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Special Section

A state of tourism

by Thomas Schellen August 23, 2005
written by Thomas Schellen

It was a positive, not to mention mildly surprising sight late last month, when workers descended upon Beirut’s downtown pedestrian area and installed dividers to finally separate the outdoor seating areas of cafes and restaurants from the public space reserved for pedestrians and emergency vehicles. Positive because for the past four years, ever since the downtown started to take off as recreational and tourism attraction, each year had been worse than the previous in terms of the ruthless encroaching on vital public areas. Surprising, because some 15 months ago, top officials in the Beirut administration had stated emphatically that the barriers would be installed before the 2004 summer tourism season. But nothing happened.

Instead of moving quickly towards implementing measures that were recognized as clear necessities, Maarad, the area most affected, became embroiled in the matter of the walkway overlooking the Roman ruins. Here it seemed that final construction works requiring only a few days were not carried out because obstinate private sector players refused to commit themselves to obeying rules as demanded by the administration (until the heady days of the spring awakening, a typically Lebanese solution saw the walkway area used for accommodating restaurant guests).    

It is almost needless to say that the officials, however adamant in decrying the deterioration of the urban recreation quality of Maarad and adjacent areas, refused to speak on the record in spring of 2004 and thus could not be held accountable for not acting on what clearly needed to be done. In the meantime, some businesses continued to reap profits from the chaos in the downtown while, more honest operators struggled.

So it seemed that the notion of bringing administrative leadership to bear so that the public and private sectors cold sing from the same sheet was fanciful. Over the past three years, the ablest demonstration of successful cooperation that has seen actual application of policies have occurred (ironically, given the government’s puny financial muscle) in the area of supporting tourism projects through the activities of IDAL, subsidized loans and the Kafalat scheme. (see box on page xx)

And so, the most unguarded secret relating to tourism development in Lebanon is the dichotomy between the need for public sector policies and the absence of such policies. Although not allowing to be quoted on it, stakeholders from the private but also from within the public sector itself, talk regularly and extensively about the fact that the country is lacking a tourism strategy and plan for infrastructure creation, development and management of tourism resources. 

One set of issues is the implementation of everyday operational standards in the tourism industry. For instance, incredibly overdue are measures to tax, or otherwise reign in, those beach resort operations that were built sans permit during the war years and which illegally exploit the coastal public realm. At the same time, practical ways for developing public beaches and ridding the Lebanese coast of its untreated garbage mountains and inflows of liquid waste, are not to be found.

The restaurant trade, too, is yet to be effectively supervised. While it must be emphasized that as a rule, the better restaurants and hospitality enterprises of Beirut as well as many establishments in the provinces offer memorable experiences of cuisine and hospitality in general compliance with applicable regulations, a guest could last month still sit down at a downtown café or budget eatery and be served not only items that he never ordered (a fruit platter or a 1.5 liter bottle of water for one) but also a check where VAT was liberally added at the bottom of the bill – even as the menu stated specifically that the Value Added Tax was, as mandated by law, was already included in the price of every individual item.

It is astonishing that such an unlawful practice as “boosting” a bill by 25% should happen under the eyes of the authorities, but the same can be said about the lax implementation of existing standards of waste handling, hygiene and environmental behavior of restaurants, and the lack of adherence to building codes and requirements.

On the second and larger front of tourism development, coordination between the ministries involved in building tourism infrastructure is largely amiss, while the ministry of tourism continues to operate under budget conditions that force it to rely on the goodwill of private sector partners in order to embark on all initiatives. Besides the ongoing planning and coordination malaise that had been pronounced further by the national political crises of the past nine months, in he longer-term, Lebanon also lacks a national tourism development strategy concept of private sector initiatives through a clear set of selfless priorities.

How important policy making in tourism is for the evolution of leisure travel worldwide is illustrated by the World Tourism Organization’s global Code of Ethics in tourism. Formulated as guidelines to tourism stakeholders around the world, the code was adopted four years ago by the UN’s Economic and Social Council and endorsed by the UN General Assembly in late 2001. A World Committee on Tourism Ethics was instituted last year and in May 2005 conducted its first meeting actually examining specific complaints over violations against the code.

As it stands today, the code is an unwieldy document seeking to address major policy issues for sector stakeholders in wordy phrases under headlines reaching from “tourism’s contribution to mutual understanding and respect between peoples and societies” and being a “vehicle for individual and collective fulfillment”, to the rights of tourism entrepreneurs and employees and the obligations of tourists in visiting foreign countries. However, as a symptom of the growing alertness to global standards of behavior in the tourism culture, the efforts of the WTO underscore that governments have to take proactive roles in setting policies for tourism and respecting the huge economic importance of tourism in their politics.

In the Middle East, the latter recognition is a matter of its own urgency, and delicacy. Here, it is not only the de-facto instability in regional security but also the pro-forma war and state of non-peace that impedes tourism growth. As travel between Lebanon and Israel is officially neither permitted, directly nor indirectly, a very significant potential for international package tours to the historic and religious sites in the Near East remains blocked on political grounds.

This serves to remind that tourism is a key development issue in context of the greater Palestinian crisis. The tourism industry has been one of the few truly bright spots in development of the Palestinian economy until the outbreak of the second intifada. Studies have shown that the Palestinian tourism trade virtually crashed and suffered tremendous losses from the unrest following Ariel Sharon’s “visit” to the temple mount. Sadly ironic, researchers even found that Palestinian owners of tourism ventures in East Jerusalem faced the danger of losing their properties to Israeli banks during the crisis, because of defaulting loans. Only in the last year, first modest steps towards a recovery of, mostly religious, tourism brought some relief to parts of the Palestinian economy.

In purely economic terms, a resolution of the obstacles to travel of international tourists between Lebanon and its southern neighbor undoubtedly would boost receipts from visitors here. Main target groups for cultural travel to the holy and historic sites of Jerusalem, Bethlehem and the Sea of Galilee as part of larger Near East package tours would include educated European and Far Eastern visitors with attractive spending behavior.

For Lebanese hospitality enterprises, such tours would also contribute towards improving the seasonal distribution of business, since the main period for visiting the holy Christian sites of Jerusalem is between November and April. Finally, as impoverishment is recognized as one of the main factors for heightening the susceptibility to terrorist action in marginalized populations, the potential of tourism for bringing new economic growth to the Middle East might in the long term provide an not to be underestimated contribution to social stabilization, always on the precondition of increased security and political stability.    

There may be no short-term solution for the problem that regional politics and realities have been detrimental to Lebanon’s potential as high performer in hospitality and while domestic policies and politics in tourism and for tourism have been visibly unable to enhance the activity in impressive ways, it may be best to take consolation in tender mercies. While it can take an extra year to implement a policy decision for installing a bunch of decorative dividers in the downtown, sensible public sector measures evidently can still come about; and late is much better than never.

August 23, 2005 0 comments
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Special Section

Becoming A Boutique Tourism Nation

by Thomas Schellen August 23, 2005
written by Thomas Schellen

Advocates of rural development allude often to the large number of micro-climates that allow for specialty produce to be grown here easily in a larger range than in most other countries. In a nutshell, Lebanon is a small country of huge variety.

This is true not only for raising fruits and vegetables. Culturally, historically, climatically and in terms of geography, Lebanon has both been blessed with and aggregated a diverse wealth. Some other countries can match this portfolio of riches – but it is no hyperbole to say that not a single other country will do so in such condensed a space and, consequently, in the same intensity. This constitutes Lebanon’s uniqueness, and its selling point.

Said characteristics also define the possibilities and limitations for developing Lebanon’s tourism profile. Even as ventures such as the Sannine Zenith development have the makings to become green-field destinations with their own clientele, such undertakings will not put the country on the same footing as Switzerland or Tyrol and a host of other mountain vacation destinations. Plus, Lebanon has scarcely room to accommodate one mega-sized Alpine recreation development. And while the coast sports an also this year increasing number of attractive resorts, the country on the whole would be hard-pressed to create an image of a beach environment able to rival that of the leading Mediterranean aquatic vacation destinations.

Thus, while mountain and beach resorts have reached improvements in their appeal and quality and may still go much farther in both regards, they appear unsuitable for creating mass destinations and thus define the tourism brand of Lebanon in the way of one or two dominant recreational activities, such as sunbathing on Ibiza, gambling in Vegas or mountain climbing in Nepal.

So what is to do where small size and high density are inescapable parameters in operating the economy? If modern tourism can be regarded as the creation of destinations, the avenues for achieving this here then lie in the utilization of existing natural and cultural resources in their diversity. The question to ponder is whether Lebanon can optimize its offer of diversity and become perceived as a boutique tourism nation.

In modern hospitality, the term boutique was adopted by hotels at the beginning of the 1980s as a mark of new distinction. Where the tiered classifications of hotels by basic criteria had lost their differentiation capacity, fine small hotels since then have resorted to the appellation “boutique” to set themselves apart from both the cheaper and the larger competition. Other avantgarde classifications in the upscale hotel industry segment were lifestyle hotels, design hotels and a whole array of more narrowly defined sub-categories.

While the term boutique hotel comes with a degree of imprecision, three things are essential for a hotel to be accepted as such: a (relatively) small size, a luxurious setting, and superb service. Tied into the concept of travel as an individual experience with addictive qualities, the boutique concept is also often understood to refer to the individual character of each room and the specificity of every hospitality experience as inimitable. 

Here Lebanon may have its opening. It fits the ticket of being boutique as a whole: it is small, the overall inclination of its hospitality industry is towards luxury (even while the country’s socio-economic reality is often not), and the culture is one of astounding, welcoming hospitability (even there where service details have not been perfected).

Hospitality and tourism experts are in agreement that the country moreover has an underused collection of niche attractions. The aspects are there and can be easily accessed in their entire variety: besides beach and mountain, immersion in rural life, cultural discovery, ecological adventure, religious exploration, and wellness travel have untapped potentials, just as do shopping and nightlife, business and conferencing travel. 

Whereas Lebanon is still far from optimizing those niches, one notable effort to market Lebanon’s diversity of rural, nature, culinary and heritage destinations saw a beginning last year with the Discover Lebanon program, an initiative funded by USAID and carried out by international consultants SRI with support from the ministry of tourism. According to SRI director Jim Billings, the project has sustained its momentum well, despite a slowdown in the spring as part of the collective national shock of the Hariri assassination and subsequent events.

Combining new and often innovative tour offerings from several specialized operators into a handy catalogue, Discover Lebanon is this summer in its third season. Billings, who says that tourism is one of the few possibilities for economic growth in rural Lebanon, anticipates that the program will receive continued funding after the expiration of the current grant in November of this year.

The program has been devised under a long-term approach, meaning that its first aims were to entice citizens and residents of Lebanon to attractions of the country that were practically unknown to them. In the course of evolving further, the now ongoing formation and intensification of operator capacities and the creation of locations and activities could very well lead to formulating a new appeal for Lebanon as target offering a multi-faceted bouquet of highly diverse vacation options in a uniquely intimate space. 

The idea of shaping an entire new destination identity here – thus far, no country seems to have ever occupied the “boutique tourism nation” niche and label – might be further supported by the fact some hotels and resort enterprises here have already succeeded in establishing their individual destination niches. Examples for ventures that set themselves apart range from the Moevenpick Resort on Beirut’s Raouche coastline and the city’s successful boutique hotels to some of the ski and sports resorts, with an equal or larger number of such ventures giving the impression that they also could achieve such status. 

The range of potentials continues further into both commercial and cultural attractions. Shopping and nightlife and urban experiences have all been proven as tourism niches but, with the possible exception of the clubbing and nightlife scene scoring major points in attracting many regional visitors to Lebanon, are all much more potential than exploited today. As special example for the untapped diversity of Lebanon as international destination can serve that the country has strong appeal in the opposing realms of nightlife and religious tourism.

With communities representing the two large branches of Islam, several Christian confessions and the Druze faith, Lebanon offers a natural setting to attract both pilgrims and persons who travel to learn about the world’s many-colored religious traditions.

Various communities in Lebanon have increased efforts to promote religious tourism and offer visitors in convents and retreat centers alternative accommodations to the country’s hotels. Thanks to an active dialogue culture among representatives of the country’s faiths, inter-religious youth encounters and summer camps have been established. Advocates of Lebanon’s potential for spiritual tourism do point to growth in the numbers of people who journey to study religions at their historic roots. The ministry of tourism seeks to promote it and some among the active tourism developers emphasize the potential of religious tourism and plan to incorporate it into projects.

Within the various approaches to being a boutique location or lifestyle destination, an all-important factor is that the visitor demands a unique experience of genuine hospitality. The amazing fact about Lebanon is that with all its shortcomings in tourism infrastructure, damages from wrong planning, absent planning, incompetence, sleuth and corruption in public domain and environmental degradation, pollution, insane construction on account of big and small private sector players, is that the country has not only the small size and high diversity but also, despite all the myriad testimonials to sheer ignorance and selfishness, still has the hospitality that could make it a boutique nation.

(BOX)

Taking it big

The latest reality check on the nation’s prospects for developing a new niche, namely as conference destination, could be provided in the next few years by the Habtoor Grand Hotel Convention Center and Spa, which is in the final stages of completion as this issue of Executive goes to print. The multi-million dollar facilities of the already operating, spanking new convention center are infinitely larger than domestic demand can fill.

Offering 2,300 square meters of luxurious and high-tech event space in the main Emirates Hall alone, the center can comfortably accommodate 3,000 persons in a single setting. The hall is easily among the largest such facilities in a triangle between Algiers, Dubai and Istanbul.

But its real selling point is not mere size. With its combination of top-end event attributes – a ceiling height of 10 meters in the hall, an LCD-projection screen measuring 5.8 by 5.8 meters, simultaneous translation equipment for six languages, and 400 attached hotel rooms and suites provide the hard evidence, not to mention the air of opulence permeating the concept from every chandelier in the hall up through the hotel tower to the (two) 1,100 sqm pent house suites – this event location currently seeks its equal in the entire Middle East, and the Mediterranean. 

The Habtoor Grand has aspects that appeal primarily to the local market, such as its extensive spa, and to the leisure visitor who between the two Habtoor properties in Beirut and the Habtoorland theme park in nearby Jamhour could revel here in a self-contained cosmos. “It’s a world of its own,” the group’s Lebanon PR manager, Rita Massaad, is fond of saying.

Mainstay of the enterprise, however, will have to be the conferencing and banqueting business. Massaad could not specify how much of the entire Habtoor investment into the new hotel complex, totaling over $300 million according to earlier reports, went exactly into the convention center. It is self-explanatory that such an investment, where alone the movable dividers in the Emirates Hall cost $1.7 million, has to draw on a large market. Thus the regional promotion of the convention center to major event organizers was begun already in summer of 2004 and the first bookings were taken nine months ago. The coming 12 months will see a campaign to build awareness first among corporate customers in Lebanon and then in the Middle East and Europe, Massaad said.

Besides conferences, trade events and corporate exhibitions, the wedding events market is important for the operation, more specifically the market for oriental dream weddings of the most lavish kind. “Our targets are Arabs and weddings from outside,” said Kamal Sader, director of banqueting and conventions at the Habtoor Grand. The hotel invited important wedding organizers from the region to inspect its facilities and the first large wedding was celebrated in the Emirates Hall last month.

That the convention center is outsized for local needs is one reason why it has to bank on regional business. Even with the Lebanese love for fairytale weddings and gatherings including every last relative, not every nuptial celebration could aspire to assemble the minimum of 450 guests required as guaranteed attendance for staging an event in half of Emirates Hall.

Another factor is the associated price tag for an event, naturally. According to Sader, the absolute bottom range of the Habtoor Grand’s menu selection for either conference or wedding is $50 per person in guaranteed consumption, meaning that for dining and dancing the wedding night away on the full floor of Emirates Hall, one has to calculate some $55,000, bare minimum. Any organization staging an event at the site equally has to allow at least $27,000 per day of conferencing when using only half of the hall. Hotel room accommodations for event participants on top of that do not come cheap at the Habtoor Grand.

Having positioned itself in the global upper class of event hotels, the Habtoor Grand has a clear mandate and sustainability requirement for further elevating Beirut’s status as conferencing address, to a premier location for the entire Middle Eastern and Mediterranean realms. Since the late 90s and starting with the reopening of the Phoenicia, the city’s luxury hotels could record growth in the international conferencing business. This was not in a small part due to the work of the nation’s best-known figure, late Prime Minister Rafik Hariri, who helped bring the Arab Summit and the Francophonie conference to Lebanon.

However, it cannot be overlooked that the past six, seven years were an uphill battle for attracting conferences to Lebanon. The francophone countries were not the only aspirants for a Beirut meeting to postpone their gathering here, and both political and security obstacles still mar the outlook for bringing substantial events here on what would have to be practically a weekly basis, in order to fill a site such as the Emirates Hall. On the plus side, the Habtoor Grand is a clear indicator how much Lebanon could benefit from a role as Euro-Arab, Middle Eastern and international event platform. With its operation going full force this month, the hotel, convention center, spa, and shopping mall of the complex will provide direct employment and contractual work to over 1,000 women and men.    

August 23, 2005 0 comments
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Special Section

Bringing Them Back

by Thomas Schellen August 21, 2005
written by Thomas Schellen

Optimism has cult status among Lebanese tourism professionals. Having suffered blow after blow over decades, the sector’s seasoned practitioners today display a measure of immunity to bad news and business downturns.  But you look at the numbers and wonder if quiet weeping or the occasional liberating scream of frustration might not be justified.

According to the statistics published by the ministry of tourism, the numbers of arriving visitors in the first five months of the year registered at 301,446, a 19% drop from 372,689 in the same period last year. The month of May showed no difference from the overall downward trend, as it saw arrivals fall by 21% over May 2004, from 85,133 to 67,026 incoming tourists.

This immediate picture is not set to improve for June, according to managers at international hotels. Although events such as the Arab Economic Forum, the Operation and Maintenance Conference, and hospitality show Horeca brought in coveted business travelers and boosted occupancy rates for their durations at some properties to above 75%, on some other days in June, a 5-star hotel might have had to get by on 25% occupancy.

Extrapolating the performance of the tourism sector for the first six months of 2005, it seems wholly improbable that the half-year visitor count would climb above 400,000 arrivals. These underwhelming figures turn gloomier by another shade if they are gauged against predictions.

A year ago, when the summer was shaping into a record season among the post-conflict years, the ministry of tourism had formulated great expectations: Lebanon could anticipate visitor numbers to grow by 20 percent on annual basis until 2010, was declared by both then minister of tourism Ali Abdullah and the ministry’s director general, Nada Sardouk.

The hopes were higher than the predictions of the World Tourism Organization (WTO), which several years ago had issued a 9% annual growth projection for Lebanon’s inbound tourism until the year 2010. But whether one draws upon the ministry’s predictions or those of the WTO, the discrepancy between what 12 months ago was a reasonable expectation of 550,000 to 600,000 tourists for the first half of 2005 (based on the half million visitors in the same period last year), and what can be realistically expected today, comes out as a gap of 150,000 to 200,000 visitors who otherwise would have enjoyed Lebanon and spent very respectable amounts of cash.

This translates into a staggering combined damage of direct losses and unrealized revenue for everyone, the fiscal authorities (losing millions from VAT that didn’t happen and visa that didn’t get issued), hospitality enterprises, retailers, transportation and other services providers, and the economy at large.

In addition to these difficulties, the political storms of the first half year impeded the ministry of tourism’s maneuvering capability just as much as other ministries and perhaps even more than some. In what should have been the game of pitching for Lebanon as 2005 destination, a new tourism minister had to step up to the plate every couple of weeks, while the ministry’s bases for promoting the country were anything but loaded. 

Already perennially under-budgeted, the ministry’s financial shortage apparently became so acute during this year’s political turmoil period that funds for all but the most elementary activities dried up. Thus there was no way that the ministry could have launched a rapid initiative to save the main tourism season and reassure the country’s clientele of Gulf Arabs that it was safe to come to Beirut and remind them of the things they cherish about vacationing in Lebanon.

In this context, it becomes easily explicable that a gathering of private sector companies took it upon themselves to create an ad-hoc campaign last month in a concerted effort to entice Gulf tourists to return to Lebanon for the summer. The “Sayf Lubnan” campaign was launched in mid-June by fashion retailers Aishti, confectionary specialist Patchi, retailers ABC mall, Bank Audi-Saradar Group, Groupe Mediterranee, the InterContinental Phoenicia Hotel, and national carrier, Middle East Airlines.

Implemented between June 14 and June 30, the Sayf Lubnan campaign focused entirely on promotion of Lebanon in the Gulf markets and Jordan, aiming “to gain back the destination as summer resort to Arab people who may be scared to come,” said Carol Hanna, group account director at the advertising agency HC Leo Burnett, who handled the campaign. Using a mix of print, outdoor, radio and television ads on LBC Sat and Future Sat, Sayf Lubnan communicated messages of partying on the beach, enjoying the mountains, relishing good food, and nightlife. 

The concerted efforts of the seven firms behind the campaigns were driven by the realization that a well-timed advertising push might swing decisions of Arab holiday makers in the last minute towards spending the summer in Lebanon, explained Maya Maatalani, marketing manager at Aishti. That’s why conducting the campaign before the end of June was crucial, she said, “in July it could be too late.”

While planning to provide additional incentives in further promotion of the summer season, participating companies had not decided on the exact nature of their offerings by the time the campaign started, added Maatalani who emphasized that Aishti and other firms contributing to the campaign has been affected by the downturn in tourism over the past few months, but not in a threatening way.

All seven companies put money into a joint basked for financing of the campaign; and additional in-kind contribution of television airtime reportedly came from the Choueiri Group and through the support of Saad Hariri. Singer Guy Manoukian donated the tune representing the campaign on the radio, “summer is back in Lebanon.”

Given the predilection of regional vacationers to take their holiday decisions in the last minute, the results of the Sayf Lubnan campaign will only become visible between mid July and the end of August. In looking into the second half of 2005, and beyond, executives at some of Lebanon’s top hotels voiced a mixture of temperate expectations and very substantial long-term optimism.

“2004/2005 was perfect for us until February 14. Compared to some colleagues who faced much stronger problems, we didn’t lose money this year, but this summer will not be the same [as last year],” said Michel Perret, general manager of the Beirut Mövenpick Hotel & Resort in Raouche.

Standing at 50%, the hotel’s reservations for July were 30% less than at the same time in 2004, and “a little less for August” but with a positive outlook, Perret said when talking to Executive in mid-June.  “I forecast 90% occupancy for August at almost the same room rates,” he specified, “assuming that two weeks post the elections nothing bad happens. The diaspora and the flat owners will all check in.”

The strength of the Mövenpick in weathering the crisis was based in part on its location, away from the direct 2/14 damage zone, and on having the advantage of having been repositioned under Perret’s leadership as city hotel with strong conference and banqueting activities besides its resort facilities and marina. But the operation also benefited from succeeding in immediate crisis response following the Hariri assassination, through implementing a Profit Protection Plan (PPP).

At the LeVendome InterContinental, one of the hotels hit very hard in February, management and staff by last month had advanced the recovery of business to a comparable situation. “What we have on the books today in reservations amounts to 60% of what we had in the same period last year, but we are expecting a heavier last-minute booking pace,” general manager Josef Coubat told Executive. The hotel, which had suffered operating losses for four months, was returning into the black figures in June.

In Coubat’s estimation, the summer will be moderate. For bringing results really up, “we count a lot on the year-end,” he said, referring to the holiday season in the last quarter of 2005 and the start of 2006. Commencing in early October with the fasting month of Ramadan, the season’s well-spaced chain of religious and social highlights this year has its first peak with Eid al Fitr in early November, followed on the foot by the Christmas season, the New Year, and topped off by Eid Al Adha around January 10, 2006. 

Addressing the extended future, both managers were emphatic about Lebanon’s potential as destination. Lebanon could use “its European style of life in an Arab country as unique selling point” in attracting visitors. It’s a perfect niche destination,” said Perret.

 “The Lebanese love to go out and are hospitable to foreigners, that is what makes this country different,” said Coubat, “it has a big potential market and we are still trying to make it happen.”

How much could tourism contribute to the Lebanese economy? Another international sector expert made it clear. “It is still not yet recognized how important tourism is for the Lebanese economy. The government treats tourism as a sideshow, while the economy really is tourism,” said Jim Billings, Lebanon director for international consultants SRI. With funding from USAID, his team carries out programs in support of economic development in Lebanon, specifically in the realms of tourism, agriculture and information technology.

It is a curious thing that foreigners living in Lebanon, as well as Lebanese returnees to the country with international experience, often seem to sense the country’s tourism charms with intensity and positive infatuation, expressing this in ways that sometimes exceed the insights of life-long native Lebanon dwellers into the country’s huge economic tourism potential. 

But luckily, there are those, Lebanese and non-Lebanese, who can see the country for what it could be and, more importantly, put their money where their heart is. These include investors and proprietors of tourism ventures, large, medium and small. It is  reassuring for the hospitality future that the rate of business failures in the sector over the last four months apparently did not increase dramatically and remained within the expectable parameters of bankruptcies.

At the Kafalat corporation, which guarantees loans to small and medium enterprises, chairman and general manager Khater Abi Habib observed only one request from a company in the tourism industry to have its loan rescheduled in light of the recent crisis. Both smaller hotels and restaurants working with Kafalat-guaranteed loans would have suffered from the crisis but might depend more on the internal economy than on inflows of foreign visitors and find time to recover from now on. “I anticipate that the ones with losses of revenue will be offered a period of four to six months where we will reduce their payments by one quarter to one third, to get their finances back in order,” he said.

Highly encouraging for the tourism prospects of Lebanon are various further news of the continued professionalization and growth of tourism operations. New investments have been implemented during the past quarter, from the doubling of capacities at the Edde Sands resort to the completion of the Habtoor Grand Hotel, Convention Center and Spa, where notwithstanding several concept adjustments such as changing its name away from the original Metropolitian City Center, construction pushed ahead at full speed this spring and operations are scheduled to be fully on stream within this month. And as hitherto largest tourism-related project to apply for and be granted package deal support through the Investment Development Authority of Lebanon (IDAL), the Landmark project in the downtown has been provided with this contract at the end of May.

Moreover, IDAL chairman and general manager Nabil Itani disclosed to Executive that beyond tourism projects that have already received contracts or applied for them with IDAL, several significant seaside projects are in preliminary stages of planning, including resorts in Jiyyeh and Damour to the south of Beirut and a $90 million project for a 1.3 kilometer spanning beach resort with marina in Tabarja north of the capital, and a major resort projects in the Bcharri Cedars region is pending with investors based in France who envision to build there a resort that allows for summer skiing and includes four 5-star hotels.      

But as it is self-explanatory that a new development project is automatically a great and beneficial project, the hotel executives investing their careers into the country also were not shy to point out that from the perspective of its attractiveness in tourism, Lebanon today is a very mixed bag of good and bad, with a tremendous need for change.

“As public and private sector, we didn’t understand that the heritage is every single building that we can preserve and make shine within this city. The last 30 years were a disaster [and] I don’t see anyone today fighting for this, which is our competitive edge,” said Coubat. He leaned back. “The beauty of the city is our guarantee for the future. We have a beautiful country but no preservation, and the ugliest coast ever. I am frustrated,” he sighed. “We need something to sell.”

Lambasting the same problems of pollution and degradation of Lebanon, Perret exclaimed, “It is not acceptable! The politicians should agree to clean up this country.” He further cautioned that Lebanon should not try selling itself down-market, saying, “Lebanon will not be a mass destination. We should not go the way of competing with Egypt as mass destination.”

Managers of several of Lebanon’s international hotels actually have recently started to explore possibilities of forming a new NGO in support of developing tourism in Lebanon. As the head of an informal club of managers at top hotels, Jean Baptiste Pigeon, general manager of the Crowne Plaza Hotel in Hamra is spearheading the initiative. “Our approach is that based on the strength of our companies, we want to be an added support to whatever public initiative can take place,” he told Executive.

At the same time as currently inquiring with lawyers about the establishment of an NGO under Lebanese law, the group has started working on a tender document seeking offers from international marketing companies for one, three and five year concepts in marketing the destination Lebanon. If the NGO plan turns reality, the organization would aim for a wider membership of hotels and seek to collect funds from annual membership fees and contributions.

“There is no point to ask the government for money,” Pigeon said, giving as reason for the initiative, “Lebanon has so much to offer, a lot of potential. It is a waste to see that this has not been exploited.”

August 21, 2005 0 comments
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Development

The state of Arab Public Opinion

by Safa Jafari August 21, 2005
written by Safa Jafari

Until an objective claim is made regarding the Arab citizen’s access to information, it is as yet premature to speak of a representative public opinion or a true budding democracy in the region.

There have been two recent and important roundtables touching on the issue of the formation of public opinion have taken place. The first was a conference held in Rabat, Morocco on ‘Fostering dialogue among cultures and civilizations through concrete and sustained initiatives, and the other a workshop in Beirut on ‘New media and socio political change in the Arab world’.  Having participated in both, I can say that the two three-day discussions contributed to the ongoing search for realistic means towards a more peaceful global interaction.

Given the region – and particular country – in which we live, the discussions brought to the surface a pertinent question: to what extent is the Arab citizen allowed the ‘appropriate’ space needed to form an opinion before he or she can claim the right to express it?  In other words, can democracy prevail in a territory that defies the formation of informed opinion?

We hear the words ‘public opinion’ mainly with regard to policy and politics.  Exit polls are managed world wide to examine what the American people, for example, think of a certain issue or a particular legislation approved, or bill passed. Projects are designed, focus groups organized, surveys fielded, findings analyzed and then, results rather effectively communicated.  The issue is not whether such opinions actually matter in shaping respective democracies, or whether the people have the voice they are claimed to have in order to express their opinions, it is: how did they form their opinion?

The notion of public opinion has been the subject of debate among social scientists for decades. In the mid-60s more than 50 definitions were compiled, attesting to the complexity of the concept. Although public opinion’s association with polls gave it a very convenient scientificity from the 1970s onwards, the dispute surrounding its meaning has carried on.

It is no wonder that this dispute is endless.  The common-sense idea of public opinion concerns a contested belief that the people can govern themselves through rational thinking. The democratic aspiration for “government by consent” is necessarily based on the existence of informed public opinion; in this sense, popular wisdom is synonymous with rational thinking.  This definition is based on an assumption of the implicit capacity of all groups in society to transcend their interests for the benefit of the public good. Public opinion as the aggregate of individual opinions hence refers to consensus or to the majority. It is the idea that every group can govern itself through a collective will, which is the foundation of ‘liberal democracy’.  For positivist researchers, public opinion may therefore be grasped by polls and other quantitative techniques.

Critical theory, on the other hand, defines public opinion from a more ideal, utopian perspective that serves essentially as a legitimizing principle for political discourses and actions.  It is seen as resulting from the public diffusion of speeches made by the political class and the media.   Public opinion here is not the sum of individual opinions but is constructed by social actors interested in linking their plans to the people's will in order to increase their legitimacy.  

What guides an opinion?  Several interlinked factors, including: cultural backgrounds; interests; and information provided and accessed.  It is within the latter field that our region seems to falter.   

To what extent is a space allowed for the Arab public in which it can introduce information (access to information), formulate its own interpretation of such information (freedom and capacity), and express its opinion of it (voice and infrastructure)?  In most Arab nations, there is no public space within which political figures, information carriers such as the media, and public opinion can interplay freely.  In the presence of civil society, the media receives its legitimacy from public opinion, and not vice versa.

When talking about an informed public, it is both the provision as well as the access to information that is considered.  Both conferences touched upon a certain distortion by communication and information tools of the image in the minds of people regarding history, politics, civilizations, and religions.  How are obstinate opinions of people and events formulated? What makes a society pro-this or against-that? 

We see governments such as those of France and Germany being changed by the people; informed people, to a good extent.  Lebanon may be the first example of self-determinant citizenry in the region. But to what extent did a politicization of the media affect information?

Today, there are almost 200 Arab satellite channels. Special funding, political will and field specialization contributed to this skyrocketing in the 1990’s.  While it took the BBC, for example, 15 years to develop to its current performance, Arab satellites jumped to presenting news round the clock in no time.  The workshop on media and change in the Arab world, however, drew a clear distinction between common political entertainment and actual political empowerment. While field reporting does inform opinion, broadcasters participating at the workshop admitted that investigation of facts and events in the news is an expensive, risky and controversial activity.  How informative can we consider our news to be?

The concept of ‘Red Lines’ was emphasized.  Media in the Arab world – not unlike some other countries – faces restrictions posed by sponsors, rulers, political, social and religious authority figures.  Thanks to progress in technology, however, fast reporting of news events has contributed to a decrease in fabrication and an increase in transparency.  The almost immediate reporting of the assassination of Rafik Hariri on February the 14th in Lebanon contributed to its accuracy in news portrayal and even in speculations within one hour of the incident!

Interestingly, the workshop demonstrated an almost unanimous frustration amongst television dialogue presenters with what they termed a ‘sadistic’ government attitude when it comes to information provision.  Requesting even more than one political perspective at a time therefore became a masochist activity.

Participants discussed whether the media currently portrays reality or is rather a tool for change (for the better or the worse, of course).  On the one hand, an argument was made that in the last few months, media covered political development in Lebanon as it arose from the public (televising spontaneous demonstrations, burials of the assassins, and youth camps).  On the other hand, examples were demonstrated where different Lebanese channels reported events differently; guided by their own political affiliations:  some delay reporting certain news, some exaggerate them and some focus on rather misleading aspects of them.  A good question to ask therefore is: where do we begin reform: in politics or in media?  And is it not time that documentaries narrating facts and different perspectives be circulated rather than a manipulation of emotions.

Information carriers such as the media must have self-applied codes of ethics: systematic laws that regulate issues such as security, political affiliation, interest, privacy, decency, accuracy, and sources of information.  This is distinct from existing ‘codes of ethics’ that are government imposed in some countries.

Access to information and freedom of expression are international human rights norms.  Article 19 of both the UN Declaration on Human Rights and the International Covenant on Civil and Political Rights state that  the right to freedom of expression includes not only freedom to ‘impart information and ideas of all kinds’, but also freedom to ‘seek’ and ‘receive’ them ‘regardless of frontiers’ and in whatever medium.  The United Nations Development Program is currently supporting six Access to Information projects in five countries in the Arab states Region: Egypt, Jordan, Morocco, Palestine and Sudan.  The graph below indicates assistance provided by the UNDP in these Arab States allocated to strengthening communication mechanisms and media development. 

Work towards the formation of a more informed public is in progress.  In the meantime, however, this public is challenged in the opinions it forms.  Elections are best in an aware society.  Only when information is properly disseminated and equally accessed can we then move on to discuss issues of democracy and accountability in responding to the needs and claims of the informed public.

Safa Jafari is a specialist on human rights and human development

August 21, 2005 0 comments
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For your information

Serge Hochar

by Executive Contributor August 20, 2005
written by Executive Contributor

Serge Hochar is president of the Union Vinicole du Liban (UVL). He also makes the celebrated Chateau Musar, who wines have been listed among the world’s finest. In this interview he talks to Executive’s editor Michael Karam about the future of the Lebanese wine sector, the international export market and how he and Lebanon’s 15 other producers can help regulate and develop the wine sector into a more viable and potentially lucrative agro-industry and a symbol of culture, civilization and good living.

You have just come back from the London International Wine and Spirits Fair and VinExpo in Bordeaux? How important are wine fairs for Lebanese producers? Are they cost effective?

They are good opportunities to promote our wines, especially as we are still relatively unknown. Therefore it is the best way for us to get exposure. Of this I have no doubt. It was how Musar made its breakthrough [at Bristol in 1979]. However each winery has its own evolutionary stage and has its own requirements. Mainly the big consortiums and the small producers attend today’s wine fairs and in this way they reflect the market trends. Lebanese producers need to be there but they are often costly and this is why the individual producers have become selective as to which fairs they attend. Musar stopped going five years ago, as it was not part of our strategy, but two years ago when we released our new wines, we reversed this decision.

In London there was only you and Chateau Kefraya. How important is it to have a national showing?

As I said, Producers make their own choices. There was a bigger showing at Pro Wein [in Düsseldorf] and nearly all of us will be attending Vin Expo. I am not sure given the size of Lebanon whether it is indeed better for us to be grouped together or whether we should be individuals. I don’t see it as a necessity but it could definitely help, allowing us to confront the market as one, giving informed people the opportunity to taste all the different wines from various terroirs and the various producer and their conceptions. Of course this is a good thing.

Between 1990 -2005 Lebanese wine production has doubled. What is the state of the wine sector today? Many see the sector divided into three segments: You, Ksara and Kefraya and then the rest? Is this a fair assessment? Can we look at the market in three segments with three separate interests?

There is no desire within the UVL to hurt any other member. If we can develop all the wine producers within their ability, then that is a good thing. Massaya helped us a lot. They [the Ghosn brothers] brought us together. We met, we had lunches and we became like a family. And so today, we have a financier, a dentist and an architect who all want to produce wine.

What then do you say to those producers within the UVL [Union Vinicole du Liban] who privately complain that their interests are not wholly represented?

What are their interests? If you want to come to the truth it was ourselves [Châteaux} Ksara and Kefraya that started the UVL to join the OIV [and we made the [wine] law. Our aim was to be recognized as a wine producing country, one that could export to Europe and this was it. Since then, in the last five years, there have been so many newcomers that we realized that there should be a body to regulate Lebanese wines from the first stage of grape growth to the bottling as well as analysis and marketing and this is why we have called for the creation of the National Wine Institute. We need to get to this stage so we can monitor the growth of the sector and develop it. Do we know where the best terroir is? Do we know which areas are suited to which grapes? No, because we have no studies but there are people and organization that can help us. Our first objective was the law and I said at the time that without a law we are wasting our time. Then I said we need an institute and without it we are still wasting our time. We don’t need to look to the UVL as a marketing tool but sadly some producers cannot see this.

Where are we with the National Wine Institute?

Its establishment is not too far away but we should not dream about achieving too much too soon. Once we have an institute and we have a budget, we can proceed. Anything that cannot be done by the UVL will be given to the private sector. Then we can develop a global policy that will cover the wine from the grape to the market. Then we can begin set out building a sector, one that one day will produce 50 million liters from 100 – opposed to 16 – producers. That will not make us a great wine-producing nation but it will make us a respectable one. You must remember that Gallo [the Californian producer] makes 600 million liters. I am dreaming of this because I believe that the added value of wine in Lebanon is immense but few people can see it.  Finally we must sell our wines at a premium. We have to, when we represent roughly 0.018% of the world’s production.

What are the potential repercussions to the sector if there are further delays?

There will be none because our levels of production are so small.

Wine is arguably Lebanon’s most high-profile export? Do you believe the government is serious about wine or even aware of the potential?

Most of those within the government are aware apart from those who are oriented towards wine and aware of its history and recent successes, but these people do not have the time to get involved in promoting the wines.

Ok let me ask you this. Do you need the support of the government?

In the 70s, I went to MEA to ask them for help they said we don’t help the private sector. I went to the national Tourism Council and they said the same thing. At that point I said forget it. Then, when I became known people wanted me to help them. I said “when I needed you, you said no. Why do you need me now?” So it would be wrong to assume that we can build something substantial with government support.. The [National Wine] institute should be a private institute with a public character, which will allow the public sector to be involved but it will be run by private sector mechanisms. This is the only way to save the institute from the virus of the public sector. In reality we can do everything ourselves. Even the agro initiatives can be done by the industry.

There are two new wineries in the pipeline and as far as we know they have not yet planted any grapes or have long-term relationships with the major negoçiants. What are the pitfalls of entering the sector this way?

In Lebanon, you have wineries who own land and who own the grapes. Then you have wineries that have rented land and plant grapes and you have wineries that have long term contracts to buy grapes from local growers. Then you have the other end of the market where producers buy grapes from local growers on a casual basis. The latter is dominated by the newcomers who are by and large not knowledgeable and who will take any grape and they will learn from experience. This multiple approach from ownership to direct buying happens all over the world from US to Europe to Burgundy. It is nothing strange.

So it will not be disruptive to the sector?

For the time being the production of grapes is increasing. Many people are planting more grapes with a view to one day produce their own wine. Michel de Bustros {of [of Château Kefraya] started planting in 1955 and began his wine production in the 80s. I don’t see a problem. There is room for more production.

Lebanese producers are forced to export due to the domination of the local market by Châteaux Ksara and Kefraya? Is it feasible to introduce a campaign to encourage the buying of Lebanese wine that might increase overall national consumption?

This would be great if you can do it.

So what’s stopping us?

It could be done under the state. Why not I am not against it but we don’t have the means. The newcomers need help. Forget the local market. It is a waste of time lets talk about the world market where we can find room to sell. But it is not the responsibility of the UVL to do this. They need help at a government level. This was not the objective of the UVL when it was founded. But before all this we need a policy regards the regulation of wine. You have met all the producers. How can we launch a campaign to include all of them?

Well, you could have a generic campaign urging people to drink Lebanese wine. A pretty woman sipping a glass of wine, Lebanese wine, any Lebanese wine.

Look at how small our production is: 6 million bottles. Who would fund such a campaign?  Mouton Cadet spent $10 million to launch his new bottles. He is just one winery and he produces 16 million bottles. The [Lebanese wine] sector is worth $25 million. Ours is a poor world when you thank that a Saudi Arabian can come to Lebanon and spend $6 million on an apartment. 

What are the biggest challenges facing Lebanese exports?

It is a very tough international market, one that is going a very difficult situation. There is a glut of wine and people are drinking less. I don’t know where the world market will be in ten years time.  

Can we not capitalize upon this position ourselves as producers of limited quantities of very good wine? We are exporting 3 million bottles a year. Surely with the correct positioning they should be snapped up immediately?

With the right marking, yes. But it is a long process.

How do we compare regionally? Why are Israeli wines in the UK supermarkets and ours aren’t? Is it purely because they can meet the volume demands or are they better organized?

The Israelis had two things in their favor. They used Davis [university] enologists who made technological, cépage-oriented wines like much of the new world and second they were very clever at marketing, using their contacts within the world wine market, many of whom are Jewish. Isreali wine is a niche apart. The Moroccans, Algerians and the Tunisians had French influence. We can’t talk about Egypt and we can’t talk about Turkey.  Greece has started to improve since it joined the EU.

What’s your dream for Lebanese wine? Do you drive over the Bekaa and look at the valley and wish it were all planted with vines?

No. My dream is that we exploit the Lebanese terroir to produce wines that reflect the climate and microclimate of Lebanon, show its culture and are not deformed in any way to reflect the demands of the global market, because one day the whole wine world will follow this trend and make wines that reflect their country. Do not think that tomorrow we will drink same wines we drink today.

But we need to the rest of the world about our wines.

That is your homework. I am just a wine maker

August 20, 2005 0 comments
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Economics & Policy

Theories from the fringe

by Faysal Badran August 1, 2005
written by Faysal Badran

Even the most strident hawks in Washington could not have anticipated the stunning costs of the wars in Iraq and Afghanistan. They have cost American taxpayers more than $314 billion so far, to the extent that the Bush administration’s open-ended commitment has raised concerns, even among war supporters.

At the rate the United States is spending, the military campaigns could become the most expensive operations in the past 60 years, far exceeding the costs of the Korean and Vietnam conflicts. One nonpartisan Washington think-tank estimates that the cost of the war in Iraq could exceed $700 billion – a remarkable sum considering that polls show that a majority of Americans believe that the war wasn’t worth starting and feel that they are no safer today than they were before September 11, 2001. Such mind-numbing spending on a scenario with no discernible exit strategy is all the more troublesome because it has occurred outside the normal budget process, with a series of pay-as-you-go supplementary appropriations. The stealth-funding approach has come without comparable reductions in other government programs, thus saddling the country with an enormous debt burden that exceeded more than $400 billion last year. President George W. Bush’s recent efforts to sell the war to the American people have never been accompanied by solid fiscal policy. The Congressional Budget Office estimated three years ago that the wars would cost between $1.5 billion to $4 billion per month, when in fact the campaigns are costing up to $8 billion per month. Given that the astonishing spending levels have done little to curb the insurgency that has claimed the lives of 1,763 US soldiers and wounded more than 13,000, it’s no wonder that many lawmakers in Washington are questioning whether the cost of these wars has grown too high. Republican Senator Chuck Hagel of Nebraska has termed the military spending priorities as “dangerously irresponsible.” That’s the only reasonable response to a war policy that lacks a coherent plan for bringing stability to Iraq.

At least the Bush administration should be forthright enough to include the cost of the Iraq mission in the budget. What is disturbing about the overreach of the US, aside from its unilateral and destructive policies, is that it may be a symptom of a nation, which no longer has the means to accomplish its objectives, however noble they may be deemed.

Problems ahead

Empires collapse usually due to a combination of military overreach and economic weakness, and judged by these criteria, many believe the US to be heading for a fall. Washington’s occupation of Iraq has been a disaster. Even after two years, the US Military has failed to subdue the Iraqi resistance. The war, more and more, seems “unwinnable.”

Developments on the economic front are even more dangerous for the US. Its power rests on two main pillars: firstly, military superiority, and secondly, the role of the dollar as the world’s reserve currency. Iraq is making a mockery out of the first, and the second is in jeopardy. America’s massive trade and budget deficits ($630 billion and $500 billion respectively) are driving down the dollar to such an extent that its status as the global reserve currency is imperiled. Since world trade is largely conducted in US currency, most countries have to export goods and services in order to earn these dollars, but all the US has to do is print more dollars. As economist James K. Galbraith has explained: “[The US gets] real goods and services, the product of hard labor by people much poorer than ourselves, in return for chits that require no effort to produce.”

The purchase of massive amounts of dollars by the rest of the world allows Washington to borrow cheaply, keep interest rates low, and run up a trade deficit that no other country could get away with. The world thus pays for US over-consumption and underproduction, as well as its wars. This arrangement, as economist Andre Gunder Frank has put it, is “a global confidence racket,” or a racket that can continue as long as other countries keep on buying dollar assets such as US Treasury Bills, thus financing Washington’s enormous deficits.

The global move away from the dollar portends economic devastation for the US. Stephen Roach, chief economist at Morgan Stanley, one of the world’s leading investor firms, has told clients that the US does not have more than a 10% chance of avoiding “economic Armageddon.” He points out that the $2.6 billion the US has to import every day to finance its trade deficit constitutes an incredible 80% of the world’s net savings. Obviously it’s an unsustainable situation. According to Roach, the dollar will keep falling due to America’s record trade deficit. To attract foreign capital and check inflation, the Federal Reserve Board’s chairman, Alan Greenspan, will be forced “to raise interest rates further and faster than he wants.” US consumers, already deep in debt, “will get pounded.” The record US household debt is now equal to 85% of the economy [the US national debt is $7.7 trillion, while total US debt is an unfathomable $43 trillion]. Americans already spend a record proportion of their income on interest payments, and interest rates have not even substantially increased yet. Thus the stage appears set for massive national bankruptcy.

Former Federal Reserve Chairman Paul Volcker has put the likelihood of a financial disaster at 75%, while the US comptroller-general (head auditor), David Walker, “makes no bones about the fact that the situation is dire.” For Martin Wolf, associate editor of the Financial Times, “the US is now on the comfortable path to ruin. It is being driven along a road of ever-rising deficits and debt … that risk destroying the country’s credit and the global role of its currency.” Paul Krugman, economics professor at Princeton University who writes a column for The New York Times, said: “We’ve become a banana republic … If you ask the question, ‘do we look like Argentina?’ The answer is: ‘a whole lot more than anyone is willing to admit at this point.’” Argentina defaulted on $100 billion of debt in 2001, with catastrophic effects: its currency plunged and the economy collapsed, bankrupting thousands of businesses within weeks. National income plummeted by 67%, pushing half the population below the poverty line.

The weakness of the dollar and the huge deficits are symptoms of the decline of US manufacturing. “Americans don’t produce enough and don’t save enough,” said Schiff. US manufacturing is only 13% of GDP and, according to Roach, “manufacturing employment currently stands at only about 13% of the US’ private non-farm workforce – down sharply from 23% … in the mid-1980s.” Since 2000, the US has lost close to three million manufacturing jobs. Between 1989 and 2004, the US savings rate fell from 6% to 1%. Foreigners now produce most of the goods Americans are consuming and lend Washington the money to buy these goods, leading to skyrocketing deficits.

American companies clear out

An important factor behind the manufacturing decline is the abandonment of the US by its own corporations, many of which have relocated operations to Asia from where they export to the US. John Chambers, chairman of Cisco, said recently: “What we’re trying to do is outline an entire strategy of becoming a Chinese company.” Cisco is the leading US supplier of networking equipment for the internet. The company manufactures $5 billion worth of products in China, where it employs 10,000 people.

In fact, the US economy has been in decline for more than three decades, accounting for a plummeting share of world economic output. The first dollar crisis occurred at the end of the 1960s when then US President Lyndon Johnson’s escalation of the Vietnam War led to increasing public deficits. This coincided with the rise of Western Europe and Asia as strong exporters, to whom Washington lost its manufacturing lead. To retain its global domination, the US then depended on its military superiority and the dollar’s role as the world’s reserve currency.

As America’s deficits rose due to the Vietnam War, France demanded gold in exchange for the dollars it held, since at the time the greenback was backed by Washington’s gold reserves. Other countries followed suit and, as US gold reserves were drained, President Richard Nixon de-linked the dollar from gold and floated it against other currencies. This coincided with the oil crisis of the 1970s, when crude prices shot up 400%. Suddenly, oil became the most important traded resource, and Nixon linked the dollar to it. In June of 1974, US Secretary of State Henry Kissinger made a deal with Saudi Arabia (the biggest OPEC oil producer) stipulating that oil could only be bought in dollars. In return, the US agreed to militarily protect the Saudi regime. In 1975, OPEC (following the Saudi lead) officially agreed to sell oil only in dollars. The age of the petrodollar was thus born. As long as oil was traded in dollars, so would other goods, and the dollar would remain the world’s reserve currency. This arrangement allowed the US to continue its dominant imperial role despite its crucial economic weakness: the inability to compete with the European and Asian countries in manufacturing and export capacity. But now America’s position became highly vulnerable to the whims of the oil-producing countries and to the fate of the resource itself. The first challenge to the petrodollar system came with the Third World debt crisis.

Awash in petrodollars, Western banks loaned hundreds of billions of these to developing countries, which could not repay the loans when Washington raised interest rates to nearly 20% in 1979 to save the falling dollar. It was crucial for the future of the petrodollar system that this money be recycled back to the West, and so the US used the World Bank and IMF to ensure this would happen. The loans were repaid several times over (the payments continue), and the petrodollar system was saved, but at the cost of decimating Third World economies with structural adjustment programs that devastated their industry, employment, and health and education sectors.

America’s petrodollar hegemony “was based on ever-worsening economic decline in living standards across the world as IMF policies destroyed national economic growth.”

Downward spiral

The collapse of the dollar and that of the US economy could end America’s superpower status as Washington becomes incapable of financing a colossal military machine that currently occupies 725 bases around the world with 446,000 troops. Economic power will center on the European Union, China and India, which are already creating new global structures that exclude the US. These endeavors show that the U.S. is already, to some extent, a “has-been” global power whose desperate military aggression only makes it weaker on the world stage. As the Financial Times has explained: “A new world order is indeed emerging – but its architecture is being drafted in Asia and Europe at meetings to which the Americans have not been invited.” In contrast to Washington’s endless military ventures, Europe and China emphasize economic might as the main instrument of foreign policy. As Newsweek pointed out, “the strongest tool for both is access to huge markets.”

No single country has posed more of a challenge to Washington than China, which recently replaced the US as the leading consumer market in the world. Beijing has economically displaced the US all over Asia and is now doing so in the latter’s so-called back yard, Latin America. China is now Chile’s largest export market and Brazil’s second biggest trading partner.

In November 2004, Chinese President Hu Jintao went on a tour of Latin America and agreed to invest $30 billion in the region. Most importantly, China and Venezuela signed a bilateral energy pact in December 2004, under which the latter agreed to supply Beijing with 120,000 barrels of fuel oil a month. China pledged to invest in 15 Venezuelan oil fields. China has become the world’s second largest importer of oil after the US. Venezuela is America’s fourth largest oil supplier, and the deal with China cuts into one of Washington’s “few remaining relatively stable sources of crude.” China intends to make a similar move towards Canada, America’s biggest oil supplier. What can Washington do about such incursions into its “vital interests?” Not much, since Beijing could cripple the US economy simply by stopping its purchase of American Treasury Bills. If Bush continues on Napoleon’s imperial path, so the theory goes, America will follow the fate of Napoleon’s empire. Regardless of the Bush administration’s vainglory, the US cannot afford hundred-billion-dollar-a-year and protect itself as well. Eventually, financial reality will set in, and the US would have to withdraw from the Middle East or risk running into serious trouble.

August 1, 2005 0 comments
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Finance

Hedging your bets

by Faysal Badran August 1, 2005
written by Faysal Badran

with many businesses across all sectors suffering from the fluctuation in the euro and watching their profitability erode, it is important to recap on hedging, the process via which businesses can lessen the impact of unexpected currency moves on their bottom line. Without delving into the complex types of hedging, simply put, here is how it works.

Lebanese companies that engage in overseas trade, such as car and food importers, regularly face a problem that stems from importing products or services in a currency different than the base currency. Lebanese companies that import from countries using the euro face currency risks. The fluctuations in the euro can cause profit margins on the final items to fluctuate. If the company is hit with a sudden rise in the euro, it must absorb the change, and if it is unable to pass on the change to the consumer, it may end up with a net loss.

For companies that trade in large amounts annually, the changes can cause serious strains if not neutralized. We have all heard the anecdotal pretexts given by everyone down to the vegetable seller, that things are pricier, “because of the euro.” Simply put, unlike other Arab countries like Saudi Arabia, where the Toyota/Lexus agent carries out very complex hedging procedures to offset any sudden fluctuations in the yen, most Lebanese companies remain unhedged and pass on any increases to the consumer.

Taking precautions

Companies who want to neutralize the effect of currency variations will typically sell an equivalent amount of foreign currency forward in order to lock in a specific rate and have clarity as to their upcoming results. They will for instance, if they are worried about a rise in the euro, buy euros forward to a specific date which covers the duration of their liabilities. This way, they have in a sense, taken care of their needs without having to worry about paying up more for their euros later on. Or if they have merchandise coming in, which was priced in euros to start with, they can do the same so that when they receive their goods, they can price them appropriately.

The raison d’etre of hedging came about with the assumption that the pricing of the final product ought not to be dictated by wide swings in exchange rates. Hence the process of hedging, the key to which is offsetting future risks by using the foreign exchange markets. When a company decides to tackle the currency element in its operations, it will typically look at its forecasted cash flows in currencies outside its base, and use tools to blunt, or lessen the effects of future movements. If the company has liabilities in euros for instance, or if it imports products in euros, it will look for ways to match those flows in a way that gives it visibility going forward. Of course, a company may decide to leave foreign exchange risks un-hedged, but then it would be taking a speculative view on currencies, an exercise that involves risk and risks can make or break its fortunes. More importantly, it would be over stepping its core operations, for it is not in the speculation business.

Recently, with the advent of very complex instruments, many multinationals have in fact engaged in speculations under the umbrella of hedging. Some have ended disastrously; such was the case of a large European conglomerate based in Germany, which had decided to go un-hedged on large contracts. So any business no matter how small can, in effect manage its currency exposure. A shop importing clothes from Milan as well as a large corporation face in essence, the same issues, but with varying degrees of scale and complexity.

But it is not just importers that face a currency dilemma. Companies that have overseas operations also face a currency decision which relates to the translation of its profit/loss accounts from overseas back into the base currency. The bottom line is that a proactive approach, with the assistance of a bank treasurer can help reduce the effect of currency swings on the operations of a company. While hedging techniques have developed, it is crucial for businesses to have a clear view of their upcoming liabilities to optimize the hedging process. The tools available range from straightforward contracts to complex options that are most often used by multinationals to offset complex transactions.

Hedging is a tool which enables companies to protect against changes in their base currencies, but it is also useable in a variety of other investment forms such as interest rate risks, equity crash risks as well as a range of commodities. It’s a smart move.
 

August 1, 2005 0 comments
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Economics & Policy

Coming up with the funds

by Nicolas Photiades August 1, 2005
written by Nicolas Photiades

The Lebanese financial sector has long been dominated by commercial banks, which have grown significantly in the post-war period. Indeed, customer deposits have increased threefold since 1995 to reach the $60 billion mark by the end of the first quarter of 2005. However, this phenomenal growth was more or less cancelled out by the banks and other financial institutions, struggling to allocate their deposit funding efficiently. They have scarcely invested their deposits into the domestic economy, opting instead to support the government’s financing plans by subscribing to government Treasury Bills and other types of fixed income securities. These have given high yields, but also contributed to killing off the domestic capital markets and the creation of alternative investment vehicles such as funds, that would allow investors to achieve substantially greater returns on their savings than they could individually.

Funds are essential for any national economy as they can:

* Achieve superior rates of return to investors through capital gain and profits.

* Help Lebanese companies in their growth and development plans.

* Trigger much needed privatization in Lebanon.

* Facilitate the numerous family succession issues (which are numerous in a country dominated by family ownership).

* Attract qualified individuals and entrepreneurs by providing them with the necessary seed capital, financial expertise and know-how.

* Create new jobs.

* Help the development of the capital and financial markets in Lebanon.
 

* Facilitate the repatriation of part of the Arab wealth that is being withdrawn from major markets such as the US and Europe after 9-11.

* Encourage wealthy Arab and Lebanese individuals and investors to invest in high value-added projects in the country and the region.

The creation of funds has been very slow in Lebanon, despite some early attempts in the mid- to late-1990s with Lebanon Holdings, the abortive private equity fund established in the mid-1990s by Lebanon Invest, and the Middle East Capital Group. Banks and other financial institutions did not encourage the placement of savings in places other than deposits or real estate and only a few Lebanese understood the efficiency of funds in channeling savings towards the economy, including the real estate sector. What is ironic is that today only banks are capable of raising the required amounts of money that can build up one or more funds. Lebanese banks have developed significant relationship networks throughout the Arab region, as well as domestically, in order to boost the fund management industry significantly, and there is no reason why Beirut cannot be transformed into a regional center for funds.

For the moment there is no real Arab center for fund management, with the slight exception of Dubai and Bahrain, which have just started to look into this activity, given the return home of significant Gulf investments in the US and Europe, rumored to be in the region of $300 billion. But none of these Gulf centers such as Bahrain and Dubai have focused solely on fund management, seeking instead to become global financial and commercial centers.

Becoming a hub for funds

Beirut can become the Edinburgh of the Middle East (Edinburgh, together with the main Swiss cities, Paris and London, has long been regarded as one of the main centers for European fund management). It has all the ingredients: its banks and their impressive fund-raising capabilities, the know-how of its expatriates and local specialists (some of the best fund managers in Europe and the US of Arab origin are Lebanese), and its unique East-West culture. The local infrastructure in Beirut, particularly in the Solidere area, and the proximity to Europe are also propitious factors for the development of the fund management industry in Lebanon (although the rapid introduction of broadband internet has now become a dire necessity).

Funds would also be considered to be the key for the development and diversification of revenues for local banks. Indeed, most banks in Lebanon are working hard to diversify revenues by opening branches or going into joint ventures with local partners in other Arab countries, as well as by developing particular banking products and activities such as retail and treasury management. By focusing on the development of fund management activities, Lebanese banks would be emulating the Swiss private banks model, which consists of having relatively small balance sheets but very large off-balance sheet assets, which come in the form of funds. A Swiss-model-type banking sector would facilitate the diversification of revenues and, more importantly, would strengthen the recurrence of the income stream over a long period of time. With the Basel II capital regulations to be applied in Lebanon starting in 2008, and which require banks to have healthy and recurrent revenues in order to increase capital organically (through the injection of profits into capital), the timing of the development of the fund management industry cannot be more appropriate.

In addition to contributing to a greater diversification of commercial banking activities and revenues, funds are regarded to be instrumental in the development of investment banking activities. Indeed, investment banks have not developed in a similar vein to commercial banks since the establishment of the first Lebanese investment bank more than a decade ago. The Lebanese market is too small and overwhelmingly dominated by a restricted number of business families, which make investment banking deals very difficult to come by, while encouragement from the government to develop the investment banking industry has not been efficient or loud enough. By launching funds of appreciable sizes (a fund would make sense starting from US$40 million to $50 million), the Lebanese commercial banks would be developing their own investment banking divisions (or subsidiaries) in the most efficient way, as the funds would inevitably feed in a continuous manner into the investment banking division with a diversified panoply of deals.

Importance of good management

Private equity and venture capital funds cannot be managed passively. They need full involvement on the part of fund managers. Active involvement is the only way of ensuring that value is created, corporate governance is improved, and investment banking deals are created, to the ultimate benefit of both the fund’s parallel investment banking division and the invested-in firm. For example, some companies may need an increase in capital in order to be healthier and more valuable in the medium to long-term, and would hence need the investment banking division of their banker to carry out a share issue for them. Another example would be a company needing, as part of its value creation strategy, to carry out a management buy-out, which can only be arranged and executed, via the fund, by an experienced investment banking division.

Weighing up the benefits

Funds should be regarded as a valuable tool in the development of an economy. The fund industry must be developed and diversified to include funds that are profit-oriented, developmental, social, or even a mixture of all. The domestic market could also benefit from a large number of funds, launched by many banks almost simultaneously. A market full of funds would accelerate the development of capital markets, create liquidity for securities (as there would be more than a handful of buyers and sellers of company shares) and quicken economic growth.

Of course, no matter what the specificities and investment policies of the funds are, it is crucial that those funds be managed with rigor and diligence. Some essential ingredients for good fund management include having high standards of integrity, acting with “due skill, care and diligence,” having high standards of market conduct, knowing one’s customer and his requirements, being transparent at all times and avoiding conflicts of interest with and amongst clients. Failure to meet such basic requirements could ultimately turn the many positive advantages of funds into a national nightmare.
 

August 1, 2005 0 comments
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The road to Damascus

by Yasser Akkaoui August 1, 2005
written by Yasser Akkaoui

There are dark and worrying signals coming from Damascus. This month we have seen trucks stranded at the Syrian border under the pretence of security measures. We have heard of Lebanese nationals being expelled from Syria and there is even talk of Damascus issuing the order for a mass pullout of its workforce in Lebanon.

We have been bullied and shut out before, notably in the period just after independence, and in 1973 when the army tried to defend Lebanese sovereignty in the face of intolerable Palestinian guerilla activity. It is clear now that economic punishment is policy.

We have come to expect our public servants to be less than dynamic, but the sloth demonstrated in responding to the current crisis gives cause for concern. We need a leader, a genuine statesman, who will say: “Enough! We are a free nation. We can depend on ourselves and nobody or no country is indispensable.”

Any such decision would be a demonstration of commitment to our newfound autonomy. It will be expensive, but a plan to ensure that Lebanese products do not spend one more night in the open would be a priceless gesture of national solidarity. In the meantime, Lebanese industrialists are already finding ways around the blockade.

But what of Damascus’ twin threat to expel our citizens and withdraw its own nationals? The Lebanese that work in Syria are both skilled experts and investors, vital to the development of the Syrian economy. (We must remember that this is a country that has already crowded out its homegrown talent.) Crucially they are net contributors. They do not go there to earn higher salaries or milk a system.

And yet despite the border blockade, despite the expulsions, we still welcome and hire our Syrian brothers. This is the Lebanese way. To withdraw their citizens from Lebanon in a misguided attempt to bring our economy to a halt will not hurt the Lebanese. Our free movement of labor policy would soon fill any vacuum. It will however hurt the Syrian economy to which Lebanon contributes roughly one third of the Syrian salary mass.

Damascus is not shutting us out, they are locking themselves in.
 

August 1, 2005 0 comments
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Real Estate

The appeal of ashrafieh

by Peter Grimsditch August 1, 2005
written by Peter Grimsditch

Ashrafieh was never meant to be this crowded. Its six-meter wide streets gave it a village appearance as it gazed sleepily on the eastern edge of the original walled city of Beirut – roughly what is now the downtown area. Even 30 years ago land was plentiful and the roads were used to get to places rather than as temporary parking lots in the district’s nightmare traffic jams.

But the rapid influx of people during the war, especially from Spears and Zarif, began a process of transformation of the essential characteristics of the area. Where land was once available for the rapid construction of concrete blocks of flats as architecturally uneasy neighbors to the traditional villas, now the villas themselves are increasingly under threat to satisfy the seemingly insatiable demand.

The modern snob value of Ashrafieh also traces its origins back to the wartime era when it became a matter of defiant pride to repair within 24 hours as much shell damage as possible. From this developed a reputation for cleanliness and security, as well as the all-important attraction of being the innovator in the 1990s for restaurants and nightspots.

Ironically, its location on the edge of downtown increases its allure as a method of avoiding the ill-tempered morning commute along the coastal highway. Maybe traffic jams in narrow streets are quainter than those on four-lane highways.

Like the curate’s egg, it’s good in parts

Real estate consultant Michael Dunn, chairman of Michael Dunn & Co., summed it up. “Part of Ashrafieh is very much wanted and other bits less so,” he said. In the prime areas, he listed the advantages as proximity to the town center, a smart area and a good address, snob value, a new shopping center and restaurants.

“Obviously the problem on the east side of town is the appearance of the port and that is what prevents Ashrafieh from having a high-priced residential seafront area like Manara,” Dunn added.

According to the real estate agent Coldwell Banker, there are two main categories of potential buyers in the area. The first are young, local Lebanese with jobs in Beirut, the classic “dinks” – or Double Income No Kids. Their targets are medium-sized apartments, preferably with a parking space and priced at under $200,000. Never let it be said that the young lack idealism.

Coldwell Banker says demand for this tier of property has been steadily increasing in the past two years while the supply remains, at euphemistic best, “limited.” Since even idealism has its limits, dinks are increasingly turning to alternative areas that still cut down commuting time. For this reason Hazmieh is growing in popularity where homebuyers can get the same space for less or even more space for less money than in Ashrafieh. And the highway from Hazmieh speeds up most of the drive into town … until it reaches the edge of Ashrafieh.

Seeking comfort in the “Golden Triangle”

The second main category of potential buyers identified by Coldwell Banker is a mix of local wealthy Lebanese and Lebanese expatriates returning from Europe and other Western countries. These home-seekers are on the lookout for 300m2 apartments starting at around $300,000, specifically inside the “Golden Triangle” that connects Tabaris, Sodeco and Sassine, such as Lebanon Street, Furn Al Hayek, and Abdel Wahab El Inglizi.

Even that increased budget is modest when compared with some of the prices being asked. New apartments in the Park Hill project at Sassine, albeit somewhat larger at 400m2 to 600m2, are being sold for between $2,000m2 and $3,000m2.

“The top areas are very bourgeois and are considered very safe,” said Fady Malha, a lawyer who has offices in Monnot and who also lives on the edge of Ashrafieh. “The road from Sassine to Sodeco and the Sursock areas are the most expensive areas, especially on the same side of the road as the Hotel Gabriel. Apartments of 400 meters sell for more than a million dollars. Tabaris is slightly cheaper at around $2,000 a meter.”

According to Dunn, prices have increased by at least 50% over the past five years. “Before 2000, the top price for existing buildings was around $1,200 a meter,” he said. “I expect downtown to trade at a premium to Ashrafieh for the foreseeable future but there will be growth in one area when there is growth in the other. Assuming stability [will return to] the economy and the country, it would be fair to expect values to go up by five percent a year.”

Snapping up, or demolishing old villas

A growing trend is to look for old houses in Gemaizeh although they are very difficult to find, said Malha. The difficulty is enhanced by the fact that Gemaizeh has a bigger percentage of old rents than Ashrafieh. Dunn said that property ownership in Ashrafieh was less hamstrung by this problem and therefore it became more tradable, and of course more valuable.

With so little vacant land available for development, another continuing trend could be to follow the pattern of Bourj Hammoud by demolishing existing buildings to replace them with bigger ones. “I think they will continue to knock down those special old villas and the less efficient buildings,” said Dunn. “It is perfectly legal unless the buildings are listed, but any long-term strategy really ought to go with the villa.”

His arguments are based more on financial considerations than pure sentiment. “To maintain the value of the whole area, its character needs to be maintained,” said Dunn. “The villas will have an even more special value in the future. If Ashrafieh becomes over-developed, it will be just another modern suburb.”

That danger is real. With modern luxury apartments mostly being sold on plan, the temptation for developers to acquire and demolish non-listed villas is intense. “Eventually there will be no place left to build in Ashrafieh,” said Coldwell Banker.

It ain’t cheap and it ain’t easy

At the other, supposedly bottom end of the buying scale, competition among buyers is fierce and prices are high for what is being offered. “There are no bargains in Ashrafieh,” said Malha. One first-time buyer started hunting with a budget of $100,000 and found nothing. “She upped her budget to $130,000 but found only property in an appalling condition,” he added. Now she has increased her limit to $150,000. “Even at that price the choice will be very limited and if she does find a place it could easily need another $50,000 to bring it up to scratch,” said Malha.

Coldwell Banker sees buildings constructed in the 1960s and 1970s and perhaps damaged during the war as more attractive to investors and developers than to individual homebuyers. The firm optimistically puts a value averaging $250m2 to $300m2 on these buildings although most experts see even the bottom end of the market as much more expensive. Dunn said there was affordable property in Gemaizeh around the steps and among the older apartment blocks in Sioufi. He put prices in the $700-$800/m2 range.

Opening its doors to all-comers

Although nominally designated as a “Christian area”, Ashrafieh has become much mixed over the past decade. “Muslims see it as a safe area where there is no question of which faction will eventually take control,” said Malha. “The area is also an obvious choice for moderate Muslims, whether Lebanese or foreign, for the lack of interference in their life.” Along with Broummana and Beit Mery, Ashrafieh is more and more on the shopping list of Gulf nationals seeking an alternative home in Lebanon, especially for the higher-priced properties.

But whether expensive or comparatively cheap, few properties remain on the market for long. “If you have the right amount of money, it’s not too difficult to find a place,” said Malha. “Ashrafieh is a fairly small area and if you want to buy you have to be quick. The cheap ones sell less quickly but they still sell well. In Jal El Dib you might wait a year to sell a property. Not in Ashrafieh.”
 

August 1, 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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