Executive Magazine

Q&A: Elie Nakhal

by Executive Staff January 1, 2005

written by Executive Staff

E: How many non-Arab tourists are coming to Lebanon?

Lebanon has passed through several stages with respect to non-Arab tourists. We had a period of unfortunate events from 1975 to 1990. After that, we tried hard to get non-Arab tourists to come here. Our efforts were not always successful, despite the fact that we invited a lot of Western journalists and tour operators here, and offered one-day trips to Lebanon for tourists in Syria, in an effort to acquaint them with Lebanon. We had a good period, from about 1994 till 1997 or 1998, during which a trend began to emerge in which Western tourists were heading for Lebanon, mainly for cultural tours, not for leisure. But then we had the problems in the South, the Israeli attack. At that time, we had 150 to 155 Western tourist groups booked for March, April and May, which was fabulous. They all cancelled. A year later, we sensed a chance to recover, but then the INTIFADA began in Palestine and the whole region began to suffer from a lack of tourists. Now, we feel a new trend has begun again. Western tourists are interested in coming to Lebanon again, from Germany, France and Italy, but also from Russia, Hungary, and Spain – new markets for Lebanon. Lebanon’s normal Western tourism market is France, Italy and Germany.

E: You say there is a new trend, but what percentage of total tourist arrivals do Western tourists currently account for annually overall?

A very small percentage – something like 5%, not more than that. But during some periods of the year, they account for a greater portion than Gulf Arabs because most Arabs visit Lebanon only during the high season – the Muslim feast and the height of summer. The Westerners come mainly in the spring and autumn. And they come for seminars and conferences.

E: Can conference goers be classified as tourists?

A conference trip and a tourist trip are almost the same. They spend three hours in the morning at the conference and the rest of the day is for tourism, gastronomical pursuits and fun. Conference visitors represent significant tourist numbers for us in March, April and May.

E: What attractions can we offer the non-Arab tourist?

Most don’t come to visit only Lebanon. Their visit here is part of a trip to Lebanon and Syria, or Lebanon, Syria and Jordan. Most of those who come only to Lebanon are here for seminars. The Western tourists are here for cultural tourism; they visit Baalbek, Tyre, Sidon and Byblos. Until recently, they weren’t coming for leisure tourism. But in the new trend, Russian and Hungarian visitors in particular come here for leisure. We are trying to nurture this interest by offering leisure programs. We believe Lebanon has everything: beaches, sun, nightlife, and culture. We can be both a leisure and a cultural destination. That’s the image we are now trying to promote.

E: A fair number of tourism professionals say it is pointless wasting time trying to attract Western tourists because they constitute such a small percentage of the market and their numbers are unlikely to rise significantly in the near future. Is this a wise tactic?

This is not a good strategy at all. The Arabs come during the high season only. Why not aim for 100% occupancy in April, May and June by attracting Non-Arab tourists too? Why keep the rooms and beaches empty, and tourism employees out of work? Non-Arab tourists could even be enticed here in February. We have to promote Lebanon to non-Arab tourists. I hope the misguided policy of focusing only on Arab tourists will change. I am doing everything I can to get Non-Arab tourists to come here. I am being helped by the newly-created charter jet company MenaJet. In a joint venture with MenaJet, there will be, as of mid-December, a weekly flight to Beirut on Wednesday from Brussels, and another from Berlin. There will be twice-weekly flights as of 16 December from Bahrain, to bring people here for weekend holidays, from Thursdays until Sundays. These visitors will be Pakistanis, Indians and British. We will also be bringing Arabs here as of 23 December from Aleppo. We hope to have a contract for one flight a week from Moscow, hopefully from the beginning of January. And we plan to bring people here on flights from the Swedish capital, Stockholm, starting in April.

E: How much would such a roundtrip from Brussels cost?

That is in the hands of the people over there. But I think it will be around €300 (about $390).

E: How are you generating business abroad?

We have created a six-person team traveling all the time to generate business. We are promoting Lebanon as a leisure destination, not as a cultural one, because leisure tourists make up a much higher percentage of tourists overall than cultural ones. There is one cultural tourist for every 100 leisure ones.

E: Those tourism professionals who have written off European tourists would say you are being unrealistic, that you won’t be able to increase numbers in any meaningful way. A reasonable assessment?

We have to try to make our dream come true. Until recently I would have said I agree 100% with them, but as I said, we are identifying a new trend, a new interest in Lebanon. Western tourists, especially from Russia and Hungary, want to come here. We can feel it through our tour operators, through our contacts. This was not the case a few months ago. We must take advantage of this new trend. We have the power to do so with the help of MenaJet.

E: How do you explain this sudden surge in interest?

I can’t.

E: What more can be done to bring in Non-Arab tourists?

The government must advertise more. They have to distribute posters, and use radio and television advertisements in a big advertising campaign. It is pointless inviting any more journalists and tour operators. We have invited hundreds. It was helpful at a certain time, but not anymore. The government doesn’t want to see this though. They want to focus only on the Gulf Arabs who come only for short periods. Why not bring in Western tourists for the rest of the year – ten months.

E: What more should the private sector be doing?

The private sector has already done a lot, within its means. That’s it. Finished. Now the government has to take over. We have invited tour operators and journalists to come, covering all expenses. We have traveled a lot to establish contacts – and traveling is not cheap. We have participated in six or seven tourism fairs a year, each of which costs a lot of money. We can’t do more. The government can.

E: The ministry of tourism says its hands are tied by budgetary restrictions. Is this a fair excuse?

Don’t tell me the government doesn’t have money. They have the money to build roads and bridges. They have the money to spend on the electricity sector – in which they’ve invested huge sums. They could have invested $500 million, $300 million in the tourism sector. I appreciate that they’ve made it possible for tourists to get visas upon arrival, but they need to reduce airport tax too. Some tourist operators create programs using Damascus as a hub simply to avoid the high airport tax at Beirut airport. Here they pay $40. In Damascus they pay $4.

E: What are the difficulties involved in selling Lebanon to non-Arab tourists?

The security situation and the negative connotations generated by 15 years of civil war.

E: Is the country’s infrastructure a handicap?

Electricity shortages are a big problem – which should not exist. And we still have water problems, although they’re not as bad as the electricity ones.

E: You also organize trips abroad for Lebanese. What are postwar Lebanese tourists looking for? Where do they go?

As with tourists elsewhere, leisure is the main interest. Of Lebanese going abroad, 5% are looking for culture and 95% are looking for leisure. They want to combine beach, shopping and nightlife. Most are looking to go somewhere in the region – Greece, Egypt, Turkey. In Europe, they want Italy, France and Spain. But Europe is becoming very expensive because of the weak dollar. So now the most popular destinations are Turkey in the summer and Egypt in the winter.

E: What have you learned from the tourism industry outside Lebanon?

If a few years ago you had told me we would have Arab charter flights in and out of Lebanon, I would have said you were crazy. But things change. Tourism is changing rapidly. It is part of the process of globalization. I have learned that we should focus on the leisure market. And we need to start building resorts, not just hotels. Our clients are looking for holiday clubs, not just regular hotels. We need to take greater advantage of the country’s sandy beaches. But we’ll have to overcome the negative security connotations of the South. Also, investors won’t invest the kind of money you need to create a resort unless they see more foreign tourists coming here. Building a resort that is used for only two months in the summer is by any small calculation crazy. They won’t do it. We need to generate business for at least nine months a year – and we can do it, because the Russians, Hungarians and Poles travel in the winter.

E: Tourism accounts for roughly 10% of GDP. Given that relatively low figure, can we really say that Lebanon is a major tourist destination?

The government isn’t exploiting the tourism sector properly yet. When they do, they will make a lot of money out of it.

E: Lebanon has been branded by some observers as a place where Gulf Arabs come for sex and alcohol. Is that an accurate observation?

That is one reason single Gulf Arabs come here. But there are also a lot of families. And as usual, people stress only one aspect – which is single young people coming here for prostitutes. But the majority of Gulf Arabs are not here for that.

E: Is there a place for ecotourism in Lebanon?

We try to show visitors Lebanon’s beautiful environment. On tours, we use secondary roads, which in the mountains are very beautiful. We take visitors to restaurants with beautiful views, in the heart of nature. We could create a one-day trekking tour.

E: How do you envision the sector a year from now?

Expanding. I’m not expecting the government to help, though. I’m an optimist and a realist at the same time.

January 1, 2005 0 comments

Society

Tourism Voices – High flying times

by Executive Staff January 1, 2005

written by Executive Staff

Pierre Achkar: President of the Lebanese Hotel Association and owner of the Printania Palace Hotel in Broummana

E: How many hotel rooms will Lebanon be able to offer its visitors by the end of 2005? How many should it be able to offer? What are the requirements for healthy and sustainable hotel industry development in 2005? What can the public sector do better in supervising and assisting hotels?

We now have around 16,000 rooms. A further 3,000 are under construction. We might have between 1,500 and 2,000 additional rooms by the end of 2005. With the current growth of tourist arrivals, we don’t need more than 1,000 additional hotel rooms a year. If the situation changes and there is a peace process in the region, we could need as many as 5,000 more rooms a year. We’d be on the international tourism map and the Europeans would be coming. For the moment, though, we’re not a big destination for the Europeans. Potentially, they are a big asset. I hope the political situation remains stable. We have some problems with the United Nations because of Resolution 1559. I hope this does not lead to more serious problems. If there is political destabilization here, we will find it difficult to continue attracting Gulf Arabs and to attract more European tourists. When Europe and the United States talk about Hizbullah as a terrorist organization it affects tourism here. European and American officials and media are giving our country a false image.

We must implement a new rating system for hotels. Some hotels have had four stars since 1948, even though they are now only worth one star. We came up with a new rating system in 2002, in an initiative sponsored by USAID. But so far no one in the ministry of tourism has started implementing it because they don’t have the professional manpower to do so.

Nada Sardouk: Director general at the ministry of tourism

E: Despite the fact that the ministry of tourism has been promoting Lebanon on a shoestring budget, improvements in the sector in 2004 have been highly encouraging. How important is the ministry’s role in attracting more tourists to Lebanon and what are your priorities and overall aims – including private sector partnership and fiscal funding – for 2005. What is the role of the public sector in nurturing tourism in Lebanon?

The ministry assumes a number of important roles, among them two major ones.First, the ministry promotes Lebanon outside the country through exhibitions, fairs and promotional campaigns, marketing Lebanon as a historical, cultural, tourist and business center in the Middle East. Second, the ministry is encouraging and backing the private sector so as to attract investment and develop services in the accommodation sector, by simplifying regulations, tightening control and holding training sessions.

The program adhered to by the ministry since 2002 has been one of encouragement and intensification of promotional trips to Lebanon, especially from Europe and the Arab world. The ministry has hosted more than 1,000 travel and tourism agents and around 300 journalists in an effort to put Lebanon on the international tourist map.

We hope in 2005 to enhance the partnership between the ministry, the private sector and NGOs in order to create a task force that is able to complete the projects we have already begun undertaking. Our priority is to enhance sustainable tourism in order to promote economically and socially the different regions of Lebanon all year round.

The role of the public sector is to plan a strategy for the development of the tourism sector – including policies for different domains such as visas, fiscal laws, legislation etc. The public sector should be trying to open new tourism horizons while improving public services. This in turn will bolster the private sector, something that will have a public benefit.

Marwan Iskander: economist and Managing Director of MI Associates

E: What can the growth in tourism contribute to domestic job creation in 2005, in quantitative and qualitative terms? What, percentage-wise, can employment in the tourism sector contribute to the national employment market and to GDP as a whole? What can be done to accelerate the creation of sustainable, permanent jobs in the sector?

The contribution to employment is difficult to assess except in terms of the increase in expenditure associated with the growing number of tourists. This year we had an increase of about 30%. I think we can hope for a further 20% increase. It’s interesting that visitors from Arab countries do not, primarily, account for the increase. The Europeans, especially during the winter months, account for the majority of visitors. By my estimate the roughly 1,400,000 visitors this year spent around $1.5 billion. If we assume that we can reach 1,700,000 and we assume a 5% increase in the expenditure of each visitor then we are talking about $1.8 billion of revenue next year. This translates into an increase of $300 million, which in turn could translate into better job opportunities for around 5,000 people.

In 1974, tourism sector employment constituted 22% of GDP. Today it’s around 9%. So we have a long way to go. Tourism sector employment does not even constitute 9% of the total workforce because people in services such as hotels – although these are labour intensive – are more productive than people in industry. I think that if in the coming five years tourism sector employment reaches around 15% of GDP, then it will constitute around 12% of the national workforce. We need to make of Lebanon a destination for both leisure and historical tourism, on the international level – something we had before. This will require quite a bit of expenditure and investment in promoting Lebanon abroad – which so far has not been done. For example, Jordan spends $50 million on tourism advertising, whereas we spend maybe less than a million. This cannot continue. This year, there has been an increased awareness about the importance of tourism.

Wassim Rizk: Grey Mena Regional Development Director for the Middle East & North Africa

E: Can you gauge the contribution of marketing campaigns such as the CNN Lebanon commercials to the increase of tourist numbers in 2004? Roughly how long, realistically, will it take Lebanon to establish a new image as a top tourist destination in key markets? How should the private and public sectors proceed in 2005, to improve the perception of Lebanon in Arab, Western and Far Eastern markets?

The marketing campaigns, while difficult to gauge in terms of impact, have placed Lebanon on the map, created awareness and communicated a different face of Lebanon. However, you cannot simply erase 20 years of war images from people’s minds in a short period. Any timeline for such a process depends first and foremost, on establishing Lebanon as a brand. What is the country? What does it stand for? What makes it different and special? What does it offer and to whom? It is a similar challenge to that faced by post-Apartheid South Africa. But they had a firm and strategic commitment from their leadership. Imagine how long the process would have taken if that commitment had not been there. The private and public sectors should begin by ending the current madness involved in different bodies running their own programs – the Ministry of Economy is running a campaign, the Ministry of Tourism is running another, Beirut is running a third; the Traders’ Association a fourth; and so on. All the resources and efforts could be pooled and centralized, to bring economies of scale to bear and to deliver a constant and coherent message. Secondly, priority markets must be identified. Which ones offer the most potential? The West? Far East? It is impossible to reach all these regions unless you have a commitment of millions of dollars, like Egypt and Dubai.

Roger Eddé: developer, lawyer and owner of Eddé Sands resort

E: How large is the contribution of tourist resorts to the Lebanese economy today and how large do you expect it to be in 2005 and in the longer term? What are your expectations as resort operator for turnover developments in 2005 and what could be done to define and improve nationwide quality standards for tourist resorts? The success of Eddé Sands (we were able to make over $3,000,000 in revenues for July/August and we will double our capacity in 2005) has confirmed that a luxurious beach resort is a powerful magnet for regional elites as well as Lebanese expatriates nostalgic for Lebanon and yet who demand a level of entertainment and leisure similar to what they are used to in Florida, California, or the European Riviera.

This Lebanese tourist industry is what will make it the destination of choice on the Eastern Mediterranean. We are marketing the Byblos Riviera in the same way Indonesia is marketing Bali in order to disassociate it from another name that brings to mind recent unfortunate events.

The tourism sector should be looked at and valued as a major component of the Lebanese economy, not only because of the sector’s direct and indirect contribution to the economy, something close to 10% of GDP in Lebanon, but because year-round resorts are crucial in creating the so-called PLAQUE TOURNANTE effect. This is where business is launched to neighboring regions in all four directions, enabling the resident and non resident Lebanese international community, as well as emerging regional businessmen, to use Lebanon as the ideal meeting place to combine both work and play and where hopefully, as we aim to do at Eddé Sands, we can offer the widely popular preventive medicine and healing treatments.

January 1, 2005 0 comments

Real Estate

Real Estate Voices – No alternative to Lebanon

by Executive Staff January 1, 2005

written by Executive Staff

Nabil Gebrael: Chairman of Coldwell Banker Lebanon

E: What should be done to achieve a more mature, transparent and regulated residential market?

Nowadays, anyone in Lebanon can operate as a broker, which creates confusion and mistrust in the market. I believe in regulating the market through licensing and continuous education. In a regulated industry, real estate professionals can easily conduct business with each other, while those who break the rules would be held accountable. Furthermore, licensed professionals can elect a national body, the Real Estate Brokers Association, to create and monitor a code of ethics and methods of operations for members to follow. The association will also approve educational courses for its members to take. This will benefit not only brokers, but also clients and the government. Education should be the responsibility of a national body, which would offer compulsory course to certify those working in the sector. They would subsequently be re-certified as well as kept abreast of new methods, regulations and trends in the market.

Secondly, to boost the real estate market, a multiple listing system similar to the one existing in the United States should be implemented. This system will allow all members to access and share property data with other brokers in the country. Brokers should not be afraid of loosing business, given that they will have exclusive contracts with their clients. Exclusive contracts allow brokers to share their properties with any other broker, and when sold, their commission would be protected (and shared) through the multiple listing system and the Real Estate Brokers Association.

Joseph Mouawad: Head of Mouawad Investment Group

E: How do you see the development of the residential market in 2005, given its modest performance in 2004?

I don’t think 2004 was a moderate year. On the contrary, we saw a lot of activity. Only in the last few months did it slow down a bit – following the dramatic events around the presidential elections, especially the attack on Marwan Hamadeh. People in Lebanon and the region are used to some political instability, but political insecurity is a different story. Insecurity is deadly for investments and the overall business climate. On the other hand, people tend to forget fast, so if things stay as they are now, I don’t think they will really affect 2005. First, because there is no alternative to Lebanon in the region. Second, as a consequence of the high oil price, there is a lot of cash in Saudi Arabia and the Gulf, and the Arabs still want to invest in real estate.

What’s more, they still believe in Lebanon as a holiday destination, a home, as well as an investment area. What we’re seeing now is that land is being sold and investments are being made in the areas directly surrounding downtown. In Gemazieh for example, where the price of land is about half the price of Solidere’s. One of the biggest problems we are facing is the amount of time it takes to issue construction permits. There is an enormous backlog at the Beirut municipality and this is why construction generally starts only one year after the sale of land.

Raja Makarem: Managing partner at RAMCO Real Estate Advisors

E: How will the increase in foreign visitors be reflected in the retail sector? Will we see more supply or do you expect a take up of existing retail space?

As the majority of foreign visitors are Gulf Arabs, their increase in numbers will surely be beneficial to the retail sector. They’re generally not the beach going type, but like to spend their time in hotels or mountain resorts and like to go shopping. Shopping to them is a true outing destination, which apart from actually buying goods includes entertainment, eating and drinking. For that reason, ABC was able to consolidate its sales last summer. However, in Lebanon, you can generally not plan a retail outlet based on the arrival of foreign visitors alone. Lebanon is not Dubai. Foreign visitors mainly come in summer and during the holidays, which is not enough to base year-round sales on. I think, though Lebanese retail will continue to develop, as there is still space to grow. The increase in foreign visitors by itself, however, will not lead to a significant increase in outlets.

Pierre El Khoury: Architect at Pierre El Khoury and Partners

E: What is the state of urban planning in Lebanon? What measures should be implemented by the public sector to play its role?

The Sannine Zenith project is symbolic of the state of urban planning in Lebanon. As an investment, the project is surely beneficial to Lebanon, but from a planning point of view it is highly worrying. Already too much of Lebanon’s virgin mountains and countryside has been destroyed. This project does not only touch upon one of Lebanon’s last remaining wild areas, but also upon the very symbol of the country, the mountains that gave Lebanon its name. Who wants to see buildings there? What’s more, Sannine is an essential part of the country’s water infrastructure. Who knows what will happen if you start building there? The CDR has been working on a detailed map of the country to come to a zoning strategy, in which urban and green spaces will be designated.

Unfortunately, the Sannine Zenith project came too early. When I was minister of housing in 1982, we already tried to introduce such a zoning system, but it didn’t work because of the war and because of the mentality of the people. The problem is that if someone lives in a green zone, he or she will not be allowed to build and thus his land will lose value. To tackle the problem, someone who constructs in a building zone should not only pay for the price of land per m2, but also for the right to build, with which neighbors can be compensated. In terms of planning, I think densely built areas should become more dense, while green spaces, parks and nature should be saved.

Michael Dunn: Chairman at Michael Dunn & Co.

E: How will the unveiling of recent high profile residential developments in the Gulf affect the way in which Lebanese developers are selling? Where does Lebanon sit in terms of regional commercial and residential real estate development?

We should learn from the way Dubai is marketed. Dubai is one big advertisement project. Billions and billions of dollars are spent each year on advertisement. I mean, let’s face it, Dubai is hot, flat, artificial, and you can only live there comfortably during a few months in winter. It’s the marketing teams who make the country attractive by campaigns all over the world. Today, you have Europeans buying a small apartment in Dubai for some $150,000. They go on a holiday there for a day at the races and a weekend of shopping.

Regarding the second question, in terms of shopping, Lebanon is light years behind the Gulf and Saudi Arabia, yet way ahead of countries such as Egypt, Jordan and Syria. Residentially however, Beirut and Lebanon are comfortably number one in the region, followed by Cairo. Beirut has the nice streets, the old quarters, the climate, the mountains, and has something to offer none of the countries have. And last but not least, let’s not forget that people living in an Islamic country going on a holiday, want something else: to taste other facets of life.

January 1, 2005 0 comments

Finance

No monkeying around on the markets

by Tony Hchaime January 1, 2005

written by Tony Hchaime

Financial markets despise uncertainty, but in Lebanon, these markets were served with large doses of uncertainty time and time again in 2004. Certainly, Lebanon’s geographical location did not help matters: worsening developments in Iraq, ongoing violence in the Palestinian territories, and the stand-off between Syria and the international community, all made markets twitchy. On the domestic front, the recurrent political clashes between President Emile Lahoud and former PM Rafik Hariri plagued the political arena for most of the year, resulting in more delays in economic reforms and an indefinite postponement of privatization plans. The controversial renewal of Lahoud’s mandate along with the resulting appointment of the Karami cabinet were both frowned upon by the international community, which looked on these developments as a direct result of Syrian influence on Lebanese internal politics and has reiterated its call for the implementation of UN resolution 1559.

Nonetheless, Lebanon’s financial markets registered a record performance in 2004. It may have been the year of the Monkey, but there was no funny business. Lebanese equity markets managed to register record highs, the BSE also saw massive gains and Lebanese GDRs climbed into double digits on overseas markets.

Local equity markets

On the equity front, the Beirut Stock Exchange registered some impressive performances driven by a handful of stocks, which outperformed both their expectations and their peers. The BLOM Stock Index, which monitors the performance of all stocks listed in the Beirut Stock Exchange, shot up by more than 36% between January and mid-November. The index currently stands around 45% higher than the levels recorded during the same month in 2003. The disappointing news, which might actually see a drop in prices during early 2005, is that traded volumes in the exchange failed to match the performance in stock prices. At the end of the year in the BSE remained subdued, having failed to shake the summer doldrums. Weekly volumes on the BSE rarely climbed above the 500,000 shares mark, apart from the occasional block trades, the motives behind which are often too obscure to even warrant an impact assessment. However, the price performances by individual stocks, as well as the listing of some new products on the market, boosted the BSE’s market capitalization to a new high of $72.076 billion as of the end of October, with just over 55 million shares listed on the bourse.

With improving fundamentals and robust tourist activity, especially in the BCD, it came as no surprise that Solidere’s shares dominated trading on the Beirut equity markets, accounting for almost three quarters of all trades affected on the BSE throughout 2004. In addition, Solidere’s management undertook early in 2004 a move, seen widely as part of a plan to improve the company’s stock performance and a broad share buy-back program (see box). As the plan came into effect in April of 2004, Solidere “A” shares shot up 28% overnight to a four-year high of $7, and continued on to reach a high of $8.60 by early August . Receding slightly from those levels as the impact of the news wore off, Solidere shares still managed to maintain an attractive performance throughout the rest of 2004. As of November 28, Solidere “A” shares were up 83% YTD at $8. Solidere “B” shares were also up 80% YTD at $7.75.

Apart from the Solidere stock, the other major sector on the BSE is the banking sector, which saw some promising performances by a select group of banks. As such, Banque Audi’s shares were up by more than 27% since the beginning of the year, and as of mid-November. Having merged with Banque Saradar to form what is now officially the largest bank in Lebanon, Banque Audi’s shares began to break out of a long-lasting dull around mid-May, when the stock price rose from under $20 per share to $21, ultimately reaching $23 by late June. While the stock failed to register substantial gains during the second half of the year, it managed to hold onto the performance of the first half of 2004, despite dropping volumes.

The price performance of shares of BLOM Bank did not disappoint either. BLOM’s stock price on the Beirut stock exchanged managed to add close to 10% since the beginning of the year, leveling off at $25.5 per share. The stock also managed to reach a high of $26.29 early in the second quarter of 2004, its highest level in years. Nevertheless, the bank’s stock performance remains outstanding relative to its mediocre recent history on the local exchange.

On the negative side, shares of Byblos Bank bucked the trend, registering the only significant retreat in the banking sector during 2004. The bank’s share price dropped by almost 9% since the beginning of the year, despite some promising fluctuations during the first half and early in the second half of 2004.

Other notable performances on the BSE during 2004 including shares of Bank of Beirut, which leaped 28% since the beginning of the year. The gains resulted, however, from only two trading sessions and on minor volumes. Shares of Banque BEMO slipped 5 cents, while those of BLC Bank remained unchanged for the year.

On the non-banking front, shares of automotive retailer RYMCO slipped by almost 11% since the beginning of the year, settling at $1.56. The company’s loss in share price may be a result of a market reaction to its loss of its position as leading automotive retailer in Lebanon, as its Nissan brand was overtaken by that of Peugeot during the second half of 2004.

Shares of cement manufacturer HOLCIM added 20% since the beginning of the year, reaching $0.60, while those of Ciments Blancs remained unchanged at $1.49.

The GDR market

In terms of the performance of local company stocks listed on foreign equity exchanges, the performance of Arab GDRs in general was more than impressive. GDRs from companies listed all the way from Morocco to Qatar registered attractive performances, as illustrated by the AFC Arab Internationally Traded Stocks Index (AITSI), which tracks the performance of all Arab GDRs. The index was up almost 64% since the beginning of the year. By comparison, the AFC Lebanese Internationally Traded Stocks Index (LITSI) added almost 21% since the beginning of the year, failing to match its broader counterpart. Four Lebanese companies have officially recognized GDRs: BLOM Bank, Banque Audi, BLC Bank and Solidere. It would be fair to say that although all four contributed to the gains of the AFC LITSI in 2004, most of the credit should go to Solidere shares, which managed to add 75% since the beginning of the year, reaching $6.5.

Lebanese Eurobonds

As the Lebanese government went ahead with the famed Eurobond swap in the summer of 2004, after a lull from borrowing in foreign currencies, the light was cast once again on the Lebanese Eurobond market, with both local and international traders monitoring liquidity and prices levels.

The Eurobond market did benefit from a somewhat modest improvement during 2004, with the Lebanese Eurobond Index aiming to end the year up around 5%, at almost 149 points. The performance was notable during the months of September, October, and November, where almost all the gain recorded for the year was registered. This may be somewhat surprising considering that the political uncertainty was at its highest during those times. However, since no new issues were available on the market, and existing ones were somewhat closer to maturity, liquidity in the secondary market was subdued. Despite the expected modest demand, the overall lack of supply pushed prices higher. On the other hand, such performances on low volumes do not provide a solid indication of near-term price trends.

Conclusion and look ahead

Despite being hit by every possible political, social and security boulder locally and regionally, the Beirut financial markets managed to a Spartan comeback. With both the equities and debt markets marking significant price appreciation, albeit on low volumes, they contributed to the euphoria brought on by the record year in tourist arrivals in Lebanon. As former Prime Minister Rafik Hariri takes credit for most, if not all the achievements of the past year, doubts are being cast by economists and political critics as to the likelihood of the new Karami-led government to either maintain or mimic the performances of the Hariri cabinet. Following the latter’s departure from office, activity has retreated in the secondary equity and debt markets, as investors would rather wait out the seven-month tenure of Karami’s government. Add to that growing and obstinate pressure by the international community for the implementation of UN resolution 1559 and the onset of the parliamentary elections in the spring of next year, and it would seem rather difficult to speculate as to the country’s socio-economic future in 2005, and the correlated performances of any financial markets.

Solidere’s new currency for land sales

For parties interested in acquiring land in the Solidere area, the company now accepts checks, wire transfers, cash, and now shares.

Shares, yes, but not any shares. In an effort to promote land sales, boost the company’s stock performance on the Beirut Stock Exchange, and increase its treasury stock balance, in early 2004, Solidere conceived a scheme, whereby the company accepted their own shares as partial payment for the acquisition of real-estate properties in areas under its control. The scheme allowed the buyers of the land to benefit form up to 15% discount on the land price, provided that between 30% and 40% of the final price is settled by ceding an equivalent number of Solidere shares. The remaining portion of the value of the land may be settled with 10% in cash, with the balance paid by installments over a maximum period of three years.

The announcement was positively received by the market, which kick started a buying spree on Solidere shares, both on the local and GDR markets, and which extended throughout the summer and into the last quarter of the year, when Solidere’s management confirmed that the initiative had pushed up land sales. It also came as good news for those former property owners who had been compensated with Solidere shares, only to see them initially plummet. They now had the opportunity to buy back some, if not all, of their former properties, now rehabilitated and ready for use.

January 1, 2005 0 comments

Economics & Policy

Communications – The ongoing drama

by Thomas Schellen January 1, 2005

written by Thomas Schellen

Smiles returned to the Lebanese communications sector in 2004. The question is whether they were forced. Two existential dramas in the communications arena last year were carried over from 2003 and the years before: the quest to make the mobile and landline sectors more productive and create a stable environment for modern data communications. A third troubling communications issue, the management of postal services, was solved and the new operators of LibanPost were able to present themselves in 2004 as a smooth running entity. Concerning the issue of increasing productivity in mobile and fixed line telecommunications, 2004 inherited a dispute in which the very definition of productivity was already a bone of contention. One philosophy that has emerged in the last five years was to regard productivity under a formula of control and profits. What operational recipe would generate the highest revenue? Who would control the networks? How could the fiscal share in this revenue be maximized? This position was juxtaposed with another that placed the central value on productivity as consumers would experience it, emphasizing the deployment of technological upgrades and making services affordable and accessible to the largest possible number of people. The origins of the debate go back to the first half of the 1990s, when the need for a functioning communications infrastructure was overwhelming. The Lebanese government back then awarded private sector firms with contracts under which they would build and operate two mobile telecommunications networks and transfer ownership back to the state at the end of a ten to twelve year period. These BOT contracts proved very lucrative for operators LibanCell and FTML, as demand for mobile communications in Lebanon outstripped all expectations and consumers within three years raced to the top of global statistics for the minutes of mobile phone usage.

But in this mobile revolution, potential conflicts of interests between the political responsibilities and private interests of persons involved in the network operations were ignored. Moreover, the operator contracts had been awarded in a time when fiscal projections assumed unlimited growth of the economy and fast development had precedent over careful profit-sharing calculations. Sure enough, worsening economic conditions made mobile sector revenue look extremely enticing for alleviating the state’s financial pressures. Telecommunications became entangled in a debate placing revenue maximization and improvements for consumers at opposing sides of the table.

Arguments reflecting both positions have been employed in acrimonious debates since 1999, involving political decision makers, network operators, telecommunications experts and consumer advocates. One massive debate took place in the public and the other in the political arena. The latter was the decisive one but it seemed that arguments used in defending and promoting the two positions in either arena did not necessarily reveal the objectives of those involved in the debate. The dispute was by no means truly resolved in 2004, but decisions were made, which resulted in a new course for the cellular sector. After a final attempt to auction-off mobile telecommunications licenses was declared a failure at the beginning of the year, the concentration shifted from the search for private sector bidders looking to buy an operator license to a search for companies that would manage the networks on fee basis. Following this decision, the exhausting debates and repeated prolongation of uneasy, temporary operator arrangements with the former BOT partners quickly came to an end. Within a few weeks, bids for management contracts were collected and the operators with the best offers on the table were awarded three-year contracts.

Thus, by spring 2004, the discussion over privatization of the telecommunications network faded from the public discourse and at the beginning of the second half of the year, the two new operators – the Kuwait-based MTC and German-Saudi joint venture Fal Dete Telecommunications – took over the operations of the LibanCell and Cellis networks. By December 2004, the Lebanese ministry of telecommunications acting as network owners and the management firms had phased out the old network names and launched new brands, MTC Touch and Alfa. In the realm of private sector data networks, 2004 was the year when broadband internet was promised but not quite fulfilled yet. In early October, service providers and the ministry of telecommunications invited the media to a hastily assembled press conference announcing the deployment of wireless broadband internet access, with immediate effect. The service was explicitly targeted at private residential users and by local standards competitively priced. But by early December, industry insiders said that in most cases, consumers applying for a broadband connection would only be linked up to the wireless service if several parties in the same building signed up at the same time.

The growing pains of the wireless broadband service illustrate that this solution, while feasible for some clients, is in itself, not enough to establish a national broadband environment. So at the end of 2004, the vision of a digital society and e-Lebanon remains at least to a substantial part, a fancy.

In its confines, the story of the Lebanese internet service sector was not quite as dramatic as the high-stakes fight over the mobile telecommunications sector, but in its persistent failure to keep the country abreast of the technological evolution, it was just as indicative of the need to develop a strategy of public sector priorities and enforcement capabilities.

When local entrepreneurs set out to establish Internet Service Providers in the first half of the 90s, they had great initial success. Connections over the landline phone network were cumbersome and the noise of repetitive dial attempts and incomplete ‘handshakes’ between simple modems and overworked servers become the daily music in many Beirut offices. But compared to no internet, it was progress.

Then, however, followed years of public sector procrastination in rolling out new services, the deployment of which would have posed no technical problem. Introduction of ISDN was postponed under various excuses month after month, while the technology became already obsolete in other countries. Manufacturers of telephone equipment came to a Beirut telecommunications show and left again in frustration, until at one point the expo also relocated to elsewhere in the Arab region. So feasible an exercise as establishing a network of public phone booths was announced time and again but not implemented until 2003.

Without improvements in the telecommunications infrastructure, high telephone charges kept customers away from ISPs. Progress in the telecommunications industry was confined to basic communication: the delivery of speeches by vocal chords and amplification through microphone at conferences discussing the country’s regulatory and telecommunications needs. In real life, Lebanon could only watch as Jordan inaugurated its ADSL broadband network in February 2001. There was no real argument over the need to liberalize the telecommunications sector and establish an independent supervisor. But while the discussions carried on endlessly, the monopoly structures at the state-owned telecommunications network remained in place and costs of their bandwidth connecting them to the internet backbone remained exorbitant for ISPs and their customers. What the lament over high electricity costs was for industrialists thus became the moan over the impossibly high communications charges at the Lebanon branch offices of international companies. The only enterprises to benefit from the absence of an affordable regular data line infrastructure for internet service were operators of homespun cable networks that wired whole neighborhoods on the cheap and competed illegally with the ISPs. On another track of the communications industry, operators of regional satellite television networks could only shrug their shoulders as the failure to pass a law regulating the transmission of cable and satellite TV put the entire country at the disposal of unlicensed distributors who could with impunity re-sell the program packages owned by the region’s handful of providers. Lebanon became a nation of illegal cable hookups sold at dumping prices by gray providers unaccountable for any technical problems, service quality, or any regulation of content.

Heavy telecom users and content developers have drawn the conclusion from such circumstances that Lebanon is not the place where communications and media enterprises in the Middle East find the best soil for nurturing their business, and the latest open-end delays in a series of failures to create a dedicated technology park (BETZ) might have been the straw that broke the willingness of some companies to look at Beirut for locating offices here. Although the expansion of data networks, the implementation of new mobile phone services and the privatization of the landline network are somewhere on the horizon, the mistrust borne out of years of inactivity by apparently unconcerned authorities was not erased in 2004. As things stand, at the end of 2004 and beginning of 2005, the prospect of the long-awaited Telecommunications Regulatory Authority is viewed with suspicion by analysts, who wonder whether such an institution could truly be independent. International consultants agree that the telecommunications infrastructure is vital for growth of the Lebanese economy. They sense a contradiction between the nation’s high level of technical skills and the backwardness of the operating environment. This could cost the country billions already in 2005.

January 1, 2005 0 comments

Economics & Policy

Industry Voices – Light at end of tunnel?

by Executive Staff January 1, 2005

written by Executive Staff

Ramzi Ghosn: Proprietor, Massaya Winery

E: Our industry has been forced to seek out new and sustainable export markets and been moderately successful. How can other sectors within the manufacturing or agro-industry replicate this success?

To be successful you need a comparative advantage. In the local wine industry, our comparative advantage is the fact that we are Lebanese. With the help of our Lebanese identity we are already catering to all the expatriates worldwide who want to consume local products. The identity of Lebanese wine is very important for our industry. And this comparative advantage has to be well emphasized on. The product has to be of good quality and if it is then the business will automatically succeed. So to replicate this same accomplishment, industrialists should find the comparative advantage of a product and focus on exposing and marketing it to its full extent. We in the wine industry have succeeded in doing so and this is proven through our export statistics, which have been constantly growing for three years now. In 2004, we expect a 15% to 20% growth in exports, illustrating that our strategy is paying off.

Roger Dib: Director of Near East Consulting Group

E: Do you see new promising avenues for Lebanese industry to attract foreign partners and what areas of industrial ventures offer the best investment opportunities for favorable financing?

I definitely see opportunities for joint ventures with foreign partners. Actually, I am now in direct contact with around four European companies with which we are negotiating industrial and commercial joint ventures in the field of specialty retail. The reason why I say this is two folds essentially: the first one is that any Lebanese company with strong regional distribution networks can attract and be attractive to foreign partners who are not present in the Middle East. Any company that has a well-developed distribution network can easily think about attracting foreign partners. The second reason is that ever since the Euro has strengthened compared to the currencies of this region – which are more linked to the dollar than the euro – there has been a window of opportunity for our industries to export and hence for Europeans to use Lebanon as part of their delocalization effort. Delocalization has been happening in Europe for some time, but they have now been much more aggressive at it because of the cyclical strengths of the euro. So, this double hit for the European economies, whereby the need for delocalization and the expensive euro, is making countries like Lebanon interesting places to invest in certain kinds of industries, such as ones with high value-added. As for private financing, I believe the IT industry is the best suited for favorable financing because these are very small companies with lots of need for cash.

Fadi Abboud: President of the Lebanese Industrialists Association

E: Over the past years, the costs of manufacturing in Lebanon were held to be largely responsible for the stunted development of the sector. After many broken promises, mostly concerning the amelioration of the utilities and infrastructure, what are your hopes for 2005?

Our hope for 2005 is for the industrial sector in Lebanon to witness better days simply because all the governments since the end of the civil war have not really been friendly to the productive sectors in Lebanon, especially with regards to industry. To be honest, it was very difficult for us to come up with any positive results throughout the last 13 years. And with the energy crisis in 2004, it was much harder for us to record adequate returns. Even when we agreed with the government that reducing the price of energy could hurt their short-term finances, they still refused to raise custom duties on imports that directly compete with local products, which require intensive use of energy. Even this simple request was virtually impossible to get. We really feel that they don’t want to see the industry sector progress. One of the main reasons is because they want to turn Beirut into another Dubai, where there are lots of tourist attractions and huge shopping centers. However, with all the hurdles facing the sector, the high cost of production and an unfriendly government, we were still able to substantially increase our exports in 2004 and this shows that there is huge potential in the industrial sector. I hope that 2005 will be the year when the government realizes that we have all the means to create many new jobs and increase national productivity by granting us our demands.

Hani Haddad: Managing Director Spirit Advertising

E: In these days of closer EU relations, what must Lebanese industrialists do in terms of marketing, brand building and advertising to increase their competitive edge?

Industrialists and the entire Lebanese commercial sector in general are not actually aware of the importance of marketing and advertising of their brands and are more focused on the short-term costs rather than the long-term returns. Brand building is very important and requires investment and patience. But in Lebanon, unfortunately, very few advertise and consider building brands. In the actual world of global and international competition and with these days of closer EU relations, Lebanese industrialists should be up to the European standards at all levels. To achieve these standards, they have to understand and be convinced that building awareness and marketing their brands is more than essential for them to survive and should be considered as part of their long-

term investments. All expenditures related to communication and advertising should be part of their cost.

Patrick Renauld: EU Ambassador to Lebanon

E: The EU has implemented several programs to help assist the industrial sector in Lebanon with financial and technical support. Why is the EU so interested in having Lebanon’s industrial sector prosper and how does it see its potential in a country where the cost of production is much higher than the rest of the region?

The Lebanese market of 3.5 million consumers is not a market by itself when compared to the EU’s market of 500 million consumers. Nevertheless, ever since the EU expanded its borders, Lebanon has become our direct neighbor. And as a direct neighbor, we are interested in security brought by a stable and strong economy. In order to have a strong economy, we believe that the industry must play an important role. One of the biggest problems in Lebanon today is the fact of not having focused enough effort towards the development of the productive sector, thinking that the banking, service and tourism sectors would lead the way. This is not the case because you cannot develop your economy if you import nearly everything to feed your tourists and very curiously the Lebanese authorities have taken time to realize this.

It is true that the Lebanese industry faces certain difficulties at the moment, namely the high cost of production. But it also has its strengths, such as the brainpower capacity to be creative and overcome problems as well as the necessary financial resources. The future success of Lebanon’s industrial sector depends not only on producing high added value products, but also on the government’s willingness to set a long-term industrial policy and implement a modern judicial system that can assure the security of investments.

January 1, 2005 0 comments

Economics & Policy

Q&A:Ineke Botter

by Executive Staff January 1, 2005

written by Executive Staff

Running a mobile telecommunications network in Lebanon has in recent years presented itself as profound challenge, not only in terms of achieving operational excellence but also as quest demanding ultimate skills in diplomacy. With new management contracts for the mobile sector in place since mid 2003, EXECUTIVE ventured into the challenging exercise of asking what it takes to bring this crucial sector forward. Ineke Botter, CEO of Alfa operator Fal Dete Telecommunications, stepped up to the plate to hit fastball after fastball on communications.

E: What is your assessment on the evolution of your activities since Fal Dete Telecommunications stepped in as manager of the cellular network formerly known as Cellis?

Looking at the past six months, it is a successful story in operational terms. We reorganized the company and put a structure in place that is more oriented to teamwork. We also put a human resource project in place, which was carried out over the course of three months and vamped up the personnel again to an acceptable level by international benchmarks. At the same time, we were taking a close look at the billing environment but also the network itself. And we will shortly propose what we call an optimization plan to the government. All in all it has been a successful handover period, and the major project that we are undertaking as we speak is the introduction of our brand name, Alfa, and everything that goes with it. Before that, we completed an internal exercise of changing FTML into FDT on the corporate side. This entire project is successful as you can see on top of this building and everywhere.

E: Are your changes in the brand going beyond the level of visibility?

The philosophy of the brand is that of an umbrella brand, Alfa, and everything underneath is also Alfa. It is a transparent and very easy to understand brand. We designed this project in three steps. First, change from Cellis to Alfa. You have seen it on billboards and on television. So, brand awareness was built. The second step is to ensure that this brand awareness stays with people. This involves explaining what Alfa is about, the umbrella brand and presenting the sub-brands. At this point in time, there is no change yet in whatever else. Then we anticipate doing something in the area of services but this is very much a negotiation part with the ministry of telecommunications, the MOT. That is our situation.

E: If we view the mobile sector in the context of communications in Lebanon, where would you position communication in its importance for the Lebanese economy?

Telecommunication in my view is the basis of the economy. If you don’t have the telecommunication infrastructure in place, then you basically cannot develop an economy. I always say you can run a telecommunications network on generators but not vice versa. Telecommunications is number one in many countries; it is a condition SINE QUA NON. If you don’t develop that, you are stuck economically.

E: Lebanese customers are known for their fascination with new and advanced technologies. How does the mobile network rate today by latest tech standards and what can you do to position Alfa at the forefront of technological development?

As I said, we have carried out an investigation of the entire network including the network environment and the billing environment. As network elements have a technical lifetime, the reason for this investigation is to see what network elements have to be replaced in order to continuously provide the service. But this is also an opportunity for us to be close to the MOT in ensuring that we have the latest technology in the GSM area. Using the latest technology in this realm means that most network elements will be able to address both the GSM 900 and 1800 bands. In the moment we don’t use that [1800] band but in order to anticipate the future, we could already make sure that what we purchase has at least dual capacity. The same applies to the billing system. The billing system we have is from the beginning, in my estimation it is nine to ten years old. Now a billing system has a certain lifetime. The capabilities of a billing system in the early 90s are totally different from the capabilities of a new billing system. Such systems are tailor-made to the environment and one thing that we especially would like to look at is can this billing system cater to new services that we would like to propose.

E: Such as?

Expansion of GPRS data services, especially.

E: In the past, data services did not seem to generate much turnover here. How important could data services be in Lebanon?

In the mobile industry, price elasticity is extremely important. In the moment that you are giving something for free, the uptake is of course enormous. But that is for many reasons not doable. In our situation, we have the management contract with the MOT and we propose to them what we can do. But what we propose will also mean that we have to implement it in a network. It doesn’t come automatically. The moment that you are propositioning data services for a wider public, the immediate effect is that you have to look at your network. But in doing the optimization plan, we take this into account.

E: Is there a specific element of local flair that you find in the corporate culture of Lebanon that is different from any other country you worked in?

If I look at the culture in the company, I am very pleased. These are highly educated people, hard working. We have run this company without any incident with initially less than 50% of personnel. That is all very positive.

I always say a person has a character, a company has a character and a country has a character. Of course, this company has a character and I think it has changed because we put a new administration in place and hired new people. What will still take some time is to put those cultures together but that is logical.

E: How important is your role at the top in this process of changing this corporate culture. Are you going through all departments to give the impulses?

Yes, I think there is a role and a personal touch of what a CEO should do to see that there is transparency and a communications code. We have a couple of tools that I use. For example, at the end of each month I write an email to everyone on what we achieved and what we are going to do next month. We have also already twice done information meetings talking about what I expect and what we will be doing, etc. Then there is a breakfast every Friday morning and the departments are invited to have breakfast with me. We have done an introduction course for everyone, including old, new, and they go for two days and see parts of the company.

E: How could communications in Lebanon be improved for the benefit of the local economy and towards playing a role in the region?

Vis-à-vis the region is difficult for me to judge because after half a year here I don’t know all the regional operations yet. If I look at Lebanon, the first thing that we need is the telecommunications regulatory office. Of course it is the ministry of telecommunications that sets the telecommunications policy and strategy and then there is the regulatory authority that executes those. It would be very helpful to have that and I think the minister is looking into how to do it. The other thing is that by proposing to the MOT certain plans, we will make sure that the technology level is adequate, because telecommunications is constant renewal, new technologies, and investments, investments, investments. And we are proposing those plans.

E: Do you have a formula by which x investment in telco translates into x added opportunity in the economy?

No. That depends on a lot of parameters. If you can tune all those parameters then you can run a business model. What is a fact is that when you start a new mobile operation – and we are not starting, we are taking over a ten years operation –the spin-off in surrounding jobs, the suppliers, the service companies, can be eight times the number of employees in the company itself. The spin-off of investing in telecommunications is rather big. It is a stone in the water and it spreads.

E: Have you seen any country where telecommunications was the number one source of revenue for the state?

To a certain extent, yes, but for a limited period of time.

E: Is there anything in particular that you expect to happen for 2005, except for the launch of the regulatory office that all are waiting for?

That’s one thing and the other thing is if the ministry will introduce new packages and new services etc, part of that will be initiated in a communications event. It is their prerogative so I am not saying that we can make any promise but for sure we have enough in-house knowledge to have a very useful communication with the ministry about it.

E: What is the secret that you bring in as a CEO and person to make everything better at Alfa?

The reason that I have been working at this level for a long time has something to do with first of all my understanding of the industry. I have been in this industry in many countries under many circumstances, so my experience is by definition very large. The other thing hopefully is that as a person, I think I am pretty informal and accessible for people. That of course needs to be confirmed by other people. But in my experience, this is helpful and I like very much to work with young educated people who have an ambition. That is one of my drivers.

E: Knowing that despite their many contributions to the success of Lebanese companies, women are still rare in executive decision-making levels in the corporate environment, can you offer some advice for women aiming for the top?

I think it is a matter of experience and what you can contribute in value added. If you have the experience and the value added, then it would be very strange if people didn’t listen to you, no matter what gender. Going into a contest of ‘I am a man; I am a woman’ is not the point. The point is if you are professional at your job. People have to believe in their capabilities and do that. That is no different also for men. A specific advice on how women can grow to the top? It’s hard work. That’s it, and you have to have luck as well sometimes. You have to believe in yourself and if women are not believing in themselves, that is detrimental. It is also not helpful if your surroundings are telling you that you have to prove yourself.

January 1, 2005 0 comments

Real Estate

Sky’s the limit for real estate sector

by Peter Speetjens January 1, 2005

written by Peter Speetjens

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

Overview

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

The geographical distribution of permits shows that Mount Lebanon maintained its 2003 lead as it accounted for 46.4% of the total, followed by the north of Lebanon with 20.2%, South Lebanon with 14.8% and Beirut which witnessed an increase of 4.5% to reach 12.8% of the total. According to Banque Audi data the number of property transaction during the first half of 2004 rose by 7.2% to 51,899 compared to the first half of 2003, while the value of property transactions grew by 27% over the same period to reach LL 1.7 billion. In the third quarter it slowed down to 22%, well above the 15% annual growth recorded in 2003, yet still a far cry from the 30% growth figure of 2002. Beirut maintained the lead in terms of value of properties sold, accounting for 35% of the total, followed by Baabda with 22%, Metn and Mount Lebanon with 15.8% and Kesrwan with 9.8%. The figures confirm that the market was dominated by high-end construction and property transaction, as the increase in the real estate market was largely driven by the Arab investors, who since the events of 9/11, continue to see Lebanon as an alternative home, holiday destination and place to invest. Most players in the sector observed a relative slowdown by the end of 2004, which they attributed to the events surrounding the presidential elections and the attempted assassination of Marwan Hamade. The departure of Rafik Hariri as prime minister and the loss of his international clout were seen as less of a blow as many Lebanese are still optimistic that he will stage a comeback. A 2004 report issued by Ramco Real Estate Advisers concluded that Gulf investors bought land worth some $680 million between 2000 and March 2004, noting: “taking into account the additional investment on project development the amount could easily more than double.

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

Residential: Manhattan on the Mediterranean

Even though most construction permits and land sales centered around Baabda and Metn, the most eye-catching and valuable developments were taking place in Beirut, especially the ongoing seafront development facing the Beirut marina in the BCD. The $200 million Marina residential tower, which will be some 150 meters high, has been half built, while the foundations of the Beirut and Platinum Towers have been laid. Next to the trio, the slightly lower tower of the Four Seasons Hotel is being built. The four high rise buildings represent a total investment of some $600 million and will significantly change Beirut’s façade in the course of 2005 and 2006. With a price tag of $4,000 to $6,000 m/2 the towers’ highly luxurious apartments are arguably the most expensive property currently available in Lebanon. Some 80% of the apartments has already been sold and this seems to be trend for most of the high end residential developments in BCD, including the Capital Gardens and Saifi II projects, which are due to be built in 2005. Not surprisingly, Solidere had an excellent year in terms of land sales, helped by an initiative, which encouraged shareholders to sell their stock for a 15% discount on the land. More residential projects and two hotels are slated for the sea front, while the Abu Jamil area is to become a purely residential district. In spring 2004 it was also announced that the $200 million and 155-meter-high Landmark Building Riad el Solh would go ahead, adding to the BCD’s ever changing skyline. As a consequence demand for the price of land has increased, varying between $1,200 m2 inland to some $1,700 m2 on the seafront. Last but not least, after four years of delay and for a reportedly inflated price of some $12 million, Solidere announced that they are about to obtain the necessary permits needed to complete construction of the 100,000 m2 Souqs retail project by 2006. Downtown Beirut, however, was not the only area to witness significant developments. Contrary to downtown, where 80% of investors and buyers are Gulf Arabs, Ashrafieh remains popular among the Lebanese. New, high-spec apartments are smaller, on average between 250 to 350 m2, and more reasonably priced, on average between $1,700 to $2,500 m2. The same is true for developments in areas such as Ain Mnreiseh, Hamra and Ramlet al Baida.

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

Retail: The rise of the mall

2004 was the year of the mall and 2005 will continue to be so. The $120 million ABC Ashrafieh, Lebanon’s first genuine mall opened in November 2003 and went into full gear last year. Apart from its size, the difference between ABC and existing malls, such as Verdun 730 and Dunes, is that the first truly offers a world of shopping, entertainment, food and beverages all under one roof. Critics had doubted there would be sufficient demand for such a major development, but ABC has proved them wrong. Its 40,000m2 of retail space are fully occupied and shops, restaurants and cinema attract a constant flow of customers. In 2005 however, ABC will have to compete with BHV at Dora. About twice the size of ABC Ashrafieh, BHV is Lebanon’s first mega-mall with under its roof the country’s first Casino hypermarket, a grand department store, shops, boutiques, restaurants, café’s and a cinema. Most experts expect it to do well, seeing its excellent location between the two highways that form Beirut’s northern exit. With rents of as much as $1,000 per m2 per year, ABC and BHV are among the hottest properties around as far as retail space is concerned. The downtown follows with rental prices varying between $800 and $1,200per m2 per year. Verdun has an average price of some $800 per m2 per year and, as a shopping district, continues to perform steadily. Prices in Hamra vary between $300 m/2 per year at both ends to some $600 for top locations in at the heart of Beirut’s only genuine high street. Following the completion of the restoration works in summer 2004, hopes remain high for Hamra to regain its leading position as shopping district. With its hotels, hospitals, banks, and universities, its history and character, the area has every potential. In Chiah, the 50,000m2 Beirut Mall should open for business next year. In Sin el Fil, the 14,000m2 Metropolitan Mall is currently being constructed, while at Concorde square the 50,000m2 V5 Mall is planned. In comparison, the V5 will be no less than 20 times bigger than its Dunes counterpart on the other end of Verdun. The future will tell if there is a demand in Lebanon for such a large quantity of added retail space and if there is still space for the traditional high street such as Hamra and to a lesser extent Verdun. Experts predict that shoppers may tire, after the initial excitement, of indoor shopping. One thing is certain, the increased supply of retail spaces will no doubt lead to a decrease in retail rents, which is an advantage for shopkeepers, and in the end for consumers as well.

Office: smart space sells

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

Tourism:

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

Gemaizeh

The area changing most rapidly is no doubt Gemaizeh. The old quarter bordering the downtown, which still has a flavor of old Beirut, threatens to become the next Monot, as a string of small cafés, bars, restaurants, boutiques and galleries have recently opened. The revolution began in 2001 with the renovation of the Ahwat Azaz (Glass Café) and French bakery/café Paul, which “made” the corner. In 2004, a dozen more commercial establishments opened and more are expected follow, transforming what used to be a shabby if charming, quarter into arguably the hippest quarter in town. A handful of residential projects are also in the pipeline, especially on the strip of land bordering the downtown, but also well into the quarter. Following the success of Convivium I and II, developer Kareem Bassil is building a third halfway down the main street towards Electricité du Liban. Apart from its character, one of the main attractions of Gemaizeh was the relatively low prices. That is rapidly changing. The price of land has in some locations risen from less than $400 up to $800 per m2. The rent of retail space has in top locations tripled since the beginning of the year, while asking prices for residential property has increased by 50%, though it remains to be seen if these will be realized.

January 1, 2005 0 comments

Economics & Policy

Telecom Voices – Don’t call us…?

by Executive Staff January 1, 2005

written by Executive Staff

Ghazi Yussuf: Head of the Higher Privatization Council up until the resignation of Prime Minister Rafik Hariri

E: Is there a realistic chance for the privatization of cellular assets in 2005? What, in your opinion, are the best and worst case scenarios for the development of the cellular sector in the coming year?

There is no realistic chance of privatization in 2005. The two managing companies haven’t a track record with which to show off any skills to potential buyers. There has been no expansion. And the ministry doesn’t want to privatize because it wants to determine the true earnings of the two operations. There have been no new numbering plans, no new packages. The government’s promises haven’t been kept. The sector hasn’t matured.

The best case scenario: a regulatory authority is in place by the end of the first quarter. Then there is a serious call for the sale of the two licenses. Development of the networks is left to the newcomers. They, rather than the government, decide pricing policy and packages.

The worst case scenario: there is even more politicization than now. The regulator is nominated under the umbrella of the ministry of telecommunications, despite the fact that such an authority is supposed to be independent. I am concerned that any regulator nominated now won’t be a regulator aiming to open up the sector but a front for political aims.

For the moment, the sources and uses of cellular sector revenue by the government are questionable. For example, I have heard – although I cannot prove – that the government is saying it wants to spend $70 million on each network. How will those funds be spent? I have heard that MTC Touch needs a new platform which supposedly costs $14 million. But MTC Touch didn’t buy a new platform. It brought in a used one and charged $14 million.

I don’t think things will get better. As long as the government is running both operations, it will always be arm-twisting potential in terms of imposing appointments and purchases.

Louis Hobeika: Professor of economics and finance at Notre Dame University, Louaize

E: What measures would be best suited to improving the market position of Lebanon’s fixed line network and operator in 2005? Would you regard privatization of the fixed line network as positive with respect to increasing operational efficiency? How quickly can privatization of the fixed line network be achieved?

The revising and lowering of tariffs is very important. For the moment the government charges per minute. All calls within a local area should be charged on a monthly fee basis. Benefits of using a fixed line should be marketed to people. For example, they should be told that if they spend more than a certain amount on calls in a month, they will get a second month free.

Connection fees should be lowered. People should be billed at home so they can send checks by mail. Customer service should be improved. There should be a quick service for information on numbers, in fact for information on anything, like restaurants and hotels. They should commercialize it, make it value-added.

Privatization is a must. The fixed line operator should be split up into three or four entities, so we have competition on tariffs and services. With a private monopoly there would be no stimulation to improve service. Splitting up would also benefit rural areas, bringing them into an enlarged mainstream telecommunications market.

Splitting up would also allow a much greater reward from the sale. Ogero is a large entity in a small country. If you don’t split it up, almost no one will be able to afford to buy it. You would need to offer it at a discounted level. By splitting it up you would entice more investors. It should have been done years ago but wasn’t because of political feuding and administrative problems. The intellectual readiness is there. We could do it in a few months. But frankly, I’m not expecting it. I’m not sure the government is ready or willing to do it. It’s lost. It has no objectives.

Maroun Chammas: Managing Director IDM; President & CEO Berytech

E: Do you anticipate that broadband internet will be fully available to interested residential users in 2005? When can consumers expect to be able to choose from a variety of access technologies, including cable? What is needed to create a digital society in Lebanon? Are the problems of pricing and illegal connections the main obstacles to its implementation?

Since November 1, we have been deploying high-speed broadband to homes in the greater Beirut area. Our target is 20,000 in the first year. However, we can’t say if we’re still on track. In late 2004, delays occurred as a result of the weather and also because installing the service in buildings in Lebanon is not always easy. You need proper electricity, access to roofs, and all the cabling.

We’re currently installing broadband fixed wireless –128 kbps at $45 a month, 256 kbps at $75 a month and 512 kbps at $175 a month. The set up fee is $75. We would like to offer greater speeds at a lower price, but the price of the bandwidth is high. We purchased two megs from the ministry of telecommunications at $20,000. In Europe, it costs around $500. We want the price to be in line with world prices. The government must understand that the internet can help the economy grow.

The government will apparently soon be providing internet service using a phone line. The three speeds I mentioned will be available. The price will be very similar to fixed wireless. Obviously people who have only one phone line will need another with which to call.

Today, there are 30,000 illegal internet cables hampering development of the sector. The government hasn’t taken real action. Once the government provides ADSL and we can provide high speed internet at reasonable prices, the illegal business will cease. But it is essential that people be offered access to broadband at a reasonable price, and that will only happen when the government reduces the price of the bandwidth.

Kamal Shehadi: managing director at Connexus Consulting

E: Do you expect the independent telecommunications authority to be fully functional by the end of 2005? Does the framework comprise all the elements necessary for efficient regulation of the communications sector? What benefits can cellular and fixed line consumers expect when the regulator is functional?

The government has announced that the Telecommunications Regulatory Authority (TRA) is to be established shortly. If the government displays the political will to undertake serious economic reforms, including the liberalization and privatization of telecommunications, they will need to appoint the board of the TRA very soon. They will need to appoint individuals with a commitment to liberalizing the telecommunications sector – the TRA’s principal responsibility according to Telecommunications Law 431 – the expertise to do the job, and international standing to bring credibility to the process.

If the board is appointed in early Q1 2005, the key staff of the TRA could be in place and fully operational by Q2 2005. The board’s first responsibility will be to outline a strategy for an efficient transition to a competitive market. It will then have to tackle key regulations such as interconnection, the rebalancing of tariffs (mainly requiring the lowering of international tariffs), and consumer protection (confidentiality of information, billing, billing disputes, etc.).

The framework for efficient regulation of the sector is still incomplete – it requires a number of key decrees to be promulgated by the Council of Ministers. The most important decree – presented to the Council of Ministers more than 18 months ago – provides for the organization and financing of the TRA. Other decrees are also needed on licensing; allocation of radio frequencies and their pricing; and access to the right of way and public property.

Consumers should expect the TRA to be not only the regulator issuing licenses and monitoring licensed operators, but also the driver for better consumer choice in services and service providers, better quality of service, and lower prices.

Khalil Daoud: General manager at Libanpost

E: What are the aims and priorities of Libanpost for the year 2005, and where can service be improved in the coming year? Will increased transportation costs have an impact on end prices and is the value proposition of Libanpost secure for all stakeholders: the state, the operator, and the public?

Our key objectives for 2005 are to continue improving the quality of our services at the retail and distribution levels by implementing various training programs, increasing services and retail products and maintaining the renovation program of the post offices. This will also include completing the automation at the post offices; introducing the automation at the letter carriers’ level (handheld computers for the distribution of mail with proof of delivery); refining the existing processes and procedures; and reorganizing the customer service department.

We are also working on a new collection system that would enable us to collect mail not only from the post offices, but also from residences. Libanpost will be introducing new services, like “International Express Mail.” We also want to see the proper implementation of the new warehousing and logistics, and insurance brokerages divisions. Expansion is expected in the post print division by attracting customers other than Ogero, like utility companies and private institutions.

As for the impact of increased cost of transportation, the prices of the postal services are stipulated in a government decree and simply applied by Libanpost. Proposing a change in the tariffs should be dictated by a number of factors, among which the cost of transportation. Considering the tight economic conditions prevailing, Libanpost is trying to postpone such a price change by absorbing the costs variance.

Whilst continuing to improve the quality and variety of services to its customers, and to expand the size of its investments, Libanpost is rapidly moving towards a profitable situation. The majority of clients are satisfied with the Libanpost offerings, be it with its postal or non-postal services. As for the government, and in the event the restructuring proposed by the ministry of telecommunications is implemented, the situation will become profitable.

January 1, 2005 0 comments

Finance

Brighter times for banking in Lebanon

by Nicolas Photiades January 1, 2005

written by Nicolas Photiades

In 2003, the Lebanese banking sector showed significant improvement in terms of deposit and asset growth, as well as in terms of profitability. The Paris II conference in late 2002 triggered a more efficient monetary policy from the part of the government and the central bank (BDL), which led to a sharp drop in deposit rates in both Lebanese pounds and US dollars, while debit rates, or rates assigned on loans to corporates and individuals, decreased albeit, at a much more reduced pace. Margins hence increased, and with them profits. Higher profits also generated more capital, as banks realized that it was a good opportunity to increase capital organically, given that external means to raise capital are rare. It is worth noting that profitability during 2003 and early 2004 could have been even higher were it not for a new regulatory reserve imposed by the BDL, which account for 10% of foreign currency deposits. This latter reserve at least had the advantage of significantly improving the banks’ liquidity as well as the BDL’s foreign currency reserves and installing a greater air of confidence in the market.

Although profit figures for 2004 are not officially out, the few half-yearly unaudited profit and loss accounts published by some of the larger banks show an improvement in profitability. Indeed, banks have been able to reduce interest rates on deposits even further during 2004, while, as usual, debit rates or rates assigned to loans and T-bill and government debt securities only moved fractionally, further enlarging margins. Although it was the larger banks, which mostly benefited from that situation, the smaller banks suffered more. Some of the smaller banks, or those with total assets well below $1 billion, suffered a decline in profitability, as they could not reduce their deposit rates enough without risking losing their saving deposits to the larger banks. Until now, the main value added of smaller banks to individual customers has been their ability to offer higher rates on both US dollar and Lebanese pound deposits. Lining up their deposit rates with those of the larger banks would clearly signal the loss of business.

The bulk of profits for the overwhelming majority of banks again came from interest income on government debt securities and loans. Banks in Lebanon are still unable to diversify revenues sufficiently, and generate non-interest income of consequent sizes. This reliance on interest income is worrisome, as any downward trend in interest rates and increases in non-performing loans would affect the revenue stream of banks substantially. Lebanese banks are yet to build a reliable and recurrent income stream, and are still highly vulnerable to external conditions (economic, political, social, etc.).

However, the biggest challenge still facing the Lebanese banking sector is the heavy exposure to a debt-laden Lebanese economy and the government, with the latter coming in the form of subscription to Treasury bills and foreign currency bonds issued directly by the State. Assets of banks, which are mainly composed of loans, liquid assets, and government debt securities, are still of a poor credit quality (for some banks it is very, very poor), and the level of non-performing loans in proportion to loans remains abysmal at around 28% (the peer group of banks with deposits between $100 million and $300 million had an average non-performing loans to loans ratio of 46.3% at the end of 2003). This is extremely high, when we can recall that the ratio of non-performing loans to loans for the Argentinean banking sector at the time of this country’s default stood at only 4%. The greatest challenge for Lebanese banks is still to stabilize asset quality and, through higher profits, to increase the level of loan loss reserves to provide better coverage of non-performing loans. Although the trend of bad loans continues, it is widely expected to slow down given the slight improvement of the economy (the highest GDP growth for some years is expected for 2004). Smaller banks will be more hit by a weak asset quality as they usually get retail and corporate debit customers, which are of lower credit quality than those of their larger peers. The smaller banks are expected to be caught in a vicious circle of rising non-performing loans and decreasing profitability, and will find it harder to improve their coverage of non-performing loans with loan loss reserves. Meanwhile, retail lending continues to rise, while corporate loans are being optimized and are stabilizing. Retail loans are more easily controlled, as most Lebanese banks (especially the larger banks) have recent credit models for retail lending, while corporate lending is still an under-developed animal for most banks. Indeed, corporate credit analysis techniques are seldom mastered within a large number of banks.

On the capitalization side, Lebanese banks have so far seen their shareholders’ equity rise to a total of $3.9 billion at the end of September 2004, compared to $3.6 billion a year ago. Such a consolidated level of equity leads to a consolidated equity to assets and equity to loans ratios of around 6.2% and 25.5% respectively. Although such ratios would appear solid in a different country with a more stable economy, in Lebanon they can only be considered adequate, bearing in mind that banks here do not often lend to the private sector (loans account for only 23% of total consolidated assets), and that risk levels are abnormally high. It is also worth noting that more than 80% of the sector’s consolidated equity is accounted for by the fourteen largest banks. The remaining thirty four banks are too small to warrant a meaningful level of equity, and a certain number of them have insufficient capital anyway. Nonetheless, capitalization is improving for the sector in general, as higher profits have allowed a healthy dose of retained earnings and some banks have resorted to capital raising with private investors and issues of preferred shares (e.g. Byblos, Audi, BLOM, Crédit Libanais).

Although regulatory capital (the required level of capital by the BDL) appears more than adequate for the entire sector, with a Cooke ratio (a ratio of equity to risk weighted assets) standing on average between 15% and 23%, economic or real capital is low because of the high risk exposure to the government. Such an economic capital should be expected to drop even further in the coming years, as the Basel II Capital Accord is to start being implemented across the world, including Lebanon. Basel II is a set of regulations that increases the risk weightings on assets if the risk profile of the same assets is high. In fact, it is even expected that regulatory capital for Lebanese banks will drop significantly as a consequence of the implementation of the Basel II regulations, as risk weightings on some assets (mainly government securities) will go from 0% up to the dizzy heights of 100%. A recent calculation by many independent research organizations, including the Union of Arab Banks, showed that the implementation of the Basel II rules should lead to a decrease in the Cooke ratio below 8% (which is the legal minimum) for some banks, and certainly below the current 20% average for most other banks. By then a lot of banks will be thinking about seriously increasing their capital, or even joining hands with other institutions with a better grip on risk management.

The banks’ liquidity appears more than satisfactory on the other hand, with liquid assets (excluding government debt securities) covering more than 56% of total deposits for the sector. Such a ratio is regarded to be higher than the norm by international standards but is appropriate in the case of Lebanon. Although the post Paris II BDL regulation, forcing banks to place 10% of their foreign currency deposits with the BDL at 0% interest, has affected the banks’ profitability a little bit, it has nevertheless forced a massive improvement in liquidity and deposit coverage with liquid assets. Banks can now face any runs on deposits with greater confidence, and have the BDL’s conservative vision to thank. However, funding remains a problem, with most banks having to live with significant maturity mismatches year after year. Indeed, customers’ deposits are only short-term in nature and are used by most banks for medium and long-term lending. Some banks have resorted to issues of medium-term bonds and other kinds of debt securities with longer maturities to fill up this maturity gap, but it is still largely insufficient, and in some cases, just a drop in the ocean. What prevents banks for issuing long-term bonds is simply the high cost of it, which is inevitably benchmarked against the high financing cost of the government.

The need for long-term borrowing by retail and corporate borrowers has never been so urgent, particularly as regards to housing loans. Some banks have been stepping up their mortgage lending and offer long maturities (ten and fifteen years), but the interest rate is still high and conditions quite onerous for borrowers. The housing and mortgage markets in Lebanon are yet to really take off and should be considered a priority by the banking sector on one side, and the regulatory and monetary authorities on the other. The enhancement of the mortgage market would create many opportunities for the Lebanese economy, not only in terms of financial products (issues of long-term bonds, securitisation of mortgage loans, etc.), but also in terms of construction activity. A developed mortgage market would also gradually meet the massive demand for housing by Lebanon’s younger population.

Qualitatively, many Lebanese banks have been addressing the issues of corporate governance (or lack of) and institutionalization. 2004 did not bring about significant changes on that front, with the exception of the Audi-Saradar merger, which created a banking group with a greater degree of institutionalization than many peers, which are still owned and managed by families. Decision making has been slightly diluted amongst the larger banks in particular, but many banks still concentrate strategic decisions in the hands of one individual. This individual is usually the founder or the heir to the founder of the bank and carries the dual title of CEO and chairman. Banks in Lebanon have not yet embraced the Western concept of having a CEO, a CFO, and COO, as the senior managers of the bank. The chairman should in principle be representing the interests of the shareholders and not mingle in the operational aspects, which should be left to the CEO-CFO-COO triumvirate.

The banking sector in Lebanon does, however, benefit from substantial support from the regulatory authorities, which motto is to maintain a solid banking system, that would gradually consolidate into a more compact and efficient group of institutions. The BDL is keen not to let banks collapse, as such events would shake a fragile economy. The larger the bank, the greater its importance to the domestic economy, and the more implicit support it can expect from the regulatory authorities.

Banks are aware of the difficult operating environment, which has lead so far to a rise in bad loans and a lack of earnings diversification, and their current high exposure to the weak credit of the government. They realize that diversification should be carried out away from Lebanon, if revenues are to strengthen and become more recurrent in time. Many banks have already started opening branches in other countries in the region, as well as strengthening their existing franchises in the countries where they are already present. Such a strategy can only be beneficial in the medium to long-term and could in time very well transform Lebanese banks into regional, and perhaps international players. For the moment, the Lebanese banking sector is still considered small in relation to the GCC banking sectors, and lacking asset and earning diversification.

January 1, 2005 0 comments