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Business

Trading guns for butter

by Michael Young March 1, 2005
written by Michael Young

Amid the threatening talk in the past month or so of a return to civil war if the opposition continues demanding a Syrian withdrawal, it is remarkable that there has seemed so little patience in Lebanese national culture during the past 15 years to investigate that war. It was particularly ironic that the assassination of former Prime Minister Rafik Hariri, an event harking back to the war years, targeted the very man who more than any other defended this amnesia in order to satisfy the national passion to pursuit of profit.

If one were to catalogue the cultural works on Lebanon’s war, the results would be anemic. By and large, scholars, artists, filmmakers, playwrights and novelists have mostly been asleep. And when they have not, one must navigate through a mediocre wasteland indeed to reach an occasional oasis; for example the novel White Faces by Elias Khoury, Little Wars by the late filmmaker Maroun Baghdadi, Failure by the playwright Ziad Rahbani, Roger Assaf’s theater production of Elias Khoury’s The Memoirs of Job, or the flawed but daring West Beirut by emigrant filmmaker Ziad Doueiri. Why is that? Why is the single most overpowering event in modern Lebanese history so rarely grist for the country’s mills of imagination? Trauma is hardly a sufficient explanation: wars, no matter how devastating, have long produced reams of texts, films, novels, plays, documentaries and other cultural artifacts, on the implicit understanding that such manifestations represent part of the “getting over” process; or, at least, an effort to learn from a conflict’s lessons. Invariably, the therapeutic or educational are invoked, but also a sense that big events must naturally produce great works.

In Lebanon, at the end of the war precisely the opposite justification was offered up, and underlining it once Hariri came to power was a hefty dose of capitalist pragmatism. In effect a swap was effected, where the need to secure profits was regarded as incompatible with raking up memories of the war years, since that threatened to undermine confidence. However, in that context, the former prime minister’s death has put an end to the bizarre zero sum game between confidence and wartime memory.

In February, CNN aired a report on Lebanon’s basketball league, in which it highlighted the fact that the sport was a repository for wartime divisions. The argument was surely overstated, ignoring, for example, the fact that there is virtually no animosity between players of different religions or political persuasions. However, as any follower of the sport will admit, there are often disheartening examples of confessional behavior among spectators. But odder still is the average age of those behaving this way: by and large most were children during the war years. If culture has little room for wartime memory, Lebanese sport apparently has a lot.

Hariri’s death has changed that.

How so? Lebanon’s economic appeal was always based on its ability to allow an open economy, a direct result of the country’s democracy, itself a product of the sectarian system. As Michel Chiha, a leading ideologue of independent Lebanon, wrote: “Countries [like Lebanon] that don’t have natural wealth must be given economic freedom as their wealth …” He grounded his reasoning in a subtle understanding that a country of different confessional minorities could not, logically, be one where an all-powerful state could limit freedoms, whether political or economic. In effect, sectarianism helped make Lebanon’s capitalist culture inevitable, and in avoiding talking about the war, Hariri showed that he understood this intimately.

However, with Hariri dead, and Lebanon in the midst of a divisive debate on its own future, the role of the war in national culture has morphed. In the face of a government that has repeated the mantra that war might be inevitable if the opposition raises its demands on Syria, a large number of Lebanese have vindicated Hariri posthumously by publicly expressing their disdain for such reasoning. In a way, then, they have declared their war truly over, and the multi-confessional turnout at Hariri’s funeral confirmed this. That’s perfectly acceptable, even admirable, but it raises two observations: with respect to cultural manifestations, there will be even less public tolerance in the future for possibly divisive references to the war, which means that that great gold mine of inspiration will remain largely untapped; and this dearth will no longer be exchanged as easily, as it had been, for economic confidence, largely because the man who symbolized that tradeoff now lies dead, his promise of better times far less convincing in the hands of his successors. With culture having lost a past to feed off of, and the economy having temporarily lost a future, Lebanon finds itself at an ambiguous crossroads, devoid of both memory and desire. And yet for some reason, for the first time in a long time, that loss actually seems to spell hope for change.

March 1, 2005 0 comments
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Economics & Policy

Bridging the Gulf

by Faysal Badran March 1, 2005
written by Faysal Badran

Rafik Hariri’s catalogue of virtues was much trumpeted in the wake of his killing, but his most potent skill lay in his ability to initiate dialogue with key economic agents in the region. As The Independent’s Robert Fisk put it, he had become “Mr. Lebanon”, an oversized and overqualified salesman for Lebanon’s reconstruction.

The relevance of Hariri and his transformation from a mere mortal to an indispensable magnet to foreign investment will be clearer as the void his assassination is felt in the coming months. His function as a portal for many Western leaders and his ability to cajole them into accepting the new Lebanon cannot underestimated and his death will have a direct impact on the way Lebanon is perceived by the Gulf investment community. The Saudis in particular saw his presence, even outside government, as a safety valve of sorts.

Hariri came from the Gulf, and derived a lot of his influence from the contacts he accumulated there. While common perceptions was that he was a friend of the Royal Family, his real importance was in the message and image he projected vis-à-vis the broader spectrum of business people and key decision makers, not merely with the King and his entourage. He knew the Gulf well and spoke the language of business that appeals to local wealthy investors. He understood that there were two magnets that would attract them to Lebanon.

The first was that there was a whole generation of Saudis who had direct ties to Lebanon in the past and he knew how to convert the nostalgia of the past into a commitment to rebuilding Lebanon and actively participating in the rebirth of its once vibrant capital. More importantly, he single handedly convinced many large depositors to make concrete pledges early on to stabilize and rejuvenate the banking sector.

The second stemmed from his deep conviction that the ability of Lebanon to attract and keep Gulf investors rested on creating a harmony among the Lebanese communities and approaching the inner fabric of Lebanon with a non-sectarian economic imperative. My encounters with key players in Saudi Arabia over the last three years confirmed to me the notion that the Hariri factor was more than a psychological support system for them. A few years back, a Riyadh based investor showed me the blue prints of a large tourist project which he was contemplating in Lebanon, a sort of high end spa, if you will. He proudly told me that it would be the luxury resort of the Middle East.

When I asked him why he and his consortium of investors had shelved such a magnificent project, he told me that all the financiers involved had pulled out when Hariri left in 1998. A multi million-dollar project had been abandoned due to the absence of Hariri as a safety valve. Another Saudi who was present during the meeting then went on to say something very revealing about the way Gulf players see Lebanon and Hariri.

He asked me to think of Lebanon as a small company, which I gladly did, since it allowed us to simplify the debate. “Why would a small company which is in dire need of a sharp CEO like Hariri to advance its cause, keep him out of power”.

Hariri had become sucked into local micro politics, he had ceased to be Mr. Lebanon. For most in Saudi Arabia, not only was he “one of them”, but he also spoke a language which they understood and which represented a hedge against the decaying political and social fabric of Lebanon.

While Hariri may have created controversy with his priorities for Lebanon, as far as Gulf and most importantly Kuwaiti and Saudi money, his priorities were very appealing. Infrastructure, modernity and re-positioning Lebanon as an investment and tourist destination were the safety valve. They knew that Hariri would find a way to circumvent local political issues to keep the flow of money into Lebanon. The money flowing into the banking system essentially mean that the project of reconstruction could be financed. Without it, and without the strengthening banking system, one is hard pressed to see how the reconstruction effort could have been financed. So Hariri strengthened the banking system, which created a financing conduit for government.

Hariri also understood that Lebanon would not only need to gather money from the Gulf, but also create an environment conducive to tourism and to Lebanon becoming a second home for Gulf Arabs. In many respects, Hariri’s aspirations were aided by the events of September 11th, 2001. As many Saudis sought closer destinations for their families and their cash, he was there to provide the security and the climate necessary for them. Relentless and global, Hariri’s energy to position Lebanon as a place to spend the scorching Gulf summers, and a place to invest money were a key feature of his grand design.

What I found astounding about Rafic Hariri, is that his name had become a trademark synonymous with business. His presence meant that Gulf Arabs had a sort of “recourse”. Though many had rightly shunned Lebanon for its opaque judicial system and its chaotic bureaucracy, they were willing to back projects in Lebanon as long as “Sheikh Rafic” was somewhere in the sphere of influence, even outside government. Hariri’s pro-business approach was a factor, but his belief in Lebanon as an open society with good relations with the West was, in my opinion, the tie breaker for many Gulf investors. They knew that the trajectory of Hariri was toward more openness and eventually more multinational presence in Lebanon, and this was a comforting factor.

Hariri was often criticized as being too focused on business and worse some ill informed pundits accused him of being self-serving, wanting to “fill his pockets.” There isn’t enough paper in this magazine to expand on the lunacy of these arguments. While there were some thieves in his orbit, probably without his knowledge, the most telling factor was that Hariri put his money where his mouth was. From the outset he invested his own money in the country, and that is the mark of a committed and convinced businessman. Perhaps the most crucial aspect of the Hariri platform was that money would come flowing into Lebanon once regional peace was achieved.

Hariri may have made an excessive bet in the mid 1990s on this outcome, but still, the inevitability of regional peace and its impact on Lebanon motivated him. And the Gulf Arabs understood this. ut recently there was concern, even fear about the isolation of Rafic Hariri. Barely 24 hours prior to his brutal assassination, I asked a leading Riyadh banker how he saw the investment climate in Lebanon. After a discussion about the red hot property prices, the man said to me “if Hariri stays out for too long, many Gulf Arabs will begin to lose patience.” A tough fiscal situation and complete Syrian hegemony over the minutest detail in Lebanese politics was raising concerns.

Now that he is gone, the vacuum left will mean that Gulf investors will move extremely cautiously on Lebanon. Sure, much of the dynamics in the real estate sector remain relatively positive and the banking system sound and highly liquid, but the confidence fracture caused by his killing, and the message it sends, has reverberated throughout the Gulf and could be a stark reminder that he truly was Mr. Lebanon, when it came to inciting them to shift money to Lebanon.

It is inconceivable that post Hariri Lebanon will be as attractive to Gulf investors, at least not in the immediate future. He carried the right message and was driven by the economic imperative. He understood that prosperity was the best antidote against trouble, and with his killing, the perpetrators have highlighted that the prosperity of the country was epitomized by this man. The loss of Hariri will most likely mean trepidation and hesitation by Gulf Arabs, and this will be tough to overcome, as there is no real substitute.

March 1, 2005 0 comments
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Economics & Policy

Counting the losses

by Nicolas Photiades March 1, 2005
written by Nicolas Photiades

Rafik Hariri was an inevitable figure in Lebanese politics and economics. The man was greatly responsible for driving Lebanon towards the 21st century and gave the country (admittedly via a hefty debt) a world-class infrastructure, including a major airport, a much improved road network and telecommunication system, and a pristine city center. But most importantly, Hariri was a heavyweight local leader of international stature and credibility.

His death has had a significant impact on the country’s banking sector, which is inextricably linked to the country’s other sectors. Most of the large banks have substantial exposure to the tourism industry as well as Solidere and other businesses in the BCD.

Taking a hit

The drop in profitability and cash flow of businesses involved in tourism, including those operating in the BCD, such as hotels, restaurants and shops, will probably see a return to the 1998 to 2002 period, when cash flow was barely enough to service the interest on their debt. Real estate and construction companies may also be affected as residential and commercial projects are stopped, due to the withdrawal of purchase commitments from Gulf Arabs and Lebanese expatriates. Construction companies may see a slow-down in private and public infrastructure projects, and may have to resort to the unpleasant task of bargaining with banks in order to gain more time.

For their part, the banks should be forced at some stage to start reserving against their exposures to the tourist, real estate and construction sectors. A high level of profitability that was supposed to be re-injected into equity would be seriously depleted by forced provisioning or reserving. Lebanese banks need to increase their capital in view of the forthcoming Basel II regulations on bank capital, and must rely on profitability and organic growth to increase their equity levels. They also need to decrease their non-performing loans levels, which are among the highest in the region (the average non-performing loans to loans ratio for Lebanese banks stands at around 20%), and improve the quality of their placements. These latest events are likely to affect most bank counterparties, and will inevitably make it harder for banks to seek out better quality placements.

The financial flexibility of local banks’ is also likely to be affected, if a number of deposits are expected to be withdrawn by Gulf Arabs and Lebanese expatriates in the coming months, as a result of a potentially worsening political environment. Although banks are liquid and are well prepared to cope with any rush on deposits, the end result could very well see balance sheet contractions for some, if not most, banks and a deterioration in deposit funding flexibility. Lebanese banks’ main funding source comes in the form of customer deposits, and a weakening of that source would leave domestic banks with few alternative funding options. Unless the political situation improves radically, such a scenario is very much on the agenda.

Some banks could resort to issuing bonds, notes, certificates of deposits or even preferred shares, but investor appetite for Lebanese paper, even if it comes from banks, should reach an all time low in the current environment. Moreover, these debt and hybrid securities usually command a higher interest (or coupon) rate to be paid by the issuing banks, and the expected decrease in profitability should make it more difficult in terms of servicing these market funds. Another way to maintain a decent level of deposits could be to raise deposit rates, although this too would have a profoundly negative effect on profitability, as well as bring banks back to a pre-Paris II situation, in terms of higher interest rates. Some banks have already raised interest rates, albeit slightly, on deposits in an effort to contain a possible deposit flight. At the moment, every piaster of profit has to be carefully set aside for capital strengthening and provisioning purposes.

How low can you go

But the most direct and significant consequence of the Hariri killing on banks will be the potential drop in the country’s credit rating, which is already very low at B- (Standard & Poor’s rating). Rating agencies give a lot of weight on the political and security environment when rating a sovereign, and the climate that has been brought about by the killing of a major opposition political figure could very well push international rating agencies such as Standard & Poor’s (S&P), Moody’s or Fitch to decide to downgrade Lebanon to the CCC bracket. Although S&P has recently issued an update on Lebanon stating that the central bank’s foreign currency reserves should weather the storm of a short-term political crisis, it is clear that a downgrade would be very much in the cards if the current political turmoil takes too much time (more than three months) and the momentum of the popular “white revolution” gets gradually killed off.

A downgrade in the medium- to long-term would bring about a significant rise in the government’s cost of funds, and will make it more difficult for the monetary authorities to manage the current debt portfolio of the country, which, as we all know, stands at around 200% of GDP (the highest among rated sovereigns). Banks, as a consequence, would find themselves holding lower quality government paper, which would be more difficult to get rid of, and which would penalize their capital adequacy, given the future higher risk weighting on low rated assets, as advised by the Basel II capital accord.

Hariri’s killing has also forced another issue to rear its ugly head again, which is that of the depreciation of the Lebanese pound. As soon as the bomb went off on Valentine’s Day, thousands of depositors had already called their branch managers asking for the conversion of their Lebanese pound deposits into dollars. The closing of the foreign exchange markets immediately after the attack and for three days of mourning prevented an immediate massive purchase of dollars by Lebanese depositors. At the opening on Friday February 18, central bank intervention still amounted to around $500 million in one day, despite reassurances by the monetary authorities and the central bank governor. Intervention slowed down a little bit in the second week after the assassination, but remained abnormal.

Monetary destabilization

It is therefore clear that the central bank would not be able to sustain such a pressure if the crisis takes too long to be solved. A depreciation, to say LL1,600 to LL1,700 to the dollar in the medium- to long-term could very well be an eventuality, as the $12 to $13 billion of foreign currency reserves, would prove to be insufficient in the case of constant assaults on the local currency for a period of more than two to three months. The central bank may indeed decide to call it quits with regards to sustaining the pound in order to preserve what would be left of its foreign currency reserves. A depreciation in the Lebanese pound should affect the banks through their profitability and asset quality, especially considering that they hold significant proportions of their assets in the form of Lebanese pound government debt securities.

Funds promised in the Paris II conference could also be impossible to obtain, as the international community may deem any counterpart other than Hariri to be ineligible to negotiate with on behalf of Lebanon. International donors and lenders may also believe that Lebanon has become too high of a risk, and may therefore decide to cancel their financial pledges towards Lebanon. Although it is worth noting that Kuwait has recently announced that it stands firm in its commitment to release funds pledged during Paris II to Lebanon, in a clear sign of confidence and solidarity.

Uncertain times

Lebanon lost a mover and shaker. With Hariri gone, the financial flexibility that was his leitmotif is in jeopardy. Indeed, few can see any other politician with his stature to raise funds at sovereign levels in most corners of the planet. Although the immediate outlook appears bleak, a smooth solution to the political situation that meets the demands of the domestic and international opinion could open the gates of prosperity for Lebanon. After all, everybody knows that the country’s economic woes have been and are still due to the nightmarish political quagmire that was created immediately after the end of the civil war in 1990.

Trouble Downtown

Solidere, with its strong links to the late Rafik Hariri, should expect a certain period of time in the doldrums, as tourists and investors decide to stir away from Lebanon for the time being, particularly in this current political and security climate. Even Solidere-located restaurants should suffer, as fewer tourists flow in, and locals fear explosions while they are having lunch or dinner. The hotel industry within the area should also be closed for business for a few months, as the damage is being repaired.

The lack of business for a few months would definitely affect Solidere’s financial performance, as well as it share price. Already on Monday, February 21, Solidere’s share price had decreased by 15%, well below the $7 mark, only to regain some value the next day. As the largest market capitalization and most liquid stock listed on the Beirut Stock Exchange, Solidere should be the only company in the domestic capital markets to witness fluctuations in its share price, together with government bonds, which should also see frequent changes in their yields.

Such turmoil in the domestic capital markets should be expected as long as the political environment remains tense and a solution to the current crisis elusive. If the country’s fortunes improve in the coming weeks, then we can all expect share prices and bond yields to go up, perhaps even dramatically. Solidere’s Kuwaiti listing should also resume, adding much needed liquidity and investor diversification to the stock. The Kuwaiti listing would also be a first for Lebanon as it is the first Lebanese stock to be listed on a Gulf exchange, signaling the beginning of an era of prosperity for the entire country.

March 1, 2005 0 comments
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A penny for your thoughts, Mr. Hariri

by Yasser Akkaoui March 1, 2005
written by Yasser Akkaoui

We may never know what was the ultimate goal in the grand plan that killed Hariri. He wanted to created a boutique nation into whose coffers would flow the riches of those who sought out its delights, but where his dream would have taken us, only he knew.

What we do know is that Hariri was a big man who dreamt big and that the driver of these dreams was private enterprise existing in a sound, and free business environment, fed by stability and security and backed up by solid national infrastructure.

When his labors began to bear fruit – as we saw in the 2004 – this environment needed to expand. The economic reality of modern Lebanon had broken out of its political cage, hungry for more.

Those who killed him sought to end his influence but they could not quell his very essence. He had become a phenomenon. He nourished people with an unquenchable entrepreneurial drive and belief in what they could achieve. This was reflected in part by the shock and anger at his passing.

It is because of this, that we can be confident of the future. There is no immediate alternative to Rafik Hariri and there may never be one. However, his mission is done. He had set an example.

We wished for better communication that might have conveyed his dream more eloquently to a nation often bewildered and intimidated by the Hariri factor, but today we are beginning to understand his reticence to share his vision, now that we have seen the depths to which his political enemies will descend.

But that is in the past. The reaction to his death made us realize that we appreciate what he did. We now know that we can go on to get better results and work with the same positive attitude to create a better and more prosperous nation.

We at EXECUTIVE will miss his wry smile and crafty grin when ever we challenged his policies and ideas. He was not fazed. He was confident in his mission and as such he relished the cut and thrust of intelligent debate.

We will miss him even as his legacy lives on.
 

March 1, 2005 0 comments
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A nose for a bargain

by Executive Contributor February 14, 2005
written by Executive Contributor

“In February, get your nose done with a special discount,” ran the ad placed by plastic surgeon Dr. Elie Gharios on his website. With a price of only $700 instead of the regular $900, Gharios had expected a 50% business increase. “Unfortunately,” he said, “business was very slow following the death of [Rafik] Hariri.”

Educated in France, Canada and the United States, Gharios runs three plastic and aesthetic surgery clinics in and around Beirut. He does on average 20 nose jobs, or rhinoplasties as it is officially called, a month.  “Some 80% of the Lebanese have a small bump on their noses,” he said. “That is just genetically determined as such, but most people wish a straighter, more European nose.”

These days, having your nose done is no big deal in Lebanon, where women wear their after-surgery plaster with pride. Yet, plastic surgery is not just for women. An estimated 30% of clients are in fact men. The nose job and other corrective surgeries are big business. Ever since the end of the Lebanese civil war, the number of plastic surgeons increased from but a handful to some 70 today.

The sector matured, as it introduced the marketing and financing methods you find in any sector of the economy. Gharios has offered special group packages for bank employees, for example, and is currently negotiating with a travel agency to create a travel package that, apart from surgery, includes a plane ticket and hotel stay. While it is often virtually impossible to get a mortgage loan in Lebanon, many banks today offer a personal loan for plastic surgery, which allows you to pay for your beautification in installments.

Though surgery may be just business, Gharios does not operate on anyone. “Sometimes people come in with a picture from a magazine, saying ‘that’s what I want,’” he explained. “But I don’t work like that. Beauty is about harmony and aesthetic surgery is about re-shaping and re-fining, not about creating something completely new. ”

World Bank initiative

The World Bank and the United Nations Development Program announced February 8, the 18 finalists in the first round of Lebanon’s Development Marketplace competition, in which social entrepreneurs compete for grants to fund their projects. Entitled “Harvesting Youth and Community Ideas for a Better Environment,” the competition – a first in Lebanon – aims to support local creative initiatives to clean up the environment.

“We chose the theme of the environment because it is one of the main areas of concern in Lebanon where you can really do some good,” said Zeina al-Khalil, a World Bank spokeswoman. “Furthermore, it’s one of the three pillars of the World Bank’s 2004-2008 Country Assistance Strategy. Currently, the Bank has no environmental projects in Lebanon – we have projects in community development, infrastructure, education, but no loans targeting the environment.”

Open to youth groups, local communities, NGOs and academic institutions, the competition offers start-up funding of up to $20,000 per project. The organizers expect between five to right of the finalists to walk away with funds for their projects. “There is a pool of $130,000 in total, from which each winner can receive up to $20,000,” said Khalil. “The final amount granted will be based on the amount requested, and also on whether the candidate can leverage additional funds elsewhere.”

The 18 finalists were selected out of a pool of 87 participants by a panel of independent assessors, on the basis of their innovation, impact, sustainability, replicability and the institutional capacity of the bidders. They included: the Regional Cooperative Union in South Lebanon, the Lebanese House for Environment, the Association of Chouf Cedars, the Lebanese Association for the Protection of Natural and Archaeological Sites in the Chouf, the Association of the Friends of Tannourine Cedars, the Association of Rural Development in Aarsal, the Lebanese Scouts Association, the Cultural Charity Association-Al-Doha Secondary School, the Catholic School of Christ the Savior, the Torch of Passion and Unity, the Lebanese Geological  Society, the Animal Encounter, the Baldati Association, A Rocha, Friends of Nature, the Association for Volunteer Services, the Public School of Haqleet and the Scouts of Lebanon-St. Joseph Group.

The winners will be announced later in the spring, at the Innovation Day, where the finalists will display their projects at a public location before an independent panel of jurors.

More good new for Gemaizeh

Want to know where to drink and dine in Gemaizeh or what artist is exhibiting where? Check out www.gemayze.com. To promote one of Beirut’s most popular areas, the website offers a short history of Gemaizeh, articles written about the area, as well as an event list and the contacts information of café’s, restaurants, galleries, shops and even pharmacies.

“The aim of the website is twofold: on the one hand, to promote my Convivium Projects and on the other to promote Gemaizeh, the area I love,” said Kareem Bassil, the man behind the virtual initiative and sole owner of project development company Bassil Real Estate Investments.

Although technically launched in 2004, the focus then was mainly on promoting Bassil’s real estate developments. In recent months however, the site has grown into a portal that is actually worth its name. “I want to make the site more and more appealing,” Bassil said. “As people like to read about people, soon we will introduce the day-to-day adventures of an English lady living in the area.”

Of course, the young entrepreneur is well aware that by promoting the area and its events, the site promotes living in the area and thus, Convivium, which, derived from Latin, loosely means “living with.” There are currently five Convivium projects, which combine contemporary architecture with the traditional building style in the area. The buildings are characterized by the use of tiles and arches, and they are not higher than surrounding buildings to preserve Gemaizeh’s traditional character, which according to Bassil, is one of the last areas representing “old Beirut.”

While Convivium I and II have been built and sold, number III will be finished by the end of the year. Convivium IV is an old townhouse waiting for a buyer, and V is currently being built. It consists of two boutique hotels and three apartment blocks.

“Even considering what happened to [Rafik] Hariri, I remain positive for the future, so Convivium VI has already been planned,” reasoned Bassil. “It appears on the edge of Gemaizeh and downtown, and will consist of 70m2 to 90m2 studios.

Horeca 2005 still on course

From April 5 to April 8, the 12th annual Horeca 2005 trade fair will take place at Beirut International Exhibition and Leisure Center (BIEL). Some 300 exhibitors have agreed to participate in what is the Arab world’s largest trade fair for hospitality industries. “So far,” claimed Joumanna Damous of the fair’s organizers Hospitality Services, “we only had a handful of cancellations, which has surprised us in a positive way.”

The Jdeidet based Hospitality Services have been organizing the annual event since 1994. With offices in Jordan and Kuwait it organizes among other fairs the International Hospitality Forum in Jordan and the Horeca fair in Kuwait. It also publishes the bi-monthly trade magazine Hospitality News and the bi-annual Lebanon Hospitality and Foodservice Directory.  Why an annual fair in Beirut?

“Because Lebanon is market leader in the Middle East,” said Damous. “Taking into account the 9/11 effect, the amount of foreign investments in Lebanon has reached some $850 million in 2004, 80% of which went to the hospitality industry. Total demand on travel and tourism on services reached some $4.1 billion in 2004, some 25% of which was generated by foreign tourists.”

Exhibitors at the fair vary from hotels, supermarkets, schools and universities to pubs, clubs, caterers, and restaurants. Some 85% is Lebanese and 15% foreign, which is double the number last year. Products and services include equipment – everything from fridges and coffee machines to pots and pans – decorations, tabletops and cutlery, uniforms, linens, bedding and technology. Last year, more than 18,000 visitors attended the fair, which was held in late April. “If we would record a 10% increase in visitors this year,” Damous said, “that would be perfect.”

Tapping into Adma

The SABIS International School is still on course to open a third school in Lebanon after signing a contract with Intered (the managing arm of the SABIS School network) and the Beirut-based Abniah general contractor company at the end of last year. The construction of the school is expected to total $8 million. The move comes as part of a greater international strategy, which will see the opening of five new schools in Syria, the UAE and the United States.

The new school in Lebanon, to be called ‘SIS Adma’, will be located on the hills of Adma and is scheduled to open its doors for the 2005-2006 academic year. “We chose Adma because we believe that there is a need for a trilingual international school in that part of Lebanon,” said Victor Saad, VP of operations and development. “The idea of a school became a reality once we were able to find what we believe is an outstanding location for it.”

The purpose-built campus will span 75,000m2 and will be composed of 10 buildings, including educational facilities, a performance hall and sports facilities, such as an Olympic-size swimming pool and a soccer field. It will offer kindergarten, primary and secondary classes, with the capacity to accommodate up to 1,800 students.

An educational system which started in Choueifat, Lebanon in 1886 as an all-girls school, SABIS now counts 27 schools across four continents – Africa, Asia, Europe and the United States – totaling approximately 25,000 students. It is all part of the school’s strategy of catering to “mobile” families. “We have 29 different nationalities at Choueifat, including children of United Nations employees and foreign companies – families that move around,” said Saad.

The tuition fees for the SABIS schools vary, even within countries. The Choueifat fees, for example, are higher than those of Khoura. “The fees are based on different criteria, most important of which is providing a top quality education to a wider sector of students,” Saad commented. The tuition fees for Adma have tentatively been set to range from $3,600 for the nursery to $4,000 for the upper secondary classes.

February 14, 2005 0 comments
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On the scene

by Marianne Stigset February 14, 2005
written by Marianne Stigset

According to Pierre Achkar, the owner of the Monroe Hotel and president of the Lebanese Hotel Owners Syndicate, the bomb that killed former prime minister, Rafik Hariri, cost of the hotel district more than $60 million. But, it was the sight of panic-stricken guests fleeing to the airport (in some case not even waiting to pack) that sent a shiver down the spine.

That said, there were some losses that could not be replaced at Lebanon’s own Ground Zero. The St. George’s club lost five employees in the attack, and had an additional 15 employees wounded, five seriously.

The loss of life aside, it was everyone’s nightmare. “Beyond the external damage, you also have the water pipes, the gas pipes, the fire system, a whole number of things – assessing all of this is a big project which takes time,” commented the manager of the Monroe Hotel, who assessed the total costs incurred by the physical damages to the hotel at over $1 million.

Elsewhere, hotel executives who had worked hard to drum up trade on the back of Lebanon’s tourist revival were not impressed. It had become almost personal. “I just got back from Egypt, where I had worked hard to shore up business guests, and I was happy because all these groups had booked with us,” seethed Nada Ghawi, spokeswoman for the InterContinental Le Vendôme, which had an 80% occupancy rate prior to the incident, commented. “Now they have all cancelled. This whole thing makes me so angry.”

The majority of the hotels are likely to have to bear the brunt of the costs themselves because they have not taken the premium insurance policy that protects businesses against acts of political violence and terrorism.

“To my knowledge, the only hotel that is covered is the Phoenicia, which is protected by InterContinental’s global coverage,” said Fateh Bekdache, general manager at Arope Insurance. “It is very rare for hotels to have [this level of insurance] in Lebanon – the policy is too expensive for them, especially in such a tight market.”

Others pinned their hopes on assistance from the government. “Our hotel needs to be entirely renovated, just like it had to be after the civil war,” said Joseph Hanna, the auditor of the Beverly Residence Hotel. “Our insurance has told us it doesn’t cover such incidents. The government should consider us victims, as we were after the war, and reimburse us, so we can restart our businesses again.”

In the meantime, staff members were being put on annual leave. “Security, housekeeping, and engineering are being kept, but the rest of staff has been put on annual leave,” said the hotel manager of the Monroe Hotel. “Keeping them here would only depress them.”

Equally affected were the shops and restaurants surrounding site of the explosion. Within hours of the blast, Rafik Khazen, the owner representative of Awtar restaurant on the ground floor of the Monroe Hotel, was already overseeing the clearing up of his heavily damaged venue. “All the windows are broken, the ceiling is damaged, as is our kitchen,” he said, standing amid the debris. “We’re looking at a minimum of $20,000 to $25,000 in damages here. It makes me feel bad when I see this, because we are a popular restaurant. Now we won’t be opening for weeks.”

Down the road, the employees of the Bassoul Heneine car dealership were also hard at work, with the firm intention of re-opening fast. “We’re working every day from eight to eight, Monday through Sunday to rebuild the shop so we can re-open as soon as possible,” said Henri Nawar, a sales manager. “The store was badly damaged: all the windows were broken, the ceiling, the lighting, the fixtures, the phone lines. The cars were also scratched up and had windows broken.”

February 14, 2005 0 comments
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Lifestyle

Wine Advertorial

by Michael Karam February 13, 2005
written by Michael Karam

Welcome to the first ever Vintage Executive Wine Club. Every month it will be my pleasure to review five wines supplied by Vintage, Lebanon’s leading vintners, from their outlet in Saifi Village. From the comfort of the pages of EXECUTIVE, we will take on a journey of wine, grapes, famous (and not so famous) winemaking families and regions, explain what makes them so special and how you can get the best out of them. 

The wines are selected by the very capable Wadih Riachi, manager of Vintage, whose knowledge of the wines in his shop makes buying and visiting the Vintage shop an education in itself.

This month Wadih has selected three reds, all with a strong Cabernet Sauvignon presence: Michel Lynch 2000 (Bordeaux), Torres Gran Coronas Reserva 2000 (Penèdes, Spain) and one from Lebanon’s very own Domaine Wardy (Lebanon).

Cabernet Sauvignon is probably the most famous red grape on the planet. Typically giving aromas and flavours of blackcurrants, peppers, chocolate and spices, it is planted almost everywhere in the wine growing world, but is most associated with the wines of Bordeaux, in which it is almost universally present and where it has thrived since the 18th century.

The Michel Lynch 2000 is an elegant blend of Cabernet Sauvignon, Merlot and Cabernet Franc (two other hugely important Bordeaux grapes), in the best tradition of the Medoc region of Bordeaux, where the lynch family has been making wine since the 17th century. The wine is firm in the mouth with supple tannins and gives notes of berries and sweet spices. I found it needed at least an hour or two to “open up,” so decanting is advised if one wants to appreciate the understated elegance of this wine.

The Torres family of Penèdes in North-East Spain is one of the powerhouses of the modern wine sector and the Gran Coronas is one of their most consistent performers, made as it is with 85% cabernet and backed up with 15% local Tempranillo, Spain’s most famous grape, giving it a dryer, measured feel in the mouth, while losing none of the Cabernet’s traditional characteristics.

In Lebanon, the Cabernet Sauvignon has replaced the Cinsault as the backbone of the modern Lebanese wine industry. Domaine Wardy’s monovarietal is a fine example of how the grape has taken in the Bekaa With its intense fruits, the wine is big in the mouth and keen to express the formidable terroir from when it came. Salim Wardy has done a fine job with this and his two other ‘mono’ blends and above all represent excellent value.   

For the whites, Wadih has gone for Chardonnays, one from the historic Burgundy vineyards of Joseph Drouhin in Beune and the other from the mighty Frescobaldi holdings in Tuscany in central Italy. The Chardonnay may have become a cliché among today’s white wine drinkers, but this should not detract from its popularity, versatility, consistency and quality. It is a grape that ranks among the most important and widely planted on Earth and, in France, makes some of the finest Burgundies and Champagnes.

Beune, in the Côte d’Or region of Burgundy, is home to Joseph Drouhin, whose ancestors have been producing wines for centuries. The Macon-Villages 2002, comes from an AC (appellation contrôlée) of the same name and is known for its Chardonnay. It is a medium bodied white, fruity with hints of flowers and like most of the whites from the region is drinking well now.

Frescobaldi is one of the most powerful vineyard-owning families in Tuscany, of which Pomino, situated at 650 meters, is a DOGC (denominazione din original controllata e garantita) the highest category of Italian wines. It is no wonder then that the Fescobaldi’s Pomino Bianco 2002, a blend of Chardonnay and Pinot Blanc is one of its best whites. I concur with Wadih: it is indeed long and elegant and bristling with Tuscan spirit. On the nose it is awash with flowers, peaches and pears. It is a wine to savor and is also drinking very well now. 

Till next month, enjoy!

Michael Karam’s Wines of Lebanon will be published this spring by Saqi Books of London. He is a contributor to the Award winning Wine Report and Jancis Robinson’s Oxford Wine Companion.

February 13, 2005 0 comments
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Money Matters

by Executive Contributor February 13, 2005
written by Executive Contributor

Economy and Finance

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.

February 13, 2005 0 comments
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Special Report

Q&A: Eli Khoury

by Executive Contributor February 13, 2005
written by Executive Contributor

The CEO of Saatchi & Saatchi Levant discusses the political and economic factors impeding the growth of the advertising industry in Lebanon.

Economic recession, political instability and the advertising industry do not make for happy bedfellows. A $100 million industry during the war, the advertising business has steadily shrunk in subsequent years, despite all indicators pointing to the potential for growth. As the best and the brightest among Lebanon’s young advertising professionals turn their eyes toward the Gulf, Eli Khoury maintains that Beirut still boasts more assets than its competitor to the East. Executive finds out what the long-standing head of Saatchi & Saatchi Levant views as his industry’s main challenges and some of the remedies he recommends for the ailing patient.

What do you see as the key challenges facing the advertising industry both at the local and at the regional level?

The future of the industry both regionally and locally is linked to politics. In Lebanon, the current political situation is having a major impact on the industry’s development. It already has had an impact, and it will have even more of an impact should the situation deteriorate. If the situation changes, it ought to have a positive effect. And the same goes for the Middle East – the clash of civilizations, the war in Iraq, the Israeli-Palestinian conflict, terrorism… all of this has direct implications on the business. So how the industry will fare in 2005 and beyond really depends on how the political situation evolves.

In what way has politics in Lebanon affected the business?

Firstly, let’s look at the state of the media in this country. A healthy media is a media that works for its buck. The others will survive regardless, because they are politically funded. Of course we all know who is subsidizing this. Because this industry thrives on competition and freedom of speech, a media, which is in the pockets of the politicians, is not beneficial to it. Nor is the audio-visual law, which was passed. The whole purpose of introducing that law was to prevent regional media from moving to Beirut. And of course there was the whole MTV incident. So these are the issues on the media side. On the advertisers and audience side, i.e. our clients and our clients’ clients, there is the problem of poor purchasing power, which makes advertisers stingier and exclusively sales oriented. To give you an idea, the size of the industry during the war was around $100 million.

And now?

For the year 2004, I doubt the total revenue of the industry was worth much more than $60 to $65 million. And this despite the fact that post-war economic predictions estimated the advertising industry’s potential at up to $300 million. So the impact the political situation has had on the economy has directly affected our industry – advertising is after all frequently considered a luxury, which is the first to go during cut-backs. And the manner in which the politicians have minimized all competition within the media in the country, has had an impact on us. As a result, both the media and the advertising industries are suffering.

Is Dubai then becoming a more attractive location for the advertising industry in the region?

Dubai is trying to take our place, but if you look at its human resources, it’s purely based on expatriates, so this endeavor is economically unfeasible.

Why would an expatriate haven not result in an area bustling with creativity that could compete with Beirut?

Creativity has soul, it comes from within a society. You cannot import different talents and put them in a basket and tell them to be creative. Furthermore, from a financial perspective, there are significant differences between Beirut and Dubai. Having spoken to TV stations that operate in both cities, I have discovered that the difference in operating costs between the two is tremendous. There is a difference between having to import ten talents from abroad and pay them hefty, and having to import your entire staff, down to the person who makes coffee. In Beirut, the basic HR infrastructure is already there, and then you can get fancy when it comes to above-the-line positions. In Dubai, you need to hire your entire staff from abroad and provide them with a house, a car, etc. For an operation such as my own, the difference in operating costs would be at least 180-200%.

Could you not justify the higher expenditures required to set up shop in Dubai with the greater market size the Gulf has to offer?

Dubai is the center for a lot of the business in the Gulf, which allows it to be somewhat of a regional player. But if you look at the advertising industry in Dubai today, it is merely composed of sales ads. I don’t know what the size of this business is, but I doubt it is enough to sustain an entire industry. There is no creativity involved, so the revenue generated will be minimal. The industry there gets by because it is also servicing Saudi Arabia and surrounding Gulf countries, which Beirut does as well. There isn’t much Dubai can offer that Beirut cannot. The difference lies in the fact that in Dubai, they don’t have the political problems that we have here, and there are more economic incentives offered. In Lebanon, that local market is tired.

What is the share of local clients vs. international clients in Saatchi’s Lebanon portfolio?

It terms of volume, local business represents barely 30% of my portfolio. And seeing how money is scarce here, you usually can’t get fancy with many of these projects. The clients are more interested in pushing the product rather than building the brand, at the cost of creativity. There are no big expectations – people just want to address their urgent needs. What worries me with this trend is the impact it has on the new, young ambitious talents that are entering the industry. At Saatchi we try to push for creativity as much as possible, even at our own expense sometimes, regardless of what the client is willing to pay, partly to give these people the opportunity to use their talent to the fullest.  

Is the brain drain among the young Lebanese advertising professionals significant?

Yes it is. They are leaving Lebanon for Dubai, where the pay is better, and there are less hassles. It may not be fulfilling professionally, as the requirements there are low, but the pay makes up for that. Yet I don’t mind this so much, as long as we keep the manufacturing brains. I can export HR, as long as I produce here. The challenge I face in my company is that in order to keep the brains here in Beirut, I need to pay them the same salaries as I would in Dubai. Otherwise I end up with a team of graduates, and one senior manager. This incidentally, is what you will find in a lot of advertising agencies in Beirut. Middle and senior management has been wiped out. In Saatchi, we prefer having more chiefs than Indians. But this requires paying high salaries.

Has branding awareness among Lebanese companies improved?

Let’s face it – they don’t have time for such a luxury. They need to focus on the bottom line, on breaking even. The economic times are not propitious to educate people about branding. Some companies have the money to delve into it, but you also need to create a momentum. If the market is about this, everybody wants to be a part of it. We can’t blame the Lebanese companies – they are probably more ready for this and more apt at it than most in the region, but there are other concerns that need to take priority for now.

There is a tendency here to view advertising as an expense rather than an investment. Is this a concern for you?

To consider the cost of advertising as either a CAPEX (capital expenditure) or an OPEX (operational expenditure) depends on what you are advertising and the nature of the advertising job. Any brand investment is a CAPEX. Any sales investment is an OPEX. Most people don’t want to invest right now – they want to keep advertising within operating expenses, and minimal operating expenses at that. Above the line, mass media, brand awareness campaign is a CAPEX that people can’t give priority to at present.

So it is a question of economic necessity rather than a question of understanding on the part of the advertisers?

It is in part a question of understanding, but it is important to note that you will only see a difference once the accounting principles here change. Of course I will benefit from advertisers understanding that what I do for them is an investment. But the real change will come the day advertisers can, in accounting terms, present their balance sheets to the authorities and say that advertising is part of their capital expenditures. This is the trend in the West, especially in the United States. So clients here need to understand advertising as an investment, but the government and other organizations involved, such as the trade lobby groups, need to create a new accounting principle for the country. Therefore, addressing this issue has a conceptual facet to it, as well as an economic and a legislative one.

The advertising industry is characterized by global consolidation. Recently 5the regional tv industry was impacted by the rapprochement of Choueiry Group and Ara Group How do you view the impact of this development on the industry?

In absolute terms one should be against it, but when examining the situation one cannot help but think that it will be beneficial to the industry for now. It will help stabilize it, and establish some rules of competition. Having this market be dominated by a semi-monopoly provides for a good balance until it picks up.

Do you expect business for the advertising industry to be picking up?

Only if and when the political system changes in this country will the advertising industry grow. Otherwise, you are facing further deterioration. The primary engine of economic growth according to George Soros is mood, it is trust. And I really believe in this. If you feel confident in the future, then you will operate well.

You talk a lot about the need for political and economic change, but the advertising industry in Lebanon has been marred by internal conflicts and feuds. Is it fair to place the entire blame for the current situation of the industry on the political system?

Yes it is. The problems you have in this sector are identical to those you have in any other sector – look at the banking industry, the publishing industry…. It’s a plague that has hit all of our houses. Why? Because there is less money to go around, and therefore competition gets nasty. It’s question of survival. The wrongdoings that have marred the advertising industry are a result of a shrinking market. Granted, the ruthlessness may be accentuated when it comes to the advertising industry here in Lebanon, because we are more visible. But at the end of the day this problem has less to do with the industry than with the country.

Are the Lebanese chapter of the International Advertising Association (IAA) and the local industry syndicate making any difference for the industry?

They are nice social clubs. If you are looking to meet new people, or even a husband or a wife, they would be good places to go to. But they have neither made an impact for the industry here, nor have they shown any willingness to do so.

What has come of the project to establish a body to monitor and establish accurate data on the advertising industry in Lebanon?

We would love to get some accurate figures on the industry, but we don’t seem to be any nearer to getting these than we have been in the past. This is one of the reasons why I labeled local syndicate and the IAA as social clubs. We have a lot of dreams: we dream of an advertising ethics code, we dream of data that provides us with the information we require on the market, we dream of having published figures. Will it happen? Frankly, I don’t know. I won’t be getting involved in this until I see a change in the political system.

February 13, 2005 0 comments
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Special Report

Q&A: Eli Khoury

by Executive Editors February 12, 2005
written by Executive Editors

Economic recession, political instability and the advertising industry do not make for happy bedfellows. A $100 million industry during the war, the advertising business has steadily shrunk in subsequent years, despite all indicators pointing to the potential for growth. As the best and the brightest among Lebanon’s young advertising professionals turn their eyes toward the Gulf, Eli Khoury maintains that Beirut still boasts more assets than its competitor to the East. Executive finds out what the long-standing head of Saatchi & Saatchi Levant views as his industry’s main challenges and some of the remedies he recommends for the ailing patient.

What do you see as the key challenges facing the advertising industry both at the local and at the regional level?

The future of the industry both regionally and locally is linked to politics. In Lebanon, the current political situation is having a major impact on the industry’s development. It already has had an impact, and it will have even more of an impact should the situation deteriorate. If the situation changes, it ought to have a positive effect. And the same goes for the Middle East – the clash of civilizations, the war in Iraq, the Israeli-Palestinian conflict, terrorism… all of this has direct implications on the business. So how the industry will fare in 2005 and beyond really depends on how the political situation evolves.

In what way has politics in Lebanon affected the business?

Firstly, let’s look at the state of the media in this country. A healthy media is a media that works for its buck. The others will survive regardless, because they are politically funded. Of course we all know who is subsidizing this. Because this industry thrives on competition and freedom of speech, a media, which is in the pockets of the politicians, is not beneficial to it. Nor is the audio-visual law, which was passed. The whole purpose of introducing that law was to prevent regional media from moving to Beirut. And of course there was the whole MTV incident. So these are the issues on the media side. On the advertisers and audience side, i.e. our clients and our clients’ clients, there is the problem of poor purchasing power, which makes advertisers stingier and exclusively sales oriented. To give you an idea, the size of the industry during the war was around $100 million.

And now?

For the year 2004, I doubt the total revenue of the industry was worth much more than $60 to $65 million. And this despite the fact that post-war economic predictions estimated the advertising industry’s potential at up to $300 million. So the impact the political situation has had on the economy has directly affected our industry – advertising is after all frequently considered a luxury, which is the first to go during cut-backs. And the manner in which the politicians have minimized all competition within the media in the country, has had an impact on us. As a result, both the media and the advertising industries are suffering.

Is Dubai then becoming a more attractive location for the advertising industry in the region?

Dubai is trying to take our place, but if you look at its human resources, it’s purely based on expatriates, so this endeavor is economically unfeasible.

Why would an expatriate haven not result in an area bustling with creativity that could compete with Beirut?

Creativity has soul, it comes from within a society. You cannot import different talents and put them in a basket and tell them to be creative. Furthermore, from a financial perspective, there are significant differences between Beirut and Dubai. Having spoken to TV stations that operate in both cities, I have discovered that the difference in operating costs between the two is tremendous. There is a difference between having to import ten talents from abroad and pay them hefty, and having to import your entire staff, down to the person who makes coffee. In Beirut, the basic HR infrastructure is already there, and then you can get fancy when it comes to above-the-line positions. In Dubai, you need to hire your entire staff from abroad and provide them with a house, a car, etc. For an operation such as my own, the difference in operating costs would be at least 180-200%.

Could you not justify the higher expenditures required to set up shop in Dubai with the greater market size the Gulf has to offer?

Dubai is the center for a lot of the business in the Gulf, which allows it to be somewhat of a regional player. But if you look at the advertising industry in Dubai today, it is merely composed of sales ads. I don’t know what the size of this business is, but I doubt it is enough to sustain an entire industry. There is no creativity involved, so the revenue generated will be minimal. The industry there gets by because it is also servicing Saudi Arabia and surrounding Gulf countries, which Beirut does as well. There isn’t much Dubai can offer that Beirut cannot. The difference lies in the fact that in Dubai, they don’t have the political problems that we have here, and there are more economic incentives offered. In Lebanon, that local market is tired.

What is the share of local clients vs. international clients in Saatchi’s Lebanon portfolio?

It terms of volume, local business represents barely 30% of my portfolio. And seeing how money is scarce here, you usually can’t get fancy with many of these projects. The clients are more interested in pushing the product rather than building the brand, at the cost of creativity. There are no big expectations – people just want to address their urgent needs. What worries me with this trend is the impact it has on the new, young ambitious talents that are entering the industry. At Saatchi we try to push for creativity as much as possible, even at our own expense sometimes, regardless of what the client is willing to pay, partly to give these people the opportunity to use their talent to the fullest.  

Is the brain drain among the young Lebanese advertising professionals significant?

Yes it is. They are leaving Lebanon for Dubai, where the pay is better, and there are less hassles. It may not be fulfilling professionally, as the requirements there are low, but the pay makes up for that. Yet I don’t mind this so much, as long as we keep the manufacturing brains. I can export HR, as long as I produce here. The challenge I face in my company is that in order to keep the brains here in Beirut, I need to pay them the same salaries as I would in Dubai. Otherwise I end up with a team of graduates, and one senior manager. This incidentally, is what you will find in a lot of advertising agencies in Beirut. Middle and senior management has been wiped out. In Saatchi, we prefer having more chiefs than Indians. But this requires paying high salaries.

Has branding awareness among Lebanese companies improved?

Let’s face it – they don’t have time for such a luxury. They need to focus on the bottom line, on breaking even. The economic times are not propitious to educate people about branding. Some companies have the money to delve into it, but you also need to create a momentum. If the market is about this, everybody wants to be a part of it. We can’t blame the Lebanese companies – they are probably more ready for this and more apt at it than most in the region, but there are other concerns that need to take priority for now.

There is a tendency here to view advertising as an expense rather than an investment. Is this a concern for you?

To consider the cost of advertising as either a CAPEX (capital expenditure) or an OPEX (operational expenditure) depends on what you are advertising and the nature of the advertising job. Any brand investment is a CAPEX. Any sales investment is an OPEX. Most people don’t want to invest right now – they want to keep advertising within operating expenses, and minimal operating expenses at that. Above the line, mass media, brand awareness campaign is a CAPEX that people can’t give priority to at present.

So it is a question of economic necessity rather than a question of understanding on the part of the advertisers?

It is in part a question of understanding, but it is important to note that you will only see a difference once the accounting principles here change. Of course I will benefit from advertisers understanding that what I do for them is an investment. But the real change will come the day advertisers can, in accounting terms, present their balance sheets to the authorities and say that advertising is part of their capital expenditures. This is the trend in the West, especially in the United States. So clients here need to understand advertising as an investment, but the government and other organizations involved, such as the trade lobby groups, need to create a new accounting principle for the country. Therefore, addressing this issue has a conceptual facet to it, as well as an economic and a legislative one.

The advertising industry is characterized by global consolidation. Recently 5the regional tv industry was impacted by the rapprochement of Choueiry Group and Ara Group How do you view the impact of this development on the industry?

In absolute terms one should be against it, but when examining the situation one cannot help but think that it will be beneficial to the industry for now. It will help stabilize it, and establish some rules of competition. Having this market be dominated by a semi-monopoly provides for a good balance until it picks up.

Do you expect business for the advertising industry to be picking up?

Only if and when the political system changes in this country will the advertising industry grow. Otherwise, you are facing further deterioration. The primary engine of economic growth according to George Soros is mood, it is trust. And I really believe in this. If you feel confident in the future, then you will operate well.

You talk a lot about the need for political and economic change, but the advertising industry in Lebanon has been marred by internal conflicts and feuds. Is it fair to place the entire blame for the current situation of the industry on the political system?

Yes it is. The problems you have in this sector are identical to those you have in any other sector – look at the banking industry, the publishing industry…. It’s a plague that has hit all of our houses. Why? Because there is less money to go around, and therefore competition gets nasty. It’s question of survival. The wrongdoings that have marred the advertising industry are a result of a shrinking market. Granted, the ruthlessness may be accentuated when it comes to the advertising industry here in Lebanon, because we are more visible. But at the end of the day this problem has less to do with the industry than with the country.

Are the Lebanese chapter of the International Advertising Association (IAA) and the local industry syndicate making any difference for the industry?

They are nice social clubs. If you are looking to meet new people, or even a husband or a wife, they would be good places to go to. But they have neither made an impact for the industry here, nor have they shown any willingness to do so.

What has come of the project to establish a body to monitor and establish accurate data on the advertising industry in Lebanon?

We would love to get some accurate figures on the industry, but we don’t seem to be any nearer to getting these than we have been in the past. This is one of the reasons why I labeled local syndicate and the IAA as social clubs. We have a lot of dreams: we dream of an advertising ethics code, we dream of data that provides us with the information we require on the market, we dream of having published figures. Will it happen? Frankly, I don’t know. I won’t be getting involved in this until I see a change in the political system.

February 12, 2005 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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