’s contradictions allow only for ad hoc progress, where democratic principles are robustly advanced wherever possible, to be used later as building blocks elsewhere. Sometimes force, or the threat of force, may have to be employed, as in Iraq. For democracy to truly spread is up to the peoples of the region to resolve their incongruities. They are the ones living under oppressive dictatorships. Obsessing about America is convenient, but will not improve their condition one bit.

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Economics & Policy

The shrinking factor

by Nicolas Photiades
written by Nicolas Photiades

For a long time, there was a widespread belief in Lebanon that the Lebanese sector was highly diversified given the large number of banks (at one stage, the sector had more than 80 institutions). The fact remains that this diversification of the banking system was nothing more than an old myth that had turned into an inefficient sector concentration by the mid 1990s. By this time, Lebanon did indeed have a large number of banks, all of which offered the same services and the same products, in varying degrees of quality. At the same time, a limited number of banks, through their better relationship skills and greater vision and understanding of the local and regional environment, succeeded in carving out a top twenty position for themselves, as Lebanon’s largest banks in terms of assets and deposits.

These 20 largest banks have slowly attracted the best quality customers in Lebanon, leaving to most banks below the top 20 the lesser quality customers and the more complicated dossiers. A significant number of unwanted depositors were also pushed out to the lower part of the Lebanese banks league table. While the larger banks have been busy capitalizing on their position, the smaller banks were mostly left cogitating about their future. Should they sell to or merge with a larger bank? Should they sell to a foreign investor who is interested in establishing a banking franchise in Lebanon? Should they update and modernize their infrastructure, invest in financial and human resources and start competing with the top twenty? Should they think hard about building a niche or specialization that would create value for their shareholders?

Strength in size

Most of the smaller banks have not stopped growing along with the larger ones since the end of the civil war, due to the significant government debt securities and Treasury bill market created by the government and the central bank. Smaller banks were needed to the same extent as the larger ones, as they too constituted a domestic investor base for government securities and made up the numbers in a increasingly liquid secondary market. However, the central bank today is keen that these small banks merge with their larger brothers, as they are believed not to have evolved sufficiently in parallel to the environment, and consequently not to have the capacity to compete in the long-term within an increasingly sophisticated global operating environment. It is clear that the forthcoming Basel II capital regulations, which are due to be implemented in Lebanon by 2008, and which focus on efficient risk management and corporate governance, are going to constitute a mammoth task for the smaller banks, which are still struggling to understand these regulations, let alone implement them.

The smaller banks are mostly family owned and, with a few exceptions, are unlikely to be able to attract strategic investors that would help these families develop expansion and build an efficient internal infrastructure. Their lack of corporate governance, managerial vision, risk management capabilities and insufficient capital, are all factors that will keep any strategic and sophisticated institutional investor away. Moreover, the constant absence of a clear cut, detailed and efficient operational and financial strategy is not only a reason for the lack of attractiveness, but also for their initial positioning below the top 20.

It is worth noting that not all the smaller banks (the 30 or so banks that constitute the smaller tier of the Lebanese banking sector) have the same reasons for being there in the first place. Some are foreign banks, which do not wish to expand their franchise in Lebanon further, as exceeding an optimum size would start affecting the risk profile of their group on a worldwide basis. Others are banks which are moving in the right direction and have sufficient financial means to buy their way up in the upper tier of the bank league table. However, the majority have been stuck in the lower divisions due to an initial lack of vision and preparation to meet a constantly evolving environment.

For those smaller banks with no financial means, the best advice would be to sell their franchise (at a realistic price) to a larger local competitor and hope to keep jobs and, for board members, seats on the board of the larger entity. For small banks that have been rising in the last decade and which have the means and financial resources to keep up the pace with the larger peers, advice would be to specialize and become a niche player. With Lebanon entering the WTO and the Basel II regulations due to be implemented soon, these banks have little choice anyway.

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Economics & Policy

Alan Greenspan: Genius or Liability?

by Faysal Badran
written by Faysal Badran

Alan Greenspan became something of a cult figure in the financial markets during his reign as Chairman of the Federal Reserve, both in the financial markets and in the media. As central banker of the largest economic powerhouse, his every move and utterance were scrutinized as markets boomed and reeled, often based on his speeches and long winded assessments. There was even a jargon attributed to him, “Greenspeak” which was a blend of seldom understood nuances and signals. Most bond traders, glued to their screens during his prose, would simply be baffled by the amount of cross currents in his statements. Financial media, obsessed with Fed action over monetary policy, went as far as trying to gauge his upcoming decisions, based solely on the perceived size of his briefcase, or the tempo of his walk into the Federal Reserve building. The man wielded great power, and maintained, despite his friendships across the political spectrum, an aura of independence from political wrangling and calm from the storm of the financial markets.

While Alan Greenspan will surely be associated with an era of great prosperity for the US, one where the housing boom seemed eternal and where shares blew out all other asset classes (at least until 2001), his main qualities were mostly in his character. He seemed to ooze confidence and serenity, and at many times, such as during the many wars, 9/11 and its aftermath, and the Y2K scare, his mere presence comforted market participants. His pragmatic approach to monetary policy, and his fondness for the most subtle signs of inflationary pressure made him a Wall Street icon. It is debatable, however, whether, in a few years time, he will be remembered so fondly. His personal traits will endure, but his financial legacy is one of excesses. He presided over a period of excess debt both on an individual and country level, and more importantly, over the final demise of the US Dollar as a safe store of value. Greenspan, despite orthodox policy views, allowed the liquidity orgy to go on, amplified by booming and unregulated lending and hedge funds, and this will not go down as an achievement when the chips eventually tumble.

Debt spree

While Greenspan was fixated in avoiding systemic risk, i.e. risk of a financial system breakdown, and often cushioned great potential disasters such as the Mexican, Asian and Internet collapses, he appears to have done little to push for healthier fiscal priorities for the US. During his era, the US went on a debt spree going from the largest creditor nation in the late 60s to the largest debtor nation, literally living off China and other emerging country reserves. Today, the US is completely dependent on foreign capital to sustain itself, and while this may not be his doing alone, his lax policy with regard to the currency and his soft approach to the twin deficit will come back to haunt his successor. The loose policies which Greenspan adopted, favoring calm on Wall Street over healthy and sound targeting is in part responsible for the heavy debt among of US households, and the excessively easy entry for weak companies into the capital markets. These two factors will be doubtless sources of strain on the US economy going forward in the future.

Poor communication

The degree of US economic supremacy over the last three decades has more to do with the global changes which occurred, and while Greenspan seems to be credited with a lot of the gains made by the US, some purists, such as previous Fed Chairman Paul Volcker cast a doubt over the sustainability of those gains, given that the US has become such an intensely service-oriented economy. It is often said that Greenspan will be better remembered by financial conglomerates than by say, auto giants where the US’s position has eroded.

In a previous piece in EXECUTIVE, we spoke of the relevance of Fed policy in general. We believe that the role of central banks and that of Greenspan and his ilk, had been reduced by the mushrooming size of the credit markets. During the Greenspan years, especially since the mid-1990s, the bond market became the spearhead in defining monetary policy, giving birth to the notion of Bond market vigilantes. In fact, Greenspan’s policy on interest rates seemed to follow the bond market’s perceptions, not the other way around. As an inflation fighter, Greenspan is credited with a long period of low inflation, and while even that is debatable, since incomes have been stagnant in the US on an inflation adjusted basis for nearly half a century, the main impetus behind the well-behaved Consumer Price Inflation was a by-product of many factors outside his area of remit. The inflow of cheap imports from abroad, as well as the absence of collective wage bargaining, was the main reason, not the Greenspan magic.

It can be argued that one of the main flaws of the Greenspan era was the poor communication from the Federal Reserve. Often cryptic and incomprehensible to most market watchers, the Fed statements became an exercise in semantics and seldom sent the real message which often added volatility to the markets. The last legacy of disaster left by Greenspan, one which is most likely to come to the forefront, is his lax approach to the advent of large rogue unregulated hedge funds, which allowed the over the counter derivatives market to reach unfathomable levels. In fact, this is where system risk is likely to emerge. If one looks at the numbers of large money center banks closely, they have become more like casinos, with outstanding derivative commitments frequently a multiple of the size of their core banking operations. Structural changes made Greenspan associated with long periods of economic expansions and relatively short recessions, but one feels that those were not his own doing, but rather trends stemming from globalization and the dynamism of US corporations.

Years of excess

The successor of Alan Greenspan, Ben Bernanke is certainly qualified from an academic perspective. He completed his graduate work at MIT and taught at Princeton since the early 1980s. He is however known for his laissez faire, often blase, attitude toward inflation and currency stability, a trait that could constitute a handicap in the markets. He is also famous for having mentioned, in private, that the US could “print its way out of recessions”. This reliance on money creation is not comforting, as it will have its impact on the perceived value of the dollar, but Bernanke will most likely face a straight jacket from the massive twin deficits and the slowing consumer spending, and most certainly will reap the headache from the years of excess nurtured by the Greenspan Fed.

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Real Estate

Lebanon Abiding

by Safa Jafari
written by Safa Jafari

Yet another Arab struggle

To date, the Arab world’s battle with its Millennium Development Goals (MDGs) has seen sharp regional and intra-country discrepancies, mainly brought about by inequality in wealth, service and resource distribution. There are also questions surrounding entrenched gender inequality, the questionable will of governments, no-target policies and weak governance. According to a September 2005 UN report, the Arab region contains urban – rural disparities and continues to suffer setbacks such as poor income performance and inadequate financing, not to mention the ongoing political tensions and conflicts.

The Arab region also had one of the lowest per capita GDP growth rates in the 1990s and early 2000s. This poor performance has been reflected in slow human development in comparison with the average for developing countries. It faces several obstacles to achieving the MDGs, including unemployment, the gender gap, illiteracy, war and conflict. In January, The Middle East Economic Survey, suggested that the way forward for the Arab region is through pro-poor development policies, strategies and legislation, stronger regional partnerships and integration, improved productivity and institutional capacity-building.

Achievements made

The scenario for Lebanon is less drastic. Lebanon is close to achieving many MDGs already. Extreme poverty is rare, literacy rates are high, as is life expectancy – around 70. Lebanon has also made huge progress in rebuilding its national economy after the civil war.

However, gaps remain. High regional disparities in wealth lead to an unequal accessibility to services, particularly education as well as maternal and child health. South Lebanon and North of Akkar, for example, are areas with an unequal share.

Moreover, the rather progressive image of the Lebanese woman we see today conceals within it significant gender inequality. The National Report about the Situation of Women in Lebanon demonstrates women’s limited participation in decision-making at different levels:

Members of Parliament: Three women out of 128 MPs

Ambassadors: Two out of 53 Ambassadors

Director General: Three out of 22 Directors Generals

Dean in the Lebanese University: One out of 13 Deans

Members of the Municipal Council: 139 out of 1022 members

Mayors: Two

The Teachers’ Union: One woman out of 12 board members

The Secondary Teachers’ Union: Two women out of 18 board members

The Engineers Union: No women on the union’s board

The Physicians Order: No women in the union’s board

The Pharmacists Order: One woman has been twice elected as President

The Dentists Order: One woman was once elected as its President

The Bar Association: Two women in the board

Judge in the State Consultative Council: Six out of 365 judges

Judge in the Judicial Court: 66 out of the 365 judges

The Lebanese Report on MDGs, issued in September 2003, and reports from the UNDP and other UN organizations, indicate that while high primary school enrollment rates were noted, they were mitigated by “concerns regarding the quality of education.” Only 65% of children in grade 4 and 66% of those in grade 8 possess “the basic set of skills accredited at the national level.” There is also a low correlation between the quality of education and the high teacher-student ratio estimated at 1:9, compared to the global ration of 1:15-20.

Lebanon witnessed a rise in the percentage of students completing primary education from 91.1% in 1997 to 95.3% in 2000 (the MDG is 100% enrollment in primary school by 2015) and an increase in government expenditure on education from 56% in 1993 to 65% in 1998 (although resource reallocation and rationalization of expenditures is still needed). Challenges still exist. There are still early drop out rates, particularly due to economic needs, illiteracy (5-6% rate among males 18-25 years of age), the need to extend compulsory primary education years, and the lack of accurate and reliable data and methodology.

Health services lacking

Health related MDGs are also riddled with challenges. Maternal health, child mortality and disease control are all affected by poor access. Furthermore, according to doctors, the health care system is fragmented with little or no referral schemes. Other concerns include mediocre medical facilities, low post partum care, restricted choices, insufficient medical insurance, and few community awareness campaigns, particularly in rural and low income areas.

A workshop organized by the Arab NGO Network for Development (ANND) will be held in early March 2006 in Beirut to examine the country’s performance on its MDGs and the role of civil society, as well as the role of Information, Communication and Technology (ICT) in this respect. While all sectors related to the eight MDGs (such as UNDP, UNICEF, WHO, UNESCO, ANND, Greenpeace, different ministries, and NGOs) must be involved, two issues stand out: awareness and indicators. Recent research shows that very few people around the world are aware of the international agenda to achieve the MDGs and this must surely also apply to Lebanon. How aware are the Lebanese people of the country’s commitment and efforts to meet the MDGs and what can our students, volunteers, NGOs, politicians, entrepreneurs and general public do to further promote such efforts in their daily activities? Awareness campaigns and space for grassroots participation must be created.

Lastly, unless data is updated and professional studies are carried out through advanced methodologies and techniques, Lebanon can neither properly assess the current situation nor monitor any progress. Even the National Millennium Development Goals Report for Lebanon declares in its introduction that “poor availability of statistics has seriously constrained monitoring and review.” Several blanks are in most if not all Lebanese surveys and tables. Policy makers will continue to fail to recognize the sectors and geographical areas and communities most in need of attention. Many reports cite 1990 as the latest date for indicators related to poverty and services such as water and electricity, suggesting that any post-war progress has not been recorded. The first major post-war sample survey was conducted in 1996 and so, the ‘baseline year’ against which progress is compared is 1996 in most cases!

Lack of indicators

The UN resident coordinator in Lebanon, Yves de San, and the President of the Council for Development and Reconstruction, Jamal Itani, have announced that the Ministry of Social Affairs and the Central Administration of Statistics, with support from the World Bank, UNDP, and UNFPA, have initiated the implementation of a Multi-Purpose Household Survey, while UNICEF will update the CHILD-INFO database on a regular basis. Until then, and in the current Lebanese scenario, political and other factors remain responsible for the lack of accurate indicators, particularly those showing discrepancies and inadequacy among regions and communities.

Before we can safely and clearly indicate where Lebanon stands in its progress towards meeting its MDGs by the year 2015, we must have the mechanisms needed to do so.

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