Executive Magazine

Bringing Palestinians back into the workforce

by Safa Jafari August 1, 2005

written by Safa Jafari

Employment integration: a political economic threat or a deserved right?

The recent decree issued by the minister of labor, Trad Hamadeh, allowing Palestinians born in Lebanon to work in a range of private sector jobs previously restricted to Lebanese citizens is a positive development in the provision of human rights but one which needs further research, infrastructure and regulation before it is fully implemented.

After 20 years of banning over 70 jobs to Palestinian refugees, work at around 50 unspecified manual and clerical jobs in the country is now allowed. Seventeen professions – such as medicine, engineering and law – remain banned, a ruling no doubt based on the fear of permanent settlement and a subsequent sectarian imbalance. These Palestinian refugees, the majority of whom are now the descendents of the generation that fled their homes after the creation of Israel in 1948, have, as well as being denied employment, no access to property rights or citizenship. The resulting living conditions of the 399,152 registered Palestinian refugees (56% live in 12 squalid camps) are a national disgrace and decision-makers must find an alternative arrangement.

Legal framework: international refugee law

The United Nation’s 1951 Refugee Convention asserts that “contracting states shall accord to refugees lawfully staying in their territory the most favorable treatment accorded to nationals of a foreign country in the same circumstances, as regards the right to engage in wage-earning employment.” The 1967 Protocol states that every receiving state should respect and ensure to whom it chooses to accord temporary protection: “access to employment in cases of prolonged stay.” By February 1997, 134 states had ratified either the UN Refugee Convention or the 1967 Protocol, and 126 had ratified both. However, there are still more than 50 states which have ratified neither the convention nor the protocol. Lebanon is one them.

Before pointing fingers at the state for not being an eager host to floods of incoming refugees, it is essential to understand the history of displacement and internal political affairs. The subject of Palestinian integration in the Lebanese labor market is interlinked with many other issues: the debate on disarmament of Palestinians in Lebanon; the reciprocity clause; memory of the civil war in the minds of the Lebanese; image and identity of the Palestinians; sectoral divisions of faiths in Lebanon; permanent settlement versus the right of return; naturalization and citizenship; and the Arab-Israeli conflict, to name but a few. However an argument can be made that Palestinian integration into the Lebanese labor market – if properly implemented – can be beneficial to both the Palestinians and the Lebanese.

Palestinians and employment in Lebanon:

The five main sources of income of Palestinian refugees in Lebanon are: employment with the United Nations Relief and Works Agency (UNRWA); remittances from relatives working abroad; employment in Palestinian organizations; employment in agriculture and Lebanese companies; and employment in shops and enterprises within the refugee camps. Semi-official statistics indicate that for more than 50% of Palestinian refugees in Lebanon, monthly income does not exceed $90, much below Lebanon’s poverty line. UNRWA reports a rise in Palestinian unemployment reaching 85% in some camps and refugee concentrations (a statistic that does nothing to help prevent the number of youths who take up arms). A previous influx of Syrian laborers over the past three decades (estimated at 1 million workers by the Crisis Group Middle East Report during the mid-1990s boom), has been a major reason for the prohibition of full usage of Palestinian cheap labor thus far.

Lebanese labor laws stipulate that only members of Lebanese professional associations can receive licenses in order to work in any skilled profession. Associations are created freely; however, for foreigners, they are controlled by the reciprocity clause (Ministerial Decree no. 17561 of 10 July 1962), and thus Palestinians, as stateless people, cannot form associations.

How much can the Lebanese labor market take?

Despite warnings from international agencies that Lebanese economic life could be derailed by political upheaval, the consensus is that some degree of stability is on the way. The domestic political scene has been undeniably reshaped for the better: starting from the widespread local and international condemnation of the assassination of former prime minister Rafik Hariri, the unprecedented convergence of the Lebanese on key strategic issues, the speeding-up of the implementation of the Taif Accord, the formation of a new government, the organization of parliamentary elections, and the subsequent initiation of a new era in Lebanon’s contemporary political history. All such developments restore confidence in the state’s institutions and its adjustment processes are apt to rapidly bridge the gap between actual and potential output and raise capacity utilization from its current 55% to 60% range to the normal 85% to 90% range that prevails in most strong developing economies.

Just like post-war enhancement of Lebanon’s productive apparatus and the rehabilitation of the country’s basic infrastructure helped generate an increased output capacity in the private sector, raising potential output at full employment to above US$30 billion, today’s adjustment perception and growth outlook in fact is making Arab Gulf investors and recently foreign institutional portfolio investors put Lebanon on the high priority list. Lower risk premiums driven by structural adjustment makes Lebanon more attractive when compared to peer emerging countries.

It is therefore prime time to re-boost a sector such as construction which is an important growth catalyst of the economy, but one which has slowed down in the first quarter of this year (26.1% decline in permits issued) due to lower investment and the recent out-migration of Syrian laborers. Same for industry, which was hit hard and its exports retreated by a significant 15.3% over the first quarter of 2005, amounting to US$382 million, against US$451 million over the same quarter of the previous year.

Work in these sectors is now allowed for Palestinians in Lebanon and is of high importance to the economy.

Let us not forget former examples of the contribution of Palestinians to the Lebanese economy: the Farajallah Company was the first in Lebanon to distribute newspapers and printed material; the Atallah Freij chain was first in the clothing industry; George Doumani was the first to hoist the Lebanese flag after making it to the Antarctic; Edwin Abella was the first to establish chains of supermarkets together with a famous chain of restaurants; Basem Fares was a pioneer in establishing the first insurance company; Fouad Saba and Karim Khouri founded the first auditing company; and Hanna Hawwa was the first pilot to fly a jumbo jet for Middle East Airlines.

Fast growth is now needed and indeed being facilitated, and the number of workers must be brought back to the number employed during days of economic boom. Both integration and growth have to happen side by side, as integration is needed for growth, while growth provides infrastructure needed for proper integration in the labor market.

Benefit for the Lebanese and Palestinians?

The recent labor law will help appease the dire situation of the Palestinian camps. The phenomenon of child labor will decrease when other sources of income are provided to Palestinian families, while the significant violence within the camps is predicted to drop. To effectively improve their socio-economic status through employment, however, education and skill-building is needed.

But the integration discussed here is not only beneficial to the Palestinians. The director general of UNRWA in Lebanon, Richard Cook, asserted that a healthier environment in the Palestinian camps will mean less diseases and epidemics spreading to the Lebanese as well as the Palestinians. Also, while other foreign workers send their remittances to their families abroad, Palestinians refugees with families residing in Lebanon, would spend their salaries inside Lebanon, thus contributing as consumers to the economy. With the government trying to reduce public debt which amounts to more than $35 billion (a staggering 185% of Lebanon’s gross domestic product) through VAT, Lebanon needs consumers able to afford it.

Aid collected from world monetary organizations such as the World Bank and the European Investment Bank plus lending countries and humanitarian organizations will be boosted when Lebanon is an obvious supporter of the Palestinian refugee situation. Lebanon’s treatment of Palestinian refugees is currently viewed as amounting to the abuse of human rights, by organizations such as Human Rights Watch and Amnesty International.

In addition, as tourism is a priority for the Lebanese economy, the view of the slums remains a bruise in the marvels that Lebanon has to show visitors.

Issues pending consideration:

Jobs now allowed for the Palestinians are ones that were often already performed by them illegally. What jobs will be included in the new law? How can other professions be gradually included? Dr. Mario Aoun, head of the Medical Association, stated that 200 to 300 Lebanese doctors graduate annually; there is an overload of medics and a high unemployment rate amongst them. In any case, to work in Lebanon, foreign doctors have only to pay LL500 million once. And yet, according to this law, no Palestinian doctor is able to practice in Lebanon.

A regulation of jobs will surely guarantee rights of the employee and the employer. It is unclear however, whether social security and other benefits will be provided to Palestinian laborers. If they are provided, this entails a cost to the employing sector; if they are not provided, this is a sure loss to the Lebanese employees (assuming they would agree to laborious work) who could face discrimination when a company prefers to employ other laborers without benefits.

It is easier to note the limitations of the new law from the Palestinian perspective: in addition to hoping that laws facilitating land and real-estate ownership follow, interviewees have already expressed frustration that there are professionals amongst them still unable to practice in Lebanon. Some fear they will still be looked upon as manual laborers only. One interviewee noted that “Syrian workers could accept low-paying jobs as they had no family in Lebanon to support and no rent to pay. They lived in buildings with other workers.” Other interviewees expect they will be seen as competition and work permits – if granted at all – will be granted upon several strict conditions. The question of benefits and social security arose repeatedly. And everyone hoped for a permanent and secure income.

So far, Hamadeh has not said how many of the 390,000 Palestinian registered refugees would benefit from the new rules. Ninety percent of these refugees were born in Lebanon and anyone aged 57 and below should benefit from the work permit. If an accurate estimate of the resulting expenses facing the government can be made, only then can the government assess whether such a change is possible. The Rassemblement Canadien Pour le Liban (RCPL), for example, ran an intensive study on the skills and capabilities of incoming Lebanese migrants in Quebec. This helped the Canadian government assess where and how their contributions to the economy can best be utilized. Conditions for issuing work permits must be fair, consistent and accessible. For example, suitable examinations can be facilitated to assess and choose qualified employees.

The question of competition feared by some (due to an overall unemployment rate at over 18%), was challenged by Palestinian writer Fatthi Kleib who argued that there were one million foreign workers, in addition to the 2.6 million Lebanese workforce, and the issue of competition never arose until the Palestinians were to be integrated. Kleib also asks why a rise in competition is not feared when discussing manual labor such as construction; agriculture; cleaning services; and work in gas stations or bakeries; although most existing foreign workers already work in those fields. Additionally, the Lebanese Ministry of Labor recently commissioned a study on Syrian workers in Lebanon with a sectoral breakdown suggesting that only 7% of Syrian workers were employed in the industrial sector, which includes construction.

So long as the larger picture of the Arab-Israeli conflict is not solved – or an agreement is reached regarding the right of return of Palestinian refugees, the Palestinian refugee situation remains a Pandora’s box. The Palestinians insist on their desire to return to their homes, the Lebanese fear a due settlement in Lebanon instead, and any procedure such as the relaxation of employment laws, is seen as a threat to all parties concerned (except for the Israelis). While many articles following the recent labor law tackled the issue of permanent settlement versus the right of return, rarely was the subject of the rights of the individuals concerned put forward.

Further work must be done if the recent labor law is indeed to be implemented. Regulation, infrastructure and accessibility are key words for the protection of employers, employees and consumers. What do all individuals want after all? If a sustainable access to a decent and dignified life is not what we all strive for, then what is it?

August 1, 2005 0 comments

Economics & Policy

New trade in magazines

by Anthony Mills August 1, 2005

written by Anthony Mills

The Middle East is witnessing a rise in the number of Arab-published English-language trade magazines, geared specifically towards professionals operating in the region. The surge is being propelled by healthy annual growth in the Middle East’s $2.3 billion advertising sector but the lack of maturity in the market suggests that specialist titles may have to work just that much harder to survive on the newsstands.

Last month in Dubai, saw the launch of a Middle East version of Campaign, the 30-year-old British advertising magazine. It has since been joined in Beirut by Middle East Broadcasters, a bi-monthly subscription magazine covering the Arab world’s broadcast industry. Finally five months ago, Lebanon’s first recruitment periodical, Job, was distributed for free in Beirut with plans to eventually cover Jordan and Syria. All three join Arab Ad and Hospitality News which have been around for 20 and five years respectively, covering the media and the hospitality sectors.

“It’s a healthy sign,” said Walid Azzi, publisher of Arab Ad, the 20-year-old advertising and marketing magazine. “Trade magazines are mushrooming today in the Middle East because of the region’s prosperous advertising and marketing industry.” However, Azzi warned that there would never be a boom in English-language readership. “It’s a specific-content market limited to educated English-speaking people,” he said.

Industry insiders admit that while the Middle East market for serious, professional English-language trade magazines is unexploited, their concern is that financial rewards will not appear overnight. Be that as it may, according to Toni Eid – the publisher of the Beirut-based auto magazine Arab Wheels, which was launched three years ago – his publication sells close to 40,000 copies across the region. Eid claims that as long as you enter the market strong and flash the cash, advertisers will take heart.

Trumping the competition

At his Beirut office, Ramez Malouf, the editor-in-chief of Middle East Broadcaster, defended his media venture. “We see no serious trade magazine in the region,” he said. “There are others but either they don’t really have a Middle East focus – they are Middle Eastern only in the sense that they are a Middle East edition and sell ads for the Middle East but the articles are not focused on the Middle East – or they are promotional magazines through which companies can publish press releases.”

Although Middle East advertising expenditure has been growing by roughly 10% annually, only a fraction goes into print and only a fraction of that is slated for English-language magazines, while the trade titles come last in this small category. Many advertisers are put off by the limited readership – a consequence of their specialization. Even the veteran title Arab Ad has only 12,000 to 13,000 subscribers, according to Azzi. Following the distribution of the first issue of Middle East Broadcasters, Malouf said he had initially received around 4,000 subscription requests.

The trouble may lie in the abundance of titles that start up and die quickly. “The problem is that anyone with $10,000 or $15,000 can launch a magazine,” said Eid. “Around 40 titles in the region have folded within the first year.” Advertising revenues will only come, analysts say, if a publication endures for more than a year. Only then will advertisers regard the title as established. “Many papers start up and then close down, so that advertisers have no faith in new faces,” said Job publisher Ziad Jbara. Eid agreed, saying that publishers should be ready to spend, initially, at least $400,000 to convince advertisers that they are serious and are going to be around for a while. Middle East Broadcasters’ costs for the first year, according to Malouf, will run at more than $200,000, excluding the purchase price of offices in downtown Beirut.

One of the few genuine trade magazines that has lasted the course is Hospitality News. Managing director, Joumana Dammous-Salame, claimed that the magazine had benefited from her family’s experience in the catering and hospitality sector. The family owns Hospitality Services, a company that has been organizing exhibitions such as HORECA, offering marketing and consultancy services and managing events since 1993. “We didn’t start this magazine from nowhere,” Salameh said. “We’ve been in this industry for 15 years. One of the partners has been in the industry for 45 years. We know everyone.”

Image problems

Some publishers say that in the image-conscious Arab world the format of a trade publication is of paramount importance. In the region they say trade magazines are often treated as fashion accessories. “It’s on the CEO’s desk or under his arm,” said Azzi. Commenting on the new tabloid-style Middle East version of Campaign, he said: “It’s designed for the underground. But in this part of the world that won’t work. The readers it is geared towards want something luxurious, thick and glossy.”

But a member of the Campaign Middle East management team who asked not to be identified, said Azzi’s comment was applicable only to consumer titles. Campaign, he said, was a business publication. It was not pretending to be a consumer title. Instead, it was more akin to the IT Weekly Middle East, a technology title also distributed free of charge. And while some publications, he added, might seek only CEOs as readers, Campaign was striving for a broader professional readership, including, but certainly not limited to, CEOs.

Image has proved problematic for Job, said Jbara. He is having difficulty convincing advertisers that a journal can be both free and upmarket at the same time. In fact he finds himself in something of a catch-22 situation: Job is geared towards middle to upper management professionals – hardly a working class bunch. But because the paper is free he’s finding it difficult to interest the high-end advertisers he wants and indeed the kind who advertise in the glossier, more luxurious trade magazines. They’re all convinced that a free paper isn’t something that will be picked up by the so-called refined readers – their primary target. This preconception is compounded by the paper’s tabloid design. The only people who will advertise are cheap cigarette brands and sketchy breast enlargement companies for example, who are under the mistaken impression that the paper will be picked up by their primary target – the masses.

“I don’t want a reader interested in career advancement to find advertisements about enlarging breasts,” he said. “But the high-end advertisers prefer to go for the image and pay twice as much to advertise in a highly-priced magazine with a lower readership,” Jbara complained.

Azzi doesn’t have to worry about his image, he said. Twenty years of gloss and subscription fees for Arab Ad have taken care of that. “Free distribution has not been accepted socially in the Arab world yet,” he observed. “There is a certain exclusivity associated with paying $150 to get your magazine delivered to your desk by DHL.”

Like Job, Campaign is currently distributed free of charge and its management disputes the suggestion that this is bad for business. He argued instead that the paid model of a ‘business-to-business,’ specialist-audience magazine didn’t work. There was general agreement among specialist magazine publishers in more mature markets, like in the United States, that a publisher distributing free-of-charge would attract far more advertisers – and at higher rates – than someone selling a publication to a reduced readership. The gain in advertising revenue from clients enticed by a wider readership would far outweigh the cost of free distribution, he said.

Taking it regional

Most industry insiders advocate a regional readership. Local markets like Lebanon (where ad spending for these titles does not exceed $3 million) only have room for a handful of trade magazines at most. “Lebanon is a small market. Investing in a trade magazine only distributed here is not a wise decision,” said Eid.

Any Arab trade mag publisher who does go for the Lebanese market alone, and is prepared to invest heavily, although not necessarily doomed from the start may have to wait as long as five years, according to University of Kaslik marketing professor Mounir Torbay, before their reputation – provided they can establish one – pulls in serious advertising money. That’s because Lebanon’s economy and advertising market in particular, are depressed. Every year Lebanon’s current $35 million to $40 million annual ad expenditure – in painful contrast to that of the Middle East as a whole – is falling by as much as 20%, Torbay said, and advertisers are spending more and more on quick-fix below-the-line, in-store promotions to prop up unsatisfactory sales figures. So for a trade magazine to win a substantial share of leftover ad spend here in Lebanon, its undisputed impact must be all the more established.

Middle East Broadcasters is avoiding local Lebanese advertisers altogether. It is dealing only with regional advertising agencies. This is reflected in the magazine’s rates which are roughly three times higher than local ones. According to its rate card, a single A4 page ad can cost up to $6,200. A single page ad in Arab Ad costs $2,500, according Azzi. He said his magazine makes more than a million dollars a year from ad sales. Arab Wheels generated more than $600,000 a year, claimed Eid.

So the message it seems is to go regional. “Our economies are not that complex,” said Malouf. “They’re not large. [Trade magazines work well] in countries with thriving, large, well-off industries. Here, the money’s just not there for it. In the United States for example, not only do you have agriculture trade magazines, you have a potato-growers magazine. Alfafa growers will get the alfafa version and so on. An agriculture magazine may sell hundreds of covers. You’re not going to see that here.”

But still this is Lebanon and publishers are acutely aware of where their magazines will be seen. Trade or no trade, they don’t want their titles in dentists’ waiting rooms. “Never, never, never,” stated Azzi unequivocally. “The only waiting room table we will share is that of a CEO. On airlines, we are distributed only in first class, never in economy. In airports, we are in the VIP lounge, not the general waiting area. In hotels, we are in executive suites. Our readers are the elite.”

August 1, 2005 0 comments

Business

Building a fashion empire

by Anthony Mills August 1, 2005

written by Anthony Mills

Wassim Daher would have never imagined when he opened a small multi-brand clothing retail outlet in Hamra in 1978 that over the next 27 years it would grow into a holding group, controlling more than 60 companies spanning the retail, leisure and food and beverage sectors, active in seven different countries on two continents, employing 1,800 people, and turning over more than $250 million a year. Among the franchises held by the azal GROUP are those for the globally ubiquitous retail brands Zara, Massimo Dutti and Mango, as well as the Virgin Megastore franchise in Kuwait, the UAE and Egypt.

Expanding its reach

Not content to sit on its laurels, today the azal GROUP has its sights squarely set on expansion, both locally and internationally. It intends to breach the billion dollar sales mark in four to five years by increasing outlet numbers from 67 to more than 270 over the next two years. In Lebanon, the group is opening another 16 outlets, 11 of them in Beirut. It plans to open a further 20 stores in the UAE by the end of the year, including another Virgin Megastore. It intends to establish its fashion retail business in Egypt by October or November as well as a Virgin Megastore in September. In Qatar it aims to open another 18 stores by 2006, while in Jordan a further 12 or 13 outlets are set to open by the end of 2006. As if that were not enough, more shops will open in Bahrain by 2007, while in Romania, the group envisages 18 more outlets by 2007, and is considering further branching into Eastern Europe. It also plans to enter markets in Saudi Arabia and Turkey by the end of 2006. Meanwhile, it is also on the lookout for new brands. In its sights are the US-based Gap, Old Navy, Banana Republic and Victoria’s Secret. Overall, the azal GROUP’s fashion retail portfolio now comprises over 30 brands.

The azal GROUP broke into the Dubai market in 1990 and into Kuwait in 1994, but the real milestone was reached in 1998. That was the year DGroup, as it was then known, acquired the Zara and Massimo Dutti franchises – owned by the Spain-based Inditex fashion retail clothing giant, as well as the franchise for fashion retail group Mango, also from Spain. Today, Zara is the azal GROUP’s top seller.

“That was when we moved from the traditional retail concept involving high-end fashion brands, to the new, fast-moving retail concepts in the market,” said azal GROUP CEO Said Daher. “What distinguishes these brands from others is that stock replenishment is very quick. It’s the ‘just-in-time’ inventory model. You can order and receive merchandise within a week. This way you can react to market conditions much faster than many [other] retailers. If the market is favorable you can replenish your inventory in no time. If the conditions are not favorable you can limit your exposure to inventory. With the traditional retail concepts, you’re buying way ahead of time, your replenishment time is about four to six months, and you can’t react as fast as you need to.”

But the azal GROUP has headaches too. “If you compare Lebanon to the Gulf, there are many challenges,” said Daher. In Lebanon, his group has to contend with excessive bureaucracy, high electricity and IT infrastructure costs, a host of high direct and indirect taxes, low spending power, restrictive labor laws and general economic malaise. “You have to bear a huge burden to be able to compete with neighboring markets,” complained Daher. “Beirut was recently rated as the second most expensive city in the Middle East. Combine that with low GDP and you get very low discretional spending power. That affects the fashion and luxury retail business.”

An unstable market

Azal’s biggest headache in Lebanon, though, is the market instability caused by continuing political and economic turmoil combined with a sustained spate of assassinations and bombings. “Expanding the operation in Lebanon is much more challenging than in other markets,” Daher said. “The unfortunate incidents of the last few months crippled the market here.” His outlets closed for a total of six or seven days in February and March, causing a loss in revenue of 15%. “We are now more conservative regarding our expansion strategy in Lebanon than before,” Daher said. Since the February 14 assassination of former prime minister Rafik Hariri, the azal GROUP has not committed itself to any new stores in Lebanon.

The group’s frustrations in Lebanon, where it employs 500 staff, are compounded by the country’s brain drain problem: Many of Lebanon’s brightest young professionals are fleeing the country’s stifling labor climate to seek success elsewhere. As a consequence, the azal GROUP has had to headhunt many of its star employees from outside Lebanon, from the Gulf and the United States.

Despite the willingness of fashion-conscious Lebanese to spend on affordably chic clothing brands, the difficulties associated with operating in Lebanon translate into reduced profit margins. In Lebanon, azal’s profits run at 7% to 8% of net sales, compared to 12% to 13% in other markets. “In the UAE, Kuwait or Qatar, you’re looking at almost zero taxes, favorable conditions, and extremely high spending power,” noted Daher.

The group also anticipates challenges in Saudi Arabia, where a restrictive legal environment makes investing by foreign companies perplexing. And in Turkey, a mature market, the scarcity of prime real estate locations and the fact that the azal GROUP’s flagship franchisers, the Inditex Group and Mango, are already operating their own branches, are further obstacles that will have to be overcome. Daher insisted, though, that Turkey was a “promising” market.

Going East

Romania, too, had immense potential, he went on. “We were positively surprised by Romania,” he said. “The market is extremely similar to Lebanon but competition is not as fierce.” The move into Romania was in part prompted by the country’s planned accession to the EU within the next few years, a development that will facilitate trade and boost the country’s economy.

Daher claimed it was difficult to say what share of Lebanon’s fashion retail market the azal GROUP accounted for. “But we are definitely the leading franchise retailer in the market,” he said. “Although anyone who sells clothes is a competitor, and there are many, none of the other groups have as many outlets, or our presence, or the size of our outlets and there is no distinct competitor who can compete on all levels.”

The azal GROUP’s success – revenues are growing by 25% a year according to Daher – highlights the quick rewards offered by well-run franchises, he said. “You can grow much faster as a franchise than if you’re operating your own brand,” he explained. “With a franchise, you’re implementing already-successful business models. It’s very hard to grow when you’re operating your own brand. Why bother establishing a vertically-integrated business model which will take you years and years to perfect when you can get involved at the end of the supply chain and start opening outlets in promising markets in a matter of months?” Of course, he noted, you have to make sure that you’re always observing the rules laid down by the franchise owner.

This year, the Daher family holding company changed its name from DGroup [D for Daher] to azal GROUP, in a move designed to reflect its evolution from a “mom-and-pop operation” into a corporation and to unify its international holdings under one umbrella. “We don’t think of ourselves as a family business anymore,” Daher said. “Most family businesses barely survive the second generation. We want to expand the business and ensure continuity. That’s why most of our senior managers are from outside the family. We see ourselves as a new business, which really got off the ground when we acquired the key franchises in 1998.” The company, though, is still wholly owned by the five Daher brothers, of whom Said is the youngest and founder Wassim the eldest. In some of its ventures, though, the azal GROUP has taken on partners to mitigate risk. Azal Management, a management company run by the azal GROUP, helps manage the group’s different companies.

Diversified business

Over the years, the azal GROUP has branched out into the leisure and food and beverage industries. It runs four Virgin Megastores in the UAE and two in Kuwait. Asked why the Beirut-based azal GROUP had not acquired the Lebanon Virgin Megastore franchise, Daher said that the possibility had been examined but the group had decided that Lebanese copyright law offered insufficient protection.

The azal GROUP also represents French coffee shop chain Columbus Coffee and bakery chain Paul in the UAE. And it is in the process of opening its first outlet in Bahrain for Australian juice company Pulp Juice. However, 85% of the azal GROUP’s business interests remain anchored in fashion retail. Although Daher sees the azal GROUP as a general retail franchisee, he plans to continue focusing on fashion. “We would like to expand all lines of business,” he said, “but no matter what we do, our core line of business is fashion retail.”

How did the azal GROUP acquire its position of market pre-eminence? “I think number one we were very lucky,” acknowledged Daher. “And plus we have a great team.”

Getting locations right

The group also appears to have an eye for prime real estate. A number of its stores are located in the upscale Verdun district of Beirut, an area Daher said is Lebanon’s prime retail location. “Sales in Verdun are up to par with those in the UAE, Qatar and even Europe,” he stated.

The azal GROUP has no stores in the downtown area because the kind of surface area it needs for its stores isn’t available. “Our requirements are greater than anyone can accommodate. We’re talking 2,000 square meters,” said Daher.

But when the recently kick-started Souks project is completed – possibly by 2006 or 2007 –the azal Group will have its fingers in the pie. It intends to open a number of stores in the Souks unveiling new brands.

“Real estate is the driving force of our business,” said Daher. “Today, in Verdun, you can’t find an empty slot. There are plenty of real estate projects, such as malls, throughout the area. They will help us expand.”

August 1, 2005 1 comment

Business

freeing up the media

by Michael Young August 1, 2005

written by Michael Young

Following the assassination attempt against Defense Minister Elias Murr last month, Lebanese newspapers placed on their front pages a photograph of the “reconciliation” between Michel Murr and his brother Gabriel. Beyond what that meant politically, or filially, the episode prompted reflection about what it would mean for MTV, the television station closed down by a government writ after a 2002 by-election in the Metn, for having allegedly broken the law on political campaigning.

With so many priorities on the agenda of a new Lebanese government, little attention has been paid to media matters, though in many respects that is one of the paramount issues that will define Lebanon in the future. In a Middle East where media are becoming increasingly competitive, will the country become a leading regional media hub? Can Lebanon compete with the likes of Dubai, and if so what are the political implications of an otherwise sensible strategy?

In all likelihood, and presuming the Murr brothers can agree, the MTV issue will be resolved in the foreseeable future, since the politics leading to the station’s closure were made superfluous by recent transformations in Lebanon. However, there is as yet no sense of the wider media role Lebanon can play; or how the local media market must change to accommodate the new realities of a post-Syria Lebanon.

The most fundamental problem is one of entry into the marketplace. Both the audio-visual and print media are walled in fields where outsiders, except those with considerable money and influence, are unwelcome. When the airwaves were organized in the mid-1990s, station licenses were conveniently distributed to the major political actors and their allies. This was financially advantageous to the owners, because it created a cartel. But it also had political advantages by imposing conformity on how news would be covered, especially on news related to Syria.

Few licenses

The same exclusivism governs the issuing of political licenses to newspapers (which, simply, authorizes them to cover politics). However, under the Syrians, the newspaper market was less controlled politically than the audio-visual media, partly because it is much smaller. Though the newspaper licensing law authorizes any investor to buy a new license, in reality the government will not issue any, obligating budding press barons to purchase an existing idle license from an owner. This inflates prices tremendously, so that a license may cost hundreds of thousands of dollars, providing a major disincentive to those seeking to enter an already saturated press market facing declining advertising revenues.

Making matters worse, this filtering process is quietly backed by newspaper publishers. While such duplicity makes self-interested economic sense, it does taint the principled protests of those owners who lament limits on press freedoms, since opening a newspaper is as significant a freedom issue as is what publications are allowed to say.

Lebanon’s media market must open up to more competition. In post-Syrian Lebanon, there is also no reason for the market to be artificially divided between political grandees, many of whom don’t have the clout they once did. If that means some outlets close down, then so be it; several papers, for example, survive because of cash payments to influence certain news coverage, and that practice would be curbed.

At the same time, freer political licensing would allow for a much wider variety of publications – cheaper-priced political tabloids, satire publications, mixed political-cultural publications, etc. At the moment, the market is dominated by expensive political broadsheets, and the laws in place are inflexible when it comes to pricing.

There is also the question of Lebanon’s media destiny. The country is better placed than most to be a regional media center. The political climate is relatively free, the media sector is well developed and professional, and Lebanon needs to economically diversify. While no legislative, financial or logistical framework yet exists to allow Beirut to compete with Dubai’s Media City, now is the time to remedy this. A prerequisite, however, is domestic reform. One thing that means is appointing visionary information ministers who are more than mere government spokesmen.

The real question, though, is political. Is Lebanon willing to accept the political price of hosting free media? This is a tough question – one highlighted recently by Syrian efforts to ensure that Lebanon not purvey anything that might weaken the Syrian regime. Absolute freedom may be a pipe dream, but any media capital, to be successful, must defend its independence.

August 1, 2005 0 comments

Economy & Finance

by Executive Contributor July 21, 2005

written by Executive Contributor

Capital Intelligence Raises First Gulf Bank’s Rating to A-

Capital Intelligence (CI) rating agency has raised FGB’s (First Gulf Bank) long-term foreign currency rating and financial strength rating from BBB to A-. The bank’s short-term foreign currency rating was increased from A3 to A2, the support rating was raised from 3 to 2, whereas a stable outlook was assigned to all the ratings. The agency noted that this upgrade is attributable to the bank’s ability to raise a substantial amount of new capital amid the strength of its ownership by the ruling family of Abu Dhabi and the family’s confidence in its management team and board. FGB was last trading at around AED25 ($6.8) per share on the Abu Dhabi Stock Market.

IFA Announces a 46% Rise in H1-2005 Profits

Kuwaiti-based International Financial Advisors (IFA) announced a 45.8% year-on-year rise in first-half profits to KD33.3m ($114m). The six months profits included around KD30m ($103m) in unrealised profits on investments, the result of a sell-off of some of the company’s assets. Earnings per share rose to KD0.109 ($0.37), up from KD0.077 ($0.26) in first-half 2004. IFA is the parent company of IFA Hotels and Resorts which launched a $150m residential project in Abadiyah, Lebanon. IFA’s listed shares, amounting to 239,813,827, were last trading at around KD1.5 ($5.14) per share on the Kuwait Stock E

Country Profile: Qatar

Capital Intelligence (CI) rating agency has raised Qatar’s long and short-term foreign currency ratings from A- to A+, and from A2 to A1 respectively. CI also assigned a long-term local currency rating of A+ and a short-term local currency rating of A1 to the sovereign, whereas a stable outlook was assigned to all the ratings. The agency noted that this upgrade reflects the investment in the gas sector and other export-oriented industries which will carry budget and current account surpluses over the medium term, hence further improving already strong debt-servicing ability. Qatar is expected to become the world’s largest producer and exporter of Liquefied Natural Gas (LNG) in the next five years. CI assumes that earnings from LNG and related products will exceed those from oil by the year 2008. High oil prices, increasing output in oil and gas industries, and advances in fiscal management have resulted in an average budget surplus of 6% of GDP in each of the past five years. Government debt decreased progressively to stand at 30% of GDP in the fiscal year ending in March 2005.

July 21, 2005 0 comments

Society

Time to take us Seriously

by Fadi Saab July 1, 2005

written by Fadi Saab

While the saying goes that “you can’t please all the people all the time,” it seems in our Lebanese politico-economic scene, that many ‘leaders’ and ‘leaders-to-be’ keep wishing to challenge that proverb. Is it that they are attempting to become the exception that confirms the rule in gaining a growing recognition? Or is it that they are relying on the abnormality of our system to justify their endeavors to climb the ladder of popularity?

One thing is for sure, these individuals are constantly seeking the easy way out. They are relying on the comfort of adopting the most obvious broad headlines and embracing generally accepted titles, as the basis of their ‘Program for the future’. As such they are hoping that we the people, in our entirety, will find their approach pleasing and consequently accept their proposed leadership on the basis that they unequivocally understand our views and can unmistakably solve our concerns. Of course, another common attitude to gain popular support is to constantly attack any ideas suggested by political opponents regardless of the correctness of their content. Consequently, the people are encouraged to automatically judge such programs based solely on their political loyalties or rivalries.

But do the hypotheses behind these tactics still hold true… for are the people of the new era in Lebanon whether consciously or reluctantly still willing to be so naive? Obviously not!

The time has come for leaders to adopt full transparency in presenting issues to the public in their entire complex nature, and to clearly debate the proposed solutions in their probable compounded results. Thus, being truthful with the public involves that they stop making future promises based only on reminding us of their past successes, or on recalling the past mistakes of their opponents.

It is now clear that the public expects from our leaders much less history lessons and theoretical proposals, in return for much more practical undertakings and measurable actions. Certainly the country cannot continue to pay the cost of political non-collaboration nor the resulting waste of valuable time, and definitely the people will not tolerate further squandering of limited resources on tasks lacking the benefits of cooperation.

Maybe now the concept of moving from theory to practice and from expansive promises to specific activities would finally be applied by those future leaders who are seeking to gain our confidence and support. Surely, if they succeed in adopting a functional model and in joining forces while targeting a unified national vision and strategy, then our votes of confidence will certainly go to validate the principle that “… you can please most of the people most of the time”.

TOOLS NEEDED FOR LEBANON’S ADVANCEMENT

1) “National Agenda” for the Future

• Blend the different approaches and agendas for Lebanon’s development into ONE

• Unify the Lebanese people around a single comprehensive ‘National Agenda’

• Allocate required resources to assure swift and successful execution in its entirety

• Fend-off attempts to claim individual political authorship or personal benefits

• Emphasize the importance of immediate actions & the opportunity cost of delays

• Implement a dynamic approach for active progress evaluation and review of goals

2) “Think Tank” Group

• Up to 10 people with related academic credentials & different backgrounds/views

• Shadow the Government on policy decisions and impact assessment evaluations

• Hold round-tables setting action priorities on all social/financial/economic issues

• Produce diverse position papers with updated reliable indicators & statistical data

• Liaise with the various Economic Associations/Syndicates on a proactive basis

• lobby for a valid cause-effect relationship linking politics, the economy & society

3) “Horizon 2010/2015/2020” Program

• Publish a detailed socio-economic ‘White Paper’ by end summer 2005

• Produce a series of reports on major economic/financial/social issues of concern

• Draw-up on input from the ‘Think Tank’ and the various economic associations

• Propose a short/medium/long term vision, with identifiable goals & objectives

• Offer a databank of accurate statistics on current and projected prime indicators

• Provide a yard-stick to measure the performance of politico-economic policies

4) “Confidence Restoration” Activities

• Prepare a detailed crisp presentation on the economy and its future potential

• Organize business trips to main international cities & hold networking sessions

• Seek the assistance of the Lebanese Diaspora in connecting with major investors

• Fund a broad public relations and advertising campaign on an international scale

• Invite prominent businessmen/investors to conferences/workshops in Lebanon

• Produce specialized business-economic image building programs on satellite TV

5) “Institutional” Framework

• Protect the various socio-economic associations from any political interference

• Apply proper governance to all associations & ensure regular leadership rotation

• Encourage effective working methodology/coordination among such associations

• Unify the different governmental agencies responsible for economic policies

• Establish a formal structure to maintain public-private sector expert collaboration

• Seek input from all professional groups prior to taking positions on related issues

6) “Socio-Economic” Awareness

• Expand the priority of socio-economic issues beyond specific political agendas

• Encourage local and satellite TV’s to air more specialized roundtables/talk shows

• Persuade prominent Newspapers to maintain regular socio-economic sections

• Launch Civic awareness programs to educate the population about proper actions

• Organize a series of specialized lectures/seminars open to the general public

• Distribute briefings and recommendations relating to socio-economic programs

July 1, 2005 0 comments

Business

A Unique vision of property

by William Long July 1, 2005

written by William Long

There are a few points that thirty-six year old real estate developer and entrepreneur Karim Bassil wants to make perfectly clear to any reporter interested in untangling his rapidly growing business interests.

First, contrary to some press reports, the general contracting company La Constructa that Bassil began with partner Walid Marchi a few years ago, is but one element in a vertically integrated group of firms that services both his own development projects as well as those of other clients.

So although there is no overall holding company as yet, Bassil Real Estate Investment (BREI), not La Constructa, is more or less de facto company leader, given its role as advisor and manager on several ongoing projects.

Second, although he’s been the driving force behind the various related companies (which now number six according to his most recent business card), Bassil is insistent that he is “a very, very bad manager who just partners with great managers.”

A traditionalist

Finally, and perfectly in line with his outward demeanor which shifts effortlessly from self-effacing modesty to sprawling aquisitiveness, Bassil is adamant that development in historic neighborhoods like Gemmayze, no matter how new in concept or how bold, must be harmonious with the surrounding area, not in contradiction to it.

Of course, this last point stands as a rare dictum in Lebanon, where enlightened urban planning is usually a mere afterthought (if a thought at all). However, after taking one reporter on a tour of his most recent construction project, a boutique hotel cum residency in the middle of trendy Gemmayze street, one gets the sense that Bassil is indeed willing to put his money exactly where his ideals are.

“Look at that tree,” he said, motioning to a towering Magnolia that rests in the middle of the bustling construction site. “That tree is so beautiful and old. How could we just cut it down…. Instead we’re building around it.

“You see, in general,” he continued, “if we really wanted to exploit this space fully, the only way to do it is by building a tower. But that would be completely against the character of this street, so instead of building16,000 sellable square meters, which we could, we are building 8,000 square meters.”

Since Bassil began developing real estate for himself in Lebanon in 1998 (and launching successive affiliated companies thereafter), he’s been able to complete or initiate a total of five projects – something that has given him credentials really with which to prove both his sincerity in matters of organic building practices as well as his own prowess.

With each one, as a perusal of relevant architectural sketches demonstrates, a sense of synergy rather than opposition really does seem to dominate; although, so too does the notion that the projects themselves will only get bigger.

“We wanted to preserve the old style of the neighborhood here,” Bassil said, referring to his three completed Gemmayze projects: Convivium One, a 4,000 square meter townhouse with five apartments valued at $4 million, Convivium Two, a $7 million two building project, and Convivium Three, a $5 million “ core and shell” project (i.e. without interior amenities or infrastructure).

“Convivium Four, where we have rehabilitated a turn of the century house into four apartment rentals, will be finished in the next six months,” he explained. “There too you have the same idea of a building that is in harmony with the surroundings… you see large ceilings, exteriors as in the neighborhood, a similar scale.”

Last but not least

It is Convivium Five though, the 8,000 square meter development in the heart of Gemmayze street, that has marked a departure of sorts for Bassil (though not from his commitment to aesthetic unity in practice).

After all, the development is Bassil’s most ambitious to date – a $17 million effort that will put a boutique hotel with 33 suites, branded under the name of an as yet undisclosed fashion figure, three residencies in the back area and a five floor clock tower all on the market by next year.

And unlike Bassil’s earlier projects, which typically ranged from $1,100-$1,200 per square meter, Convivium Five’s residencies will start at $1,750, with every additional floor level tacking on an added $75 per square meter.

So perhaps somewhat naturally, the changes in price, cost and scale are having a direct effect on the developers bottom line strategy.

In fact, it now seems increasingly likely that with three new projects in the offing, including a $33 million residential project in Gemmayze, Bassil may finally have to turn to outside investors instead of relying on pre-sale down payments and bridge loans from banks.

Expanding out

It is a move that may also unfortunately mean he is unable to keep all aspects of a project under one roof, as he has in the past.

“La Constructa has acted as the General Contractor on other projects, including the Byblos Bank tower in Sassine, the New French Embassy and the University of Balamand… and it is the General Contractor on Convivium Five. But for the upcoming projects where we may have to turn to outside investors we have to be careful about any possible conflicts of interest like having the general contractor and the project manager be affiliated.”

Of course, avoiding such conflicts of interest will not be easy: Bassil has intentionally structured his companies to work together seamlessly, sometimes in an almost a turnkey fashion all in an attempt to consolidate projects and contain costs.

Thus, there is the facilities management company MMG that currently manages over 300 sites across Lebanon. There is the property management company, PMG that handles more than a dozen high-end buildings. There is the security company, Group 4 security that started four months ago and now already has over 200 employees. And there is the concrete pouring company Stratum.

“BREI,” Bassil explained, referring to the project management company, “was structured because I decided to have a company that would service real estate developments… my own and now those of other people.

“But in Convivium Six Stratum will have to bid for the concrete pouring contract and it will not be possible to have BREI and La Constructa functioning as project manager and General Contractor respectively… The projects are growing and the rules have changed.”

July 1, 2005 0 comments

Business

Beirut: open city

by William Long July 1, 2005

written by William Long

Even as the journalist Samir Kassir lay dead in his car on the morning of June 2, politicians, journalists and analysts tried to make sense of a wantonly barbaric killing. And the answer many reached went to the heart of what it means to own a free mind in the Middle East, and the deep political dangers this poses for the region’s regimes.

Kassir’s death was initially regarded as an act of retribution for the journalist’s past outspokenness, particularly his denunciation of the former head of the General Security directorate, Gen. Jamil al-Sayyed. Several years ago, Sayyed ordered his men to tail and harass Kassir, after he had written an article criticizing the general. It seemed the journalist had had the last word after the Syrian withdrawal, and therefore had to pay. There were other messages in the killing, observers insisted, including a warning to opposition groups to watch out (Kassir was a leading member of the Democratic Left movement), to Al-Nahar to watch out, and to journalists in general to watch out about defying the security services.

All these explanations may well have been true, however they were all part of a more focused accusation, namely that the Syrian intelligence services had engineered Kassir’s killing to warn other Lebanese journalists, but also opposition members inside Syria, against threatening the stability of the Syrian regime. This appeared different than the subsequent killing of George Haoui, which seemed to be a backhand to the forehand of the large Hariri victory in parliamentary elections.

If respecting the durability of Syria’s regime was indeed the motive in Kassir’s death, it suggests that, since Syria dismantled its security curtain last April, it has concluded two things with respect to freedom of expression: that Lebanon must not again become, as it was in the 1950s and 1960s, a center from or through which foes of the Syrian regime might destabilize it; and that though its soldiers are gone, the margin of maneuver Syria has to punish its enemies is now, paradoxically, wider.

If that is indeed the Syrian rationale, it shows a remarkable sensitivity to the power of liberal ideas – no doubt understandable from a regime so single-mindedly fixated on denying them. But what aspect of Kassir’s exhortations so disturbed the Syrians? After all, Al-Nahar is denied entry into Syria, and while many of its articles are passed around in samizdat, those bound to read them do not pose a serious challenge to the Syrian regime, with its control over myriad apparatuses of violence.

According to a close friend of Kassir, and a careful observer of Arab media, Damascus couldn’t stomach his regular appearances on Arab satellite channels, often talking about Syria. While his articles were savage in their dismissal of the Syrian dictatorship, his television appearances reached a far larger audience. As someone who famously remarked, “The Syrian army must withdraw from Lebanon, and from Syria as well”, Kassir hit a sensitive nerve. He also reportedly planned to travel to Damascus soon to make a similar case. There was no ambiguity there: Kassir believed the Syrian regime had to go.

More broadly, this underlines the central role Lebanon is set to play in the future as a liberal command center, if it can eliminate the vestiges of the security edifice set up by Syria. The country played this role in the period before the civil war in 1975. However, idealism aside, this implied not just issuing democratic invocations; it also involved offering shelter to the political opponents of Arab regimes, so that Beirut became much more than a place of intellectual tolerance; it became a fount of prospective coups and revolutions and, therefore, a source of regional instability. In effect, it became a playing field for Arab rivalries.

The situation has changed somewhat, in that most Arab countries are not quite as murderous as they once were in carrying their conflicts elsewhere. Today, the weapons of choice might as easily be satellite channels and public relations firms as car bombs and bullets. However, Syria, among a dwindling group, remains an anachronistic exception. However, even in their modestly pacified political climate, the Lebanese must ask themselves whether they are prepared to defend their country if it resumes playing the dangerous part of liberal outlet.

As Kassir observed in an interview last year: “Yet, Beirut also has something unique – human diversity and, thanks to its history, linguistic and political diversity. Let’s hope it will keep it. If Beirut loses this diversity – and the city did not do so, despite its 15-year conflict between 1975 and 1990 – it means it would have been seen as the contradiction of the Arab city, which would represent a triumph for regression.”

Who can disagree? As Kassir’s murder showed, the only real hope for stability Lebanon will enjoy requires its being surrounded by pluralistic systems, in a region at peace. Some Arab regimes will use money and other means to fight open minds in Beirut. But for once, they are on the defensive, and changes in Lebanon are a reason. What better example of bald fear do we need than a particular regime’s need to liquidate a man who deployed only ideas, a voice and a pen against them?

July 1, 2005 0 comments

Economics & Policy

Nabil Sukkar

by Nicholas Blanford July 1, 2005

written by Nicholas Blanford

Syria’s ruling Baath Party introduced a meager set of reforms at its June 6-9 congress, dashing hopes that the eagerly-awaited event would launch a more rapid process of economic and political liberalization. Facing unrelenting pressure from the United States and growing regional isolation, the Syrian government is attempting to bolster internal unity by establishing clear red lines for the opposition while loosening slightly its tight grip on Syrian society. But what will that entail for Syria’s struggling economy? Executive spoke to Dr Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment.

Do you consider the speed of economic reform over the past five years as satisfactory? If not why not? What are the major obstacles?

The speed of economic reform over the past five years has not been satisfactory even though the pace of reform has accelerated. The reason is that domestic problems are mounting and external pressures to carry out reform are also increasing. I don’t mean political pressures but the pressures of having to join the Euro-Mediterranean Association Agreement. Domestic problems are mounting tremendously. We have increasing unemployment, economic growth is running at about 3 percent a year, the oil situation is becoming more serious in the sense that we are approaching a period where Syria will become a net importer of oil. Oil, so far, has been bringing us about 70 percent of the country’s foreign exchange receipts and about 50 percent of the budget revenues. When the oil dries up, this positive contribution will come to an end and we have to prepare ourselves as of now to find alternative foreign exchange income.

There has to be much faster economic reform to cope with all these internal and external challenges.

What reforms are being planned at this stage, and what is the projected speed of implementation?

There is no specific reforms on the agenda because there is no economic reform program. This is one of the problems. Syria has been carrying out economic reform, though slowly. But it was not part of a comprehensive economic reform program. It was an ad hoc reform, responding more to crisis needs than a program prepared in advance with a clear objective strategy and timeframe. There seems to be a reform and development program being prepared at the present time which will take us from 2006 to 2010. It is being prepared by the Planning Commission and is supposed to be put into effect in January 2006. It will be a new type of planning. It will be reform plus development in one package. We don’t know the framework of this plan but it will be announced.

Is the pace of economic reform dependent more on the Baath Party issuing directives or the government’s efficiency in implementing those directives?

What’s more important are the directives that come out of the Baath Party. One of the reasons we have not been moving fast on economic reforms is that there is still an ambiguity on the identity of the Syrian economic system. Are we still a socialist economy or are we moving toward a market economy? And if we are moving toward a market economy, what’s it going to look like? Once we cross that threshold and identify [what kind of economy] we will have, then there will be more clarity to guide the government. Right now governments are caught by the ideology of the party which says Syria has a socialist economy and a centrally-planned economy. It’s that conflict that has been delaying reform, or slowing down reform.

How much of the economy is driven today by the private sector and how large is the public sector share in economic activity?

Ever since the early 1990s, the economy has been driven increasingly by the private sector. In response to Investment Law Number 10 of 1991 and various reform measures that have taken place since then, the private sector started to play a larger role and investments increased considerably in the early 1990s. But Law Number 10 was not accompanied by other measures to liberalize the economy and to create an enabling environment for private business. The private sector hesitated and by the mid 1990s, [it] started slowing down because they realized that the government seemed was just giving them some tax incentives but not undertaking a deep change in the regulatory framework of the economy. The private sector now needs more assurances that we are moving toward a market economy.

Nevertheless, right now the private sector contributes about 60 percent of GDP compared to 40 percent in 1980, so the private sector contribution has increased considerably in the past 20 years.

How much has the private sector’s ability to function been improved in the recent past and where are the current best prospects for private sector development?

I think the private sector has been able to improve better because the regulations have eased up a bit, but not sufficiently. There has been an easing up in import regulations, export regulations, tax regimes.

As far as areas of private sector investment, it’s in practically every single sector. Syria is a virgin country. It has opportunities in tourism, industry, agriculture, telecommunications, transportation, banking. Banking and financial services are important areas. Syria allowed private banks about three years ago and now we have three private banks. There’s large room for financial services and insurance. Funds for venture capital, financing small and medium industries, micro financing, you name it.

Would it at all be economically feasible for Syria to maintain continued dominance of the public sector in the national economy?

Dominance of the public sector is diminishing anyway. But at the same time I don’t think the public sector should withdraw from social services. It should increase its role in the social services, in education, in health care. Otherwise if you open up to a market economy and don’t take sufficient care of social issues you end up with poverty and this is something we want to avoid.

How important is the issue of labor and unemployment in the Syrian economy?

Unemployment is about 20 percent. Official figures are about 11 or 12 percent. Some official sources came up with a figure of 16 or 17 percent recently, but I think the figure is more likely in the region of 20 percent. There are about 300,000 new people coming onto the labor market each year and this needs a high rate of growth to absorb them into the economy. Adding to these two factors of existing unemployment and new labor force is the extent of the disguised unemployment in the public sector. If you want to reform the public sector one of the things you have to do is get rid of the excess labor in the public sector. No less than 30 percent of employment in the public sector is excess labor. That will create another pressure on the labor market.

The problem of employment and unemployment is extremely important and any economic reform has to attend to this issue very seriously otherwise economic reform will be associated with more unemployment and more poverty.

In this context, how large of a contribution to Syria’s GDP do you attribute to Syrian expatriates working abroad, and specifically in Lebanon? How has this been affected in recent months?

Not much. The remittances coming from laborers in Lebanon is not more than maybe $400 million a year. If the number of laborers in Lebanon is 500,000 and they are making $400 million a year. Assume that 20 percent of the labor has come back [to Syria], then that’s the loss. It’s not a significant issue at all. And I think the laborers will return when the situation gets back to normal. I think the loss is more to the Lebanese economy than the Syrian economy.

How do you see economic and business ties between Syria and Lebanon developing in the coming two to three years?

I expect the ties to grow. Now that there are no more Syrian troops in Lebanon, I think economic relations will improve on a more equitable basis and a more relaxed basis and we can build a more sustainable relationship. Once the elections are over in Lebanon I think the two countries can work together and intensify their trade relations, tourism, labor movements and investment flow between the two countries. I think things will improve and become based on a more sustainable basis. I’m very optimistic.

Do you anticipate any short- or long-term economic repercussions on Syria from the US drive for change in the Middle East and from UN resolution 1559 in particular?

I think [US sanctions] are having an impact, not a direct impact because they are US sanctions not UN sanctions and as a result it’s the US that’s sanctioning its own companies. We don’t have much of an economic relationship with the US. Trade volume is about $300 million a year, which is insignificant. There’s little direct foreign investment in Syria. The major [foreign] companies here are Shell and Total. And Shell is a Dutch company and Total is a French company. There are some minor US companies doing some [oil and gas] exploration. But there is a rebound impact, a psychological impact, deterring some non-US companies and other governments from dealing with Syria at the present time because they don’t want to antagonize the Americans.

Resolution 1559 brought the French and US together in rare agreement on a Mideast issue. Do you expect to see that partnership fade now that the clauses relating to Syria in 1559 have to all intents and purposes been fulfilled?

The alliance between the US and France is temporary and all will depend on the results of the investigation into [the assassination of former prime minister Rafik] Hariri. If the results clear Syria, then the EU will go ahead and sign the Association Agreement. If the results raise doubts about Syria’s role in the assassination, then I think this could complicate things and continue this present state of pressure uncertainty, unusual alliances of foreign powers against Syria. The Europeans are not signing the Association Agreement with Syria pending the result of the investigation.

July 1, 2005 0 comments

Comment

Hit list vs. reforms list

by Yasser Akkaoui July 1, 2005

written by Yasser Akkaoui

At George Hawi¹s funeral, nearly everyone in the front pew of the church had lost a loved one to murder or assassination. The list included Giselle Khoury, Walid Jumblatt, Solange and Amine Gemayel, Saad and Bahia Hariri and Nayla Mouawad. One could not help but wonder whether each of them had been reminded once again of their personal loss. Add to that the pain suffered by the Franjiehs, the Karamis, the Chamouns, not to forget Sitrida Geagea, with her husband Samir Geagea still in jail, and the Lebanese political scene becomes one filled only with loss.

The murder of kings has been common practice in the history of nations. Next to divide et impera, the Roman method of oppression, killing leaders has been an effective way for ruthless nations to subjugate people.

But we are interested in economics and not in assassinations. Here, the mood of corporate Lebanon and among regional and worldwide investors with a heart for this country is getting restless. Much more mature than the strictly small-time political players who fail to look further than the last house in their village, are the crème of Lebanophile investors and professionals who want to see Lebanon move forward. They have a much clearer vision for Lebanon¹s recovery and know that in the end it will be the Lebanese people, not their politicians or any foreign power, which will keep this country going.

Once they regained their sovereignty, the Lebanese resumed what they do best: consuming and investing. This is what brought back the confidence of Arab and international investors to Lebanon, which manifested itself in a rally in Solidere shares to levels that had been out of reach for six years.

We need to keep this momentum going. While we have heard so much empty rhetoric from our political leaders, in light of the dire state of the country¹s economy, they must start implementing reforms immediately.

We elected the new parliament; we gave them our trust. Now they must show us what they are made of.

We are watching.

July 1, 2005 0 comments