Business

Software success story

by Thomas Schellen
written by Thomas Schellen

Lebanon-based information technology firm Software Design Consulting Group (SDCG) is a rare success story in the country’s landscape of IT developers and implementers with a combined domestic and regional approach. Bucking trends of decline suffered by the Lebanese IT industry, in 2004 the firm realized a 16% growth of business and is rallying even stronger this year, projecting a near 50% increase in results based on its performance from January to mid-August. The company’s field of activity is software development and the implementation of Enterprise Resource Planning (ERP) solutions for corporate customers at the upper end of the small and medium enterprise market. ERP is an umbrella term for software that assists businesses in optimizing the integrative management of all facets of their activities, including planning, manufacturing, sales and marketing. Within SDCG’s concentration in this market, its core products are an accountancy and inventory system dubbed Dolphin and a modular ERP package, Visual Dolphin, a particularly successful specialized variant of which is tailored for the advertising industry.

Setting up in Saudi

A large contribution to SDCG’s recent growth came from the development of its business in Saudi Arabia, said founder and general manager, Michel Nseir. “Starting from early last year, we focused and put a lot of emphasis on Saudi Arabia, and in less than one year, our sales in Saudi Arabia could reach 70% of what we turn over in the Lebanese market today. We estimate that by 2006, our revenues from the Saudi market will be twice those of the Lebanese market. We have very high hopes in the Saudi market and the results are very positive.”

Lebanon, where SDCG started 20 years ago with Nseir taking up programming for local companies, last year accounted for about 55% of the firm’s sales, according to SDCG data. Since the company ventured into regional markets in the mid-nineties, exports were an existential part of its growth and jumped from about 20% in 2001 to nearly 40% in 2002. The leap in the export share was fueled by good sales in the Gulf region but was also in part attributable to an 18% contraction in SDCG’s business in the difficult Lebanese market in 2002. Nseir, who has for years been very outspoken in addressing IT industry issues as a board member of Lebanon’s Professional Computer Association, leaves no doubts in his critical assessment of the operating conditions for IT companies here. “I am seeing a very black picture for Lebanon in this sector, and even for the near future, I do not see any hope regarding the development of this technology at the level of software development, at the level of the IT consumer, or at the level of communication,” he said.

In the IT entrepreneur’s perception, the present situation represents a marked downturn from vibrant days in the 1990s. Until about four years ago, people in the Lebanese business community typically were enthusiastic and companies were forward looking and ambitious in acquiring the best and most futuristic products, Nseir said, but enthusiasm for IT in the business community has waned and been replaced by an attitude of making do with what one has. What makes the situation extra hard to bear for Nseir is that Lebanon’s information and communications technology adaptation a decade ago had been ahead of other countries in the area. As other countries began catching up in the late 1990s, competition toughened between Lebanon, Jordan and Gulf countries from around 2000 as far as implementing IT and attracting IT enterprises. But today, Lebanon is lagging behind many other Middle Eastern countries in most aspects of IT, such as computer and internet usage and all aspects of communications technology. The Gulf catches up

“Lebanon didn’t evolve while in the Gulf, things progressed much faster. That affects our market in software development in Lebanon,” Nseir lamented. “We feel not just a slowdown. The budgets have shrunk to an extreme and so has the customer awareness. Companies have other priorities today. Regarding telecommunications, people have become fed up and we are going backwards while other countries are going forward. That is really bad.” Conversely to its gloomy assessment of Lebanon’s IT evolution, SDCG nonetheless maintained a strong emphasis on serving the Lebanese market, treating it as a testing ground for its products before exporting them. This includes offering products and implementation to local customers at promotional prices. The SDCG commitment to its domestic customers has resulted in a gradual resurgence of its sales here over the past three years to a market position that is today “doubly good,” Nseir said. “That is on one hand because we are achieving normal growth and on the other because the competition is no longer as efficient as before. It is losing ground and disappearing slowly.”

As he tells the story, the ranks of local software firms that SDCG used to compete with in Lebanon have contracted from more than 20 companies in 2002, to no more than five serious contenders today. This is in addition to foreign companies that remain present in the market. The latter, however, are priced in another league than local firms and their marketing interests are directed primarily towards winning the larger tenders for IT solutions, a market segment where little has been happening in recent years. Despite having devised special prices for the Lebanese market, SDCG’s Dolphin and Virtual Dolphin suites were continually higher priced than products of the local competition, Nseir said, attributing his company’s strengthened position in the home market to the fact that mid-sized corporate customers here had no alternative to choosing SDCG due to the fact that they needed a supplier and service provider that was reliable over the long term and thus could not be sure of other software developers and implementers in that respect.

SDCG claims to have a clear market leadership with a share of 30% in the Lebanese market for ERP products, up from 18 % some years ago. In its specialized segment, the high end of the mid-sized market, the company declares to hold an absolute majority share of the market with 50%. For 2005, the company’s cash flow estimations show that it anticipates its revenue in Lebanon to increase by at least 40% and grow far beyond the levels it achieved before the local IT market weakened so dramatically after mid-2001.

Lebanon’s mid-sized corporate market as Nseir defines it is comprised of firms with a turnover of between $1 million at the lower end and $30 million at the upper end. In terms of IT needs, this represents a client size of four users at the low end and 30 to 40 concurrent users in the segment that SDCG targets above all others. The company targets clients at the lower end of the mid-sized market but not the small business segment where it concedes that its basic solution packages, selling at $3,000 to $4,000, are priced above what most small businesses require. Taking it regional

From the outset of developing its exports, SDCG had been aspiring to both regional and international expansion. It opened its first office abroad in Dubai in 1998, when the emirate was just beginning to attract tech companies. Today the UAE market for IT solutions continues to be important to SDCG but while being large, booming and highly interesting on one side, Nseir characterizes it also as being marked by extremely heavy competition. One feature of this competition is that due to the UAE’s high share of foreign employees and mid-level managers in particular, market conditions in Dubai involve a cultural element. This cultural element influences purchasing decisions, where many IT buyers in companies are predisposed towards suppliers from their own cultural and national background, which somewhat limits the market for SDCG to firms with some affiliation to Lebanon, Nseir said. The answer to the challenge was to penetrate a market niche where SDCG had almost no competitor. This proved to be the development of the Visual Dolphin Advert suite tailored to the needs of advertising agencies. It is a market whose large regional players, usually subsidiaries of global advertising conglomerates, are headquartered in Dubai and centrally purchase software for their MENA networks. This is the niche that SDCG dominates. “The top six advertising agencies are our customers today. There are opportunities to sell ERP packages in Dubai, but this business would not have been enough for Software Design to thrive there without the specialized packages for advertising agencies,” Nseir said. An existential factor in the growth of SDCG was focus in concentrating on the mid-sized market, a narrow product range and a few target countries. “Focus is nothing that we learned lately, in the right meaning of the word. In our way of understanding the term, we limited the products to a few and limited the territories and focused on getting many customers from a limited number of territories rather than getting one customer in each country,” Nseir explained. Another part of the business recipe was that the firm practiced vertical integration by developing its own products and augmenting that through offering implementation and customization of its products. This helped SDCG in succeeding where less vertically integrated competitors run aground in difficult periods and according to Nseir, the firm’s revenue today arises to about 40% from the development of software, 40% from implementation, and 20% from customization. Cash flow management and an emphasis on marketing rounded off the instruments that allowed SDCG to expand in the Lebanese market under adverse conditions and confirm its presence in Gulf countries. Europe on the horizon

For the future, SDCG aspires to gain a foothold in some European markets, looking primarily at central Europe.

As the company experienced its latest surge in business growth, it increased staff from 39 at the end of last year to 55 today, and plans are for the headcount to reach 60 by end of 2005. As part of its human resources development plan, SDCG has recently also adopted a theme of training fresh graduates in search of grooming the firm’s next generation of developers. “It is actually very new for us that we are investing a lot in beginners and preparing a new generation who will be in charge of our offices in the future. Our HR strategy is to develop new skills in Lebanon and prepare [trainees] for sending them to the Gulf countries after two to three years,” Nseir said.
 

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Business

Getting a piece of the action

by Lana Asfour
written by Lana Asfour

The climate is not the only thing linking London to Beirut these days. On an unusually hot and humid August afternoon in Stockwell, broadcast service provider Ken Suckling explains the surprising portability of a large satellite dish that sits on top of a van, more technically known as a flyaway terminal. Operations manager Kate Ivens is on hand to translate Suckling’s expertise into layman’s terms, while engineer Adam Simmons has no such qualms and launches into an intricate explanation of the input, conversion and transmission process.

The Beirut Media Center (BMC) was founded by Suckling and international television journalist Brent Sadler in 2001. While based in Beirut, it is supported and partnered by Suckling’s London-based Satellite News Gathering (SNG) Broadcast Services, which provides technical support from its office and warehouse in Stockwell. The BMC provides satellite transmission and production equipment for independent and national networks and broadcasters all over Europe, the Middle East and North America, including the BBC, CNN, Sky, Deutsche Wella, Al Jazeera and Al Arabia. It has a fixed link studio in downtown Beirut. Located behind the ESCWA building, the studio offers a permanent live background of the Prime Minister’s palace, downtown Beirut and the sea. It also provides portable flyaway satellite uplink facilities, so that breaking news, and cultural, business and sporting events in the Middle East can be covered and transmitted all over the world.

Turning Beirut into a media hub

The establishment of the BMC heralds a new era in which Beirut is becoming a center for journalism and broadcasting in the Middle East. It was established in January 2001, after SNG was subcontracted by CNN to help cover the Israeli withdrawal from southern Lebanon in 2000. At the same time, then prime minister, the late Rafik Hariri, liberalized the licensing laws for broadcasting and satellite transmission in Lebanon. Sadler, reporting for CNN, got together with Suckling and formed the company. “We saw an opportunity and went with it,” said Suckling. “There were no obstacles after the initial transition period during which the liberalization laws came into effect.” The company was quickly up and running, making use of its partner SNG’s contacts, technical support and predominantly European client list.

The partnership between Sadler and Suckling works effectively. They have known each other since 1992, when Suckling was providing satellite services for CNN in Somalia. Sadler is the BMC’s chairman and a 50% shareholder. As a well known television reporter, he is very much the company’s face. Suckling, on the other hand, is the technology and business expert who has been in the news gathering business since the 1980s.

Before 2001, Cairo was, and remains, a principal regional center for broadcasting, where several international television networks and broadcasters (including CNN) base their regional headquarters. During the 1990s, Egypt had an advantage over Lebanon because there were more flights to and from the country granting easier access to the rest of the Middle East. In Lebanon there remain difficulties for broadcasters and journalists wanting to travel to Israel and the Palestinian territories. But Hariri’s liberalization of transmission regulations made an enormous difference. What also tipped the balance in Beirut’s favour was Hariri’s launching of an “open skies” policy, which ended restrictions on aircraft capacity and limitations on the frequency of flights to and from Beirut, thus permitting more frequent and easier transportation of satellite broadcasting equipment. Finally, Cairo’s licensing laws can be restrictive. It can be difficult to get transmission licences from the government, and the marketplace is inevitably controlled by this to some degree. So once Hariri’s reforms had been implemented, some movement towards Beirut was inevitable. The BMC was the first transmission services company to open up in Beirut, and was rapidly followed by Sawatel and the Beirut Broadcast Service Centre (BBSC). Television stations LBC, Future TV and Orbit also offer transmission facilities. While it is not the largest, the BMC remains one of the busiest. Its success depends on many of the same qualities that allowed SNG, out of which it was formed, to thrive. These qualities include the company’s small size, which permits immediate reaction to world events, and its highly skilled engineers for the operation and maintenance of expensive and easily damaged equipment. “It is an expensive service to provide, with high entry and maintenance costs,” said Suckling. Well-trained engineers are paramount, and the BMC can draw upon SNG’s technical back-up facilities.

While it is difficult to predict the company’s annual turnover, Suckling estimated it at US$300,000. “Because most of our revenue comes from Western clients it depends on how much interest there is in the Middle East,” he said. “We can double our turnover with a war in Afghanistan or Iraq. But we’re the first people to suffer if Western economies become tight, or if advertising revenues, which pay for air time, are reduced.” It is not that there would be less news, but the ways in which news is transmitted would suffer – there would be fewer live crosses, for instance, and more taped news. The BMC’s reputation has certainly been consolidated this year. Since Hariri’s assassination in February, the demonstrations, elections and bombings have reawakened international interest in Lebanon. For Suckling, these events have proved that the decision to create the BMC was correct: “Beirut is a sensible place to be based if you can’t function out of Cairo.” He also believes that providing transmission services permits Lebanon to have a more prominent voice on the world stage. “There’s now a studio for people to go to in Beirut and it’s easy for international broadcasters to contact and hear the opinions of local politicians, experts and analysts.”

What lies ahead

As for the future of the company, Suckling and Sadler are planning to expand the BMC’s editorial department, which was established in 2003 and has grown rapidly. The BMC’s permanent journalists, Anthony Mills and Christina Foerch, complement the company’s transmission services, and use the downtown studio and production facilities to transmit their stories. This journalism department is building a solid reputation for providing a European view on regional events. Mills and Foerch are fluent in English, French and German and present stories to Deutsche Wella, ZDV, Arte, Sky, CNN and Al-Arabia, among other stations. “Our experiment with the journalists has been a success and we are looking to expand the journalistic side regionally,” Suckling said. He believes that Beirut will continue to operate as a centre for news gathering in the region. However, he wishes the company to remain small which, up to now, has proved to be a winning formula. “We don’t want to apply ourselves to a vast number of clients,” he said. “We have a core of quality clients and we provide a good service to them.”
 

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Business

State of mind

by Michael Young
written by Michael Young

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

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

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

Underlying tensions

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

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

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

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

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Economics & Policy

Sami Haddad

by Executive Staff
written by Executive Staff

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

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

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

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

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

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

E Where should the cuts in public expenditure be made?

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

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

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

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

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

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

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

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

E Are there other sectors besides telecoms?

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

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

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

E But you can outgrow debt through strong economic growth.

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

E So which sectors would you like to promote?

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

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

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

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

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

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

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

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

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

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Agreeing to disagree

by Yasser Akkaoui
written by Yasser Akkaoui

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

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

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

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

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

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

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Economics & Policy

All pumped up

by Faysal Badran
written by Faysal Badran

Back in April 2004, we discussed oil in these pages, making the judgment that at nearly $50 per barrel, oil was getting into treacherously elevated price territory. The frenzy that ensued carried prices well beyond that to what they stand at above $65 per barrel today. The world financial media has been mesmerized by the price of oil, especially since oil is so closely correlated to politics in the region. Economic pundits have been going out on a limb in making spectacular estimates for what is likely to happen to the world economy due to oil, and others, like investment house Goldman Sachs, predicts oil reaching $100 a barrel. What eventually happens to crude oil is obviously tough to predict, but there are certain signs that point to a top in the price of oil fairly soon. While the developed world grapples with the effects of oil, one thing is certain, the stratospheric rise of oil from near $10 a barrel in 1998 to where it is now has had a huge impact on the region. The Arabian Gulf economies, still reeling from the 1991 Gulf War were able to replenish their coffers and a boom of sorts is developing in a large part thanks directly to oil. To get a feel for the windfall, one simply needs to reckon that Saudi Arabia’s budgets had an embedded oil price assumption closer to $30. With oil nearly double that, they have witnessed a massive liquidity-driven inflation in asset prices, from real estate to equities, and a rise in its natural corollary, public spending. In a sense, the rise in oil, in my opinion has served to neutralize social tensions and economic imbalances in the Gulf. Think of it as petrol peace. In Europe and the US, although oil has had a negative impact on consumer sentiment, it has not translated into doom, as oil, adjusted for inflation is still nearly 30% below its historic peaks.

That is the rear view picture of what oil has done. For a closer look on what’s to come, I think one has to view oil from the perspective of yet another bubble. We have a bubble in housing, a bubble in most commodities, and a lingering stock bubble. Add crude oil to the list, here’s why.

Going up

Controversial Texas oil analyst Matt Simmons recently announced that oil could very well reach $100 a barrel. He is quoted as saying: “We could be at $100 by this winter. We have the biggest risk we have ever had of demand exceeding supply. We are now just about to face up to the biggest crisis we have ever had.” When looking for a bubble always watch out for superlatives such as “ever.” But before scenes from the movie Mad Max start permeating your every waking thought, and before you run out to the garage to make sure grandpa’s shotgun is still there, take a deep breath. The really amazing thing is that no one seems to have learnt the lessons from the previous bubble, but rather appear to be jumping in to the current phenomena, hoping to make back the losses they incurred from the previous one. Perhaps they believe the old axioms ‘lightning never strikes twice’ and, ‘this time it is for real.’ One reason why bubbles form is that many good arguments can be made for ‘why this time things are different.’ Generally speaking, as a whole, the public is not crazy. The media sells people on the best or worst case scenarios. For the last 70 or more years, people have heard reports from so-called specialists about how there is only so much oil in the world and eventually it has to run out. Yet if you look at the predictions the specialists have made about when the last drop of oil will be pumped out of the ground, you notice that every couple of years the date gets extended out a few more years. Technology has always provided man with the solutions to his self-created problems. And technology will continue to do so. Better refining techniques, offshore drilling, etc. have all been designed to overcome oil supply problems. Certainly oil can still run up a little more, making it more tempting with each advance to want to get in on all the fun. That is the hook. Besides, it takes a long time for all really big fools of the ‘greater fool theory’ to hop on the trend. Keep in mind that crude oil rose 16% in the first three weeks of August alone. At $3, $3.25 or $4 a gallon, people will cut back.

Waiting to exhale

All the cutting back of petroleum use will result in an increase supply of gasoline, which will have the direct result of lower prices at the pump. The laws of supply and demand may be slow; however, Alfred Marshall’s microeconomic laws do work well. Simply speaking, if it gets too expensive, people won’t buy it. When no one buys a vendor’s product, the vendor must reduce prices in order to get rid of his inventory. Besides, if that doesn’t work, the US can always start a war in the Gulf to fix the problem. Don’t get sucked in to this black bubble. The money will be made on the downside, not the upside. For those of you technically inclined, note how for the last three years, the futures contracts had stayed at a discount to the spot market until recently. As of early August, it seems everyone expects oil to keep flying and the forward contracts have gone a premium to the spot. To the chartist in me, oil looks very risky at its current levels and it seems to have discounted a lot of possible doom scenarios (Iran being one of them). Predictions? Oil will likely hit $45 a barrel before you see it at $75 (let alone Goldman Sachs’ $100).
 

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Economics & Policy

Ottoman chic

by Marianne Stigset
written by Marianne Stigset

Lebanon’s architectural heritage has had a rough 50 years. Ever since the economic boom of the 1950s, which spurred real estate growth, launching the era of concrete modern high-rises at the expense of turn-of-the-century old buildings, the latter have been dwindling. Those that withstood the civil war were subsequently threatened with demolishment, as owners without the financial means to restore them, realized they could make more profit selling them to real estate developers who would build modern apartment blocks. Activists did mobilize in the mid-1990s with the Association for Protecting Natural Sites and Old Buildings in Lebanon at their helm, drawing up a list of over 1,000 classified houses (Solidere managed to save 290 buildings from the pre-war era). Yet today “old” buildings represent a mere 2.5% of the real estate market. “In the mind of the Lebanese, any old building could be torn down and resurrected into a block of flats,” real estate consultant Michael Dunn, chairman of Michael Dunn & Co, said. “Everything has a financial value rather than an aesthetic value.”

Perpetuating the craze for modern real estate are the luxury high-rises mushrooming along the capital’s seafront, which for wealthy real estate buyers, be they Lebanese or from the Gulf, have become the investment of choice.

“Villas in the mountains are somewhat passé here,” said Dunn. “The current trend is to put your money downtown and buy a $5 million, 800m2 apartment in Marina Tower.”

Alternative urban trends

Yet on the sidelines, another trend has been burgeoning for the last few years. It is one which has transformed Gemaizeh from a gritty, genteel, lower-middle class area, into a hip and upscale one, much in the same way gentrification metamorphosed the meatpacking district in New York or the industrial area of Shoreditch in East London. The trend is driven by demand for more authentic, less commercialized and more affordable properties. “It is a process of gentrification,” said architect and AUB professor Rana Samara Jubayli. “The trend usually starts among the up and coming artists and students, who get there first, make the areas trendy, and then the rest of the population tends to follow, and this affects the market. Gemaizeh is a prime example of this. It is very much ‘in’ now.” Although the initial interest in old houses stemmed in part from those on tight budgets seeking lower rents, this has gradually evolved into the trademark of an upscale, fashionable lifestyle. “As in the rest of the world, you will have yuppies and young professionals looking for these types of residences,” Jubayli said. “They wish to live downtown, close to work, the commercial areas and where the nightlife is. It’s a lifestyle choice, a design requirement, more than a question of affordability. It’s a statement.” These new aficionados join a core group of faithful followers, who have long shown a preference for arched windows, high ceilings, mosaic floors and iron railings. They are mainly eccentric Lebanese aesthetes and Western expatriates. “The Europeans adore these types of houses. They understand the value of cultural heritage,” said real estate developer and entrepreneur Karim Bassil.

Emotional ties to the land

While Europeans rarely purchase property while living in Lebanon, and the young Lebanese moving into areas characterized by their preserved architectural heritage generally can’t afford to, Lebanese expatriates on the other hand, are increasingly investing money into old property.

“There’s a second trend happening at the non-urban level which is clientele driven – it’s people renovating their old family houses,” Jubayli noted. “I have been commissioned to restore traditional old Lebanese houses in Beit Mery and Marjeyoun for instance. “A lot of these people are either expatriates or people who are coming back and they actually attach more value to these houses because of the emotional or cultural connotations it has to them. They also have the finances to restore them properly, whereas the local population generally has lost the sense of value of these houses, due to financial restrictions. Conservation issues are not really a priority when you don’t have food on the table.” The majority of the old houses available on the market are found outside the greater Beirut area, either in the mountains or in the south. Those who buy generally hire an architect or an interior designer to renovate them.

The stunning old summer residence of the British ambassador in Abay was sold last December for an estimated $700,000 to a Lebanese doctor living in Beirut who will use it as a secondary home. He intends to invest in renovating it, installing central heating, air conditioning and other modern amenities.

Unlike in Europe and the United States, there are few developers who will speculate in buying, restoring and reselling what they hope will be seen as a jewel. This is partly due to the fact that renovation is fraught with financial and administrate pitfalls. Furthermore, the choice in the style of renovation remains highly individualized. Developers prefer not to second-guess the taste of the potential buyer and instead wait until a property is bought so they can work alongside the buyer restoring to his tastes and without burdening themselves with owning the property and then trying to unload it on a fickle market.

A restricted and exclusive market

Good properties are at a premium. Adding to the scarcity is the fact that most of the old buildings that are left are frozen out of the real estate market either due to inheritance issues or old tenants. The latter, benefiting from the antiquated rental laws which lock in rates, have little incentive to move out of a residence on which they pay the same rent today as what was agreed upon five decades ago. “It’s a very small market – there are very few buildings left to develop,” Bassil said. “Most of them at this point are in the mountains, like in Deir el-Qamar and Douma. Their scarcity is pushing the prices up further. The few houses that are put on the market are usually sold at very high prices and they tend to have a lot of problems.” The expensive renovation work which follows the purchase of an old residence contributes to the further squeezing out of a sizeable chunk of real estate buyers. “If you buy an old house on two floors of some 500m2, which usually will cost you about $500,000, you are looking at a minimum of $75,000 to $100,000 in additional restoration costs,” said Dunn. “Buying a house and restoring it is much more expensive than starting from scratch or buying a modern one,” Bassil added. “If you want to restore it so as to live comfortably in it, the overall price generally increases by 30% to 40%. In general terms, the cost of restoration lies in the $700 to $800/m2 realm, or $400 to $500/m2 if you keep it very basic. I just restored an old house in Dbayye for an emir, who wanted maximum comfort, that came to $1,200/m2.” “Many of these houses are not structurally sound, so you may have to do a structural re-enforcement, which is a huge financial burden,” Jubayli said. “Once that has been taken care of, you go into the architectural finishes. Are you going to keep the special integrity of the place? The finishes are directly related to the intentions people have for the building and the financing they are willing to put into it. You re-do the tiles, you re-do the bathrooms, you may put in a kitchen. It really varies.” Adding to the financial burden is the difficulty in setting a fixed budget for the renovation. “You can’t really budget for restoration,” said Jubayli. “There are so many surprises that come up along the way, so many hidden expenses that a lot of compromises need to be done.” If the client chooses to engage in restoration or reconstruction proper, finding the right material and workmanship adds another challenge to the process, and can easily bump up the final renovation bill by some 50%. Jubayli describes how for the renovation of a 600m2 house in Marjeyoun, the cost of which came up to $100,000, most of the material had to be sent down from Beirut and a 90-year-old tiler had to be brought in – the only person available who still had the know-how to adequately restore the old tiles.

If the client chooses to change the spatial partitioning of the house, or make any additions to it, he must apply for a restoration permit. This step can easily bring the renovation process to a lengthy standstill. One architect living in an old Gemaizeh villa is still waiting for the local municipality to grant him a permit to construct two bathrooms in his house, one year after he applied for it.

A niche for developers

Nonetheless, if the market for selling old houses remains a client-driven and restricted one, there is a niche for developing the rental market in old houses and buildings. The concept is not a new one – the Sursock Cochrane family has been making a substantial profit renting out old apartments in Gemaizeh for over three decades. But new developers are slowly moving in.

Bassil features among the successful ones. With his project management company Bassil Real Estate Investment, he is investing in renovating old buildings in the Gemaizeh area, as well as building new ones, in accordance with the local architectural style.

“I buy old buildings and restore them – I would never tear down an old building,” he said. “When I build modern ones, it is always from scratch, on empty land. In areas such as Gemaizeh, I respect the local architecture by never constructing buildings taller than five floors for instance. Instead of building 16,000m2, I am building 8,000m2 buildings.” Among his five ongoing and completed projects is a rehabilitated turn of the century house, which has been made into four apartment rentals. According to the developer, his apartments are going like hotcakes, at rather handsome prices – a 200m2 apartment will be rented out for around $2000 to $3000 per month. And as the neighborhood’s unique architectural character is preserved, it increases its overall value, bearing promises of even greater returns in the future.

“It’s more profitable to restore a building and start renting it out already within a year, rather than demolish it,” said Bassil. “Lady Cochrane is the perfect example of how it should be done. It is thanks to her that Gemaizeh is what it is today – she succeeded in preserving its identity, its charm, by not demolishing any of the buildings she owns and rents out. With the preservation of the cultural heritage of the area as a whole, it becomes more profitable – rents keep increasing.”
 

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Special Report

A Multi-Faceted Sector

by Thomas Schellen
written by Thomas Schellen

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

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

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

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

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

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

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

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

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

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

Booming Regional Business

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

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

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

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

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

Avenues of Profitability

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

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

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

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

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

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

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

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

Conferencing from a Tourism Perspective

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

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

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

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

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

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

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

Global and Regional Projections

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

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

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

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

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

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

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

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

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Special Section

Burning Desire For Cigars

by Executive Contributor
written by Executive Contributor

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

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

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

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

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

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

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

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Special Section

Lebanon’s Flair For Finery

by William Long
written by William Long


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

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

In vino veritas

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

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

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

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