Special Section

Industry Vox Pops

by Executive Editors
written by Executive Editors

Joint ventures with European companies are one method by which Lebanese manufacturers can enhance their position in Middle Eastern markets. Executive asked Roger Dib, director of Near East Consulting Group and partner in a joint venture between Italian kitchen manufacturers Snaidero and Indevco Group, how he evaluates the impact of the recent events on joint venture prospects for Lebanon and what risks he sees in the current situation.

Roger Dib

I have just signed a new agreement with a leading Italian manufacturer for distribution of their products and manufacturing of one line in Lebanon. They have not hesitated to come because the Lebanese market is only one of 10 to 12 points of distribution for them. However, if I couldn’t provide distribution in the region, it would be difficult. They seek distribution; we seek manufacturing, that’s the deal.

European companies are squeezed today. They have to work hard on their products, going to the US, going to China, going to the world. We can do perhaps one thousand times more sales for them with the same effort than they could themselves. Lebanese companies with distribution possibilities thus have a lot to offer to mid-sized European or Italian companies that don’t have the resources or interest to develop these markets. But you have to have critical mass to have a joint venture, meaning you need a network, a product, capabilities, and references, and it helps if you can throw in capital when seeking to attract know-how from EU firms.

In this, we are feeling much encouraged by what is happening in the Gulf. Gulf markets are being hit by a double positive stream of money now: the repatriation of funds and the revenue from the oil price increases, which has not percolated into the economy yet. However, it is very difficult to penetrate those markets if you have a product of solely Lebanese manufacture, unless it is a cultural product with distinct Lebanese flair, such as specialty coffee or a well-known fashion designer brand like Elie Saab.

Lebanese companies will have to have a strategy. What I worry about is that Syria is our gateway for exports to the Gulf. Thus I worry about what is happening in Syria and especially about racism that is directed against Syrians here. Racism should be behind us. The chambers of commerce and the professional associations should do much more in speaking out against racist violence directed against Syrian workers here. We need these people, and we cannot ignore that Syria is our gateway to anywhere.

The construction supplies manufacturers work in a field where the presence of Syrian labor is extremely high. Executive asked Elie Mattar of the marble and stone company Elie Mattar & Fils (EM), if an immediate impact of the events in February and March was felt on his enterprise, and about his outlook on investments, labor developments and business activities in the remainder of 2005.

Elie Mattar

For the time being, I will not do any investment. This means I will not buy any stock unless I have already taken the job. If you buy stock in our field, it does not perish or depreciate in value over time. But I am not willing to buy stock now. If the current situation will affect me, this will happen within three to four months from now in case that no new projects were to start. If the situation will improve within two to three months, I think that I would not feel a negative impact, because projects that are in progress will not be stopped. For big new projects, however, investors and customers from Arab countries are very important.

In my business, we work with cutting and sculpting stone. I have a very modern CNC stone cutting machine, which can work a large number of identical pieces at unmatched precision. The price of a machine-produced piece is however 40% higher than if a worker carries the job out by hand. On about 70% of the construction sites that we were working on last month activities stopped temporarily when the Syrian workers went home. We estimate that 40% of the Syrian workers went back to their country. This could become a huge problem with everything, not only for my factory but also in the entire construction sector. Lebanese law says that you cannot bring in new workers from abroad.

Seven years ago, my workers were all from India. However, with Syrian workers, you don’t pay for a work permit, residence permit, mandatory health insurance, and a return ticket to go home once every three years. I must also say that Syrians are perfect for this work, they are clean workers and very good with their hands. I wish I could find a Lebanese worker. But they are very demanding. You can’t get a Lebanese person to carry stone from here to there.

Information technology had been touted as a hope for Lebanon’s industrial growth. Executive asked Nizar Zakka, director at the Professional Computer Association, how she assesses the impact of the developments after 14/2 on Lebanon’s Information and Communications Technology (ICT) industry, what her concerns were and if expects the operational climate to improve.

Nizar Zakka

As representatives of the ICT industry in Lebanon, we have been working for the past ten years on enhancing the image of Lebanon in the ICT sector worldwide. We believe that last year, we reached a point where our image was good in all terms. What image is now being projected is one of democratization but also of instability. This is a new weak point. This means our government and us now need to work twice harder to improve our image. Our business is based on human resources. Instability will lead us to export more brains than software.

In terms of achieving economic results, we feel that we were reaching the point of prosperity. We were in the middle of a jump forward and what happened set our sector back big time The ICT sector had explored three pillars to base our development on by working on Human Resources, achieving industry standards and certification, and focusing on taking advantage of Lebanese knowledge of business applications and our clients. Now the industry needs to address a new factor, instability, which had not been part of the planning at all.

We decided as private sector to do the best in the frame we can and gave up on expecting progress in regulations. As far as the political climate, we don’t see a mature political atmosphere. Nobody is caring about prosperity. We believe that our late prime minister, Mr. Hariri, was really the only person who cared about prosperity of Lebanon. We all want truth, we all want freedom, but we also want prosperity. Thirty-five percent of our software products are exported. We ask for the tone of political speeches to be lowered, in order not to damage Lebanon any more. We are working with the Arab world and they are not used to such language. The instinctive reaction to such talk in the region is being scared and reluctant to invest.

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Special Section

A hard summer for industry

by Thomas Schellen
written by Thomas Schellen

The economic impact of the current phase of uncertainty is weighing differently on different sub sectors in the manufacturing industry. Overall, the toll on revenues, as far as it exists in the realm of industry, is just materializing, or will only emerge several months further into the year when current orders have been filled. This gives companies, fearful of their business prospects, a narrow window of about one quarter in which the country has to return to stability – otherwise they will face many difficulties.

Many industrialists, however, see a positive future for manufacturing in Lebanon, provided, of course, political developments go smoothly. The accomplishment of a wave of civil freedom has shown in many precedents to stimulate demand and liberate previously stifled growth potential in an economy. In an environment of respectful interdependence with its Arab neighbors, Lebanon could benefit exceptionally well from a democratic spring and peaceful reforms in the Levant, because of the private sector’s knowledge of markets, easy geographic access and business acumen.  

When it comes to the industry sector, the main internal challenge is the nation’s ability to maintain a high level of civility and peace in the ongoing political disputes, especially during the upcoming elections. The securing of good working relations with Syria throughout the political review process poses the other big challenge. However, even assuming that all political processes proceed smoothly, it is becoming clear that a return to political stability in and by itself will not be enough to improve the lot of Lebanese industrial manufacturers.

In a number of respects, 2004 was a rather good year as industrial exports continued their rise in value from $1.44 billion for 2003 to $1.64 billion in 2004, an increase of 14.1%. In parallel, investments into production capacities, indicated by importation of industrial machinery, also increased from $109 million in 2003 to $142 million last year, a jump of almost 30%. 

However, with a share of those increases attributable to the strong euro, growth of exports and investments into machinery are not necessarily indicative of a massive gain in industrial productivity, which remains a core need for the sector. Analysts and industry representatives also still see the target markets of Lebanon’s industrial exports as being in need of further diversification. Exports to Europe, with the exception of the, in economic terms, atypical exports of mostly jewelry to Switzerland, must still be regarded as a development goal rather than an achievement.

In exports to Middle Eastern countries, which have to be the main staple of expansion-minded local industrialists in lieu of a large domestic market, Lebanon faces a curious situation of having high production costs when compared to the region’s lower income countries with big populations but also to the much more affluent economies in the Gulf, even where their per capita GDP is several times that of Lebanon.

Both in terms of labor and energy costs, it is acknowledged that Lebanon is at a disadvantage when compared to other Arab manufacturing locations. Between these costs and the high cost of funding, the competitive position of Lebanese industry has seen no radical improvements for at least five years. The contribution of industry to the economy remains at about 20%, and a recently published 2005 overview by the Chambers of Commerce and Industry describes the sector’s situation very much in the same terms as it was in 2003.

Given that a big slice of last year’s real GDP growth of about 4% originated from tourism, including the consumption demand created by the foreign visitors, and that a foreign-nurtured construction surge accounted for another important portion of growth, the demand outlook for 2005 is muted and industry seems in no position to count on large domestic demand growth.

Officials at the chambers of commerce said however that it is too early to see the eventual effect of the February/March period on industrial revenues in Lebanon beyond the immediate damages of the 14/2 blast and seven lost days of production. According to chamber experts, exports of manufactured goods could continue at good levels, as there is reason for a slump in regional demand for Lebanese products resulting from the current crisis over the nation’s political future.

Industrial manufacturers working in collaboration with European firms have a distinct chance to further improve their position if they have a critical mass consisting of a regional distribution network, proven skills and ability to contribute capital to a joint venture, assured industry consultant Roger Dib.

However, a deterioration of relations with Syria could throw a huge monkey wrench into the gears of Lebanese manufacturing industry. Apart from being itself one of the largest markets for Lebanese exporters, “Syria is the gateway to anywhere,” Dib said.

The latest month for which reference numbers on exports are available is January 2005, with total exports of $125 million. Of six Middle Eastern countries that received about 47% of Lebanese exports in January of this year, Syria accounted for 11% ($13 million) and four others – the UAE, Saudi Arabia, Iraq and Kuwait – are land transport destinations via Syria. Turkey was the one major destination country in January, where land transit through Syria is not the only logical avenue for the bulk of exports. Thus, industrialists are of wide understanding that a closure of their borders with Lebanon by Syria would have a devastating impact on Lebanese trade.

In addition to Syria’s importance in reaching the export destinations most attractive to Lebanon, the sub sector of industry with the largest stake in easy-to-transport, high value-added exports harbors another massive fear over potentially devastating effects of domestic instability on regional business. This sub sector is the Information Technology industry with its high emphasis on delivering corporate software packages to customers in Arab countries.

As the manufacture of software products goes hand in hand with the provision of intensive after-sales services to corporate clients, regional decision makers would shy away from awarding contracts to Lebanese software manufacturers if political instability continued to cause any doubts over the ability of these companies to fulfill after-sales service contracts, the director of the Professional Computer Association, Nizar Zakka, told Executive. ”The people in our industry had a very bad month and everybody is worried about the future,” he said. “Today we don’t know where things will go. Our industry has a tolerance for fluctuating demand but if the cycle doesn’t accelerate after three to four months, the situation will be severe. It will become clear what the real effect is when the current contracts are fulfilled in a few months’ time.”

The pain that the information and communications technology sector is feeling over the current period is exacerbated by two exigent factors. Firstly, just a few days prior to 14/2, a joint venture of software multinational Computer Associates (CA) and Lebanese firm MDS Holding announced the opening of a call center in Beirut designed to serve CA clients throughout the Middle East with technical support.

Call centers, or contact centers, are today a huge economic phenomenon in serving corporations in technology, services, and manufacturing. In the past five years, the call center industry has grown exponentially in countries like India where the numbers of round-the-clock “seats” in contact center work places tallies at over 150,000. The Philippines, another leading growth country in the field, doubled their seats from 20,000 to 40,000 between 2003 and 2004, after achieving revenues of about $200 million in 2003.

At the launch of the CA – MDS joint venture for Lebanon’s first regional call center event, telecommunications minister Jean-Louis Qordahi announced that Lebanon was aiming to invite companies to establish call centers here and that the MOT had drafted specific “tariffication” to attract operators. He described the potential for such operations in Lebanon as “unlimited.” And although the new venture between CA and MDS started with only a handful of seats and qualifies initially as an inbound support center more than a contact center, the country satisfies important preconditions for developing a successful call center industry because of prevalent language skills, technical skills and service culture existing here.  

The new positive climate for private sector initiatives in ICT was also expressed in a recent survey on key IT trends in Lebanon’s PC penetration and internet usage. According to analysts SRI, who conducted the survey, “65% of Lebanon’s urban population has some level of use of computers”, and internet access is “in the ‘take-off’ stage with nearly one quarter of internet users getting their exposure to the technology in the last year alone.“

Such findings had heartened ICT companies in their expectations of renewed business growth for 2005 and beyond. The country’s sudden shift to political uncertainty hit the sector thus ever harder, by endangering fledgling opportunities and causing worries about a new slump in business in exports and at home. The latter concern is due to the fact that most corporate ICT customers in Lebanon consider investments into information technology as tool to enhance their business only when the need arises under favorable revenue developments.     

The second element is that this sector has been lambasted more than others by failures of the public sector to create a favorable environment for their operations. Based on the administration’s inability to institute the Telecommunications Regulatory Authority (TRA), reduce costs for internet connectivity and general communication by a meaningful margin, and establish an Information Technology zone, the PCA would not expect any new government to succeed in assisting the ICT industry. “We don’t believe that the next government will create the TRA. It will not create a tech zone,” said Zakka. “They are transforming an issue of prosperity into an issue of power. It’s a pie of which everybody wants a slice, and this won’t work. We don’t want them to help. The best way for them to help is really to leave us alone.”

With such fundamental distrust in the ability of any administration to instigate positive change, the question acquires urgency whether the next government of Lebanon will be able to address the need to make manufacturing in Lebanon more feasible and provide meaningful incentives to industry. Reduction of the price industry has to pay for electricity and other measures to lower the cost of production here have been long standing demands by the Association of Lebanese Industrialists. Irrespective of its composition, any new government tasked with the responsibility of steering the country after the upcoming elections will have to face the multiple challenges of improving public sector performance in support of economic growth, earning the trust of industry, and of carrying out a difficult reform process to remedy problems that have long plagued the country and put a strain on socio-economic relations. 

One of the issues looming large on the horizon is to make further progress in adapting Lebanon to European and WTO standards for industrial production, another is the need to devise and implement a strategy for ensuring the environmental compatibility of industry, including the relocation of manufacturing companies from irregular industrial zones to proper ones, better treatment of industrial wastes, and safeguarding of air and water quality.

In recent weeks, the issue of Syrian labor has been highlighted in many discussions. However, while numbers about the relations between Lebanon and Syria have been floated in the debate, these calculations appeared driven by political objectives and not by the desire to assess the real size and balance of gains or losses that the Lebanese and Syrian economies incurred from their relationship over the past decade.

In this debate, the issue of Syrian labor has been used to muddle the picture stir public opinion, using vague estimates and misstating the role of remittances by Syrian workers while neglecting to also account for example for the – far more weighty – importance of remittances from Lebanese expatriate workers in other countries for the Lebanese economy. Finding a solution for the presence of Syrian labor in Lebanon without replicating the erratic status quo where these workers are neither monitored in numbers nor covered by any social services will be a big challenge to any administration in the process of reforming both the relations with Syria and the shadowy aspects of the Lebanese economy.

In the meanwhile, however, Syrian labor remains important to Lebanese agriculture and construction but also to other sectors. As many industrialists assert, hiring of Syrian workers has a tradition here that precedes the presence of Syrian armed forces. Construction companies and suppliers of construction materials are among the first companies that will see problems mount if the current political crisis in relations with Syria carries on into the summer.

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State department

White House speaks with forked tongue

by Washington Correspondent
written by Washington Correspondent

The old Western cliché, “White man speaks with forked tongue,” may find application in current Bush policies as “White House speaks with forked appointments.” Condoleezza Rice at State, well received; John Bolton at the UN, bad move; Karen Hughes as ambassador at large, to win hearts and minds lost due to the war in Iraq; then Paul Wolfowitz – the architect of the war in Iraq – to head the World Bank, (and possibly lose those hearts and minds Hughes is supposed to win back). Can you say crossed signals or should we above all, beware of a wolf in sheep’s clothing?

Condi hits the ground running:

Still, President Bush’s vision of spreading democracy in the Middle East appears to be on a roll. Yes, Iraq remains a problem, but the rest of the region is moving as Bush’s second term policies are picking up momentum. Condoleezza Rice, who replaced Colin Powell, is the totem for this new era and she got off to a good start with the Europeans, patching up much of the damage caused by Defense Secretary Donald Rumsfeld during the Iraq war period.

Condi has managed to bridge relations with “Old Europe” and her ground-setting tour for Bush went off relatively well. Even Rumsfeld was able to indulge in some rare public relation building during a visit to Germany, making light of his earlier comments saying it was the “old Rumsfeld” speaking at the time.

It is clear that the second Bush administration has adopted a different approach in dealing with foreign policy issues, realizing that the big issues of the day – fighting terrorism, preventing nuclear proliferation, and “spreading democracy” – can be achieved with more ease when working with the European than trying to go at it alone. Over the past few weeks, Bush has repeatedly referred to “our European friends.”

And now for something completely different: 

If Rice’s nomination as chief US diplomat was well received in Europe, John Bolton heading to the United Nations was received, well, like a bolt of lightning. This is the same Bolton who once said the top 10 floors of the UN could be removed and no one would notice.

Bolton is a firm believer of America first. Democrats and Europeans see his appointment as a contradiction to Bush’s change of policy adopted by the second term administration. Bolton worries both friends and foes. Eurocrats in Brussels see in Bolton a serious enemy. Politicians in Paris and Berlin think Bolton is suspicious of European motives. They say he believes there is a Franco-German aspiration to build a super power that would rival the United States. His nomination hearing on Capitol Hill is sure to create a storm. Stay tuned.

Counter Bolt:

So we lost some hearts and minds (not to mention bodies and souls) and now we try to win them back. Enter Karen Hughes, one of President Bush’s chief advisers, nominated to be Under-Secretary of State for Public Diplomacy. This underlines the importance the Bush administration is giving diplomacy and the country’s image around the world in its second term.

Hughe’s nomination, say analysts, is in response to the often-negative perception of the United States, especially in the Arab and Muslim world. Both Rice and Hughes acknowledged that US public diplomacy efforts needed fixing. Rice admitted that the United States must do ‘much more’ to confront anti-US propaganda and increase exchanges with the rest of the world.

“Hostility towards America has reached shocking levels,” a report by Edward Djerejian, a former US ambassador to Syria, pointed out, urging a complete overhaul of efforts directed at the Middle East. “Our interaction with the rest of the world must not be a monologue,” Rice said. “It must be a conversation.” Agreeing with the secretary of state, Hughes said, “US public diplomacy should be as much about listening and understanding as it is about speaking.”

In her new job, Hughes will have a lot of speaking and listening to do. Her assignment includes engaging with the Arab and Muslim world. Probably one her first hurdles will be to explain why Bush selected one of the main architects of the Iraq war to fight poverty.

Wolfie to the World Bank:

Bush’s nomination of Paul Wolfowitz, current deputy secretary of defense, to lead the World Bank has had the effect of a mini-tsunami. Bush sees Wolfowitz as a “compassionate, decent man who will do a fine job.” Much of rest of the world seems to disagree, including many within the organization. They see Wolfowitz as the man who initiated the Iraq war, and all the troubles that came with it.

True, Wolfowitz comes with an impressive resume, yet many argue that his record as number two at the Pentagon was far from impressive. He is staunch neoconservative, who as a scholar headed Johns Hopkins University’s School of Advanced International Studies in Washington before returning for the third time at the Pentagon, where he put together the blueprint to topple Saddam. His reasoning was that Saddam had large caches of weapons of mass destruction. It was also Wolfowitz who argued that Americans would be welcomed as liberators.

Curiously enough, despite accusations of being anti-Arab and biased in favor of Israel, the 61-year-old Wolfowitz has been dating Shaha Ali Riza, a Tunisian-born gender specialist who has handled the bank’s external relations on Middle Eastern issues. She may have her work cut out. “The mood in the Bank is like a cemetery,” confided one bank staff member. “Everyone who can leave will leave.”

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For your information

Fadi Khoury

by Executive Editors
written by Executive Editors

For the last 10 years, Fadi Khoury, owner of the once-resplendent St. Georges Hotel on the Corniche, has been fighting what he calls a relentless hostile effort by Solidere to swallow up his property. At the same time, he has been nurturing a dream of returning the hotel to its former glory. That dream, which Khoury claims had become close to realization, was shattered on February 14 by the massive seafront explosion that ripped the façade of his hotel, destroyed his offices, killed five members of his staff, buried him in rubble and – ironically – killed his nemesis, Solidere icon and former prime minister, Rafik Hariri. EXECUTIVE spoke to Khoury about the effect of the explosion on him personally, on his business, and on Lebanon as a whole.

What effect has the explosion had on you?

I can’t think. It’s too dramatic. It’s unbelievable. We hadn’t conceived that such savagery was still possible. We thought we had moved on. This is a catastrophe for us. It’s just like a tsunami. Five of our colleagues are dead, many are injured and the effects of the injuries will remain with them. This is what has affected us most. Then, there is the damage to the hotel and the things we were constructing here. We have effectively been set back 10 years … 25 years. This is worse than things 25 years ago.

Where were you when the explosion happened?

I was on the staircase coming out of the St. Georges beach club. There was a covered entrance – which was smashed in the blast – and I was in that entrance. I received a phone call and stopped to concentrate on the conversation. The girl I was seeing out said she was going up [the staircase to the exit]. She went across the road and was blown into the air. Somehow she didn’t die. She’s bruised and still in shock, but she wasn’t among those who were very badly hurt. The people who were in our office were very badly hurt.

What were your immediate thoughts?

It felt like the apocalypse. I can’t describe it. I thought we were being bombed from the air. The first blast actually trapped me in the sense that I had nowhere to run, but was not smashed down. The second blast smashed me to the ground; [I was] hardly able to breathe, but still alive. I tried to see if I could lift whatever was on top of me, but I couldn’t, so I slid up the other way, towards the wall. I got out between a thick tree and the wall. Then, they pulled out one of the guys [from the rubble]. Another guy had already been pulled out before I had got out. Then, I walked out and saw total drama out there. There was smoke. We couldn’t get to the offices and then I was told that most people were dead. I was told who was dead and I couldn’t imagine that anyone else was alive, but it turned out that three were alive – two very badly hurt and one somehow didn’t get hurt. He’s an old eighty-five year-old man, short. I think it went right over him.

What exactly did you see both in front of and inside the St. Georges?

There were burned cars, crowds of people shouting. The shocking thing was the people being brought out by the Red Cross – one woman’s eye was practically outside her face. The St. Georges itself was ravaged. Everything was on the ground. It’s amazing what an explosion like that does.

What did the explosion interrupt in terms of the development of the St. Georges?

We hadn’t been able to reconstruct the St. Georges hotel properly. We were rebuilding it, but in a funny sort of way because we didn’t have the right permits. We were just trying to get through. In the winter, we had planned on having a very nice beach for the summer. We were developing the beach activity – in conjunction with the hotel – more and more so that at least we would have something going, like a restaurant winter and summer. We were thinking of bringing the bar back on a refurbished ground floor. We were very close to deciding that things would go positively, that there would be a change because of the coming elections and so on. We imagined unveiling the hotel as a surprise. It was a question of days before we were going to bring down the veils and light it up, to say: ‘Look, it’s coming.’ Obviously, it would have taken another year to get things finished because we still needed to work on the inside, on the decoration, and so on. Now, I have been set back in a very, very dramatic way.

How much damage has been done?

We have lost everything we spent over the last 10 years. We have damage in the area of $15 million.

What does this mean for you?

After 10 years of being bullied, this is like being slammed on the head with a big piece of wood. I must admit that I am astonishingly reactive to catastrophes in the sense that they don’t get me down, but this has got me worried. I’m beginning to think that maybe I should sit back and think, because if they [government officials] want to see the St. Georges Hotel rebuilt, they had better start showing some very, very positive signs and start helping us out. They could start by changing their attitude. We haven’t seen a positive attitude at all. On the contrary, there has been no positive sign.

When I called the governor of the city of Beirut, he offered his condolences, etc…. I said: ‘Stop the nonsense and give me the permits.’ Then he started blabbering all sorts of excuses instead of saying: ‘Yes, sure, now I will make an effort.’ I think we should have people in the government who are going to rebuild [Lebanon] and stop filling their pockets and making money out of the poor wreck that this country is. That is what has been going on. Roads are being built but they cost 10 times more than they should and that is not helping the country’s economy.

This huge blow comes on top of 10 years of dispute with Solidere, as well as with a government you say has been blocking the redevelopment of the St. Georges. Why has this been happening for 10 years?

I can’t tell really and it’s not really a subject I want to dwell on because it has to do with issues that, under the current dramatic circumstances, I’d rather not revive. But everyone knows the story of the St. Georges and Solidere. We are enemies because they have decided to attack us. We are friendly to everyone who approaches us in a friendly way, but they came in an unfriendly way, trying to take over and monopolize the St. Georges bay. It’s ridiculous. It goes against history and against Lebanon. The St. George is there. It’s positive. It can help everybody. Solidere, the city of Beirut and Lebanon can take advantage of a rebuilt St. Georges – there’s no need for it to belong to one particular group or one particular lot of business people. I feel that more and more businesses are run by mafias these days. We don’t belong to mafias.

Why has this impasse been maintained even after the events of 14/2?

They [the government] are not their own masters. Why would someone not pick you up if you are hurt? There must be something else that scares him, because they are afraid of something, I suppose. I don’t understand. I haven’t seen anyone from the so-called opposition defending the St. Georges publicly. They have defended it in private. Lots of people have often said to me how sorry they were about the situation, but I have never seen an official have the guts to stand up. Hopefully, they are going to show some guts and stand up for what they believe in.

Why do you think no one in the opposition has stood up for the St. Georges? 

Most people are oppressed.

You say you are going to have to sit back and think. Given the dramatic circumstances surrounding your condition, the apparent continuation of your dispute and the huge financial blow you have suffered, is this conceivably the end of the road for the St. Georges?

It will never be the end of the road for the St. Georges. The St. Georges is part of Lebanon’s heritage. It will continue – with or without me. But I don’t think I will continue hitting my head against the wall if people keep the wall in my face. I will finally step back and rethink the whole thing from a different perspective and from outside this country.

How likely is it that you will actually step back and leave the country?

I am stepping back at the moment to look at the whole situation, but I have not decided to step back all the way and leave the country. I’m waiting to see some signs of a positive attitude from the government soon, so that I don’t adopt a totally negative attitude. I haven’t yet seen that attitude from the government. I note that neither the minister of tourism nor the president of the syndicate of hotel owners has bothered to come here. I find this particularly surprising and shocking – the least they can do is come by.

If you did step back as you put it, that would entail selling to Solidere, correct?

I have no idea. If I step back it will be to think and when I think I will let you know.

So there’s nothing you can say at this stage?

No. I don’t want to say anything that is aggressive. I am an aggressive person.

There is nothing concrete you can say now about the future of the St. Georges?

No. As I said very specifically, I intend to think and I need time and peace and that is not what I have been getting, because I have been busy with people and their health and their problems and my problems and putting things back into a running order. I haven’t had the time to step back and think. I will step back and think, probably up in the mountains, on the ski slopes, if there is any snow left.

What have you been working on since the explosion?

We will have the beach ready. Of course, people are not going to come now because of the situation, but it will be ready. I’m encouraging all the people concerned to carry on with the beach, to implement what we were doing before the explosion. We will have an air-conditioned restaurant here and most of the beach looking as pretty as possible, with plants. But apart from that, we’re not doing anything. As I said, I want to sit back and think. Also, we can’t move. It’s totally paralyzed. We want to have access to the other St. Georges building – which is something that can be done in controlled manner.

We are imprisoned here. We have no water, no electricity. No one asks if we are able to live or eat. We are totally nonexistent. It’s a no man’s land and they are keeping it this way. I understand that they need to do things in an organized way to complete the investigation. However, I am an intelligent man and I think in a mathematical way and I know for sure that there is a way for us to go to our other building and close the doors so that people don’t go inside and also to take out some of the things we need to put the beach back on its feet. They [the government officials] just say, ‘No.’ Nothing else. No explanation. Why should they explain? There are no people to respect or to take into consideration; they are used to people being bombed and killed and so on. They never said anything about our five dead staff until people found out about it and it became more public.

Why is this happening and have you been told how long will it go on for?

Not at all. Why should they tell us? This is a country of hooligans. Nobody tells you anything. The citizen does not count. The proof of that is how they bomb people. The current state of affairs is obviously because of some sort of security system but the people in the government have responsibilities. Their main responsibility is to help us feel comfortable. We don’t feel comfortable.

What has the damage to the country and the hotel and tourism sector been?

The damage to the country is devastating. It’s very nearly back to square one – back to the way it was during the war. The things you hear and observe do not indicate anything very hopeful for the next month. I’m not a tourist, but I wouldn’t walk around the streets of Beirut today. You never know. You’re better off staying at home for a while. So, imagine what the tourists think if they’re coming from England or other countries. I don’t think people are coming anymore. Not for a while. I have no idea about the exact state of the restaurant and hotel sectors but I imagine they must be pretty badly hit.

Solidere was your foe. Hariri, as the symbol of Solidere and prime minister of Lebanon, was your nemesis. The explosion has taken him out of the equation. How does that make you feel?

I’m very sorry about what happened to Mr. Hariri. I don’t believe Hariri was alone in being against the St. Georges. He must have had his reasons. I’d rather not go into that anymore. Solidere is an infernal machine. It’s a terrible machine and should be stopped, but lots of people don’t want it stopped because they must have some interests. People outside this country don’t want it stopped. I don’t think any one person is responsible for what’s going on.

What impact on the St. George’s relationship with Solidere will the death of Mr. Hariri have?

I don’t know. I haven’t analyzed that. I’m not even thinking about doing anything with the St. Georges anymore. I hope no one will continue supporting Solidere in illegal endeavours. Beirut is ours, not Solidere’s. It is the Lebanese people who have been ousted from their houses.

Have you had any dealings with Solidere since the explosion?

No, as I said I’m not dealing with anyone at this point. I hope that after this, everyone will think back and change their attitudes, and maybe we will all become friends.

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For your information

The Apprentice

by Executive Editors
written by Executive Editors

The Lebanese Broadcast Corporation (LBCI & LBC-SAT) has unveiled plans to launch a pan-Arab version of NBC’s hit business TV show The Apprentice, with Dubai substituting New York as the corporate jungle. The 15-part series is scheduled to air in October, a month after the premiere of Showtime and Al-Aquariya’s CEO show, based on a similar concept. The overlap prompted a recent media spat between two of the shows’ hosts, resulting in a communications shutdown by LBC on the subject. “There has been a problem with regards to The Apprentice and we can’t talk about it to the media anymore,” an LBC aide confided.

Yet according to CEO executive producer Ziad Batal from Media Group, the competition will only do the business good. “We welcomed this initiative – the press invented all sorts of animosities between us, when there was none. The Apprentice will help promote more of these shows, which helps everyone’s cause.”

Joining the ever-expanding line of reality TV shows in the Middle East, The Apprentice pits several contestants against each other in a bid to showcase their business savvy. Contestants are teamed up and made to solve a variety of business problems, negotiate deals and manage projects. The losing team of each challenge sees one of its members fired by business mogul Mohamed Ali Alabbar, who hosts the show. The lucky finalist will walk away with a senior $300,000 a year position at Emaar-Dubai, the leading real estate development company in the Middle East, of which Alabbar is the Board Chairman.

A FremantleMedia franchise, the new show follows the growing trend of high expense reality TV shows which have caught on the Middle East. Playing it safe by avoiding cultural sensitivity landmines, such as mixed-gender housing facilities or compromising behavior, the show ought to have little difficulty attracting a profitable sponsorship deal.

Sponsorship contracts for shows such as Star Academy and Superstar average the $4 to $5 million range, whereas CEO has secured a $750,000 deal with its presenting sponsor and $350,000 from its gold sponsors. Added to this are the 30 second advertising slots during airtime, sold on average at $10,000 for the reality shows.

Feltman urges action

Speaking exclusively to Executive before he left for the US, American ambassador to Beirut, Jeffrey Feltman, reiterated his country’s calls for Lebanon to address its World Trade Organization (WTO) obligations and use the recent window of opportunity for positive change to push through the necessary legislative reforms to encourage greater investment opportunities.

In terms of WTO membership, Lebanon has made scant progress. Three of six laws that are prerequisite for accession are still at the council of ministers. Feltman believes that Lebanon must seize the day. “The ball is in Lebanon’s court now; they have to get the framework passed. If momentum continues, then it can be built upon,” he said adding, “Our hope is that ministers in the new government would put their political clout behind the issue.”

The benefits are not insignificant and show that Lebanon genuinely complies with trade standards. “Free trade is important,” said Feltman. “It is a benchmark of trade policy.”

Feltman said that for any future government, fiscal reform and fiscal restructuring of the country is overdue. “New government can’t have continuity of policies from governments that preceded it. Reform is not popular but it is urgent,” he said hinting at greater investment opportunities. “There has been interest in Lebanon at the Department of Commerce and the US Chambers of Commerce, but without reform in the judicial system, a serious initiative to tackle corruption, and IPR as well as improving ICT infrastructure, telecommunications rates, Lebanon will not move forward.”

IPR in particular remains a key bone of contention. Feltman revealed that the US government is currently conducting a review of Generalized System of Preferences privileges and a revocation of these privileges is a possibility, meaning that many Lebanese goods would be lose their duty-free entrance to the US market. “IPR is an issue that Lebanon should be concerned about,” said Feltman. “It is one of the few countries in the world where there has been no strategy to address the problem in the long term.”

VISA

Credit card issuers Visa International have given another thumbs up in their assessment of the Lebanese market. In 2004, usage of Visa-branded credit and debit cards increased by 32% to 11.6 million transactions in total. The company was especially jolly about the fact that Lebanese cardholders had carried out 2.3 million of these transactions in retail spending at Points of Sales (POS).

The accumulative value of transactions was $2.08 billion for 2004, of which $300 million occurred at POS, an increase of 31 % over the previous year. It has been a strategy of the credit card company to strengthen the credit card culture in Lebanon and increasing usage of cards at the from issuer perspective more profitable POS.  

According to Visa International’s general manager for the Levant, Said Shuqom, Visa estimates their share in the Lebanese payment card market at over 50%. Considering that the number of Visa cardholders here has risen to about 553,000 at year-end 2004, this would put the total number of payment cards in the country at about 1 million. However, the numbers provided by Visa also showed that the vast bulk of cards are debit cards, with Visa Electron cards accounting for nearly 437,000 of the total. Full fledged credit cards of different classes under the brand number less than 30,000 and the top-tier segment of Visa Platinum and Business entails precisely 2,812 plastic carriers.

Arab countries, including the Levant, are currently among the fastest growing markets for Visa International. For further growth here, the company banks on increased market segmentation and new technologies, Shuqom said. The company assumed that the turmoil of the past two months had reflected upon the usage of credit cards in Lebanon but would not be able to quantify this impact for several more weeks. In light of the situation, Visa has halted all promotion campaigns and launches of new products for the first six months of 2005, he added.   

MECG

Investment Bank Middle East Capital Group (MECG) and automotive dealers Rymco last month completed a securitization deal representing the first significant act of financial engineering in the period after the assassination of Rafik Hariri. The complex arrangement entailed offering of certificates backed by automobile receivables from Rymco worth slightly over $20 million.

Under the transaction, described by MECG as the largest of its kind in Lebanon, the certificates issued by the investment bank were purchased by eight banks and firms in the financial industry. Certificates were split into a one-year and a two-year tranche with respective annual interest of 6.5% and 7.5%, plus a residual tranche of $8 million, which remains with Rymco and acts as buffer against eventually defaulting car loans as underlying securities.

To the participating banks, the arrangement offers good returns at a low risk while Rymco benefits from improved access to finance and stable cash flow. Rymco intends to implement further securitization increments over the next three to five years for a total value of $75 million. Earlier this year, BEMO Securitization, the investment-banking arm of BEMO bank, had closed a similar offering in collaboration with car dealers Bassoul Hneine.

The transaction also illuminated the cost that the finance industry had to bear under the impact of the Hariri assassination. Walid Mousallam, CEO of MECG, said that the partners in the securitization felt a sense of pride to have successfully completed the arrangement during this difficult period but also revealed that MECG reviewed the program after the assassination. Perceiving a higher short-term risk, the investment bank revised the size of the offering downward, taking it from $30 million to $20 million while significantly increasing the size of the residual tranche as over-collateralization from about 28% of the total to 40%. “It would have been a different deal a month ago,” he said. 

Chateau Makse

Akram Kassatly, owner of Kassatly Chtaura, the man who saw an opportunity for a locally produced alcopop and gave us Buzz, is now focusing on his first love. Investing $1.8 million into Chateau Makse – named after the Bekaa Village where the winery is located – Kassatly, who studied winemaking in Dijon in the late 60s, is joining the ranks of Lebanon’s $27 million wine industry. Expecting to produce 400,000 liters annually (roughly 500,000 bottles) the new winery, will be fulfilling a dream that was cut short in 1974.

“The war forced the company to abandon its winemaking ambitions and focus instead on the more stable concentrated syrups and non-alcoholic products,” explained Nayef Kassatly, Akram’s son, who added that Chateau Makse had already signed contracts with local grape suppliers until its own vines, of which 30 hectares have been planted, are ready for wine production. However, many within the industry say it will not be easy for a new winery, without its own vineyards, to establish itself. “There is huge demand this year. The Egyptians, Jordanians and even the Syrians are all coming to buy our grapes. They are demanding about 500 tons and this is around 25% of the independent grape growers’ harvest,” said one wine maker. “Good quality grapes will come at a premium.”

The winery will initially produce three wines retailing at around LL7,000 each: red, white and rose and, despite a local market dominated by Chateaux Kefraya and Ksara, Kassatly is confident that 50% of the production can compete in domestically, while France, the UK (Lebanese wine’s two biggest importers), the US, Japan and Sweden have all been earmarked as export markets, the penetration of which will be helped by Kassatly’s existing distribution networks. “With our know-how, infrastructure and marketing strategies, we believe the project is very promising in the long term,” he said.

EU pushes for E-commerce

Funded by a €1.7 million EU grant, E-Commerce in Lebanon (Ecomleb) aims to promote e-commerce in Lebanon and to formulate a complete set of laws and decrees necessary to facilitate online business and banking. This legal basket containing 10 draft laws should be ready to be go to parliament by June. “When these laws are passed by parliament,” said project manager Alain Jean, “Lebanon will have the most advanced and coherent legal framework in the Middle East, which puts it years ahead of other countries, such as Egypt, Jordan and Dubai.”

According to Radwan Habli, IT advisor to the ministry of economy, “in normal circumstances,” it will take between three months and a year for parliament to pass the bill. Meanwhile, Ecomleb is promoting the use of e-commerce through conferences, press releases, its quarterly journal and website, as well as a soon to be released CD-Rom on the leading e-commerce activities in the country.

So far, the digital way of doing business has not exactly taken the country by storm. A report published last February by the Beirut-based Stanford Research Institute concluded that: “despite high levels of computer penetration and reasonable degree of adoption and use of the internet, e-commerce is yet to gain ground in Lebanon. By the summer of 2004, only 9% of all Lebanese internet users shopped online.”

However, there are exceptions to the general rule, as companies such as Tripoli’s Hallab Sweets and Khan al Saboun, as well as online travel agency skileb have demonstrated promising results. According to Jean, as Lebanon is a service industry, it is about time the country hops on the bandwagon. “Just look at the figures,” he said. “In the USA, online retail revenues increased by 25% from 2002 to reach $60 billion and is expected to grow by an annual 19% over the next five years. In the EU, companies selling and people buying online has increased dramatically as well.”

(For more information: www.ecomleb.org)

Arak Piracy

Le Brun, arguably Lebanon’s most prestigious commercial arak, has spent $100,000 on a packaging facelift. The move comes after a swift and effective response last year to a rash of fake bottles of Le Brun, which is over 100 years old, that had found their way onto the shelves of small and medium sized outlets. Even though the fake bottles only represented around 10% of Le Brun’s market share and have since been removed by government inspectors, Domaine des Tourelles, the company which owns the Brun label, felt it had to respond to avoid similar instances of brand piracy in the future.

“We have used new glass for our bottles and printed a new label that while the same is harder to copy,” explains Christiane Issa, Domaine des Tourelles’ marketing manager, who added that as of now Le Brun is be responsible for its own off and on-trade distribution of the 75,000 bottles it produces each year at its famous Chtoura distillery. According to Issa, the fakers were not particularly clever: “The capsules (cork covers) were very bad quality, the arak tasted awful and the bar codes were the same for the big bottles as well as the small bottles. Fortunately none were found at the major supermarkets, where there is a more discerning clientele.”

This is not the only example of piracy to hit the $10 million Lebanese arak industry. Massaya, who pioneered the arak revival with their blue bottles, have also reported copies of both their distinctive blue arak bottles and wine in Syria, while during the civil war many of Lebanon’s famous brands were regularly copied and exported, especially to the US, causing confusion among Lebanese exiles seeking solace in Lebanon’s national tipple.

BCD retail

Café’s, shops and restaurants in the Beirut Central District have reported losses of as much as 75% since the death of former Prime Minister Rafik Hariri on February 14, as demonstrations, strikes and official mourning amounted to eight days of lost business. More importantly, retailers claim, it is the general atmosphere of political and economic insecurity that deters people from going out. “Shopping is the last thing on their minds,” said one shopkeeper, summing up the general mood.

While Sunday afternoons and weekday lunchtimes have seen a relative return to normality, in the evening, the area is like a ghost town. “We are losing more than 50% in sales,” said an employee of Place d’Etoile, the café opposite the clock tower where Hariri and his entourage enjoyed their last coffee.

While all shops and restaurants in the area are suffering, arguably the hardest hit is the Virgin Megatore, which has seen its immediate surroundings sealed off. “Most customers we get these days, are demonstrators who come to use the toilets,” said Virgin’s general manager and chairman Jihad el Murr, who said his shop, at one point one of Lebanon’s best retail performers, had seen a 70% drop in sales since February 14.


Still, he was upbeat. “We do not mind this situation for three months or so,” he said, “especially if it means the political situation changes in a positive way. However, if it is to last longer, then we are forced to take drastic measures, such as laying off employees and reducing opening hours.”

It is not just sales in downtown Beirut that have taken a hit. Hamra Street, normally one of the Beirut’s busiest areas, has also seen a fall-off in trading activity, with shopkeepers reporting a 40% to 70% decreases in sales, while in New Jdeideh, the scene of a car bomb at the end of March, retailers complained of similar losses.

Bhamdoun

Continuing violence and political turmoil in the wake of the February 14 assassination of former Prime Minister Rafik Hariri have spurred fears that the instability could have disastrous consequences on the economy as a whole and the roughly $1.5 billion summer tourism season in particular. Nowhere is this concern more palpable than in the mountain resort town of Bhamdoun, where tourism is crucial to the local economy. A summer haven for holidaying Gulf Arabs, Bhamdoun has experienced a retail and real estate boom in recent years.

“If there are more explosions, the Gulf Arabs will be frightened and will be driven away from Lebanon, to places like Jordan, Egypt and even Syria,” warned economist Marwan Iskander. That would come as a serious blow to Bhamdoun’s business community, for whom the summer season, according to Iskander, generates about $60 million a year in revenue.

Developer Raffi M. Kaloustian, chairman of Le Baron, which designs and constructs villas and apartments in the Bhamdoun region, acknowledged that his company had put future plans on hold. But he, like many Bhamdoun residents, professionals and officials, stressed that it was too early to say what exactly would happen in the summer, especially given Gulf Arabs’ strong attachment – both personal and financial – to Bhamdoun.

He said he was currently building villas and apartments for 30 clients – all of them Gulf Arabs. “Not one of them has suggested postponing a payment,” he said, “because they believe in this place.”

Kaloustian said that most Gulf Arabs were aware the realities of Lebanese life, a philosophy that saw them visit every summer even when the rest of the world felt it was unsafe. “They expect an eventual boom,” he added, “but they all say: we’ve got to go through a few bombs before we get there.”

BMW

Despite the uncertainly of the previous month, not to mention the added insult of their Ain Mreisseh showroom being damaged by the Hariri blast, automotive dealers Bassoul-Heneine are bullish about future sales. Introducing the new BMW 3 Series in Beirut last month, Bassoul-Heneine general manager Naji Heneine told Executive Magazine, “Until now and depending on the situation, I have not cut my orders.”

For the first month, the BMW dealers had ordered delivery of 43 vehicles of the new 3 Series, to be followed by 30 new cars each month until the end of the year. The new German driving machines, the fifth edition of the 3 Series in 30 years of the brand’s history, will retail in Lebanon starting at $41,000 and top models could go up to over $60,000, Hneine said.

The Beirut event, including ample technical praises, a cinematic overview over the line’s genesis, and presentation of two new vehicles in the conference room at Beirut’s Metropolitan Palace Hotel, was the second launch party for the car in the Middle East and came ahead of events in other, larger markets. According to BMW Group Middle East representative Joerg Kelling, the entire brand sells about 3,000 units per year in Saudi Arabia, 600 in Lebanon and 100 in Syria. 

“Lebanon is a small market in size but it is a very fashionable market. Cars that sell well here also sell well three to six months later in Gulf markets. For me personally, it is also the most exciting market in the region because of the unbelievable appreciation of the brand here,” Kelling said, adding that he is optimistic about the Lebanese market and sees a new and very large potential for BMW in Syria.

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Special Report

Wheeling In The World’s Medical Tourists

by Peter Speetjens
written by Peter Speetjens

Overview

The regional health tourism market is worth an estimated $2.5 billion. The current market leader is Jordan, which receives a steady stream of patients, mainly from poorer Arab countries, such as Yemen, Sudan and Egypt. Lebanon has been working hard to position itself to attract high net worth individuals and, since 9/11, has been welcoming an increasing number of Gulf Arabs as hospitals, health and beauty clinics see the numbers of foreign admissions triple in the traditional summer season. Currently, the country attracts en estimated 25,000 foreign nationals who spend anything between $1,000 for a nose job and $25,000 for heart surgery, creating a market worth between $125 million and $250 million.

While, Lebanon’s highly developed medical sector targets mainly fellow Arab countries, there is long term objective to lure European and North America health tourists as health care and insurance costs in those in those parts of the world continue to rise. Lebanon also has the – so far largely untapped – potential of promoting its sea and mountain climate as a health, relaxation and recuperative destination.  It speaks for itself however, that attracting any kind of tourism into the country depends on a healthy political situation.

Definition

In the strictest sense, health tourism can be defined as travel abroad to obtain medical assistance, which in turn can be divided into two categories: essential and non-essential – i.e., open heart surgery or an organ transplant versus dentistry and/or plastic surgery as well as medical check-ups.

In other words, one doesn’t have to be sick to be regarded as a health tourist. Mary Tabacchi, a dietician and teacher at the Cornell’s University School for Health Management, defines health tourism as “any kind of travel to make yourself or a member of the family healthier.” In that sense, health tourism is not just about being cured, but also about preventing possible future illnesses. In fact, the lion share of the global health tourism market is made up of healthy people traveling to spas, meditation centers and fresh mountain air climates.

American websites, such as mindbodytravel.com and healthytravelnet.com, offer among other holidays an aromatherapy retreat in the French Provence, herbal health journeys to the Amazon, Ayurvedic diet trips to India and “a sacred woman’s tour” to Bali, where with lots of yoga and meditation you will be able “to connect to your inner woman.”

Brief history

Although health tourism may have a new age ring, it is by no means a new phenomenon. The ancient Egyptians would travel to the scared oasis of Siwa, just as people living along Lebanon’s coast would travel to take a bath in the temple of Eshmun near Saida. Bath in England and Baden-Baden in Germany have been famous for their thermal springs and spas since Roman times. Countries like Lebanon in the Middle East or Switzerland in Europe, both with alpine settings, have long attracted people with breathing problems.

Why Travel?

First, traveling for healthcare can be a result of a lack of professional care, equipment or expertise in the country of origin. In the Arab world, this is the case in countries such as Yemen and Sudan, both characterized by an underdeveloped medical infrastructure. In richer Gulf countries like Saudi Arabia, it is not a lack of equipment that makes people travel to the United States, France or Lebanon, but a lack of topnotch doctors.

Price is another factor that causes health tourism, which is why significant numbers of Canadians and Americans seek medical help in Cuba (see box), which offers state-of-the-art medical equipment and knowledge at a fraction of the price. The same is true for many European countries where the cost of medical care and treatment increases each year, making former communist countries like Hungary, Poland and the Czech Republic attractive destinations. Britain’s The Daily Express newspaper reported that a cataract removal costs $4,500 in Britain, $2,250 in France and $345 in India. In Lebanon, it costs $900.

Lebanon and the region

There is no doubt that Lebanon has the potential and capacity to become the region’s leading health center. The country has over 10,000 beds divided over 161 general hospitals and seven university hospitals, most of which are internationally accredited. A direct result of the civil war, in which each faction and confession built its own hospitals and clinics, the country is generally regarded as having an oversupply of beds. What’s more, most hospitals have state-of-the-art equipment with a lower patient ratio than many of the developed western countries. Lebanon has as many open heart surgery facilities, catheterization and lithotripsy centers as Germany and (perhaps even more than) the United States.

Since the oil boom in the early 1970s however, Saudi Arabia and the Gulf States have invested greatly in their own medical infrastructure, which includes top institutions with the latest equipment, such as the King Fahd Hospital in Riyadh. Jordan is currently the main recipient of Arab health tourists, with the bulk consisting of the some 80,000 Yemenis that seek medical assistance there every year. That part of the sector alone is worth an estimated some $350 million annually.

Last July, Lebanon signed an agreement with the Yemeni government to fly at least part of the health tourists to Lebanese hospitals. However, most experts agree that Lebanon’s competitive edge is not just its infrastructure and equipment, but also its wealth of human resources. The country boasts over 10,000 doctors, most of which are specialists. Some 37% of Lebanon’s doctors graduated from universities in Europe, varying from Moscow to Paris, and 11% from universities in America.

Since 9/11, Lebanon has been receiving an increasing number of Arab patients, who previously mainly traveled to top hospitals in the US. As a result of the general change in political atmosphere in the country as well as the hampering visa process, most Arab health tourists now prefer to come to Lebanon for everything from general check ups and plastic surgery to more complex procedures.

Seeing the potential of Lebanon as a health tourist destination, many projects have been underway to accommodate prospective patients. The newly established Beirut Government University Hospital includes a 50-room hotel for patients and their families, and the soon-to-open 105-bed Clemenceau Medical Center, which is affiliated with the American John Hopkins hospital, especially targets foreign nationals.

The AUH

Established in 1867, the American University Hospital is among the most respected institutions in the country. According to its director, John Rhoder, the Medical Center receives an average of 300 admissions a week, 20 to 30 of which are “foreigners,” mainly Syrians. In the summer, however, the number of genuine foreign admissions doubles, with most patients coming from the Gulf states – mainly, Saudi Arabia – constituting the majority of the health tourism market.

According to Rhoder, people do shop around while trying to find the best surgery for the best price, and even try to bargain down prices. In that sense, it’s a business like any other – not surprisingly, the price of a heart surgery varies between $6,000 in one of the less established medical facilities to some $20,000 in the country’s most well-known institutions.    

Following a well-established American trend, the AUH last year opened the Executive Health and Travel Center (EHTC), which offers a health package specially tailored for executives, top managers and family members from Lebanon and the region. The two-day-program offers a personalized head-to-toe medical examination and lifestyle assessment to prevent illnesses. The patient or client stays in a special hotel-like suite in a separate wing of the general hospital. Depending on the package, prices vary from $1,500 to $4,300. Upon request, the EHTC can also arrange for airline tickets, hotel reservations and even a leisure program.

Plastic surgery

The bulk of foreign health tourists flock to Lebanon to have plastic surgery or other corrective procedures. In the summers of 2004 and 2003, numbers doubled and even tripled, reaching an estimated total of some 4,000 patients. In the past decade alone, the country has seen the number of plastic surgeons rise from less than a dozen to over 60.

One of the main bonuses of coming to Lebanon for elective surgery is, of course, the cheaper prices. In Saudi Arabia and the other Gulf states, plastic surgery procedures on average are double the price in Lebanon. A nose job in Lebanon costs between $600 and $1,000, whereas in Riyadh it costs $2,500. Other than the price incentive, privacy is another factor that appeals to health tourists, because generally, people do not want anyone to know they have had corrective surgery.

Marketing

As is the case in Europe, Lebanon is not allowed to advertise medical services. Marketing is done by word of mouth and follows the traditional path of PR through medical conferences and publications. However, the ethical climate is slowly changing. The Clemenceau Medical Center is currently working with Saatchi & Saatchi on an advertisement campaign for the Arab world. The final slogan has not been determined yet, but its theme will be something along the lines of, ‘Why travel thousands of kilometers if you can have the best medical care in Beirut?’ Some other hospitals and plastic surgeons have produced brochures and travel packages, which include visa, hotel stay and surgery for an all-in-one price.

An important role is played by K&M International Health Tourism (KMIHT) based in Hazmieh, which, as the name suggests, promotes Lebanon as a medical care and health destination. KMI is supported by all of the country’s medical orders, as well as the Ministry of Health, which according to owner Khalil Malaeb helps in “opening doors.”

KMI regularly travels alongside ministerial and trade delegations all over the region, such as Yemen. Apart from promoting Lebanon as a health destination, KMIHT operates as a travel agency, establishing alliances with travel agencies in Dubai, Kuwait and Yemen, offering all-inclusive packages including visa, plane ticket, hotel stay and surgery.

Malaeb prides himself on good contacts throughout Lebanon’s medical sector. Who he sends where depends on what the patient can afford and on the medical expertise of the hospital. For example, a bone marrow transplant patient would be sent to Al Makased Hospital, a brain surgery patient to AUH, a hip transplant to Bhannes, AUH or Hotel Dieu, while for a heart surgery patient, there are so many choices available that the budget is the deciding factor.

Box: Maradona & Cuba

Cuba may be regarded as a poor country according to income per capita, yet surprisingly it boasts one of the most developed medical industries in the world. Education, science and health were key themes in developing the country after the revolution in 1959. Though under a strict US embargo, Cuba exported pharmaceuticals, vaccines and biotechnology worth $250 million in 2002 alone.

What’s more, it receives up to 10,000 tourists a year who want to profit from high quality medical care for a relatively low price. People travel to the Caribbean island for a core of medical treatment facilities, yet especially for eye operations, skin treatments and its Multiple Sclerosis and Parkinson’s disease centers, as well as its drug and alcohol addiction recovery programs, which most recently had Diego Maradona as its most famous client. Most patients come from Latin America, which is characterized by an underdeveloped medical infrastructure, while ever-increasing numbers come from the US, Canada and Europe to escape towering medical bills.

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Special Report

Lebanon’s Tobacco And Alcohol Wars

by Marianne Stigset
written by Marianne Stigset

Spirits

The Lebanese drink approximately 3.6 million bottles of spirits every year, roughly one liter per person. Dominating the $40 million market with an estimated 43% share is whisky, with 280,000 cases imported into the country in 2004. However, vodka has steadily been gaining ground, growing by an estimated 4% to 5% over the last five years. In 2004, some 33,000 cases were imported into the country, although industry insiders assess this number to be closer to 40,000.

“Lebanon is following a global trend, which has seen increased consumption of wine and vodka,” said Nagi Hmouda, business manager with KFF Food & Beverage, whose brand, Absolute, has witnessed a 25% increase in sales in recent years. “Like RTD [beverages] and beer, vodka is a great entry point to the alcohol category. When people reach the legal drinking age, they want to drink something that will give them the effect of alcohol without the taste. While, their palate isn’t used to the strong taste of scotch or gin, vodka on the other hand is practically tasteless and can be mixed with anything.

The current market leader is Stolichnaya, followed by Absolute, Eristoff and Smirnoff, the four of which cover 85% of the vodka market. However, premium vodka brands such as Stolichnaya Elite and Grey Goose are slowly gaining ground.

Although, whisky accounts for nearly seven times more sales, sales of “regular” whisky – the top five brands are acknowledged to be Johnny Walker Red Label, Dewars, Ballantines, Jim Beam and William Lawson – have been contracting by an estimated 5%, a result of the introduction of the VAT in 2002 and greater competition from Vodka. Deluxe whisky – luxury blends and single malts – represent 15% of the whisky market. Distributors for this highly competitive market are reluctant to reveal figures, but it is clear that Johnny Walker Black Label – almost a national icon – leads the way with an estimated 60% of the market share, followed by Dewars and a resurgent Chivas Regal.

“People are more loyal when it comes to premium brands,” said Carlo Vincenti of the Vincenti Group. 

With over 80% of regular whisky consumption occurring in people’s homes, the whisky wars have been largely focusing on off-trade sales. “The consumer has been spoiled by the sales promotions of regular whisky brands – you have promotions going on virtually 365 days a year,” says Hmouda.

The alcohol sector ranks among the top 10 Lebanese sectors in terms of ad expenditures in 2004 but has witnessed a shift towards greater below-the-line advertising, which now accounts for more than 60% of the ad budgets. “Consumers attach less value to the brand and therefore investment in brand-building is much less than it is supposed to be and promotions have taken a bigger chunk [of the budgets],”admitted Hmouda. “We go for instant gratification: gifts with purchase, goods discounts, trade deals such as volume rebates. It’s a very dynamic category,” said Hmouda. “The margins in the trade are minimal, so the focus is on volume and visibility. We’re trapped now, without these promotions sales would drop. It’s a very unhealthy situation. We are following the textbook marketing approach of not to do.”

Total advertising spending on spirits is estimated at $15 million – $5 to $6 million (all media included) for above-the-line advertising and $8 to $9 million for below-the-line. Whisky takes up the bulk of this, with Diageo spending an estimated $5 million annually to promote Johnny Walker, while Fattal spends $3.5 million on Dewars and Vincenti $1.5 million on William Lawson, one of the biggest movers in recent years.

Beer

The Lebanese drink an average of 4.5 liters per person annually – far less than the Europeans who average 75 liters per year. In a country with a distinct preference for spirits, the beer industry has traditionally played second fiddle and is seen mainly a summer thirst quencher, a trend bore out by the fact that roughly 70% of beer sales occur during this period.

“Beer is much more of refreshment in Lebanon. It is seen as a summer product, for beaches and picnics,” said Ronald Voorn, head of Heineken’s operations in Lebanon, in a recent interview.

Heineken holds over 60% of Lebanon’s $50 million beer market, following its 2002 acquisition of Almaza, the country’s only brewery. The company’s stable now has the bulk of the market’s niches covered through its array of brands, ranging from the lighter, value beer in the form of Almaza and Laziza, to more expensive up-market brands with Heineken, to the stronger beers, with newly launched and competitively-priced Rex.

Approximately 60% of the market is held by local beer, with the remaining 40% going to imports, one third of which are Heineken and Amstel beers. The overall market favorite remains Almaza, responsible for over 40% of all sales. In the imported beer segment, Heineken leads the pack.

In a bid to promote the expansion of the market, the Dutch beer giant is looking into developing new beer products, such as flavored varieties. It also envisages boosting its line of non-alcoholic beers, which currently account for 10% to 15% of the local market, and has benefited from Lebanon’s tourist boom over the last few years, comprising a number of teetotal Arab visitors.

Sadly, recent political events have dealt a blow to the industry and the market witnessed a 35% drop in its February sales. With the political crisis ongoing, Heineken has temporarily put on hold its year-old plan of building a new brewery.

Wine

Wine consumption is on the increase as local tastes dovetail with international drinking habits. Chateaux Kefraya and Ksara dominate the local consumption, forcing many Lebanese producers to seek out export markets. The $27 million local industry is virtually a cottage industry by global standards, but new wineries are opening at a rate of two a year with a new generation of producers offering affordable, eye-catching wines. Local consumption has increased in the last decade and stands at just over a bottle per person. This is not only due to the influence of snazzy new local wines but also to the returning disapora, who have brought with them a modicum of Western “sophistication” and many Lebanese, always anxious to be seen getting it right, are gradually eschewing the once obligatory bottle of luxury-blend whisky in favor of wine with their meals. That said, the day when Lebanon can be called a genuine wine drinking nation, is a long way off.

Annual monitored advertising spending for wine in 2004 was $1.7 million, the bulk of which came from Chateaux Ksara, Kefraya and Domaine Wardy.

Ready-To-Drink

Ready-To-Drink (RTD) beverages made their first entry into the Lebanese market in 2001 with the launch of Bacardi Breezer. Bacardi Breezer and Smirnoff Ice control some 80% to 90% of the total market, with local brands such as Basally Chtaura’s Buzz in third. Following the worldwide craze for the affordable beverages, sales have rocketed, reaching their peak in 2002 with 105,000 cases imported into the country. “It was a category and a brand which was perceived as cool among the younger crowd,” remembered Vincenti. “Kids would drink it at beach parties, at clubs. It hit the market in a big way.”

The craze subsequently stabilized and the market has been declining over the course of the last three years by over 25%, reaching 75,000 cases imported in 2004. Today RTDs hold approximately 11% of the spirits market share in Lebanon, at an estimated value of $255,000. “It’s a high maintenance category, which requires constant product development and innovation, a lot of investment,” said Hmouda. “That being said, it’s also a highly profitable, if you consider the price you pay for the little amount of alcohol that is in it.”

RTDs introduced competition to both the beer and the spirits market, although for the latter, it has also provided a boost. “If RTDs do well, the motherbrand will eventually do well,” Vincenti explains. “Bacardi Breezer has contributed to the promotion of Bacardi rum, which has witnessed a 50% to 60% cumulative increase over the last few years.”

Cigarettes

British and American Tobacco (BAT) estimates the Lebanese cigarette market at roughly $400 million or some 7.5 billion sticks a year. By international standards, Lebanon remains an attractive market for the tobacco industry, combining few anti-tobacco regulations and a lax legislative environment, with high smoking prevalence rates.

Some 56% of the Lebanese smoke, 43% of whom are between 13 and 18, thereby in all likelihood ensuring the tobacco industry a sizeable market for at least another generation. Spurred by the low price of cigarettes (LL1,000 to  LL2,000), the average Lebanese smoker consumes around 3,300 cigarettes a year, or 165 packs.

Market shares between premium – Marlboro, Kent, Gitanes, Viceroy, Gauloises – mid-market – Fine, Rothmans, Craven, Pall Mall, L&M, Royale and budget brands – Brilliant, Winchester, Business Club, Sovereign – are distributed evenly, with each category holding respectively 38%, 25% and 36% of the market, according to a 2003 report by the Altadis tobacco group. 

Imports into the country are dominated by four of the world’s leading transnational tobacco companies, with Philip Morris in the lead at 45%, followed by BAT (29%), Japan Tobacco International (10%) and Altadis (9%). They collectively generate 90% of total tariff revenues reaped by the Regie Libanaise des Tabacs et Tombacs, which has a monopoly on all tobacco imports into the country. Lebanese taxes on cigarette imports reached an all time high in 1999 at 120%, but subsequently dropped to average 60 to 70%. Yet despite apparent favorable market conditions, the Lebanese market may have reached saturation as growth has slowed to around 1.5% since 2001.

“The market is essentially stagnant,” said Naushad Ramoly, head of Corporate and Regulatory Affairs at BAT’s Levant and Yemen operations. There has also been a shift in tastes as more competitively priced local brands – especially Cedars – have increased their market share by 18% since 2000. Others have not fared as well. In the late 90s, 93% of the market was dominated by international brands. By 2003, this share had dropped to 79%. Philip Morris and BAT, who controlled over 85% of the market in 1998. Five years later, they made up less than 50%.

Cedars’ impressive growth places it second in terms of current market share at 19%, behind by Marlboro, with 24%. Battling it out in third place are Winston and Viceroy, with around 13%, followed by Gauloises and Gitanes. Adding to the pressure is a proposed ban on all above- and below-the-line tobacco advertising issued by a group of MPs in May 2004. The ban has yet to be ratified by Parliament and the current political crisis leaves little reason to believe that it will be made effective this year. However, the proposal does indicate that Lebanon’s days as a liberal haven for tobacco advertising could be numbered.

Still, the tobacco sector’s $8 million annual advertising spending is in freefall and has, like alcohol, seen a staggering shift to promotional advertising, with BAT, slaughtering its above-the-line expenditure, once at 75% of its ad budget, to 5% last year.

“Tobacco advertisers have been affected by the economic situation and they don’t care about the reputation of the brand,” Mounir Torbay of the World Federation of Advertisers’ Lebanon Chapter said in a 2004 interview. “That is why media advertising has dropped so drastically. They need the ‘push’ and not the ‘pull’. They want people to buy more, to switch from one brand to another.”

Cigars

Despite its small size, Lebanon ranks as the 5th highest Cuban cigar consumer in the world today. The driving force behind the promotion of this culture has been cigar superemo Mohamed Zeidan, Chairman of the Phoenicia Aer Rianta company, who enjoys a close friendship with Cuba’s President Fidel Castro and has the sole distribution and retail rights for Cuban cigars in Lebanon.

“From being the prerogative of businessmen and politicians, cigar smoking has expanded across the population, now also reaching the younger segments of society,” said Walid Saleh, managing director of the Phoenicia Group. “We engaged in major promotional activities in 1998 to 99, targeting the 22 to 25 age group, so as to educate them and prepare them for when they entered the job market and could afford more upscale brands. Cigars are now enjoyed by a wider age group and have become a product for every occasion.”

The total number of Cuban cigars sold annually on the domestic market and at Beirut Duty Free combined is estimated at four million, of which 35% are sold domestically and 65% at the airport. A major tax hike from 45% to 152% between 1998 and 2000 witnessed an intervention by the Cuban government to appeal for a reduction, and Lebanese authorities subsequently lowered the rates to 60%, where they remain today. The economic recession has had little effect on the market, according to Waleh. “Consumers might go down a notch in brand, buy a Montecristo rather than a Cohiba, but they will continue smoking cigars,” the manager explains. “The idea that the Cuban cigar is a luxury item is an erroneous one – you find cigars for as little as $1, so people can afford to enjoy them.”

The sturdiness of the market’s growth has undoubtedly been assisted by Phoenicia’s successful two-pronged marketing strategy. At Beirut Duty Free, the company opened the largest cigar store in the world. La Casa del Habano offers every brand of Cuban cigars, cigarillos, accessories, a VIP cigar lounge and a walk-in humidor. The unique retail concept paid off, becoming the largest point of sale for Cuban cigars worldwide. While cigars generally account for 1% of an airport duty free outlet’s sales, at Beirut Duty Free, this figure stands at 22-25%, reaching $15 million in annual sales.

On the domestic front, Phoenicia invests $700,000 on predominantly below-the-line marketing. “Our focus is essentially on the on-trade business, to bring direct added value to our clientele,” Waleh explains. “People already know our brands, so there is no need for brand building. What we seek is to increase penetration rate and spending rate.”

Gifts with purchases, promotions teaming up with products such as Cadillac, Ferrari and Glenfiddich, and monthly events held at Lebanon’s leading hotels are but a few of the array of promotional activities the company has engaged in. Its two latest innovations include a Montecristo platinum VISA card, which circumvents strict international anti-tobacco advertising regulations, and a Partagas calling card for travelers at Beirut Airport.

For the record, all 34 Cuban brands are sold in the country today and dominate the market by 98%. The top five most popular cigar brands are Cohiba, Partagas, Romeo y Julieta, Montecristo and Hoyo de Monterrey, all come from the small Caribbean island. Popular cigar sizes were initially Double Coronas and Churchills, but for the last five years, Torpedos, regular Coronas and Robustos have been gaining ground.

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Real Estate Retrospective

by Anthony Mills
written by Anthony Mills

Fuelled by the continued influx of Arab nationals and capital, Lebanon’s real estate sector continued to grow in 2004 by an estimated 20%. Solidere had an outstanding year, as the Beirut Central District experienced increased demand for property, while on the retail side, big is beautiful seemed to be the theme as ADMIC braced for the end-of-year launch of its Dora shopping mall, the biggest so far in Lebanon.

Overview 

Key indicators, such as cement sales and the number of construction permits, showed a healthy growth in the construction sector, while the number and value of property transactions increased significantly compared to 2003. Despite a rise in price, cement deliveries amounted to 1.23 million tons during the first half of 2004, an increase of 6.2% compared to the same period in 2003. It should be noted though that part of the increase was due to increased exports to Iraq. The Order of Architects and Engineers reports that construction permits grew from 4 million m2 during the first half of 2003 to 4.3 million m2 in the six months of 2004, which is similar to the tail end of the 90s reconstruction boom.

The geographical distribution of permits shows that Mount Lebanon maintained its 2003 lead as it accounted for 46.4% of the total, followed by the north of Lebanon with 20.2%, South Lebanon with 14.8% and Beirut which witnessed an increase of 4.5% to reach 12.8% of the total. According to Banque Audi data the number of property transaction during the first half of 2004 rose by 7.2% to 51,899 compared to the first half of 2003, while the value of property transactions grew by 27% over the same period to reach LL 1.7 billion. In the third quarter it slowed down to 22%, well above the 15% annual growth recorded in 2003, yet still a far cry from the 30% growth figure of 2002. Beirut maintained the lead in terms of value of properties sold, accounting for 35% of the total, followed by Baabda with 22%, Metn and Mount Lebanon with 15.8% and Kesrwan with 9.8%. The figures confirm that the market was dominated by high-end construction and property transaction, as the increase in the real estate market was largely driven by the Arab investors, who since the events of 9/11, continue to see Lebanon as an alternative home, holiday destination and place to invest.

Most players in the sector observed a relative slowdown by the end of 2004, which they attributed to the events surrounding the presidential elections and the attempted assassination of Marwan Hamade. The departure of Rafik Hariri as prime minister and the loss of his international clout were seen as less of a blow as many Lebanese are still optimistic that he will stage a comeback.

A 2004 report issued by Ramco Real Estate Advisers concluded that Gulf investors bought land worth some $680 million between 2000 and March 2004, noting: “taking into account the additional investment on project development the amount could easily more than double.

In that period a total of no less than 2.3 million m2 of land were sold in 109 major deals. The Arabs’ preferred destinations are the mountains, not too far from Beirut. With this in mind, 38% was bought in Baabda, 27% in Metn and 18% in Aley. Only 1% of all land deals concerned Beirut, which still represented the largest value for the Lebanese economy. Apart from the  controversial Sanine Zenith project, the $1.4 billion, 100 million m2 tourism extravaganza on Mount Sanine, boasting several tourist villages and 5 hotels, as well as 18 ski slopes and a golf course, the two largest purchases of land, 368,723 m2 and 123,492 m2 respectively, were concluded by Kuwaiti investment groups in the region of Qornayel.

Residential: Manhattan on the Mediterranean

Even though most construction permits and land sales centered around Baabda and Metn, the most eye-catching and valuable developments were taking place in Beirut, especially the ongoing seafront development facing the Beirut marina in the BCD. The $200 million Marina residential tower, which will be some 150 meters high, has been half built, while the foundations of the Beirut and Platinum Towers have been laid. Next to the trio, the slightly lower tower of the Four Seasons Hotel is being built. The four high rise buildings represent a total investment of some $600 million and will significantly change Beirut’s façade in the course of 2005 and 2006. With a price tag of $4,000 to $6,000 m/2 the towers’ highly luxurious apartments are arguably the most expensive property currently available in Lebanon. Some 80% of the apartments has already been sold and this seems to be trend for most of the high end residential developments in BCD, including the  Capital Gardens and Saifi II projects, which are due to be built in 2005.

Not surprisingly, Solidere had an excellent year in terms of land sales, helped by an initiative, which encouraged shareholders to sell their stock for a 15% discount on the land. More residential projects and two hotels are slated for the sea front, while the Abu Jamil area is to become a purely residential district. In spring 2004 it was also announced that the $200 million and 155-meter-high Landmark Building Riad el Solh would go ahead, adding to the BCD’s ever changing skyline. As a consequence demand for the price of land has increased, varying between $1,200 m2 inland to some $1,700 m2 on the seafront. Last but not least, after four years of delay and for a reportedly inflated price of some $12 million, Solidere announced that they are about to obtain the necessary permits needed to complete construction of the 100,000 m2 Souqs retail project by 2006.

Downtown Beirut, however, was not the only area to witness significant developments. Contrary to downtown, where 80% of investors and buyers are Gulf Arabs, Ashrafieh remains popular among the Lebanese. New, high-spec apartments are smaller, on average between 250 to 350 m2, and more reasonably priced, on average between $1,700 to $2,500 m2. The same is true for developments in areas such as Ain Mnreiseh, Hamra and Ramlet al Baida.

One of the fastest changing areas in Beirut is no doubt Gemaizeh (see box), while large areas behind the Phoenicia hotel, west of the Damascus road and along at Rue Spears have been cleared. No doubt, these current ghost towns are next in line to see some major developments throughout 2005 and 2006.

Retail: The rise of the mall

2004 was the year of the mall and 2005 will continue to be so. The $120 million ABC Ashrafieh, Lebanon’s first genuine mall opened in November 2003 and went into full gear last year. Apart from its size, the difference between ABC and existing malls, such as Verdun 730 and Dunes, is that the first truly offers a world of shopping, entertainment, food and beverages all under one roof.

Critics had doubted there would be sufficient demand for such a major development, but ABC has proved them wrong. Its 40,000m2 of retail space are fully occupied and shops, restaurants and cinema attract a constant flow of customers. In 2005 however, ABC will have to compete with BHV at Dora. About twice the size of ABC Ashrafieh, BHV is Lebanon’s first mega-mall with under its roof the country’s first Casino hypermarket, a grand department store, shops, boutiques, restaurants, café’s and a cinema. Most experts expect it to do well, seeing its excellent location between the two highways that form Beirut’s northern exit.

With rents of as much as $1,000 per m2 per year, ABC and BHV are among the hottest properties around as far as retail space is concerned. The downtown follows with rental prices varying between $800 and $1,200per m2 per year. Verdun has an average price of some $800 per m2 per year and, as a shopping district, continues to perform steadily. Prices in Hamra vary between $300 m/2 per year at both ends to some $600 for top locations in at the heart of Beirut’s only genuine high street. Following the completion of the restoration works in summer 2004, hopes remain high for Hamra to regain its leading position as shopping district. With its hotels, hospitals, banks, and universities, its history and character, the area has every potential.

In Chiah, the 50,000m2 Beirut Mall should open for business next year. In Sin el Fil, the 14,000m2 Metropolitan Mall is currently being constructed, while at Concorde square the 50,000m2 V5 Mall is planned. In comparison, the V5 will be no less than 20 times bigger than its Dunes counterpart on the other end of Verdun.

The future will tell if there is a demand in Lebanon for such a large quantity of added retail space and if there is still space for the traditional high street such as Hamra and to a lesser extent Verdun. Experts predict that shoppers may tire, after the initial excitement, of indoor shopping. One thing is certain, the increased supply of retail spaces will no doubt lead to a decrease in retail rents, which is an advantage for shopkeepers, and in the end for consumers as well.

Office: smart space sells

No major developments regarding office space took place in 2004. With an average rent of $300 per m2 per year, the BCD remains among the 30 most expensive business districts in the world, which is part of the reason that some 40% of office space in the downtown remains empty. The problem however is not only price-related. Most office space in the BCD does not meet modern international standards, but those that do, such as Atrium and the An Nahar buildings, are performing remarkably well, which is why the construction of Atrium II will begin in 2005.

Tourism: 

Last year, also saw the long awaited opening of the imposing Le Royale in Dbayeh and, following the success of the $10 million Eddé Sands beach resort in Byblos, business tycoon Roger Eddé has big plans for the ancient harbor city. Aiming to attract investment of nearly $5 billion over the next 10 years, Eddé envisions turning Byblos into the Cannes of the Middle East, with a luxury marina, hotels, restaurants spas and health clubs. Most importantly however, was the government’s official approval of the controversial Sanine Zenith project. The $1.4 billion project measures some 100 million m2 of BUA on which it is planned to build several tourist villages and hotels, as well as 18 ski slopes and a golf course.

Box: Gemaizeh

The area changing most rapidly is no doubt Gemaizeh. The old quarter bordering the downtown, which still has a flavor of old Beirut, threatens to become the next Monot, as a string of small cafés, bars, restaurants, boutiques and galleries have recently opened. The revolution began in 2001 with the renovation of the Ahwat Azaz (Glass Café) and French bakery/café Paul, which “made” the corner. In 2004, a dozen more commercial establishments opened and more are expected follow, transforming what used to be a shabby if charming, quarter into arguably the hippest quarter in town.

A handful of residential projects are also in the pipeline, especially on the strip of land bordering the downtown, but also well into the quarter. Following the success of Convivium I and II, developer Kareem Bassil is building a third halfway down the main street towards Electricité du Liban. Apart from its character, one of the main attractions of Gemaizeh was the relatively low prices. That is rapidly changing. The price of land has in some locations risen from less than $400 up to $800 per m2. The rent of retail space has in top locations tripled since the beginning of the year, while asking prices for residential property has increased by 50%, though it remains to be seen if these will be realized.

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Economy and Finance

by Nicholas Photiades
written by Nicholas Photiades

Riyadh Bank Posts 26% Growth in 2004 Profits

Riyadh Bank, the second largest Saudi bank, released its 2004 figures featuring a growth of 26% in net income to $533.3 million compared to $424.5 million in 2003. The bank attributed this rise in profits primarily to its increase in capital reaching $1.3 billion through distributing one free share for every four shares owned and $4.8 of annual profits per share. It is to note that Riyadh bank, 29%-owned by the government, has witnessed since 1997 a fast growth in profits due to the strategies and plans undertaken by the bank to develop its services and adapt to all the economic developments on both national and international scales.

NBK Records Net Profits of $515m in 2004

The National Bank of Kuwait (NBK), the country’s largest bank and the top-rated Arab bank, posted net profits of $515 million during 2004, compared to $412 million in 2003. NBK’s CEO explained that the growth in profits was achieved amid a strategy of diversification in the sources of income and prudent risk management besides taking advantage of growth opportunities presented by an improving operating environment. The bank’s total assets reached $19 billion at end 2004, while shareholders’ equity amounted to $2 billion. In turn, NBK’s return on equity (RoE) and return on assets (RoA) stood at 29.9% and 2.73% respectively, among the highest worldwide.

Country Profile: UAE

International rating agency, Moody’s Investors Service, upgraded the United Arab Emirates’ sovereign long-term foreign currency debt ratings to A1. The agency also raised the sovereign’s short-term foreign currency ceiling one grade to Prime-1 and currency issuer rating to A1 from A2. The outlook on these revised ratings was given as stable. The agency cited that the main reason behind this upgrade was UAE’s stellar economic performance in recent years in addition to the continued domestic political stability. Moody’s mentioned in its positive commentary that nominal GDP growth has averaged 11% since 1999 and consumer price inflation has remained very low. To a large extent, economic expansion has been driven by the oil sector, which generates about one third of GDP. However, the non-oil sector has also registered strong growth. The agency concluded that both the fiscal and current account positions remain in significant surplus.

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Special Section

by Thomas Schellen
written by Thomas Schellen

In general, the real estate market has not witnessed any changes in prices. It seems on the contrary that many people are now thinking to increase their prices. People believe that prices might shoot up. This is something we are sensing, as we are hearing of more and more commitments of Lebanese living abroad who are willing to come back if the situation improves. This will increase demand for everything. From inquiries we have been receiving after February 14, we noticed that prices are still being maintained by demand. It doesn’t seem that anybody sees this as an opportunity to bargain down prices, which is a very healthy situation.

The retail sector has suffered the most from the upheaval. Whether it is leisure or selling clothes, it is a luxury and people are sticking to their cash in times of hardship. This affects especially the downtown. In a climate of unhappiness people will wait with making new investments into retail space, as will the ones who are buying apartments. It’s normal but I don’t think that this short-term effect will influence the market. All depends on how long the crisis lasts. 40 days can be absorbed. If this crisis lasts one, two, three months, it can easily be absorbed by existing retail tenants. Especially in Lebanon, businesses have to be ready for surprises and a wise business man takes precautions for a temporary difficulty.

In residential real estate and in general, projects that have started are continuing and will not be stopped. Most projects that started in the last years have been pre-sold to 50%, 60%, and 70% prior to completion. These projects will continue, they made their sales, they made their profits. Also in commercial, the rules of the game require pre-lease before starting construction. From practical experience we know that it takes sometimes six months from inquiry until realization of a project.

I don’t think that enough time has passed to see any trend on the real estate market accelerate but we are receiving more inquiries than we had before the current developments. We have gone up from three to four inquiries per week to five or six and sometimes seven, and these are serious inquiries. It is still too early, however, to say what will last, what will continue. If there is demand it will be everywhere and if there is a reduction, it will be everywhere.

One year ago, the biggest buzz in Beirut was over the 100 million square mile Sannine Zenith resort project aiming to transform the barren backside of Mount Sannine into a wonderful world of recreation above the clouds. The project’s sheer dimension, ecological implications and foreign flair of investments stirred up ruckus in public opinion, but even more, it portrayed a golden tourism future for the country. Executive asked Habib Ziadeh, the administrative and financial consultant to Sannine Zenith if the current crisis changed the project’s outlook and where things stand today. 

Habib Ziadeh

Because of the political issues of the day, we are still in a time where nobody is free to talk business. The impact on Sannine Zenith is not yet tangible and we haven’t had enough time to see the consequences on the project. So while views are very subjective now and it is too early to say if the future will be either gloomy or rosy, nobody is panicking. The fundamentals remain in place and are still right. The mountain is still there, the weather is still there, and these are the pillars of the project.

As far as the development of the project, we are in Phase One. We had presented the public with a preliminary master plan [a year ago]. Now we are completing the final master plan, which will take about another month to finalize. This will be followed by another month of working on feasibility and placement issues. In May, we should have some figures.

Lebanon has high flying ambitions for attracting international tenants to base their regional presence in Beirut. Executive asked real estate consultant and broker Michael Dunn, chairman of Michael Dunn & Co, how the market for office space looks today and what scenario could make the country most interesting for foreign companies to locate here.

Michael Dunn

For the moment, there is zero demand. The only area where demand would be strong is for high security compounds with space. In the Beirut area, an isolated building surrounded by a high wall would immediately find a tenant from the diplomatic or corporate side.

In matters of international presence, a lot of companies have been leaving or stopped producing in Lebanon because of the high cost of electricity and similar factors. At the moment, we are losing companies. To attract international firms, I think we need for the whole country to become almost like a free zone. The opportunities are there and Lebanon could boom in a similar way like Hong Kong did in the 1970s. The question is whether the country could implode again. Certain groups want more power. If we can move away from that, all will be happy. We are not there yet, but I am extremely optimistic for the future. 

To assess the level of trust and activity in the real estate sector at the present juncture, Executive inquired about the perspective of a bank on the sector. Elie Azar, marketing manager at Lebanese Canadian Bank, told how the bank is dealing with the issue of housing loans and its own corporate real estate plans.

Elie Azar

We are granting housing loans at a slow pace to evaluate the situation of our customers. A person who wants to invest by buying a house should be relaxed in their decision. envisioning plays a big role in such a decision and at present, this is not the case. For the time being people are focusing on day-to-day problems and no one is pursuing long-term loans such as housing loans. All our own projects are now frozen. We bought nine branches from Al Madina Bank and United Credit Bank, of which we opened three. On the others, we are now waiting for the situation to improve but we are sure and ready to restart all our efforts at the proper time. The bank reflects the genuine impact on the market. All people were shocked by what happened and I think we need the time to restart again. In the US, after 9/11 it took them more than a year to restart. 

I think Lebanon will overcome this current and sad situation of political instability. It will come with free elections and a coherent government. Lebanese, Arab and foreign investors will again be interested in investing in Lebanon. It is true that major projects for residential high rises are concentrated in an area, the hotel district, that is suffering under the current situation too much these days but I am confident that all Lebanese are aware that we must all together be united as our late prime minister, Rafik Hariri, wanted. He was the architect of Lebanon and especially his beloved Beirut. This is why I think that we need time to forgive and forget those who directly or indirectly affected the stability and prosperity of the economic situation in Lebanon by killing the symbol of stability and development.

The Lebanese are now preoccupied with wanting to know the truth about the tragedy. They want stability of the Lebanese Pound and it is very important to have a solution to the current situation by forming a trustworthy government that will lead Lebanon out of this cloudy situation. I think things will soon change, by agreeing on confidence in Lebanon. Syria doesn’t have an alternative to banking in Lebanon and we don’t have any problems with Syrian people. The Syrian customer knows that he is most welcome in Lebanon, we don’t have any problem.

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