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Business

State of mind

by Michael Young September 1, 2005
written by Michael Young

As Lebanon picks itself up after months of enduring post-traumatic stress syndrome in the wake of Rafik Hariri’s murder, the Syrian withdrawal, and subsequent bombings and assassinations (a syndrome that will, in all probability, resume in the aftermath of the Mehlis report’s release), little has been said about revamping the country’s political-economic culture.

Yet few things seemed more useful when, in mid-August, Walid Jumblatt announced he would consider withdrawing his ministers from Fouad Siniora’s government when it came time to address privatization. There were several ways to interpret his shot across the Hariri yacht’s bow: Jumblatt was upping the ante to ensure he would profit from privatization; he was warning his Hariri camp allies that he was no potted plant on national policy; he sought to show that as a ‘socialist,’ he had little sympathy for the capitalism favored by the prime minister.

One might add that Jumblatt was also perhaps reinforcing his uneasy alliance with the Hizbullah-Amal coalition, whose political clients would likely be hardest hit by the large-scale privatization of public utilities. Politics aside, the dilemmas of privatization illustrate a more fundamental problem of the post-war state: do politicians want it to be large or small? And how does the answer fit in with the society’s traditional tendency to frame public affairs in terms of patron-client relationships? The answer seems obvious: because political life is shaped by patronage, politicians are more than happy to capitalize on whatever they can extract from the public teat. In other words, don’t expect Lebanon’s leaders to return to a perhaps imaginary time when the state was regarded as a necessary evil, tolerated by the communities, occasionally aggressive in its efforts to re-impose central authority, but always destined to slink back to irrelevance, even as the market filled the vacuum.

Underlying tensions

Certainly Lebanon is still devoted to the market, and the state is often perceived as much as a nuisance as it is considered a life raft by the prickly Lebanese. However, there are two philosophies confronting each other today as the country seeks a new center of gravity: the first, aspiring to a market-driven, largely privatized state, which would lose much of its social and economic sway – a vision the Hariri camp prefers, as do most Christian political groups; the second, a more mixed system, where the state plays a dominant role, but where the market is allowed to remain free, though it must open up to new participants. This is the view of Hizbullah and Amal, and to a lesser extent Jumblatt. The dividing line between the different political forces is historical access to the market: those who favor a strong market are already well-entrenched in it; those who do not, are not.

Which vision will prevail? The answer may come not from Lebanon but from Iraq, where a revolution of sorts occurred in August when a new constitution was proposed dividing the country along religious and ethnic lines. In one stroke, the Iraqis may have sounded the death knell for the overbearing, centralized Arab state sitting atop multi-communal and multi-ethnic societies. There are a few in the region, and they will be looking at Iraq with alarm, as they see that almost half a century of using despotism to suffocate centrifugal tendencies in their societies may be coming to an end.

Ironically, Lebanon, long considered the embodiment of the worst qualities of communal society, may be the most apt to resist the message coming from Iraq; unlike other Arab countries, the Lebanese long ago accepted their cleavages and sought to manage communal relations by accepting a weak state amid strong communities. That said, the communities, particularly the Sunni and Shiite communities, are in the process of inheriting the post-Syria order, so unless they can manage their competition, Lebanon may yet pass through a period of turbulence.

One thing they and everyone else will have to agree on however, is what role will be left for the state. Iraq can create paradoxical aftershocks: while the message may be that fragmentation is acceptable, the Lebanese, or some of them, may conclude this will make the state pie smaller, so they will insist on revamping the present confessional system while ensuring Lebanon remains united. Others may find inspiration in Iraq and ask to divide the country, though there is little to divide. Either way, the communities will have to express a clearer sense of what the state means to them, an effort they have perhaps understandably, avoided doing until now.
 

September 1, 2005 0 comments
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Economics & Policy

Sami Haddad

by Executive Staff September 1, 2005
written by Executive Staff

Following an exceptionally tortuous government formation process, Prime Minister Fouad Siniora unveiled a 24-member cabinet on July 19. Among the new faces on the political scene was Sami Haddad, brought in from the International Finance Corporation (IFC) – the World Bank’s private sector arm – to head the ministry of economy and trade. Armed with 24 years of experience in promoting private sector investment in developing countries, Haddad will have ample opportunity to put his arsenal to good use in his battle to restructure the flailing Lebanese economy, further weakened by six months of political upheaval, and to overcome the strong, political resistance to any mention of privatization. Executive met with the new minister soon after his nomination to discuss his plans to spur economic growth, rebalance public finances, privatize and improve the local investment climate.

E The assassination of former prime minister Rafik Hariri dealt a heavy blow to the economy, which has struggling ever since. How would you assess the current state of the country’s economic and financial sectors?

There is no question that the assassination of [former] prime minister Hariri dealt a blow to the country in its entirety: the political system, the people, the economy. To confine myself to the latter, the cost has been extremely high. We don’t have an accurate number for the costs yet, but there is no question that when it comes to the state of the public finances and debt, the situation has worsened. Furthermore, there has been a massive economic slowdown, investors have not been keen to invest, people have been rightly worried about the political situation and more importantly the security situation, and to make matters worse, we seemed to have missed the tourist season. Just look around: you don’t see a lot of people from the Gulf. We are hoping that we in the cabinet will be able to quickly take measures to turn things around. It will be a combination of transactions, i.e. financial transactions, laws and regulations, and a psychological boost. The latter has already taken place to a certain extent: since the formation of the government, the pressure on the Lebanese pound has reversed, the central bank is buying dollars, foreign reserves are increasing – people have more confidence in the Lebanese pound.

E Looking at the chronic imbalance of Lebanon’s public finances, one of the biggest drains on the treasury’s coffers is the servicing of the country’s massive debt. What measures do you see the government taking in the battle to reduce it?

My ministry doesn’t own a lot of public sector assets and it is not, in terms of size, a major player in this. The three ministries that will play a key role in handling the debt will be the finance ministry, telecommunications – which is the largest generator of revenues after fiscal revenues in Lebanon – and power and water, which is the largest drain on the government’s finances.

This level of debt and debt servicing is obviously completely unsustainable. We cannot use almost two-thirds of our fiscal revenues to service debt. No country can sustain this. What needs to be done? We stipulated this very clearly in the Ministerial Declaration, which refers to two key documents: the promises made in Paris II which have not been fulfilled, namely privatization, and the budget law that then finance minister Fouad Siniora presented prior to resigning from the last Hariri government. We need to reduce expenditures as much as possible, knowing that the biggest drain is the electricity sector. What will happen with regards to fiscal revenues, taxes, is a big question mark. You are faced with the dilemma of needing to balance the budget, and thereby increasing taxes, but in so doing, you slow down growth. So ideally, if you can reduce public expenditures further, and avoid raising taxes, or raising them as little as possible, that would be the best outcome.

E Where should the cuts in public expenditure be made?

There are a lot of areas where money is going down the drain. You have subsidies that could be reduced or eliminated. I discovered today to my shock, that the government here is legally obliged to buy wheat. I am a buyer of wheat! We subsidize the wheat, we buy it from the farmers, we store it in silos, and then we sell it. I can’t tell you how powerful the agricultural lobby is here. But the biggest drain is the power sector, in terms of size. Unfortunately, there is no rapid solution to this problem – it has to be a sustained effort through better collection, better technology, privatization of Electricité du Liban’s management, privatization of distribution … Lebanon also spends a lot on social sectors, on health and education. But unfortunately, the figures show that the spending does not hit the right targets. For instance, you have schools in certain areas that are completely underutilized, whereas you have other areas with a lack of schools. A lot of effort can be done to redirect, streamline and make better use of our social spending, without increasing or reducing it.

E Is privatization going to figure prominently on your agenda for rebalancing Lebanon’s deficits?

Privatization is a crucial pillar in this whole public sector restructuring. It’s a necessity – we have no choice. The best way to reduce the principal debt outstanding is to cancel it through privatization proceeds.

E But according to our calculations, privatization could bring in a maximum of $10 billion – that is if everything is sold. Lebanon’s debt at this point, according to economist Toufic Gaspard’s estimates, is close to $50 billion. Is privatization enough?

Anything is better than nothing. Whether our debt now stands at $50 billion I don’t know – my figures say $40 billion, it depends on how you calculate it. But even if you bring in $10 billion, it will make a difference. I am going to be a very vigorous proponent of privatization for three reasons. Firstly, for 24 years of my professional life I worked for the IFC. It’s an investment bank: we make loans, we invest and we have made fantastic returns on some of them. My point with this is that generally speaking, the private sector is much more efficient than the public sector. Secondly, we need to sell because we have no choice. Thirdly, it all depends on how you privatize – it must be done with transparency – and what you privatize. If you are selling an actual monopoly or oligopoly, people will legitimately say why are we giving this group the chance to make all the money? The answer is, if it’s a monopoly or oligopoly, you can regulate it, you can tax it, you will try not to sell more than a certain percentage to one group, with the rest going to the general public. Thereby, you don’t give the group the whole thing, and secondly, you help develop our moribund stock market. If these two mobile phone companies for instance were private and were quoted, [think of] the amount of wealth they could generate! They would also become internally regulated, as they would have thousands of shareholders.

Obviously, privatization is easier said than done. We will have to surmount political opposition, which require an open dialogue. But we have a favorable environment. Despite living in a turbulent region, over which we have little control, we have something we should take advantage of: the enormous capital surpluses that are being generated in the GCC countries. If some of it could trickle down to Lebanon, we will be fine. And this is why we need to privatize now. Time is of the essence.

E Which are the sectors you would want to privatize first?

The telecom sector is the obvious one, due to the size of its proceeds. All countries including centrally planned economies have opted for licenses. We have gone into management contracts – it’s unbelievable! Even Syria and Yemen have gone in a more liberal direction. Lebanon’s policy in telecoms over the course of the last four to five years has been an unmitigated disaster. As a result, today the cost of telecom services are very high, the quality is lousy and the penetration rate is unbelievably low. This sector is a key sector because it generates a lot of money. Privatization will make it more efficient, costs will go down, the public will be happier. And if you could also achieve large public shareholding it would be good.

E Are there other sectors besides telecoms?

Other sectors will not generate as much money, but you have some companies that are owned by the central bank, such as MEA for instance. They are doing very well, and the central bank has done a terrific job. That being said, nowhere in the world do you have a central bank which owns an airline. It’s unhealthy, for good reason. Let it be privatized, let it be owned by a strategic group – be it Lebanese or non-Lebanese – and let it be quoted on the stock market. Another area to look at is Beirut airport, which is a fantastic airport, but it is being significantly underutilized. Yes, MEA is doing well. But it can do much better. We have nine aircraft, we could have 20. And there are other things. In infrastructure you have opportunities. Just look at the port of Beirut, I think it is being privately managed, but its assets could be privatized too. In the old days, there were two port companies quoted on the Beirut stock market. The port was in good health! But while everybody else is moving forward, we are moving backward. We have a military airport in Akkar. We could privatize it on a build-operate-transfer basis. The infrastructure around it is fantastic, the airport apparently is very good, so make it into a cargo airport. Will this generate billions of dollars? No. But all these assets will no longer lie idle. They will generate some money, bring in investments, create jobs, especially outside greater Beirut, and it will tell the rest of the world and the Lebanese public that this government means business.

E Lebanon’s credit rating is very low. One of the main criteria in the rating methodology is economic development, which is an area under your ministry. What are your plans in terms of developing the Lebanese economy?

The main reason for why the credit rating is so low is due to the deficit, the debt service, and all these key indicators – debt to GDP, debt service to fiscal revenues and so on.

E But you can outgrow debt through strong economic growth.

We should do both. We should decrease debt, we should be fiscally more tight, but we should obviously work on economic development. The results will not be seen in a matter of months. But economic development for me has to be private sector led. There is a very strong lobby in this country for traditional sectors, i.e. agriculture and industry. I think we should develop both of them, but we cannot do so by protecting this very small market. We have an interest in opening our markets – I don’t want to close the Lebanese market, the economy to serve the interest of a few people. We are not going to compete in steel making with countries such as Russia or the Ukraine. We simply don’t have a comparative advantage in many areas. Land here is expensive – it is limited, we are a very densely populated country. Energy is very expensive, in part because we messed up policy-wise, but even if we hadn’t, we are not an energy producing country, so energy here will always be more expensive than that of our neighbors who produce oil and gas. The human capital here is mostly highly educated, white-collar workers. It’s worth noting that in these traditional sectors of industry and agriculture, you have a very significant non-Lebanese labor force. This isn’t bad in itself, but people who come crying about the loss of employment in these sectors need to remember that most of these people aren’t Lebanese. So yes to agriculture and industry, but it has to be high value-added, in areas where we have a comparative advantage, and that is in our brain power.

E So which sectors would you like to promote?

At the end of the day – and I know this is going to sound somewhat philosophical – the objective is the well being of the people. This means you need to focus on employment-generating activities. If I open a cement plan, it will require at a minimum $200,000 in investments, which will only create 200 jobs at most! With a $200,000 investment in the service industry, you employ many more people. We have traditionally been a country that provides services, there is nothing wrong with this. We have and we should continue to export more education, health and financial services, where there is still a lot to be done, and then there is the whole knowledge economy – IT has generated so much wealth. This is where we can compete. These service sectors are going to create the largest amount of Lebanese jobs that will cater to the large number of young people who can’t find jobs.

E What kind of incentives should the government provide to promote these industries?

I think the government needs to shrink, it needs to get off the people’s backs, become a regulator, a facilitator. It needs to provide a much better investment climate, which we are going to look specifically in to. The investment climate here is good, but could be much better: the bureaucracy is very heavy with regards to any transaction, the ease with which to open or close a business is not good enough, the courts aren’t working efficiently enough … improving the business climate doesn’t always require new laws, just improving the regulations. We will be working together with the World Bank to do an assessment of the investment climate. The Lebanese tend to think they are the best in the region, but unfortunately we are not. In some cases we are even the worse.

E Where do you stand on international trade agreements? Will Lebanon enter the WTO under your watch?

I will push very vigorously for Lebanon to enter the WTO. Things are at a fairly advanced stage, with laws already before the council of ministers or with parliament, dealing with issues such as intellectual property rights. We are also having discussions with our trading partners on certain trade barriers, import licenses and high duties. My attitude is a liberal one. I appreciate the lobby groups and their political strength, but we are going to have a dialogue on this and it is going to be a tense one. Some people think we automatically stand to lose from economic globalization. No, Lebanon stands to win.

E If we were to join the WTO there will be human costs in the short-run. How do you plan on mitigating the impact it will have on employment?

There will be some costs, but I don’t think they will be very heavy. We definitely have to mitigate them. The hope is, by entering the WTO, we will be able to spur private sector investment, which will create more employment and thereby absorb those who will have lost their jobs. You would hope that sectors that will suffer from our WTO membership will gradually move over to other sectors. That being said, the trade barrier reductions will be gradual – there is an adjustment period. Also, we must look at some of the sectors that will be affected, heavy industries such as cement and steel only employ a very small number of people. And as with some agricultural sub-sectors who are most likely to suffer, a lot of their labor force is not Lebanese. Our task will be to provide technical assistance to agricultural sectors who want to move into producing products with higher value-added.

E You sound like you are not a great believer in government intervention to reduce unemployment levels. Will spurred economic growth take care of the problem?

A government can take short-term measures to tackle unemployment by providing public sector jobs. We will not do this, because we cannot afford it and these public sector jobs are not the best, nor is this [facilitating] sustainable economic growth. The answer lies with the private sector, which will come back very quickly if you have the right business environment and an improved security environment.
 

September 1, 2005 0 comments
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Agreeing to disagree

by Yasser Akkaoui September 1, 2005
written by Yasser Akkaoui

Given that, in theory at least, with our new political order we are now in a position to pick our own high-ranking civil servants and also given that the people the new government picks for the top non-security jobs like EDL, the NSSF, Casino du Liban et al, will be scrutinized for their suitability (or lack of), it seems a fair assumption that the selection process would be a transparent and thoroughly reported affair; an opportunity for the government to show a genuine policy of “out with the old and in with the new.”

Not a bit of it. Phones calls placed earlier last month to several journalists drew a blank. Not only did they not know who was slated for what job, but they were not even sure what jobs, apart from the obvious, were up for grabs. All agreed it had all the hallmarks of a stalling game.

Syria may have packed its bags, but transparency remains on a par with the freemasons when it comes to telling the rest of us what is going on. Not only is this worrying in the immediate sense (it hardly shows that the government and no doubt the presidency, can sort out what are obvious and urgent priorities) but it also demonstrates that there is no level of accountability to the nation at large. We don’t count.

So what conclusions can one draw? If there is no consensus, perhaps, and one is going on a limb here, maybe the consensus is disagreement, a tactic to maintain the status quo, one that has seen, for example EDL, under the steady guidance of Kamal Hayek, continue to hemorrhage cash and demonstrate to the rest of the world that our inventory control, maintenance and bill collecting process puts us in the same league as the worst African nations. It remains a cash cow for politicians who see it as their very own pension fund.

The same can be said for the woefully under-exploited casino and the murky machinations of the NSSF, areas crucial to tourism and public administration and which desperately need the hand of a clean, talented technocrat whose tenure will be judged by his performance (especially his ability to reform) and not by his skill at managing his department like a blue chip share portfolio. No wonder then that it appears that transparency and results are obviously not high on the agenda and that the depressing conclusion is that nothing appears to have changed within Lebanon’s turgid political process.

This is how we see it. Please prove us wrong.
 

September 1, 2005 0 comments
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Special Report

A Multi-Faceted Sector

by Thomas Schellen August 25, 2005
written by Thomas Schellen

Lebanon has significant potential in the conferencing business. This area of enterprise is an often underestimated, yet versatile commercial realm with touching on education, networking, and tourism. Even though conferences and exhibitions are regarded as a very dynamic growth segment of international tourism – (commonly labeled MICE – meetings, incentives, conventions and exhibitions – tourism) in reality conferencing covers a wider, multidisciplinary meeting ground where academic, economic, trade, public sector, NGO, and tourism interests converge.

Because man is a relational entity who thrives through interaction, conferences have been integral to human history from before the Nicene Council while some like the Congress of Vienna that decided over the fate of post-Napoleonic Europe, have captured the attention of a whole continent. But as a regular staple of life today, conferences owe much of their intense profile and frequency to the emergence of the knowledge economy and globalization of business, which have led to proliferating demand for meetings and conventions.

In turn, conferences supply economic opportunities to a diverse group of businesses that include airlines, hotels, restaurants, tourism and entertainment companies, but also instructors, speakers, interpreters, technology providers, specialized manufacturers, and an ascending number of conference organizing firms. The world’s leading conferencing organizations have grown in recent years into service enterprises that convene thousands of events per year and the market is still far from saturated, at least in the Middle East.

The Beirut offices of Lexicon are adorned with the paraphernalia of conferencing: lined up along the wall are award plaques that may have gone unclaimed and numerous knickknacks that companies feel so free, or obliged, to distribute during such events.

Managing Partner, Near Zion, has been involved in conference organizing for about 15 years. “Middle Eastern conferencing has been booming since five years,” he says.

Lexicon is a company formed two years ago as joint venture between Zion’s firm Idea Advertising and partner firms in Saudi Arabia and the UAE. The company organizes 10 to 12 regional conferences per year with a target size of 400 to 500 participants per event.

The Al Kissed Wall Alma (AIWA) Group is with some certainty the conference-organizing firm in Beirut with the highest profile for large-scale business meets. Its Arab Economic Forum, formerly the Arab Finance and Investment Conference, was this year – which was not an easy one – in its 11th edition, with over 800 participants. “We started doing conference around 1987 or 88 and launched it as formal activity in 1993. Today we organize on average 13 to 15 events per year,” says Festal About Sake, deputy general manager for the AIWA Group.

Other Lebanese enterprises stage conferences as a sideline of exhibition organizing or business services, examples being exhibitions company Promo air and services provider Beirut World Trade Center (WTC). Again other organizers are specialized in convening conferences only in very specific sectors, such as medical conferences.

As Promo air PR manager Karen Coheir told Executive, most of the company’s events are national level exhibitions. However successful at the local level, these shows do not have an easy time in seeking to draw in international exhibitor participation, and conferences play only a limited role in the context of exhibitions held in Lebanon. Promo air is working on a new exhibition and conference project with media organization Middle East Broadcasters for later in 2005, but for the moment Coheir, does “not see much potential” for the exhibitions and conferences sector in Lebanon due to the difficult circumstances of 2005 to date.

The Beirut WTC, which convened its first conference last autumn, also had to postpone large meetings planned for this year, says general manager Chadi Abou Daher, explaining that in the center’s business model, conferencing is geared towards being a support activity of topical events and business matchmaking but not a main source of revenue, which the WTC intends to draw from real estate it is developing into a business center. 

Booming Regional Business

AIWA and Exicon are among a handful of Beirut-based conference organizers with broader event spectrum and Middle Eastern scope. As they hold only a share of their events in Lebanon, they are less vulnerable to problems affecting the country; at the same time, they are working in a regional business environment where other strong contenders are Gulf-based conference organizers, mostly located in Dubai. They also face a constant influx of new competitors that enter the field each year and often also exit it again very quickly.

Zaitoun and Abou Zaki agree that the outlook for conferencing in the Middle East is bullish. Abou Zaki anticipates that the boom in the Gulf’s oil-based economies will create further increases in the number of business conventions and the sector will reach maturity in five to ten years.

A similar view comes from a leading supplier in the Gulf. IIR ME is a Dubai-based company and member of the IIR Group from the UK that orchestrates about 150 conferences per year, along with eight exhibitions and some 250 training seminars, according to senior sales manager, Owen Mills. Without agreeing to disclose information on the business growth rate and strategy of IIR ME, the Gulf region “is currently a buoyant market for conferences and exhibitions due to the substantial growth the region is experiencing and the high oil price,” Mills tells Executive.

The growing competition in the field requires conference organizers to develop specializations and niches. To carve out its market as organizer of conferences in the Middle East, Exicon has chosen a topical focus, said Zaitoun. “We take care of scientific issues presented at our conferences so that we can set ourselves apart. We don’t decide on a paper based on what it will cost us,” he says. Abstracts of papers to be brought before a conference are evaluated by a science committee and, with the exception of one speaker in the opening panel, presenters at Exicon conferences are not drawn from the ranks of conference sponsors. 

For AIWA Group, its competitive edge in entering the activity came as a natural outflow of its original enterprise as publisher of a region wide business publication, Al Iktissad Wal Aamal, and several smaller magazines. “Our expansion into conferences was leverage of our position in AIWA. We know the economy; we know what is happening. We are not into training and self-improvement conferences, we are into high-profile conferences that promote countries and industries.” 

Avenues of Profitability

Due to the links between conferences and delivery of information and knowledge, it is not uncommon for conference organizing firms to have roots in publishing or public relations. The defining characteristic for professional organizers, however, is that they are not staking their fortune on the message or content of the event as much as on the quality they achieve in organizing it. Different to educational institutions, governments and NGOs, they are in the conferencing business to make money.

Conference organizers can employ several avenues in staging events profitably but in all their business models, professional handling of the event is the alpha and omega. One route to realizing profits as professional conference organizers lies in conducting third party conferences, delivering expertise in managing the event to a client who sets the agenda and defines the target audience and is responsible for the financing and marketing of the conference. This type of service has growing demand from corporations and institutional clients who realize that their investment into a conference warrants hiring a professional organizer for the sake of maximizing the return.

However, while this detached role can bring good revenue to the conferencing firm, an organizer’s market position and reputation is built more often through proprietary events, which the firm designs and conducts. In developing a conference from scratch, the organizing company needs to master content, marketing and organization of the project. It carries the risk of investing in untested events and has to attract a business audience before it can hope to reap profits from them.

Outside of the training seminars side of the conferencing business, where participant fees are a key revenue source, most conference organizers derive their revenue predominantly from corporate involvement. Participant fees may cover basic costs for the organizers, but the “big money is from sponsors,” says Zaitoun.

Companies that sponsor a conference will have a number of direct marketing and promotion benefits, and Exicon offers sponsorship packages at a major conference that range from $20,000 to $100,000 for the exclusive top slot. If an event is successful, it may attract nine or ten sponsors in total, which provides a good result to the organizer, so Zaitoun.

According to Abou Zaki, rates for sponsorship packages at the AEF range from $30,000 to $100,000. Such amounts push the borders of what leading Lebanese corporate sponsors, such as major local banks, are willing to invest into a single business event even if a side exhibition is included. However, in Gulf markets, deals are tending higher and at some events, organizers are said to have been selling sponsorship packages for as much as $300,000. In the local Lebanese market, typical convention sponsorship rates rarely top $50,000 and often are closer to $20,000, depending on the type of event. 

Depending on from which angle one approaches the economy of conferencing, one gains a different image of the expenditures and gains involved. But from all approaches, conferences represent a considerable investment that comes with a high pressure to deliver results.

On the corporate side, not only are sponsorship involvements costly, also a company that sends top employees to attend a conference faces an expenditure per participant that can easily exceed $10,000 for upper management, estimates Abou Zaki, when a total is calculated for direct travel, accommodations and related expenses, investment of productive time, and per diem allowance for an executive.

Conferencing from a Tourism Perspective

While the benefits of a conference for participating corporations and individuals can arrive in diverse forms, the industry that reaps income most directly from conference activities is the hospitality industry. 

On the venue side of conferencing, Lebanon spots a multi-purpose hall, BIEL, that can host exhibitions and conferences, but the main suppliers of conference facilities are top-end hotels with dedicated capacities to this segment of business travel. Their conference and banquet facilities are important assets for hotels such as the Phoenicia, the Habtoor Grand Hotel and Metropolitan Palace, the Le Royal in Dbayeh, the Crowne Plaza, the Moevenpick, the two Rotana hotels, the Marriott, the Commodore, the Rivera, the Radisson, and others.

With their state-of-the art convention halls, especially the Phoenicia InterContinental and the new Habtoor property are catering to the high-end of the conferences market, where the Phoenicia over the past six years played a pioneering role in establishing Beirut as conferencing destination. “We are a corporate hotel and stopped having a low season because of conferences where we had growth every single year since opening,” says Maha Bourachi, director of sales at the Phoenicia InterContinental.

Booked usually during the off season for recreational tourism, international conferences, of which the Phoenicia hosts about 30 to 40 events per year with more than 100 participants each, provide hotels with both banqueting and guest accommodation business. Another advantage for the venue is that although the pre-run periods for conferences are getting shorter due to reduction in the time needed for communications and planning of events, conference bookings are fixed much farther ahead than vacations.

Between the banqueting packages, which commonly include the use of the meeting hall with purchase of meals and coffee breaks, and accommodations in connection with international conferences, the vibrancy of its convention business can determine the profitability of a major hotel. During the main conferencing season, accommodations business for out-of-town participants supplies 30 to 40 % of the Phoenicia InterContinental’s total occupancy rate, according to Bourachi, and still 10 to 15 percent for smaller houses like the LeVendome of the same chain where conference rooms are limited to fit the needs of board meetings and smaller corporate gatherings.

To put the abstract calculations into a concrete example, after staging Omaintec, a conference for operations and maintenance, at the Habtoor Grand Hotel in June, Exicon settled a bill of $200,000 with the venue, according to Zaitoun.

However, conference, under the venue’s revenue perspective, is not like conference. Doctors for example are less liberal than bankers and business leaders with their money when attending a conference, Bourachi notes. For a hotel, it is an art to assess the most rewarding conferences and associate with events that bring good results.

Global and Regional Projections

Given the fact that conferencing is an open domain where countless companies and institutions prepare and stage events internally and where services comprise the main economic activity, global turnover and contribution to GDP of the conferencing realm may be only vaguely measurable. For the tourism side, a 2003 study by the World Tourism Organization gave an indicator by showing that outbound MICE travel from Europe amounted to about 20 million trips of at least one overnight stay abroad, which is one third of business travel and 6% of all outbound trips from Europe in 2000. Nearly half of those trips, 9.7 million were in attendance of a conference or convention, and 42 % were in attending an exhibition.

There is no question, overall, that successful conference organizing is a lucrative business line. Only last month, the world’s largest publicly traded conference and publishing group, UK-based T&F Informa, acquired the previously privately held IIR Group of training and events organizers for $1.4 billion. T&F Informa, shaped only one year ago through the merger of Taylor & Francis publishers and the Informa group, organizes about 2,800 events per year and has an affiliate company in the UAE, IBC Gulf. The IIR Group, of which IIR ME is a member, is a training and conferences enterprises with a network of 45 companies that claims to have a total attendance of over 650,000 at its events annually.

How much the conferencing business contributes to the national economies of Middle Eastern host countries can only be an educated guess, since industry insiders are not aware of any statistical evaluation of the sector or analysis of distribution of shares in MICE tourism between different countries in the region. “There are neither published figures on the total size of the commercial conference market in the region, nor are there figures on the importance of this market to the national economies of the GCC,” said Mills, and Lebanese organizers made equivalent remarks for the Levant. 

This does not allow ranking of Middle Eastern conference destinations by numbers but the consensus of organizers and hospitality experts in Lebanon is that Dubai and Beirut are heading the list in terms of activities and attractiveness, with Beirut having more of a natural disposition and Dubai making the stronger efforts. Some countries are very active in pushing the development of their conferencing capacities, and destinations such as Doha, Bahrain, Abu Dhabi, and Cairo are expanding their appeal in this regard. While Amman is also doing increasing business as a conference location, sector experts say that the city’s convention hosting is turning into a niche role for events focusing on Iraq.

According to the Lebanese conference organizers and hospitality experts, Beirut has clear advantages and selling points as regional conferencing location in its traditional attractiveness to Gulf companies, good distance to Europe and Gulf, developed skill base in services such as translations, PR and hospitality, and its overall points of attractions as tourism destination. The latter include nightlife lures, which conference organizers insist play some but not a major role in drawing businessmen to conferences. Weak points are the lack of a convention center of international format, under-powered public sector support, image issues, and the country’s vulnerability to instability and pressures.

There was not the slightest disagreement among the sector specialists Executive talked to that 2005 has to be dismissed as a year where conferencing here could not perform as expected. The Phoenicia InterContinental had been actively promoting itself as conference destination to more and more markets, including European countries, and the hotel had been making inroads in those markets as upscale location for conventions.

“Meetings were materializing,” Bourachi says, “and then four years of work evaporated.” Nonetheless, she continues to expect a full rebound of the business. “We are still optimistic for the rest of 2005, and for 2006, we expect the golden year that we had expected for 2005,” she says.   

“Aside from the political issues, I think the conference business will boom in Lebanon,” says Zaitoun. “But I don’t see how you can take the political issues away.”                     

August 25, 2005 0 comments
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Special Section

Burning Desire For Cigars

by Executive Contributor August 25, 2005
written by Executive Contributor

Consider this. The cigar shop at Beirut International Airport sells the largest volume (100,000 boxes per year) at arguably the best value anywhere in the world, while its VIP cigar lounge has won a Frontier Award (the “Oscar” of the global duty free industry) in the Special Concept of the Year category.

Lebanon imports some 5 million cigars a year (roughly equivalent to 5% of Cuba’s annual export production) while the market is registering healthy annual growth of around 10%. This puts Lebanon firmly in the world’s top 10 cigar consuming nations alongside Germany, France and Spain. It is not surprising therefore, that Phoenicia Trading, the company that imports Cuban cigars into Lebanon, is keen to nurture this national obsession. 

This culture has not come easily. Robust marketing has been key in increasing awareness and developing tastes. “Our marketing strategy is mainly focused in the on trade market,” said Walid Saleh XXXX of Phoenicia Trading. “We make regular, often monthly promotions, cross promotions, continuous advertising and panels, motivation certificates for loyal customers, sponsorship agreements at important events, associations and live demonstrations.” Saleh also explained that Phoenicia Trading is also involved in brand building through alliances (it has teamed up with drinks giant Diageo) to sell cigars via complementary drink brands.

Retailing has also matured. During the war, cigars were sold in kiosks, other non-specialist stores and at duty free shop at the airport. It was not until 1994 that the first specialist store, La Casa Del Habano, opened. Since then others have followed, elevating cigars and cigar accessories – humidors, lighters cutters and the like – into a higher retail consciousness.  The smoker has also evolved. According to Saleh, “cigar smoking began as a trend, a status symbol, but now it has developed into a genuine culture. The customer knows exactly what he wants and cigars are becoming increasingly offered as gifts.”

Most, though not all the best cigars come from Cuba, which exports some 125 million cigars a year, saving another 100 million for the domestic market. Cuba is considered the finest tobacco-growing land in the world due to the nature of its soil and its climate, which produces a quality of leaf not found anywhere else. It is the long process through which the Cuban cigar undergoes before it gets to the consumer – seeding, farming, harvesting, fermentation, manufacturing, quality control, boxing and ageing – that allows them to charge top dollar and which puts them on a higher quality plane than cigars made in the Dominican Republic and Honduras (so potent a brand is Cuba that those cigar manufacturers that moved to other islands have lost their mystique and market share).

For the record, the trend today among Lebanese smokers is for medium ring gauge cigars, a move away from the bigger ring gauge that once defined the taste of the local smoker. The most popular brands are, in order, Romeo Y Julieta, Partagas, Hoyo De Monterrey, Cohiba, Montecristo, while the most preferred sizes are, again in order of popularity, Robustos, Petit Coronas, Coronas, Churchills, and Corona Gordas. (Double Coronas, which require longer – up to three hours to smoke – come in 8th place.).

Smoking a cigar is closely associated with having made it. It is the totem of celebration. It is also a luxury good, the finest of which stand alongside the best caviar, watches, clothes, and wine. Women are gradually learning to enjoy delights of cigars, especially the smaller models. Perhaps therefore it is fitting to leave the final word with actress Demi Moore, who claims to be partial to a puff. “A cigar is like a fine wine,” she said recently. “There’s a quality, a workmanship, a passion that goes into the smoking of a fine cigar.” Who would disagree with her?

August 25, 2005 0 comments
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Special Section

Lebanon’s Flair For Finery

by William Long August 25, 2005
written by William Long


When one thinks of luxury goods, it could be argued that no commodity comes to mind quicker than diamonds. This is especially good news for Lebanon, which, historically, has a very intimate relationship with the dazzling rocks.
“Lebanon knows about diamonds,” explained Atef Nsouli, second in charge of one of Lebanon’s top jewelry exporters, Nsouli Jewelry.
“The old families here were the gateway to the Gulf for diamond jewelry. They had the know how from the West and the trade with the East and the South.”
Lucky indeed, since, for an economy whose many sectors have been battered over the years, and especially as of late, jewelry generally, and diamonds in particular, have stood the test of time, posting successive growth rates on the export side since 1996.
According to the Ministry of Trade and Economy, jewelry is Lebanon’s number one export industry, constituting more than 30% of the overall industrial sector in Lebanon.
The latest data shows that jewelry exports increased an astounding 350% between 1996 and 2004 (2003 saw an unprecedented jump mainly due to volatile gold and precious stone prices).
Overall, the country’s jewelry sector is believed to be a $530 million market with slightly more than half of that amount attributed to exports.
Although hard data is difficult to come by, it is also believed that the sector employs roughly 20,000 persons in both retail positions and production.
“The Gulf countries are basically our main target markets,” explained Nsouli. “Around the Gulf we have many partnerships… the name is not on the door necessarily but from zero to finish everything is done here and is Nsouli.”
Importing unfinished diamonds from Belgium, precious stones from India and precious metals like gold from Africa, many of Lebanon’s top jewelers like Selim Mouzannar, Chatila, Najib Tabbah, Mouawad and Paolo Bonja have indeed made a global name for themselves as high quality, high-end producers of jewelry
Especially in recent years, this has proved extremely fortuitous since Lebanon itself, despite the positive export figures, appears to be at a turning point in terms of the industry.
In fact, several domestic industry members told Executive that Mouwad recently opened a huge production facility in China where costs can be as much as 50% less than in Lebanon.
More significantly, China as a whole is finally starting to pose a serious challenge to high–end exporters the world round because the quality of the workmanship has improved so dramatically in recent years.
“They (the East Asian producers) are very competitive,” said Vasken Hadidian, President of the Lebanese Jewelry Syndicate. “They are definitely the next invader for the jewelry market although as finished products and diamond quality they are not there yet.”
Nevertheless, the situation has already reached a point where, according to one top jeweler who asked to remain anonymous, “Some Lebanese now import from East Asia to re-export to GCC countries.”
What all this means is that Lebanese Jewelry brands are becoming international brands more than anything else – with global production facilities and offshore subsidiaries in places like Dubai.
All of which represents a decided shift from previous decades when Jewelry was produced locally, Gulf tourists would come here to buy jewelry they could not buy near to home and local exporters would sell directly from within the geographic borders of the country.
“Maybe I should have an offshore company to resell jewelry,” added one jeweler. “If I have a an order from Saudi, I would then sell from Dubai to jump over the taxes that we encounter here in Lebanon.”
The idea is hardly far fetched.
Today, Dubai offers the Dubai Metals and Commodities Centre, a hub for gold, diamonds and commodities trade aimed at attracting key players throughout the entire supply chain.
“It is a very ambitious project and they are doing well,” explained Selim Mouzannar. “They try to gather all the retailers within the free zone right next to the cutting and finishing facilities. It is incredible and very hard to compete with from within Lebanon.”
The government has done its part to alleviate some of the strain.
According to Hadidian, Lebanon has signed onto the Kimberly process agreement, which currently involves 48 governments and the diamond industry in an attempt to create a certification system that would label legitimate stones, thereby blocking the sale of conflict diamonds and protecting the integrity of the $7.8-billion annual trade.
Statistics show that about four percent of that trade is in conflict diamonds, which are said to have financed terrorism.
Lebanon also eliminated customs duties on all consumables and chemicals used in jewelry manufacturing, stopped tariffs on precious stones and decreased the VAT from 10% to just 1.2%
“These steps help, but there is much work to be done,” added Hadidian.
“Lebanon is known around the world as a top producer of jewelry but the market is changing rapidly even as Lebanese companies grow outside of the country.”

Lebanese couture
When it comes to fashion, Lebanese designers are no slouches. In an international market long dominated by the likes of Chanel, Valentino and Jean Paul Gautlier, a handful of Lebanese designers, spurred on by the relative abundance of textiles as well as the country’s longstanding ties to high-yield export destinations, have steadily managed to carve out their own position within the world of Haute Couture.
In the process, a privileged space has opened up to these native sons and daughters – a world of Paris fashion shows, $15,000 one of a kind evening dresses and the coveted celebrity customer which can make or break a name (and a business) almost overnight.
Thus, despite the high entry costs and fickle buying habits of the super rich, speaking with newly minted Lebanese designers, as well as Haute Couture mainstays like Elie Saab and Zuheir Murad, one is left with the strong impression that the increasing prominence of Lebanese designers on the international scene has been an outright boon for the export end of the business, especially in the Gulf, Europe and America.
“The name of our brand has greatly expanded worldwide,” explained Zena Chedid, International Communications Director for Elie Saab.
“America, especially, is a growing market for us. At the same time, new markets have opened up in Asia and South America.”
While Chedid, like all designers, was reluctant to reveal any concrete numbers, at least one local industry insider pegged overall luxury fashion exports in the tens of millions of dollar range, with the bulk of that accounted for by Gulf buyers.
“The truth is that we could not have made it to Rome [Elie Saab was the first Arab designer in the Middle East to present a couture collection in Rome in 1996] if we didn’t have the success that we had in the Arab world. Forty percent of our couture clients are in the GCC market,” added Chedid.
For newcomers like Wissam Chammas too, the Gulf markets are similarly viewed as a relatively affordable stepping stone, a gateway really, to the loftier heights already attained by the handful of Lebanese designers who showed last month, on calendar and off, at Paris Fashion Week.
“Regionally and internationally the Lebanese designers are very important now,” explained Chammas from his atelier in Jdeideh.
“The quality of the materials and the designs themselves, especially in the wedding dresses and evening dresses produced by high-end Lebanese designers, are extremely popular in Saudi Arabia, Kuwait, the UAE and also Egypt. You see, Gulf buyers and others here order from Lebanon because we are living within the Arab world so we know what they want and what they think and what they like to wear.”
For Chammas and other designers, three additional factors play to the favor of Lebanese designers: First, unlike in Egypt, designers here have a wide access to high-quality, internationally produced textiles – thousands rather than dozens of styles can be easily perused and acquired. Second, there are relatively few high-end designers operating from within the region. And third, putting on a show and reserving space on the satellite channels is relatively affordable – perhaps ten or twenty thousand dollars rather than the 100,000 plus for Paris, Milan or Rome.
“There are not many designers in the Gulf, for one,” explained Chammas. “ So Lebanon is really first and almost alone. And you can afford to enter the marketplace.”
Of course, aspiring to the favor of regional buyers is but one position fancied by all local designers. After all, the real prize is the huge export markets of Europe and America.
“ Names like Saab, Robert Abi Nader and Reem Akra [a Lebanese wedding dress designer, based in New York City] are now clearly on the international radar,” explained Mandy Erikson, CEO of New York’s Showroom Seven and PR rep for Haute Couture designers like the edgy Imitation of Christ line which showed last month alongside Saab and others at Paris Fashion Week.
“They’ve managed to carve out a niche with a distinctive style that blends many different components – Middle Eastern, one could say, and European all at once. Really it is a true international pastiche.”
“The reception in Paris for the Zuheir Murad show was excellent,” explained Rita Lamah, executive manager at the Bouchrieh-based designer.
“He started ten years ago and has grown steadily ever since, both in the region and internationally. We now have stores in several capital cities around the world and at the same time we have numerous stars in the Middle East who wear Zuheir Murad. We are also the only line in the region doing Haute Couture men’s fashion.”
While the increasing success garnered by Lebanese designers is obviously appreciated by the designers themselves, not to mention their aspiring competitors, it is also increasingly being seen as the key to reviving the overall Lebanese apparel sector.
Indeed, according to a January 2004 study by the United Nation’s Economic and Social Commission for Western Asia (ESCWA), textile manufactures in Lebanon must target high-end fashion markets if they are to counter dwindling exports and daunting competition from international imports.
“The haute-couture (high-end fashion) segment, which has also been growing relatively fast over the past five to 10 years, may help Lebanon to recover the reputation for fashion that it once enjoyed in the region,” read the report, “ A Case Study: The Apparel Industry in Lebanon.”
Demand for value-added fashion, the report added, such as wedding gowns and lingerie, has increased because of the large number of predominantly rich tourists, especially Gulf Arabs, who are seeking these goods both here and at home.
“There is evidence that [a] painful transition is beginning to produce some positive results, which eventually may lead to a revitalized, but very different sector based on high skill levels, niche markets and high-margin products that target the upper echelons of the export and domestic market,” the study concluded. “The evidence is a powerful affirmation of the great potential that could yet be unleashed by the Lebanese apparel manufacturing industry.”
Lets hope so.

In vino veritas

Finally a word about wine. Lebanese wine has been around for 6,000 years but until recently, it was obscure and unpredictable. It wasn’t until 1979, when Serge Hochar’s Chateau Musar created a stir at the Bristol Wine fair in the UK that the world began to sit up and take notice. Today, Hochar’s greatest vintages are among the most coveted in the world and sell for top dollar.

More recently, Chateau Kefraya’s Comte De M 1996 was eulogized by Robert Parker the gunslinging American wine critic. His trademark grading system, is enough to make or break a vintage. ‘Below 90 you can’t sell it,’ remarked the equally unconventional Bordeaux wine merchant Jeffrey Davies. ‘Above 95, you can’t find it.’ Parker awarded The Comte de M ’96 a score of 91 points, a score Parker considers denotes ‘an outstanding wine of exceptional complexity and character. I consider these terrific wines.’  It was a landmark ruling and demonstrated that Lebanese wine was not a one off.

Since then, many wine critics have passed similar, if less dramatic judgments on Lebanon’s wines. Oz Clarke, the British Wine celebrity, has called Chateau Clos St Thomas “stunning” while Chateau Ksara, Domaine Wardy, Massaya and Cave Kouroum have all been ranked and in the best wine annuals and guides. In London and Paris Lebanese wines can be found in the finest outlets, including the Wine Society, Harrods, Selfridges, Nicholas, the Paris Ritz, Le Crillon, and the Georges V. Other, less high profile but equally lucrative, markets include the US, Canada, Germany, Sweden, Italy, Russia and Japan. It’s a tradition, it seems that, that won’t go away.

August 25, 2005 0 comments
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Special Section

The Lap Of Luxury

by Michael Karam August 25, 2005
written by Michael Karam

There is a dark blue Ferrari that is often parked, for weeks at a time, outside one of Beirut’s most prestigious hotels. The number plate is Saudi Arabian. The valets cluck around it like mother hens, dusting and wiping, as it sits, waiting for its owner to gun the engine and pull out into the tree-lined streets of Ashrafieh. A home away from home? Who knows? But distilled into this mini montage is everything modern Lebanon can deliver to the discerning: luxury, beauty, service, and ambiance.

At the risk of sounding smug, I am going to venture that Lebanon and Beirut possess a cachet that other Arab capitals don’t. Fairly or unfairly, the Lebanese are known for their high living in a way that the Jordanians, Syrians, Iraqis and Palestinians simply are not, while gleaming new cities of the Gulf – the thrusting, efficient, commercial powerhouses that they are – do not have Beirut’s distressed elegance. The Lebanese are seen as the “European” Arabs and as such have carved out a unique niche for themselves in the enjoyment and purveyance of luxury living.

Even the diaspora has exported this reputation for joie de vivre and extravagance. True, the French apparently have a phrase for us “comme les Libanais” (in effect, a bit too much jewelry) and the English may wince at how we behave in their better nightclubs and have made the foodhalls at Harrods and Selfridges our own, but the overwhelming sense is that we are a nation of travelers and traders who live to live well and consume in style. Lebanese restaurants from London to Sydney have been elevated above mundane ethnic fare. Chateau Musar stands alongside the best Bordeaux and, while, to the world, the Greek Ouzo is seen as the drink of the cheery tourist, Arak is held up as the real deal, a drink for those in the know. It is all to do with perception and, despite everything, we have still held onto our mystique.

Ironically, the war may have further whetted our appetite for luxury and brand consciousness. It forced a new generation to leave and make their fortunes, while those who could afford to decamp to the capitals of Europe and the Americas merely consolidated their knowledge of Western retail habits. This know-how has been shipped back by the container load and today, 15 years after the guns fell silent and four years after the events of 9/11 shifted the Arab tourist dynamic to cobbled streets of downtown Beirut, Lebanon is settling into its rightful role of the region’s cornucopia. 

Just as important is that our fellow Arabs recognize this in us and want us to sell it to them with all the panache of our Phoenician ancestors. High net worth clients and a nation of boutique owners: a match made in heaven.

We have the best goods but we also have the chutzpah. A shopper knows that if he walks into even the finest boutique or jeweler, he can put his cards on the table and negotiate a deal, because we are the original dealmakers. Try doing that in Milan or London or even Dubai and you will get an awkward look and a lecture on policy. The only policy in Lebanon is to sell.

And we do it in style. Our service is in itself a luxury item. Our human resources – shop assistants, waiters and concierges – look a million dollars, can converse in two, sometimes three, maybe even four languages and above all know how to talk to their fellow Arabs. The importance of this, especially when selling a luxury item, is impossible to overestimate. In a world where the concept of service is in decline and where the Arab is often viewed as a potential trouble maker, the fact that a Saudi Arabian woman can arrive in Beirut, anonymously drop $1 million on jewelry, watches and clothes and have them dropped off at her hotel within 30 minutes, is not only good retailing, it’s a national asset. Go to London, once the benchmark for this kind of thing and see what you are now faced with: clueless asylum seekers from Eastern Europe and equally scatterbrained Australians and South Africans on a gap year.

Women, commonly accepted, especially in the Arab world, to be the most frequent and ravenous shoppers, can feel free in Beirut. If they are from the Gulf countries, none of the strictures of home apply and there will also be none of the suspicious looks they might get in Europe. Petty crime is almost non-existent, while the security threats that cow the Americans and the Europeans are dismissed by the Gulf Arabs who live with similar anxieties in their own countries. They will and do take their chances.

And let us not forget the triple assets of ambiance, architecture and temperature. Not only does Lebanon have the goods at the right price, for those who live in an air-conditioned bubble, it offers the chance off shopping and dining in a Mediterranean atmosphere in a country that was not built in the last 60 years and in a climate that won’t kill you if there is a power outage.  No wonder, wealthy Arabs and expatriate Lebanese are paying top dollar to live in the downtown where they can moor their boat, shop and dine in an environment unlike anywhere in the region.

For the Lebanese, there is now less and less need to travel to shop, no more tiresome shopping expeditions to Europe’s capitals. The names they so covet abroad – Les Galleries Lafayette, Harvey Nichols and Printemps – have all hinted that they will open up shop in Beirut. The Downtown’s retail dynamic is full of promise. Already the area that borders Rues Foch and Allenby has become the epicenter of fine shopping and one that will eventually become Beirut’s Bond Street. And there is more to come. The Souks, with roughly 52,000 m2 of retail space – including a 15,000m2 dept store – will simply add to the critical mass and could easily achieve revenues of $270 million in its first year, nearly 10% of Lebanon’s retail sector. 

Lebanon has also moved into the modern retail culture with a remarkably efficient VAT refund system (operated by Global refund and the Ministry of Finance) that has been in operation since 2002. Not only does this offer the immediate attraction of getting one’s money back but it also demonstrates a degree of regulation in the local retail sector.

Finally, at the risk of painting a picture of mindless consumption, local retailers will tell you that the tourist shopper does not come to Beirut to spend on necessities. Interestingly enough when it comes to sales of premier fashion clothes, watches and jewelry, Beirut compares well to Dubai, the new kid on the block, but loses out to the Emirate on electronic goods: Dubai – technical and new – versus Lebanon – sensual and old. 

“They are on holiday and want to buy a bauble, not a stereo,” said one market watcher. A Rolex slid across the table during dinner, the thrill of a new Cartier necklace, worn as the waves lap at the beach at sunset, a kilo of finest Beluga caviar or even the throaty roar of a pedigree sportscar. Beirut can offer it all. 

August 25, 2005 0 comments
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Cover story

Border Backlash

by Thomas Schellen & Nicholas Blanford August 25, 2005
written by Thomas Schellen & Nicholas Blanford

The story starts in Masnaa, at the Lebanese border station. The line of trucks begins a few hundred meters east of the Masnaa crossing and continues for the next 8 kilometers to the Syrian customs post at Jdeidet. The trucks are double-parked bumper to bumper along the highway snaking through the barren mountains of the Anti-Lebanon, leaving a single lane for smaller vehicles to pass by. Drivers escape the blistering heat sitting in the shade of their lorries or beneath small trees on the side of the highway, drinking tea and chatting.

This was the picture for most of July, since Syrian border inspections overnight slowed down to snail pace. “Instead of 150 to 200 trailers per day, the inspectors let only five or six pass,” said Yacoub Kaissi, vice president of the Lebanese shipping syndicate. There are also numbers in circulation that suggest a slightly higher entrance rate, of 30 to 40 cargo vehicles to make it through the inspections per day, but the situation of the truckers stuck in the no-man’s land queue is in either case abysmal.

“It usually takes two minutes to drive from Masnaa to Jdeidet, but I have only moved a few inches in a week,” said Ayad Rahim, an Iraqi truck driver. Rahim has risked his life for much of the past three years carrying goods between Baghdad and Beirut. Several of his colleagues have been robbed and some even killed along the dangerous desert highway between the Iraqi capital and the border with Syria.

It is not that he had turned to the dangerous job because of high profits. “I have no choice,” Rahim said. “What else can I do for money? Beg?” His protection against bandits, he said, is his rusty and dilapidated lorry. “No one wants to steal it because it looks in bad condition,” he said.

Lebanese drivers return to Masnaa each day to stock up on food and water for their stranded colleagues. “We can’t go into Lebanon or Syria to eat because we would need a visa,” said Said Khalfan from Oman. “We depend on the Lebanese and Syrian truck drivers to bring us supplies.”

There is also no gas station. Some of the trucks carry perishable goods such as fruit and vegetables for markets in the Gulf, forcing drivers to keep engines running continuously to work the refrigeration units. “I have spent $200 on fuel,” said Abu Khalil, a Lebanese. “My truck needs 70 liters of diesel each day.” The normal price for 20 liters of diesel is about $3. But enterprising motorists heading in the opposite direction are taking advantage of the truckers’ declining fuel supplies to sell them black market diesel at three or four times the normal price.

“I have run out of fuel and I have no money and all my fruit has gone rotten,” grumbled Abu Khaled, a truck driver from Tripoli. “The Syrian customs officials won’t even let me turn my truck around and return to Lebanon. All I want to do is go home.”

While the truckers were stuck, many passengers traveling from Beirut to Damascus by private car or taxi experienced only minimal delays from new safety inspections that also apply to cars. The official Syrian explanation for the obstruction of cargo transports is that it is due to the need for anti-terrorist controls and new customs station construction measures. These are so unconvincing that one hesitates to dignify them by repeating them. 

The references to security concerns “bring up the question of why now?” commented Joshua Landis, a Damascus-based American expert on Syria. “Syria always closed their eyes to the border as long as they were in charge of Lebanese politics. Now they are not in charge so they use border pressure. No Lebanese is going to believe that this is a bureaucratic problem,” he said.

In Lebanese and international media, the crisis at the border had been discussed predominantly under the aspect of the damages to produce stranded en route and the loss of income incurred by farmers, estimated by Lebanese agricultural lobbyists as $300,000 per day. The direct impact of wht is in effect a   blockade of Lebanese exports and transit shipments, on Lebanese merchants and manufacturers and the long-term implications to Lebanese industry were underreported. (See Q&A with Fadi Abboud on page xx)

Largely ignored were the troubles faced by the Lebanese transportation sector as a result of this crisis, as the drama in July was to a significant extent a transport story. Curiously enough, representatives of the transport industry found it hard to estimate losses incurred as a result of the sector’s inability to send its trucks to and through Syria to Iraq, Turkey, Jordan, and the GCC countries.

While Kaissi claimed that the reduction in road exports had been 90% or more during the July crisis, he said he could not give a strong estimate on the damage to trucking businesses and freight forwarders, only that it had been “really substantial.”

Sea-bound transport on the other hand, “had not been affected too much,” said Elie Zakhour, president of Lebanon’s International Chamber of Navigation maritime transport organization, citing the massive slowdown in shipments of transit cargo to Iraq due to the persistent security problems there. “Over 90 % of cargo to Iraq is not flowing,” he said.

Only in the express freight segment of the transportation industry, did companies present details on the economic damage incurred from the border crisis. “We had to stop running our trucks from here to the Gulf and take all freight to air, which represented a 20 to 25% increase in costs on our margins” said John Chedid, country manager for express shippers DHL. According to Chedid, the situation struck the company in the middle of its most vibrant year ever, shipping goods to and from Lebanon.

It is worth remembering at this juncture that transportation is one of the unfulfilled hopes of the Lebanese economy and that in a “normal” political environment the country should be able to derive far more income from its natural comparative advantages as a transportation and shipping center than it does. At several regional transportation industry forums over the past few years, Lebanon had invariably been described as a potential hub for sea, land and air cargo and the origin/termination point for a possible land shipping alternative to the Suez Canal that could shorten and cheapen transit times between many business centers in Asia and in Europe. 

In this context then, the current border problems with Syria hints at an underlying story and foreshadows problems that the Lebanese economy could drift into should it continue.

When talking to Executive about the July crisis, every economic analyst and business leader in Beirut pointed first to the political nature of the problem. Yet beyond the political dimension, this crisis between Syria and Lebanon lends itself to comparisons from family life and the Arab proverb that no strife is more poisoned than strife among brothers.

It seems the atmosphere in our neighboring country is being deliberately loaded with animosity while editorials peddle absurd accusations against Lebanon, and one hears of Syrian businesses being forced to procure goods from Jordanian instead of Lebanese suppliers, of concealed advice to buy apartments in Amman instead of Beirut and bank in other banks other than those in Chtaura.

As the people being hit by border closure on the Lebanese side in the first instance were the struggling farmers and truckers whose work conditions are punishing in the best of times, the people to suffer immediately on the Syrian side were ordinary average citizens whose foreign produce was confiscated by border inspectors. “They are not allowing anything in—not even a tie of bread,” said Yassin Touma, a taxi driver who makes the daily trip between Damascus and Lebanon. One man, who asked not to be named, told an Executive reporter that the customs agents removed even a tube of toothpaste from his bag, because it was still boxed.

This humiliation of small people, however, is not the whole problem. The Syrian-Lebanese economic links are of paramount importance to the future of both countries. In the first five months of 2005, Lebanon’s exports contracted by 2.6% over the same period in 2004, to $710 million. Of those $710 million, $87 million went to Syria, followed by Iraq ($67 million) and Turkey. Syria as export market and route for transit shipments is essential for Lebanon’s future as gateway to a Middle East.

In the other direction, Lebanon’s labor market, albeit small, through its use of Syrian workers has assisted Damascus in countering the debilitating unemployment at home and eased socioeconomic burdens on Syria that some analysts say would be 30% larger without the labor export to Lebanon. So, at stake here are the ties between two nations that by all geo-strategic and geo-economic reckoning and reasoning need each other. “The situation is not yet critical but it is highly disturbing. It is not advisable for any country to be in such a situation,” one Lebanese investment banker told Executive on condition of anonymity.

And what does Lebanon do? Not much, apart from crying over spoilt tomatoes. Members of the shipping industry and other stakeholders met a few times and experimentally discussing alternatives to land transport, such as a defiant air lift to carry cargo over Syria or hiring ferries to take the stranded trucks to a departure point from where they could proceed. But the practical discussions were limited by the constraints of availability of such boats and planes and the cost factors related to hiring them. A more radical approach, one that would forego cost in the pursuit of sending a nationalist signal, could not find backers with enough financial fire power or the sheer guts to pull it off.

On the political scene, the voices coming of the Lebanese side were astonishingly calm, even when the preoccupation with cabinet building under tremendous mental stress are taken into consideration. “I am surprised that the politicians were not more vocal,” said an economist in Beirut, also on condition of anonymity.

And what about the legal framework? Syria evidently has deemed it appropriate to abandon all its obligations under the various treaties of mutual benefit and everlasting brotherhood that the two neighboring countries signed over the last 15 years. But where are the outcries from the Lebanese side, the public and private sector lobbying at the EU, the UN, or the will to hold Syria legally – or at least morally – accountable for the valid obligations it signed in relation with Lebanon without being under any pressure to do so?

All things considered, the picture that emerges in the summer of 2005 seems fit to be a psychograph of Lebanese-Syrian relationships. As such, it bears semblance not so much to a war between brothers as to a marriage where the husband thinks he can maintain a façade of decency while he in truth terrorizes his spouse and beats her into submission any time she dares to move a finger without begging permission.

To make for a pathological psychograph, both partners in the relationship have to display behavior that deviates from the norms of sanity. For Lebanon, this is the time to keep an upright stance. It may not inventing excuses for the blindness Syria shows for its own best long-term interests and the transgressions it commits by not living up to its agreed obligations.

It is well known that from an airplane, most borders are unnoticeable. The borders between sovereign Syria and sovereign Lebanon have to evolve into transfer points of mutual benefits. In the meanwhile, if the world should pay attention to the illegality and destructiveness of what Syria has been instigating at her borders, Lebanon’s private sector titans, political leaders, media commentators and opinion makers have roles to play and things to do.

August 25, 2005 0 comments
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Dispatches

Driving Porsche’s

by Executive Contributor August 25, 2005
written by Executive Contributor

Where better to test drive a new Porsche than along hundreds of miles of summer greenery-draped German country roads and famously speed-limitless German “Autobahns” [motorways]? I have long dreamed the Porsche-lover’s dreams of poetic rides. So when Ghada el-Kari, public relations manager for Porsche Middle East Dubai, suggests I to test-drive the new Porsche 911 Carrera 4S Cabriolet at its press launch in Germany my Porschophile pulse leaps off the chart.

I’m not an automotive journalist. My invitation to what Ghada explains will be a veritable Porsche gala is the product of Porsche’s decision to give its brand greater exposure in business magazines – read by people with a high propensity to spend.

Three weeks later, the Lufthansa plane is touching down in Cologne, Germany, center of the Porsche universe. And only a few hours after that I’m already enveloped by the sleek twin-tone grained-leather interior of the new Carrera 4 (S), savoring the still-smooth hum of the 3.8 liter, six-cylinder 325 bhp engine as I gently rev out of the luxury Grandhotel Schloss Bensberg, down Kadettenstrasse, and onto exhilarating open road for one-and-a-half hours of automotive bliss.

The car’s wide-rear end and muscular wheel arches propel me forward as, unable to resist, I immediately bring back with a touch of a button the 4S’s aerodynamically-styled soft lightweight folding roof and invite in the refreshing rush of late-afternoon German countryside summer air.

Arriving at a suitably long, empty stretch of straight road, I slow to a halt, pause for an intoxicating anticipatory second, my hand caressing the glossy smooth-leather-topped six-speed manual gear stick, then abruptly hit the gas and leave my stomach on the tarmac behind me as I roar up to 100 km/h in just under five vein-bursting seconds. Gripping the special leather sports steering wheel, I feel the urge to whoop. The 4S offers Tiptronic S automatic five-speed transmission as an alternative to the manual gearshift.

Ahead is the Autobahn. I can hear the whine of limitless speed. Up the ramp I go, adrenaline pumping. Traffic is thin. I ease into the fast lane, and then my foot goes down again. In seemingly no time I’m up to 268 km/h, a speed comfortably sustained by the 4S’ powerful engines without noticeable loss of directional stability. The 4S has a stop speed of 288 km/h.

My mind is still at the wheel, as along with members of the Porsche team and a refreshing mix of fellow launch guests from as far away as India and South Africa I enjoy, later that evening, a cocktail on the terrace of my home for two nights – a former grandiose Baroque palace turned exquisite boutique hotel. Porsche’s director of corporate communications, Anton Hunger, along with his international press coordinators, Michael Baumann and Katja Leinweber, are amiable, informed and accommodating. Gliding between guests, they subtly convey the Porsche brand message while responding to queries and affably arranging introductions to Porsche’s executive vice-president for sales and marketing, Hans Riedel.

The Porsche board members and experts who subsequently welcome us are, for their part, infallibly attentive to questions about the car and tomorrow’s route. The exhaustively knowledgeable Carrera product line director August Achleitner, in particular, effuses a mélange of passion and professionalism.

After a sumptuous dinner prepared by a Michelin-star chef in the hotel’s top-class restaurant, more drinks, and cigars graciously offered by the lively Mohammad Zein from Dubai in the hotel bar, I retire to dream of the Autobahn.

The following day’s four-and-a-half hour outing, following a delightfully insightful corporate and technical press conference during which the two Carrera chassis line managers, Ulrich Morbitzer and Henning Rohardt, dazzle us with their technical expertise, offers evidence of the ease with which the Carrera 4 (S) negotiates longer distances.

As I wind my way through rolling green fields, I marvel at the four-wheel drive 4S’ ability to hug bends and remain stable – thanks to its extra-stiff body and active Porsche Active Suspension Management System (PASM). Even medium road bumps are effortlessly absorbed.

PASM is effectively an adjustable shock absorber system. In addition to lowering the car by 10mm, PASM offers two suspension settings, Normal or Sport. In the Normal mode, PASM maintains soft settings for more comfortable driving, say a loll down a chick-lined street or a post-restaurant dinner-fest drive home. 

However, if you and the guy next to you are revving at the red lights, you’ve just hit the road after watching the final phase of the Paris-Dakar rally, or your female companion really does like fast rides, then press the Sport button on the dashboard and the suspension system does a code red. The on-board computer actively adjusts each damper to ensure maximum hair-raising performance. If you’re really into the rough stuff, go for the optional Sports Chrono package. In Sport mode, it automatically adopts the most aggressive shock settings, quickens throttle response, and eases up the stability control system.

Right now, though, I’m in full-belly mode. Lulled by the serenely serpentine route, I reflect on safety.  In the event of a crash, I know I will be cushioned by no less than six airbags, including two head airbags pioneered, for open sports cars, by Porsche, two thorax airbags, and two front airbags. And I’m already comfortably secured by a three-point seatbelt with belt latch tensioners and belt force limiters. I haven’t yet encountered any wild animals on the Autobahn, but know that if I do have to slam on the 4S’ black eloxy-plated monobloc fixed-calliper four-wheel brakes in a hurry, my stopping distance will be shortened by brake fluid automatically pumped into the wheel brakes when I abruptly take my foot of the gas pedal. That, folks, is the Porsche Stability Management system for you.

If the car does, though, hit a wolf, or elephant, or other creature stalking the Autobahn and rolls over, ultra high-strength steel tubes and U-shaped rollbars will ensure I’m not crushed.

Incidentally, any abrupt loss in tire pressure will, I am told, be brought to my attention by the car’s computerized Tyre Pressure Control system. 

Enough about crashes. My mind, soothed by the steady thrum of the Porsche’s engines, wanders to entertainment. When I buy one of these babies, I muse, the Communication Management system will let me play CDs with MP3 music titles through a whopping nine speakers. But I’ll go for more. I want the DVD navigation system, and concert hall sound quality with BOSE surround sound. And so I don’t have to fish for my mobile I’ll add a telephone. Oh, and finally, I’ll have a Porsche electronic logbook. Controls mounted on the steering wheel will allow me to operate all this gadgetry.

These added perks are available as optional supplements. I’m terrible when it comes to optional supplements.

As the plane lifts off the next day, after another evening of delectable cuisine and invigorating discussion with the other launch guests, I cannot help but reflect upon more than just the seductive growl of the Porsche Carrera 4S Cabriolet engine and the rush of wind on the Autobahn – My brief, but immensely gratifying, stay in Germany has taught me that Porsche managers, representatives, technicians, experts, and enthusiasts – in fact everyone who has anything to do with Porsche – all form one happy, exclusive, cross-continental family.

August 25, 2005 0 comments
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Special Section

Turning Deserts Into Destinations

by Thomas Schellen August 23, 2005
written by Thomas Schellen

The news struck first at the Jordan World Economic Forum: a consortium under leadership of Saad Hariri is creating Saraya Aqaba, a major new leisure project in the Gulf of Aqaba, Jordan’s Red Sea destination regarded as very promising for international recreational and aquatic tourism.

Ten years ago, the Aqaba region featured little more than 1,000 hotel rooms and an interesting topography and spectacular coral reefs nearby. Today, the area is focus of two huge tourism development zones with several large-scale projects each, and after visitor numbers to Jordan last year began rebounding from their 2002/2003 lows, hotels are hot properties.

Partners in Saraya Aqaba from the private sector are Hariri’s Saraya Jordan enterprise and the Arab Bank, teaming up with the kingdom’s Social Security Corporation and Aqaba Development Corporation on the public sector side. What made the news of Saraya Aqaba savory from an investment perspective was that the developers, besides putting up initial capital of $242 million, announced a $120 million private placement and appointed Jordanian investment bank Atlas Invest, a daughter of Arab Bank, as lead manager.  

According to Atlas Invest, Saraya Aqaba will indeed be a mega-project. Situated on a territory where a 100 meter stretch of coast line has been developed into a man-made lagoon with a 1.5 kilometer beach front, the project will comprise four five-star hotels and one six-star hotel with a combined 1,500 rooms plus commercial areas, conference and sports facilities. Built up area is projected at 648,000 m2 on a total land surface of 610,000 m2.

“The initial cost projection for the tourism complex is $620 million,” corporate finance expert Fares Hammami of Atlas Invest told Executive, while residential construction on the outskirts of the development would bring the total scope into the $1 billion range and be running on a fast track. While being constructed at the same time as two competing projects in Aqaba, “Saraya will be done within three years, faster than the others,” he said.    The commitment to fast execution of the project is reminiscent of Rafik Hariri’s breakthrough project in Taif in 1978, when he built the city’s first hotel in nine months.

But the existential question for investors in the project is of course if a tourism venture is rational, secure and rewarding from a financial angle. Conventional wisdom says that in the past, the construction of hotels and forays into new tourism ventures were the sole domain of hospitality sector experts who had the expertise and confidence to run such an enterprise in the often unpredictable business of attracting and serving foreign visitors. Investment banks thus are not all always eager to enter into tourism ventures. “It is a very special field, where the key criteria is revenue generation. This is totally different from financing real estate, which often is a one-time shot,” said Walid Mussallam, CEO of Beirut-based investment bank MECG.

Tourism is a volatile business, acknowledged Hammami and his asset management colleague Sami Naboulsi at Atlas Invest. To secure that the Saraya Aqaba project stands on sound fundamentals, they said Atlas Invest had it valuated by two independent consulting firms, one based in Jordan and one based in the UK.

“From an investment banking point of view, investing in tourism is capital-intensive and long-term. Real estate in Jordan is still among the cheapest in the region and this, plus the political stability and the country’s role as gateway to Iraq, attracts foreign investments,” added Naboulsi.

The Saraya Aqaba project is well in tune with the recent surge of huge tourism-related projects in the Arab countries. Within Dubai ‘s development pot that is boiling with projects under the motto, the bigger the better, tourism ventures such as Dubailand and mega-hotels make up huge chunks. The fever has also struck Qatar, which launched a $15 billion program for creating its tourism infrastructure.

Such moves in directing abundantly flowing oil revenue are definitely more promising for regional development than the shopping sprees which Arab capital undertook in the US and Europe during the first oil price boom. But that does not mean that the individual investment projects could not overheat.

“If you are creating a green-field (something out of nothing) destination, the biggest challenge is that you have to spend tons of money. It only works if you have government support and a critical mass,” said Naji Butros, Beirut-based partner in the international firm Colony Capital, which is engaged is several large tourism enterprises and projects from Sardinia to the US and the Far East.

Such investments need a long-term vision, while capital in this part of the world mostly is trading capital, with a limited horizon, Butros said. He cautioned that raising private equity and seeking an Initial Public Offering for a venture prior to it being up and running creates hype. “Investors are making money from the hype of a project. As disciplined institutional investors, we don’t evaluate these projects. After the hype there will always be a return to basics.”

According to Butros, investing in tourism projects, especially green-field projects, needs a long-term vision, large size, preparation through extensive independent studies, a loyal base of wealthy clients at the project, a clear view of the competition, and avoidance of hype.

Although it has not been caught by a wave of enthusiasm for over-sized investments, Lebanon has its share of both large-scale and smaller tourism investment projects, and tourism is by far the biggest point of attraction to regional and foreign capital givers, many of whom are pure financial investors and not hospitality operators.

Under the Investment Development Law 360, the Investment Development Authority of Lebanon (IDAL) has been offering its attractive package deal contracts since 2002 to investors with projects valued upwards of $50 million. According to article 17 in the law, package deal benefits can entail an income tax exemption for up to ten years, exemption from land registration fees, and up to 50% reduction of construction permit fees and fees related to hiring foreign employees.

The procedure of granting a package deal contract starts with presenting an application for the project to IDAL, which then reviews the proposed project under feasibility, environmental impact and job creation aspects. If the agency determines the proposal to be meeting the required criteria, the project is presented to the council of ministers after which, when approved there, it benefits from the incentives, in addition to further assistance from IDAL in dealing with Lebanon’s labyrinthine bureaucracy.

IDAL-administered package deals are available in six areas of economic activity, among which tourism projects have gained an outstanding role. “We have the mission of promoting the investment climate in Lebanon. Tourism has a great potential and it is the sector that is simplest for us to promote,” said Nabil Itani, IDAL chairman and general manager.   

After the $64 million Royal Hotel Resorts project of the investor group headed by Marwan Kheireddine was approved last month, the share of tourism projects climbed from 57 to 63% in IDAL’s statistics on successfully closed package deals, which means from the agency’s perspective that a project has received approval in the Council of Ministers. Among projects that have already been submitted and are currently in the pipeline for approval, an even higher 89% are classified as tourism deals.

This group of projects does not yet include the Sannine Zenith venture, but Itani said that he expected developer Tony Abou Rached to call on him at any moment. And since closed deals furthermore include 28 % [check] of “mixed projects” with a strong tourism component, the trend points in reality to over nine tenth of IDAL-supported investment arrangements in Lebanon as being in tourism, and continuing to be so.

A weakness of the current package deal structure is that many projects in metropolitan Beirut, with their high land costs, easily satisfy the requirement to be worth at least $50 million, whereas such a dimension often is not feasible for interesting projects in rural areas. Here, Itani said, “we need to develop lower criteria for attracting investment projects to regions within the north, south and the Bekaa, in order to achieve economically balanced development.” One region with predominant tourism potential where a program for improving of the investment climate is currently being finalized, is the Ibrahim river valley, he added.

While IDAL has an edge in assisting big developments in Lebanon, small and medium ventures in tourism have been supported by the loan guarantee program of the Kafalat corporation. Kafalat has been a success story in supporting Lebanon’s entrepreneurial invigoration and economic diversification through small and medium enterprises in tourism and other sectors.

The range of enterprises financed through Kafalat-guaranteed loans encompasses mostly restaurants, but also about four dozen small hotels and furnished apartment enterprises as well as some 15 tourism operators and service providers, Kafalat chairman Dr. Khater Abi Habib told Executive.

Counting 382 tourism-related companies under the wings of Kafalat, with a combined loan value of $45 million, Abi Khater said that the company was working on increasing the ceiling of loan guarantees it can provide from $200,000 to $400,000, albeit at a lower level of guarantee to the bank issuing the loan.

As the rate of loan defaults under the scheme had been exceptionally low, banks apparently are still too conservative in evaluating applications and lending to small enterprises, Abi Khater pointed out, which is an indicator that the financial company and its loan guarantee scheme is still going to be “needed for the foreseeable future.” 

August 23, 2005 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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