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.

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.

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.

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.”

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.

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.  

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)

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.