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Watching the belly dancer

by Yasser Akkaoui
written by Yasser Akkaoui

Never have the events that led to the civil war of 1975 been so clear. The subject that would ignite a Byzantine quarrel has been demystified by the events following the February 14 blast and put an end to the endless finger pointing.

A vulgar assassination with a ton of explosives, a series of bomb attacks intended to create civil unrest and most recently the arming of local militias, most notably those belonging to the Palestinians, with WWII missile launchers, is evidence that whoever is using these tactics is still lost in the 60s.

Back in the early 70s, while everybody’s eyes were transfixed to the waists of generous belly dancers at places like Grotte Des Pigeons, the armed Palestinian militias were surrounding Beirut, drooling over our cultural, financial and economic riches.

Once we sacrificed our sovereignty to the Arab cause, we became the playground of foreign sponsors of war. No one has paid as dearly for this cause as the Lebanese. The irony is that each time Lebanon tried to re-establish its sovereignty, it was accused of treason.

In this issue, Executive tries to make sure our future parliamentarians understand that this time their performance will be appraised with economic results. That is how today’s nations are run. It’s ok to think selfishly and put the nation’s well being first and any armed party that challenges sovereignty by maintaining a separate agenda that is not approved in parliament will be labeled a militia and dealt with by the state. Now is the time for those groups to join the army, acknowledge sovereignty and point their guns outwards, while the real wars of today are fought on the economic battlefields, where the spoils victory are translated into national riches.

They should also understand that real sovereignty coupled democracy is the prerequisite for any economic plan and genuine national movement to transform our country to a fortress where Lebanese lives, culture and investments can be protected.

Meanwhile, the Lebanese public is braving the bomb threats and taking to the streets, shopping and dining to show that they cannot be bowed by violence. But this time, while they are still enjoying the belly dancer, they are keeping one eye on their country, lest any conspiracy robs them of it again.

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Grow up

by Yasser Akkaoui
written by Yasser Akkaoui

With the rate of political assassinations slowing, life is returning to our city. The Lebanese have proved that they have little time for bad memories and even less interest in a propensity to save.

We are big spending, short-termists who have learned to live for the moment, but with such a precarious lull in the violence, we can’t but live each day as if it is our last.

Politically, the respite in targeted killings has been interpreted as a sign that, as usual, a deal was made between the Americans and the Syrians at the expense of Lebanon of course. However, judging by the relentless American pressure on Syria, the nation’s collective intelligence, this time at least, could be wrong.

The Americans simply decided not to use Lebanon as a front against Syria. They realized that some Lebanese politicians were capable of sacrificing their country, fragmenting its society, destroying all what has been rebuilt and witnessing the liquidation of all its politicians and thinkers (while the rest flee), all for the sake of other nations. The risk of loosing whatever democracy is left in this country would definitely have made the Americans look bad.

Simply put, Lebanese politicians are easier to tear apart than bring together. They are also unable to sit at a table long enough to reach an agreement. And if, by some miracle they do, they are experts in tearing up previous understandings. Our politicians always seem to look for la petite bete to start a war of words. And all the while, as their standing shrinks along with their petty quarrels, regional tensions take on nuclear proportions. One wonders how low they are prepared to go. The private sector has lost interest and has decided to go its own way, disappointed by its so-called leaders who have refused to grow up.

In this issue, we remember Dr. Basil Fuleihan, who was part of a movement for change at a time when huge ambition, not cheap sniping, was the order of the day.

At least, one year on from his death, the seeds of this dream of a beter Lebanon are still bearing fruit. Last month alone, the BCD, the much-maligned but nonetheless resilient, symbol of a new Lebanon, saw the investments from Kuwait and Abu Dhabi, of more than $1.2 billion. With this demonstration of faith in the face of an uncertain future, one is forced to ask who the true Lebanese are. Those who want to build or those who wish to dismantle.

The true Lebanese are builders.

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Lebanon – Policy left hanging

by Michael Young
written by Michael Young

Ask many Lebanese what the summer season this year meant to them, and the answer you get will probably be different than the upbeat assessments of Lebanese officials. Final figures are not out yet, but we can certainly feel that this year was a special one. However, for those in Lebanon not on vacation, we were able to measure this success most often through the breakdown in state infrastructure.

Capitalist culture is more than entrepreneurship; it’s the capacity to deliver on your promises, and Lebanon has yet to convince that it is a premier tourist destination. Here’s a layman’s view of this past summer:

On the negative side, Lebanon’s road, electrical, and telephone infrastructure were very weak links. Even in Beirut, the three-hour power cuts were not enough, as extra rationing was imposed. Outside of the capital the situation was near catastrophic, so much so that from Tripoli to Zahleh people took to the streets in protest. Resorting to generators imposed a financial burden on everyone, but particularly on those establishments catering to visitors, imposing higher costs on all. To run a country on haphazard, unregulated power generation is embarrassing when you lay claim to being an attractive tourist destination.  

The traffic situation was equally lamentable — in Beirut and from the capital toward places where tourists were likely to go. The northern highway until Jounieh was, as a norm, blocked most hours of the day, while even inside Beirut a combination of mediocre traffic management, road construction and a high volume of cars meant drivers could spend hours getting from nowhere to nowhere. This imposed further costs on the economy, well beyond what it meant for visitors from abroad. 

One can go on. The cellular telephone network was just as bad during the summer season as before. Conversations were routinely cut off, while on several days there was such volume in the system that people couldn’t even complete calls. Gasoline prices, at over a dollar per liter, were onerous, and while this reflected world prices, it was also the result of the uneconomical oil pricing system. If that wasn’t enough, as the summer ended the water began running out, so that in Beirut the national water company was roughly halving the amount of water distributed in winter.

Everywhere, the inability of the state to make basic services available shifted the financial burden onto providers and visitors, so that Lebanon was far more expensive than it needed to be. This year, most visitors were Lebanese expatriates or Arabs from the Gulf who seemed more willing to put up with this. But for the tourism market to grow dynamically, Lebanon’s appeal must spread to other target groups. The international financial crisis won’t soon be absorbed, so the country’s high prices could turn into a major Achilles heel down the road. Meanwhile, many tourists may decide that the headache of this year is not something they want to repeat for some time.  

On the more positive side, Lebanon was fun this summer, a place that managed to position itself on the radar as an international niche destination, whether as a party town, a cultural venue — given the many festivals organized around the country — or even as a gay destination, a detail that made its way into the New York Times last month, though precisely how the Lebanese authorities will react to this remains to be seen. The country is rarely boring, and even the beach infrastructure has expanded to include attractive locations all the way up the coast to Batroun, and new venues between Beirut and Sidon. The main problem is the high cost to get in, not to mention the sporadic cleanliness of the sea.

Most flagrant was the absence of any real sense that Lebanon had developed a unified tourism strategy. No one should want the state to organize Lebanon’s summer season; the state can barely organize our off season. However, government institutions could have thought up initiatives to clarify what was taking place this summer, or incentives to make the season more profitable and comfortable. Yet even simple things like an official tourism ministry brochure advertising and highlighting summer events, or more policemen deployed to regulate traffic on major thoroughfares at peak hours, were absent. Special passes to allow tourists to enjoy unlimited bus services, like all other efforts to expand or promote the use of public transportation, were simply off the agenda.

There are a host of strategies that countries will use to promote tourism, including discounts at specific tourism sites, coupons to go to certain restaurants or bars, or the opening of welcome centers in towns or areas to advise visitors about the nearby sights. These require coordination between the public and private sectors. It’s up to the state to set this strategy, even if it relies more heavily on private initiatives. Nowhere was this visible in Lebanon this summer, where the sense of free enterprise may have been high, but the imagination of officials hopelessly low. 

Michael Young

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Economics & Policy

It’s the Economy, Stupid

by Faysal Badran
written by Faysal Badran

In assessing the state of the country, at this critical juncture, there is a need to emphasize the importance of placing the economic aspirations and needs ahead of the politics. In fact, for Lebanon to be on a true trajectory of prosperity it should elevate the debate from the confessional distributions and redistributions of the pie, to the development of the economy. The major themes have so far been political. There is almost a fixation on elections, and this is totally understandable, but is it the endgame?


The priority for developing countries, in this day and age, is the ability to attract and maintain capital investment and to attain a degree of economic growth that alleviates fiscal and social imbalances. Where is Lebanon in that framework? It is not enough just to reshape the political landscape and take a broom to Syrian occupation (but it’s a start). The current political stalemate belies an inherent unwillingness of the political players to come up with solutions and face the true problem of Lebanon: its economic performance. The key to the future of Lebanon is its GDP, not in how cleverly crafted the next election law is. Prosperity is the only guarantee that sectarian extremism thinking will fade, and that Lebanon can draw on the strength of its expatriate community as well.

A pivotal legacy of Mr. Hariri was his constant focus on the economic priorities. The revamping of the infrastructure, though criticized by many, was inevitable and founded, rightly or wrongly, on spurring growth through tourism. The helmsman has gone is that we may be in a political spiral.

Getting priorities straight

Despite GDP most likely contracting, the biggest issues seem to be political which seems odd. Yes, the proper holding of elections is crucial not only to respect the will of the people, and to reflect the reshuffling of political poles post 2/14, but also to boost confidence by investors in Lebanon’s political process and cast aspirations in a more long-term light.


Syria is out, and though its influence will probably linger on for some time, it will be less of a drain on Lebanon economically. From there, we will need to find a pax economica. Now that the risks of actual armed conflict having been reduced, the main focus of attention will be the level of commercial activity and the economy’s ability to generate social peace: erasing corruption and reducing the burden of the public sector. Then what? The fighting for a slice of the pie will not matter a jot if the pie itself is miniscule and in years to come it will be the economy that will shape politics, not the other way around.

Most pundits are obsessing on how a better political environment will lubricate the economic engine. This is counterintuitive. Think about the generation that took the streets. Eventually, do they really care more about the politics or their destiny as a prosperous and vibrant society? We are entering a period where the opinions of non-sectarian portion of the economy will matter most.

And given their aspirations, they will demand a meritocracy, and will probably get it. Lebanon’s identity is built on its commerce, its banking and its openness. And these conduits of prosperity require a political agenda based essentially on promoting the economy and restoring fiscal balance.

The rebalancing of deficits will inescapably require a reduction of the size of government, its role in the economy’s fortunes, and a shifting of resources from the public sector to the productive sector. And herein lays the contradiction of Lebanon right now. All focus is on the politics, where it should be on the economy. There is in a sense a need to de politicize life in Lebanon. All current politics, and this despite the inebriating mass unity on the streets, is sectarian and divisive, and this is why it will not survive. It falls short of the aspirations of the educated elite and it goes against the process of change sweeping across the region.

The domino effect from the fall of Iraq will no doubt have repercussions for many years to come, and Lebanon is best positioned in the region to monetize this change both economically and socially. It has the best arsenal of human resources, one of the most vibrant and successful diasporas, and will have soon the most democratic system.

It will not be painless, but we are heading straight toward it. But it is crucial to set out an economic track and not be engrossed in the political system. The new political order will be shaped by the level of prosperity we achieve.

The price of failure in reviving the economy and reducing government would be too devastating to even contemplate and it is vital to work toward boosting collective purchasing power and overall wealth to defuse the confessional time bomb. If the economy plunges further it creates a Petri dish for tensions between communities. One of the overlooked and under analyzed aspects of all wars, especially the Lebanon one is the economic backdrop. We hear of foreign interference, of internal disharmony, when reading about the war, but little is said about the one major catalyst: poverty and class tension and this is what will drive political reform.

Time for a change

Anything short of seismic change toward a meritocracy will be seen as a failure by most. It must be led by the private sector and see a reduction of the size of the public sector. There is no other workable formula. High unemployment and poverty are typically mirror images of the same sequence of symptom and cause. The experience of the past decade in developing economies has demonstrated that the high priority of economic reform and privatization of inefficient public entities is key to long-term efficiency and job creation. Yet this effort, which initially leads to job cuts, is frustrated by the absence of alternative job creating mechanisms, which creates a vicious circle that does not augur well for the future.

What is needed is a private sector framework with public sector support and participation to inculcate a culture of venture capital as an effective means for job creation, accelerated growth, and enhanced innovation and competitiveness in Lebanon. We need to see a structure and a process triggered by which limited investment capital can be combined with entrepreneurial skills to break through the vicious circle of economic stagnation and public sector inefficiencies by laying a foundation for job and wealth creation.

The Gulf is a great example of economics triumphing over politics. The political systems there are slow to change but the role and size of government have been reduced and the promotion of the economy has been given top priority. This is not to say that Lebanon emulate the static monarchies of the Gulf, simply a reminder that after the current spasm of over politicization of the process in Lebanon, mouths have to be fed and it would be meager consolation if we “fix” representation in parliament but build it on the back of economic depression.

 

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Business

Onward and Upward

by William Long
written by William Long

While most Lebanese were transfixed by the final pullout of Syrian troops and a lively confidence vote in Parliament, for Mounir Douaidy, Solidere’s General Manager, April 26 was little different than most of his days – these days, that is – at his office in the heart of Beirut’s Central District (BCD). He was signing contracts.

Ever guarded about revealing too much in the way of exactly how many items awaited his signature in the adjacent conference room, Douaidy was nonetheless both detailed and specific in outlining to Executive why Solidere had finally met its tipping point.

“ 2004, in my opinion, was a turning point in the life of the company,” said Douaidy. “Despite all the obstacles and the difficulties, [the last ten years were crowned] with big achievements that have led to a much stronger financial situation. 2005 is Phase Two in the life of the company. It will allow the company to grow on a much stronger basis because the fundamentals that were strong in the beginning remain strong and are now even stronger.” Indeed, by most accounts, Douaidy’s estimation is correct.

Solid performance

Although Solidere’s 2004 annual report is still to be released later this month, the audited financial results for 2004 made public at the beginning of April provide exactly the kind of performance data points that Solidere always said it could generate – if it was just given the time and the good graces of geopolitical events. At least for the moment it seems, geopolitical events are in fact cooperating. And Solidere has certainly put in the time over the past decade. As Douaidy (the trained accountant and pitch man) is quick to point out, 2004 saw the country’s largest single company post its best after tax profit gain in the last five years – $54.1 million or an amount nearly triple that of 2003.

Most significantly, however, the underlying dynamics were strong. Solidere said it generated its highest sales level in a decade in 2004 – $180 million in all or nearly $100 million better than last year. Rental revenues from leased properties also came in strong at $18.6 million, up from $15.4 million in 2003. And the company’s borrowing level dropped substantially – from $320 million in 2003 to $234 million at the end of 2004 – leaving a reduced debt to equity ratio of 13.9%.

“Our plans are to continue with sustained increases in sales, not necessarily at these levels [158,000 square meters in 2004] but not less than 100,000 to 120,000 square meters of built up space,” Douaidy explained. Of course, even though the sales numbers provided the most fodder for celebration, the performance of the company’s share price – especially in the aftermath of the Hariri assassination – have also played a crucial role in supporting Douaidy’s claim that Solidere is moving inexorably forward with a sustainable, winning formula. Indeed, as was widely noted in both the international business and political pages, the company’s stock registered only a temporary hit after Hariri – Solidere’s founder and most visible backer – was killed in the BCD he helped to build.

The quick rebound of the stock price to just below its pre-February 14 level provided strong evidence for some observers that investors both believed in Solidere and, more importantly, believed in the long-term viability of the entire country.

“We are even now having regional investors coming to Beirut,” Douaidy added proudly. “Even during the last two months, those who were negotiating with us did not stop negotiating with us and in fact a certain number of deals have emerged from these negations and some of them are being signed presently.”

Thus freed, somewhat, from the political situation that gripped the rest of the country, Solidere registered a daily average of 216,388 shares traded on the Beirut Stock Exchange during the tumultuous first quarter of 2005 – up a robust 515% from the same quarter last year. What’s more, the stock price ended up closing out 8.36%percent higher for Class A shares and 9.87% higher for Class B shares compared to fourth quarter 2004. In London too, where Solidere’s global depository receipts are traded, the receipt price rose to its highest level in six years by the end of March 2005.

Of course, a key reason for the rise in both the stock price and the overall trading activity lies in last June’s successful initiation of a land-stock swap program that raised $73 million in 2004.

But another very visible indication of public confidence in Solidere – and Solidere’s own confidence in both itself and Lebanon – came when the company decided to go ahead with its plan to list on the Kuwait Stock Exchange March 8.

“We thought [these actions] would give us a much wider investor base,” said Douaidy. “Last year when we did [the land swap program] we felt as though the share price was trading at a severe undervalue….both this and the listing on the Kuwait Stock Exchange have achieved their objective by increasing our sales and requiring investors who are using the program to go and buy shares on the market,” which has also raised the stock price, he noted.

On with the Souks

Although plagued by prior delays, Douaidy said the much anticipated Souks project, which envisions a large pedestrian area filled with shops and restaurants, was finally ready to go forward immediately. The permits have been secured and all underground facilities, including the parking, have been completed. As a result, even though the January start date was not met recently, Solidere is still aiming for the Souks to come online in 2006. And when this happens, rental revenue, already rising, is expected to double with the 100,000 square meters of floor space that will be available.

Adding to the positive growth outlook over time, Solidere is also set to ramp up its land preparation and infrastructure efforts in the massive reclamation area situated near the Beirut Port and Marina.

“In the next three to four years we will start selling land on the reclamation space because today [this area] is not ready yet,” said Douaidy. “There are still waste treatment [facilities] that need to be finished. Subsequently we will do the infrastructure for the reclaimed land. Then we can start with the marketing of the reclaimed land.”

Noting that the price for built up space had increased from $950 per square meter to as high as $1,400 per square meters over the past several years, Douaidy was quick to point out that the 1.5 million square meters of land reclamation would likely be a crucial component ensuring Solidere’s profitability well into the second half of Phase Two.

During this time though, he added, Solidere intends to pursue somewhat of a different approach than during the last Phase.

Laying down foundations

“We prepare the land, we prepare the design. This is what is happening…[It allows] developers to practically start within a short period of time. This is the kind of thing we really want to do: develop the concept and sell the idea rather than do the development ourselves. We will continue to do one or two developments here and there but we would like to encourage third party developers to do it.”

Of course, despite the recent positive balance sheet, growing investor interest and the much-anticipated movement on several development fronts, risks remain – as is true for the entire Lebanese economy.

Most significantly for Solidere, when Hariri was assassinated, the company didn’t only lose its largest single shareholder, it also lost its most powerful proponent in government circles. Of course, in Lebanon, such influence goes a long way towards solving the routine, and sometimes not so routine problems of bureaucracy and competing private interests that may not just vanish with Syria’s withdrawal. As one recent report noted, before Hariri left office last year he prevailed on the Cabinet to pass a number of critical resolutions that freed Solidere to act in a more expeditious, and profitable manner. In the end, a total of 24 projects with a total value of more than $500 received the necessary permits to move forward.

Douaidy is confident that Hariri left Solidere in “safe waters.” But even though his political stature will be sorely missed, April 26 and the events that led up to it, should be well for Lebanon and Solidere.
 

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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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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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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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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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