The Buzz

Emotional intelligence and the mood of your organization

by Tommy Weir
written by Tommy Weir

When Manfred FR Kets de Vries, the director of Insead’s Global Leadership Center, was asked how he identified successful leaders, without hesitation he replied: “The first thing I look for is emotional intelligence.” Emotional Intelligence (EI) is a term/skill that is receiving a lot of attention these days in management and leadership circles. Much of the 360 Feedback evaluation tool is devoted to measuring, to some extent, a person’s emotional intelligence. This month we will look at EI and how it can help you become a more successful leader.

Emotional intelligence, as described by Daniel Goleman, the EI guru, “includes self-awareness, self-regulation, motivation, empathy and social skill.” • Self-awareness is the ability to recognize and understand your moods, emotions, and drives, as well as their effect on others. If you are self-confident, realistic about your personal assessment, and have a self-depreciating sense of humor, most likely you are self-aware.

• Self-regulation is the ability to control or redirect disruptive impulses and moods. It is also having the propensity to suspend judgment – to think before acting. If you have integrity and are trustworthy, feel comfortable with ambiguity, and are open to change, chances are you are able to regulate yourself.

• Motivation is a passion to work for reasons that go beyond money or status, and having a propensity to pursue goals with energy and persistence. If you have a strong drive to achieve, are optimistic (even in the face of failure), and are committed to your organization, then you are definitely motivated.

• Empathy is the ability to understand the emotional make-up of other people. It also requires a skill in treating people according to their emotional reactions. If you have an expertise in building and retaining talent, are cross-culturally sensitive, and are dedicated to servicing your clients and customers, most likely you are an empathetic person.

• Social skill is having proficiency in managing relationships and building networks. It requires an ability to find common ground and build rapport. If you are effective in leading change, are persuasive and have developed an expertise in building and leading teams, then you have social skills.

Sample EI test questions include:

1. Do you recognize how your feelings affect your performance, the quality of experience at work and your relationships?

2. Are you aware of your strengths and weaknesses to the degree that others familiar with you would agree with you?

3. Are you open to candid feedback?

4. Can you celebrate diversity in personal and professional life?

5. Are you able to remain collected, positive and unflustered even in stressful situations?

6. Are you able to build trust by displaying congruent behavior through your words and actions being in alignment? 7. Do you keep promises?

8. Do you take responsibility for your actions and inaction where appropriate?

Ask yourself these further questions:

Do people feel comfortable with you? Do they want to be around you? Are you able to give praise to the right people at the right time? Do you know how to build teams, and what kind of people make good team players? Are you an effective motivator?

The idea that leaders must be self-reflective in order to be successful has been met with the quick response. “In order to make it in business, you have to be a doer!” We don’t disagree with this. But long-term successful leaders must be able to act and reflect. All leaders (all people) have blind spots, and developing the ability to self-reflect and accept critical feedback is crucial for overcoming them. In short, successful leaders are highly motivated to work on themselves.

Is it too late to learn? No!!

In fact emotional intelligence increases with age, some like to call it wisdom or maturity. That being said, even mature leaders need training in EI. The problem, however, with most training programs designed to teach EI is that they don’t deliver real change. EI training cannot be taught in a workshop or training seminar, it requires an individualized approach where behavioral traits can be examined honestly and modified. This requires time, persistence and practice, which is where coaches come in really handy. Having a coach shadow you throughout the day is an excellent way to become aware of behavioral traits that might not be working for you. In this way you will be consistently reminded of where, when and with whom you get off track.

Most leaders who are truly dedicated to improving their emotional intelligence demand a candid assessment of their strengths and weaknesses from trusted people who know them well. This may seem straight forward enough, but the sad truth is that it rarely happens. Most leaders may say that they are interested in honest feedback, but the fact is many lack the courage and inner fortitude to accept receiving information that may crack their persona of “I’ve got it all under control.” This is unfortunate.

Rapidly changing realities (political, economic, social and technological) require flexibility and a new breed of leader. Emotionally intelligent leaders have the ability to manage themselves in the face of unpredictable change. They are able to remain focused and clear under pressure. They understand that anxiety destroys their ability to assimilate information quickly and respond, and that fear closes down their creative thinking and decision-making skills. Emotional Intelligence is a skill that aspiring successful leaders cannot ignore. It can be learned and it provides lasting personal and professional rewards. All it takes is a sincere desire to improve, persistence, the courage to receive candid feedback, and a good coach wouldn’t hurt.
 


Tommy Weir and Christine Crumrine are from the Beirut-based CrumrineWeir, the global leadership experts.

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Mutton dressed as lamb

by Yasser Akkaoui
written by Yasser Akkaoui

And so after much political tomfoolery and sleight of hand, Hariri is out and Karami is in. His first task was the creation of a cabinet that turned out to be comprised of vehement anti-government types, many of whom had given up on ever holding public office, and the usual pro-Syrian lackeys.

And now that President Lahoud has purged all internal opposition, he has no excuse for any political and economic shortcomings that may develop over the coming seven months. We do not know what to expect in terms of the economy, given that the criteria for selecting the new team appeared to be based more on political expediency than a genuine desire to address Lebanon’s economic woes. This is underlined by Karami’s warning not to expect miracles. If this was meant to offer hope, one dreads to think what he will say when things get rougher; and they will.

What is bewildering is that all this flies in the face of basic democratic principles. The people have been absent from the equation and thus feel more like helpless spectators than a genuine electorate.

Meanwhile, opposition has grown stronger with both Hariri and Jumblat swelling the ranks of those who do not support the new administration. While Jumblat is as vocal as ever (and the shadow of his late father seems to loom larger than it has done in years), Hariri’s record in opposition is of mounting a comeback and so it remains to be seen just how clean a break his exit deal was.

So where now? There has been a massive shift in how people see the future. While there is still every chance the frog will become a prince, some still believe in the white knight who will slay the dragon? If he is out there, he will want to claim his traditional virgin. The danger is that she may have turned into a snaggle-toothed, saggy hag and the knight may no longer be interested.

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Special Section

Convergence and synergies happy hour

by Thomas Schellen
written by Thomas Schellen

Take a hint from Solidere: Lebanon’s flagship share appreciated nicely over the first eight months of the year, settling on a much friendlier market valuation platform close to where analysts had already placed its fair share value. Besides Solidere’s smart restructuring initiative and buyback offer not to mention allegations of a few inelegant machinations – both reported on by Executive – the surge in the share price was also influenced by reliable market whispers that it would take a step beyond the Beirut Stock Exchange and co-list its shares on the bourse of Kuwait (KSE). 

This move and the effectiveness of its mere rumor in helping Solidere shares grow, say analysts in Beirut, would a) result in a much improved demand and trading potential for Solidere at the potent KSE and b) demonstrated that the BSE had failed in giving its largest stock the investor exposure it needed. As much as we had been aware of the BSE’s infirmity, the valuable pointer provided by Solidere’s likely KSE listing is that a look at regional stock markets could be well placed in discussing the development options for Lebanese companies and the nation’s financial markets. 

Latest estimates of privately held Arab wealth coming to $1.5 trillion and public coffers overflowing with petrol bounty, new all-time highs in share prices at neighboring stock markets are lately being reported more often than one has time to keep track of. Combined market capitalization by the top 150 listed companies in the GCC was $359 billion at the end of July, $121 billion higher than a year ago and more than three times of what it was in 1999, said for instance a report by Shuaa Capital, drooling with excited descriptors such as “engines of growth” and “robustness.”

While some experts recently warned of the potential for Gulf markets to overheat, analysts optimistic about the continuation of the boom point to the fact that the ratios of market capitalization to GDP in the GCC countries are, with exception of Kuwait, still substantially below the ratios in developed economies. Faithful collectors of Executive can easily verify that vigor of Gulf stock markets for themselves by comparing this month’s regional stock market indices (page xx) to those in an issue from January 2003 or June 2001. 

Outside of the indices, the evolutionary thrust of Arab stock markets was highlighted last month by a host of news, of which the linkage of the UAE national stock markets in Abu Dhabi and Dubai and the announcement of a new investment conference in Bahrain in October were about the smallest.

The undoubtedly hottest financial infrastructure news of the month was the opening of the Dubai International Financial Centre, DIFC. With its main Gate Building visually quoting the La Grand Arche in Paris in a sort of 21st century Arc d’Arabia way, the center professes that it wants to be the new link between Western and Eastern financial market places – and it has the scope to match these ambitions.

To understand this scope, one needs only look at the DIFC parking “lot.” Upon completion, this facility is designed to accommodate in excess of 34,000 cars. A while back, the DIFC project had temporarily looked a less certain development bet than usual for Dubai, because of fears analysts attributed to the US over what a money hub in the region could do for the likes of al-Qaeda. The DIFC had also experienced a few recent personnel ruckus over Western top executives who were said to have stepped down because of conflict-of-interest situations they witnessed.

But now, not only has the DIFC opened for business and granted its two first operating licenses (to banks Standard Chartered and Julius Baer), the center has also its very own regulatory authority – the DFSA or DIFC Financial Services Authority, touted as fully compliant with the toughest supervisory demands of our age – and its own “international exchange for wealth creation,” the DIFX.

The DIFC International Financial Exchange is billed by its creators as a high-tech stock market for the Arab countries, equipped for trading of all types of securities from equities and funds to derivatives and Islamic structured products. This will presumably take it out of the restrictions applying to national bourses in GCC countries. Gulf-based analysts already speculated early last month that the UAE government might privatize one of its attractive assets, to give the DIFX a birthday present and startup boost.

Curiously enough, just as the DIFC announced its presence, officials from Arab stock markets meeting in Cairo announced that a new pan-Arab bourse under the name of “United Arab Stock Exchange” would be created by early or mid 2005. Located in Egypt, the bourse would enjoy participation from six Arab stock exchanges (including Lebanon, but not mentioning the UAE), and it would be the largest in the region.

Given that full-mouthed announcements for great joint projects in this region come with an inbuilt disbelief factor and cooperation agreements such as the 1996 one between the CASE and KSE acceded to by the BSE have been unnoticeable in practical terms, what to make of these plans for a Unified Arab Stock Exchange?

“I am skeptical, simply because there has been much talk for many, many years about creating a pan-Arab bourse and it hasn’t been done,” said Ziad Maalouf, senior vice-president at newly formed Mena Capital, a Beirut-based private equity and merchant banking firm.

With investor confidence in the BSE thoroughly lacking and performance of the Amman Stock Exchange dismal over many years, Maalouf questioned the viability of a regional stock exchange involving Levant and North African bourses. International investors approached the Cairo and Alexandria Stock Exchange with great enthusiasm about a decade ago, he explained, but proved disappointed as most companies listed on the Egyptian exchange today are so solely because it brings them tax breaks.

Only the stock markets in Tunisia and Morocco are reasonably structured and operate satisfactorily, said Maalouf, who helped as a market analyst with the International Finance Corporation in the mid 1990s to put North African bourses on international investor maps by introducing them to the IFC’s Emerging Markets Group. As competent naysayers long to be proved wrong, individual bourses could yet defeat their ghosts and the pan-Arab bourse could still see the light next year. But a new, Nasdaq-like regional stock market at the DIFC looks far better programmed to become a success.

“It is a good idea. Dubai is at the center of capital in the Gulf. This is where the money is,” Maalouf said. “If companies in the region take this new proposition seriously and dual list at DIFX and the market becomes liquid, it has the potential of becoming a pan-Arab stock exchange and trading desk.” For BSE-listed Lebanese banks for instance, the possibility to dual list on an Arab market would mean exposure to a much wider investor base and the chance to substantially increase trading of their shares.

In summa, the developments of autumn 2004 confirm a triangle of locations vying for prominence in Arab finance. Next to Dubai and Cairo, this includes Bahrain. The emirate underscored its aspiration to the role of regional player by signing a free trade agreement with the United States in the third week of September, albeit ratification of the agreement in the US is not expected before the end of the year.

And Beirut? One point that all experts here seem to be in agreement on is that a convergence of Arab stock markets is in principle a good thing and that it will be beneficial to the country to be involved in such developments. But one cannot ignore a bitter flair to their statements. Regularly, many feel that Lebanon should have risen to the role of natural financial market place for the region. Instead, as the rest of the Arab world noted, the Lebanese were playing politics.

The morale of the story: The nation’s financial sector is being boosted with new blood and ingenuity of personalities willing to go to great length to appear smart (even in what cars they drive) and act congenial, rather than falling for the slowly vanishing styles of the brothers Pompous and Patronizing. Regulations still require improvements and with the insurmountably small domestic market, some obstacles we will never be able to remove. But the financial sector’s real problem is the political superstructure, which dominates the nation’s reality.  

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Money Matters

by Executive Contributor
written by Executive Contributor

Capital Intelligence Raises Shamil Bank’s Rating to BBB-

Capital Intelligence (CI) rating agency has raised SBB’s (Shamil Bank of Bahrain) long-term foreign currency rating and financial strength rating from BB+ to BBB-. The bank’s short-term foreign currency rating and support rating were kept at A3 and 2 respectively whereas a stable outlook was assigned to all the ratings. The agency noted that this upgrade is attributable to the strong growth in profitability and continuing reduction in non-performing financing. CI added that its ratings were based on SBB’s strong corporate-only balance sheet, full coverage from financing-loss reserve, its solid capital position in addition to the fact that investment account holders in Islamic banking share their own risk.

NBK Awarded “Bank of the Year” in the Middle East

In its annual Bank of the Year Awards given to banks in 133 different countries, The Banker magazine, an affiliate of the Financial Times Group, has named National Bank of Kuwait (NBK) as the best bank in Kuwait and the Middle East for the third time in a row. The Banker attributed this achievement to the bank’s excellent performance, innovation and regional expansion. The magazine added that NBK continued to post strong results in 2004 as its profits in the first half of the year reached record levels following a 27.7% return-on-equity registered at the end of 2003.

Country Profile: Jordan

An IMF report published in September 2004 demonstrates the recovery of Jordan’s economy from the disturbance caused by the war in Iraq. It shows that real GDP grew by 6.9% in the first quarter of 2004 amid a 29% yearly increase in exports. This upsurge in exports is attributable to the growing demand from the Iraqi market in addition to the continued rise in textile exports especially from the Qualified Industrial Zones (QIZ) to the United States. On the other hand, inflation was restrained at an average rate of 2.8% in the 12 months through March 2004 while the unemployment rate remained relatively high at 14.5% compared to a 5% growth in the Amman Stock Exchange index during the same period. On the fiscal side, the government’s better budgetary management, tighter government spending in addition to higher foreign grants led to the achievement of a 137 million Jordanian dinars ($194 million) budget surplus in the first quarter of 2004, equivalent to 1.8% of expected GDP. This fiscal surplus reduced net government debt by 8 percentage points to 93.5% of expected GDP.

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Welcome back

by Executive Contributor
written by Executive Contributor

Since September 1, the Lebanese authorities have again been allowing South Koreans to obtain visas upon arrival in Lebanon. The practice had been discontinued in November 2003, when the Lebanese government imposed visa restrictions on a number of countries.

South Korean embassy officials declined to offer an explanation for their country’s inclusion on the list, although one official suggested Lebanon felt that South Korea had not been doing all it could to facilitate visits to the country by Lebanese. They did suggest that the move would boost South Korean-Lebanese business ties. In fact, since the decision was implemented, a South Korean trade delegation has already paid a visit to Lebanon, which imports roughly $64 million in South Korean products a year, for only $8 million in exports.

“Business people have very busy schedules,” asserted the head of the delegation, Youn-Hwan Chung. “We were having to wait up to three weeks for a visa. And even then we weren’t sure of getting it.”

But although the visa hurdle has been dismantled, other obstacles to increased South Korean-Lebanese business remain.

“There are differences in business culture,” noted Chung. “And South Korea is geographically far removed from Lebanon. The Lebanese are more familiar with, and prefer, European brands. And Lebanon’s IT industry is not well developed. The Internet is very slow.”

“Most South Koreans still think Lebanon is very dangerous,” observed the South Korean embassy’s commercial attaché, Kihyoung Choe. “Members of the trade delegation were asking me if it was safe.”

The South Korean ambassador to Lebanon, Young-Sun Kim, however, remained upbeat: “I want to talk only about the positive aspects,” he said. “There is no doubt that the move will greatly contribute to the promotion of business between the two countries.”

Cool heads (if they stay on) prevail

The killing in Iraq of three Lebanese businesspeople, including a married couple, and the wounding of another, as well as further kidnappings of Lebanese since then, have dealt more serious blows to already faltering Lebanon-Iraq trade.

Initial business optimism generated by the quick fall of the former Iraqi regime has been replaced by uncertainty as the security situation in Iraq fails to improve. In recent months, a number of Lebanese businessmen and truck drivers have been kidnapped. According to the satellite television station Al-Jazeera, a statement on the Internet signed by a militant Iraqi group threatened to “slaughter any Lebanese working with the US Army and drag their bodies through the streets of Iraq.” Hundreds of Lebanese have flocked to Iraq over the last 15-16 months, in a quest to cash in on the massive postwar reconstruction effort.

“If there wasn’t so much money to be made in Iraq, we would already have stopped sending people there,” acknowledged Elie Shamsy, a manager of Beirut Cargo Center, which transports goods to Iraq. However, the company has stopped using Lebanese drivers. “We only use Syrians and Iraqis,” said Shamsy, “because they appear to be targeted less.”

But it is in Iraq, asserted Lebanese Industrialists’ Association head Fadi Abboud, that the time-honored determination of Lebanese industrialists has become again apparent. Despite the dangers, he noted, scores of Lebanese businesspeople remain in the country, and others continue heading there. “Iraqi importers who ask for half a million dollars of cement from Lebanese firms can’t provide security. People don’t want to send employees to Iraq. We’re finding it difficult to insure. But the Lebanese will not stop doing business with Iraq. Lebanese businesspeople have historically overcome hardship. They embody the SAS (British commandos) motto: ‘Who dares, wins.’”

A tough financial run

The organizers of the Beirut Marathon–in its second edition this year–say they have learned from last year’s mistakes. In their haste to stage an impressive debut event in 2003, they failed to pay enough attention to spending. The result was a whopping $1.5 million bill–of which only about $150,000 was covered by sponsors. (Close to a million was covered by the marathon’s patroness, May Khalil).

This year, the event organizers have been careful to shop around for the best deals, and have also been able to attract an additional 6,000 contestants. As a result, this year’s bill will run at roughly $800,000–a welcome diminution of last year’s cost, but significant nonetheless.

Despite this, cajoling potential sponsors into forking out cash is not proving much easier this year. The organizers expect only $50,000 more than last year’s $150,000. “It is very, very tough to get hard cash out of companies,” observed Event Coordinator Nadine Moawad. “There is a recession. Everyone says they don’t have the cash to spend on events.”

The race organizers hope that in a few years they will be self-sufficient, but acknowledge that a long road lies ahead. “We will have to show potential sponsors the added value,” noted Moawad. “But it is difficult to get that message through. For the moment, sponsors are not getting a feel of how important this event really is.”

“And even when we do break even, we will have to cover the losses of previous years,” remarked Beirut Marathon General Manager Ara Artine.

Growing mini cards

Lebanese banks Fransabank and Banque Audi recently introduced a new debit card format marketed as “mini cards” due to their 43 percent smaller size over standard plastic.

Issued in collaboration with Visa, the new cards offer advantages for participating banks through the prospect of increased point-of-sales (POS) purchases by consumers. In their functionality, mini cards are engineered to POS usage because they cannot be used in standard Automated Teller Machines (ATMs). A value added is that users carry a fashionable accessory characterized by “greater portability”, thanks to a hole in the plastic allowing it to be attached to a key chain or a mobile phone.

For banks, debit card POS purchases are more profitable than withdrawal of cash from ATMs, which still accounts for most instances of debit card usage. Debit or cash cards, such as the Visa Electron card popular in Lebanon, do not carry credit features.

“The purpose is to migrate people from using ATMs to more POS spending and change customer habits away from withdrawing cash,” a representative of Banque Audi’s payment cards department told Executive. He confirmed that the cards were targeted at “all Visa Electron holders in general but especially young, outdoorsy type of people.” Until the beginning of 2005, Banque Audi is offering their Visa mini card for free.

Fransabank is going after youths by stating in a flyer that its mini account and card are targeted at “cool and trendy people,” with offers of free benefits, including movie tickets.

Perhaps confounding consumers is a new prepaid card by BLOM Bank, introduced about two weeks after Banque Audi publicized its card. BLOM’s standard-size card was advertised as “mini”, but that referred to its ceiling of $500. Apparently targeting similar audiences as the Audi and Fransabank products, the bank crafted an extensive promotional program of discounts at places favored by young consumers (Virgin, Quicksilver, Chili’s, Waves, and on Cyberia).

Banking on Lebanese films

On September 19, Lebanese director Philippe Aractingi started the shooting of Autobus, a full-length musical that he hopes will receive international play. It is Lebanon’s first feature film fully financed by private investors.

“To make the film,” said Walid Hayek, investment manager at the Arab Finance Corporation (AFC), “we had to come up with a new financial structure called investment certificates. Unlike shares, they offer a right on future revenues, but no right to vote. We had to avoid the situation that the investor on paper was able to interfere with the director.”

Asked to help in putting together a finance structure by the film’s producer Fantascope, AFC set up a proper business plan based on estimated cost and revenues to attract investors, and issued 140 investment certificates of $10,000 each, producing a total budget of $1.4 million. “So far, we’ve managed to raise $840,000,” said Hayek, “which is enough to make the film. The remainder of the proposed budget, $560,000, is mainly meant for marketing and promotion. Now that shooting has started, however, I’m sure we will be able to attract further funding.”

The film’s projected revenues have been estimated at $2.1 million, which include theater admissions in Lebanon and the Middle East, as well as from television, video and DVD sales. What’s more, Fantascope and Hayek hope to cash in on the sales of CDs and cassettes with the film’s music.

So far, all the investors are Lebanese, among whom the LBCI chairman Pierre Daher. “Daher is a strategic investor,” said Hayek, “who is not just interested in making money, but who wants to test the market and see what the possibilities are. If this film works, he may be interested in making more.”

This seems to be the motto for all involved in the making of Autobus: including AFC, which has traditionally been focused on investment banking, brokering and portfolio management. “We are interested in targeting other sectors,” said Hayek, “among them audiovisuals, which have so been disregarded by bankers.”

Competing over Martyrs Square

To introduce a new face for Martyrs Square and the central axis of Beirut’s central district, Solidere has launched an international Urban Design and Ideas Competition open to both professional architects and students of architecture, urban design, urban planning and landscaping. In past plans, the axis along the square was meant to be Beirut’s main business and office area, but that seems to have changed.

“There are no limitations or requirements concerning the way participants can envision the new center of Beirut,” said Fadi Jamali, manager of Solidere’s Town Planning Department “It’s a mixed use area, so the square’s direct surroundings can be destined for shops, offices, or any other activities.”

However, Solidere does have a preference that the new heart of the city should reflect the reemergence of the center as a meeting point for people of all confessions and backgrounds. The notions of connection and communication play a major role and in that sense Solidere hopes the new center may become something of a media city.

“Martyrs Square symbolizes the link between past and future, East and West, old and new,” said Jamali. “In that sense not only the media, but also Internet companies and ad agencies could play a role.”

Solidere will award six cash prizes for student participants in the first stage with a ranking of the first three selected urban ideas and three honorary mentions. In addition, 5-7 professional architects will be asked to further develop their ideas and will be paid a fee for their work.

The second phase requires professional accreditation. Three cash prizes will be awarded after the second stage, while the winner will cooperate with Solidere in executing the design. Mid October the jury will decide upon student winners and the architects who will go through to the second round, the deadline of which is mid April. Winners will be announced on Martyrs Day, May 6, 2005.

A diplomatic advertiser

Bigger is not always better, at least that is what the newly founded advertisement and marketing company Adbox is out to prove. With a personalized market approach and a touch of feminine charm, the Gemazieh-based company has quickly found its niche in Lebanon’s highly competitive market.

“Adbox is aspires to be a boutique agency offering tailor-made marketing and advertisement services for small and medium sized companies,” said its owner Ghida al-Solh. “Not everyone can afford or wants to work with the big agencies, as they will never be treated as premium clients. Adbox offers a premium, personalized treatment and the same international standard.”

The company offers anything from public relations, media strategies and brochures to ads, packaging, corporate identity development and direct mailing. Having opened only this summer, Adbox’ clients include the jeweler Tufenkjian Freres, the Rest House in Tyre, Al-Baba Al-Mumtaza Sweets and Bear Real Estate. “For the next two years,” said Solh, a Lebanese American University graduate who worked for 7 years in a PR and marketing company, “I want to work with no more than six clients, after that we’ll see.”

To keep the costs down and remain flexible, Adbox is largely a one-person show. “Apart from my secretary,” Solh said, “I have no staff. I work only with freelancers on a project basis. I know most people in the business. While one may be excellent in layout, another’s specialty may be packaging. So, not only do I keep my operating cost down, I also work with only the best in the market.”

The young entrepreneur thinks she has one more asset allowing her to compete in Lebanon’s advertisement and marketing market, which she defines as “male dominated and rather aggressive.” She claims to “work with a much smoother, yet no less determined approach. I guess I’m just a bit more diplomatic. Perhaps that’s the family genes at work.”

We can use more education

Returns on university investments are highly beneficial to both individuals and national economies, reports the Organization for Economic Cooperation and Development (OECD) in its latest report on global education levels. According to the September 2004 report, individuals investing in their tertiary education on average achieved substantially higher returns than the potential rate of return from investing in financial markets. As for the benefits to a country’s overall prosperity, across OECD countries one additional year of education was estimated to boost economic output by between 3-6 percent

In light of such findings, Lebanon’s unabated fascination with higher education should simply spell good national economic prospects. Today, with an excess of 40 licensed institutions of higher education, the Lebanese university and college sector is continuing to see high demand from education seekers.

When it comes to matching supply and demand, the main surge in student numbers seems to be occurring at institutions with low- to medium-range tuition fees, which were licensed four to five years ago and, since, undertook massive expansion of their facilities. Admission officers at the American University College for Science and Technology (AUST) last month were working overtime to process student applications, anticipating a total enrolment of 4,500 or more, a 50 percent increase over 2002. At C&E American University, administrators told Executive they expected enrolment to reach 2,000 on their three campuses. The institution’s first two graduation classes of 2003 and 2004 numbered 300 in total. Another provider with massive ambitions is Global University, which wants to grow from a student body of 300 students today to “become one of the largest campuses in the area,” says an official,

All three of these education providers have tuition fees in the range of $115-130 for undergraduate courses. 

Top-ranked institutions have managed steady but controlled increases of student numbers. In the fall 2004 enrolment season, AUB’s Olayan school of business was keeping its student numbers stable while new facilities are under development. At AUB overall, where the tuition fee per credit hour costs up to $500, total enrolment of undergraduate and graduate students increased from 6,200 in 2001 to nearly 7,000 in spring 2004, with admittance rates for freshmen above 75 percent over the last three years. The shared vision of Lebanese education providers is to function as a regional center for excellence in training. But the rapid growth in institutions and students must, first, prove that it can provide quality across the board. 

The perils of cheaper gas

After a summer of high-flying energy costs, oil prices rose above $46 as autumn knocked, minimizing prospects in the foreseeable future that a barrel of crude would be available for $30 or less in international markets. Earlier this year, oil exporting countries and analysts had still claimed that a target range of $28-35 was attainable. Today, however, some analysts contend that the recently feared $50 threshold could soon turn out to be a price platform rather than a ceiling–the high price levels making Western consumers pay at the pump for the cost of the Iraq war.

In this context, Lebanese motorists ought to dismiss any hopes for a near-term reduction in gasoline costs to $10 per 20-liter tank filling. However, the political decision to not let gasoline prices rise above $15 per tank has thus far shielded local drivers from possible further increases. “We used to raise prices immediately after they increased on international markets, but this is no longer done,” confirmed an analyst at the ministry of finance.

So at least for the time being, Lebanon’s system of government-mandated gasoline prices, with fixed trade margins for gasoline importers and gas stations, works to the benefit of the consumer, while the Lebanese state is bearing the burden of international oil price increases. It is impossible today to predict the exact impact of international oil market developments on Lebanon’s fiscal situation, however upward price movements will inescapably cut deeper into the state’s revenue from excise taxes on imported oil derivatives. Over the past years, these taxes had increased dramatically in their importance, reaching almost $500 million in 2002. In the context of the dismal state finances, it appears only a matter of time until the government could see itself forced to look at re-adjusting those revenue flows and lift the price cap on gasoline, even if this risks another price shock to the economy.  

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Money Matters

by Executive Contributor
written by Executive Contributor

Capital Intelligence raises ARABIC’s rating to A-

Capital Intelligence rating agency has raised Saudi Al-Rajhi Banking & Investment Corporation’s (ARABIC) long-term credit rating from BBB+ to A-, thus placing it at the same level as the long-term sovereign rating of Saudi Arabia. The bank’s short-term foreign currency rating and financial strength was kept at A2 and A- respectively. The agency noted that this upgrade is attributable to the significant improvement in the bank’s liquidity profile due to its success in developing an acceptable means of investing in Saudi government securities. It is to note that ARABIC retained in 2003 its traditional ranking as Saudi Arabia’s most profitable bank with total assets standing at $17.3 billion (about 12% of the Kingdom’s banking assets).

Bank Muscat issues $64 million bond

Bank Muscat, Oman’s largest bank, launched a 25 million rial ($65 million) 10-year bond with a 6.25% fixed rate. The deadline for the issuance, which will be listed on Muscat Securities Market, is set at June 30th and was assigned a BBB rating by the international rating agency “Fitch.” This issuance came a month after the bank introduced a 96.25 million rial ($250 million) bond, which closed oversubscribed at 134.75 million rial ($350 million). It is to note that Bank Muscat recorded in its first-quarter a net profit of 7 million rial ($18 million), up form 6.4 million rial ($17 million) in the same quarter last year.

Country Profile: Palestine

The World Bank approved an emergency structural adjustment grant of $20 million as an immediate budgetary support for the Palestinian Authority (PA), which after three years of crisis, is facing severe economic and fiscal challenges with a financing gap estimated at $650 million for this year. Contributions to the bank-administered multi-donor instrument reform fund amounted to a current $25 million. In addition, the World Bank launched a Social Safety Reform Project with an initial financing of $10 million aimed at providing regular cash assistance, food donations and health insurance provisions to nearly 36,000 beneficiary families. The bank has been active in the West Bank & Gaza for the past 10 years, adopting to the prevailing political climate from reconstruction to institution building, and since September 2000 to emergency assistance. The fiscal situation in the West Bank & Gaza remained difficult in 2003 and 2004. PA’s budget deficit for 2003 amounted to $558 million and to $329 million after including external budgetary support of $230m (compared to $467 million in 2002 and $530 million in 2001). In addition, the stock of indebtness to the banking sector reached $176 million at year-end 2003, or 5.4% of GDP.   

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Society

Down but not out

by Marianne Mirabeau
written by Marianne Mirabeau

There was a time, in the late 90s, when Lebanese basketball could do no wrong. Lebanese teams – brimming with home-grown talent and the odd high-profile import – beat everyone in sight, games were shown on prime-time TV and crowds of enthusiastic fans blocked streets for hours, celebrating victory after victory. Lebanon appeared to have found its national sport and the sponsors could not get their checkbooks out fast enough.

That was then. Today, the clubs, deserted by their sponsors, are propped up by wealthy patrons, marred by scandals, feuds and crises. The recession did not help, but when Antoine Choueiry, advertising mogul and the so-called “Godfather of Basketball,” recently announced his retirement from the presidency of Sagesse and indeed from the sport in general, basketball’s last hope appeared to have hung up his shirt. So what went wrong and what now for the sport that promised so much?

A sport supported by patrons

Essentially Lebanese basketball was always a loss-making concern, largely dependent on patrons willing to pick up the check. In the first division, all teams have one to two main patrons, covering virtually the entirety of their budgets, which averaged $1.5 million in 2004.

Relationships were formed out of a love for the sport, politics and business interests. Hence BLC Bank became one of Champville’s main sponsors, contributing $350,000 annually to the team, because tuition fees to Champville School were deposited with BLC. UFA insured the club and went on to sponsor the team to the tune of between $200,000 to $300,000 annually (although this jumped up to $800,000 in 2004 when UFA General Manager Henri Chalhoub was nominated team president).

“Each club has a certain person paying the deficit,” said Federation of Lebanese Basketball (FLB) Manager Roland Tabet. “For Blue Stars, it’s [Banque Saradar’s] Mario Saradar or [Loto Libanais’s] Rainier Jreissati. The club is not making a profit. None of them are.”

The Choueiry factor

It was Antoine Choueiry’s goal to make the game financially self-sufficient when he took over Sagesse in 1994. He may have failed in his bid, but his tenure as the sports most high-profile patron changed the face of the game. “Regardless of what anyone might say about Antoine Choueiry, what he did for basketball was memorable,” said Carlo Vincenti, who represents William Lawson, a former major sponsor of Sagesse. “His approach to basketball was very interesting, and it is what Lebanon needed – a more global approach, a more commercial approach.”

Choueiry injected significant amounts of capital both into his own team as well as into that of others. “He backed other teams up financially such as Antranik and Hannibal. He used to pay them $150,000 so they could play in the league,” explains a major Lebanese sports agent, who did not want to be named. With a solid group of teams competing at the highest level, Choueiry upped the ante by buying overseas professional players (mainly from the US) to shore up the quality of his own team. Such a move catapulted both Sagesse and the Lebanese national team on a winning streak, which culminated in Sagesse’s victory at the Asian Basketball Championship in 1999 and Lebanon’s qualification for the World Basketball Championship in Indianapolis, USA, in 2002. The media took the bait and the hype surrounding the sport reached a frenzy in 2000, when Choueiry, who controls 70% of Lebanon’s ad-spend, convinced LBCI to broadcast basketball games during prime time. “He got all the teams together and brought LBCI in to cover them, broadcasting the games live on satellite TV,” said the sports agent. “People started watching more and more basketball.”

Summing up the philosophy behind his strategy, Choueiry was quoted as saying that “to be competitive in sports, you need money, to get money, you need sponsoring, to get sponsoring you need exposure, for exposure you need TV, for TV to be interested you need true competition of a certain level. This needs important teams, to get important teams you need money.”

The sponsors liked what they saw. Despite representing a non-sport oriented product, William Lawson went from an obscure Scottish Whisky to a household name in three years by sponsoring Sagesse. “It was definitely effective in terms of brand building. When we started (sponsoring Sagesse in 1999), basketball wasn’t that big,” he said. “And basically while we were sponsoring Sagesse, it started winning tournaments, starting with the Lebanese championship, the Pan-Arab games and then all the way to the Asian Basketball Championship. So there was a major hype around basketball, and we got a lot of exposure from it. Before Choueiry you would never have seen a basketball game playing on prime time on LBCI. What sponsors need is the exposure – for them a basketball game playing at midnight or a game playing at 8:30 pm makes a big difference.”

The sport of choice

The increasing exposure made basketball the sport of choice in Lebanon, both in terms of audience and practice. According to Tabet, the number of licensed basketball players in Lebanon has been steadily increasing since 2000, when the Federation counted approximately 6,000 players. Today, this figure stands at 15,000. “Everybody loves basketball,” boasted Riaydi coach Fouad Abou Chacra. “In every family in Lebanon you have someone playing basketball. It’s the biggest sport.”

For Pepsi, the growing appeal of basketball in the country, especially among the youth, served as a big draw to get involved in the sport, and from 2000 on, the multinational signed up. “Pepsi wants to get close to what the youth likes, and in Lebanon, that sport is basketball more so than football,” explained Roula Safi, a regional account director at Impact/BBDO, Pepsi’s regional advertising agent.

Piggybacking on the significant exposure brought to basketball through prime time TV coverage, Pepsi went on to sign deals with LBCI, as well as buying ad space on courts. They launched a major ad campaign around Rony Seikaly, a fading, but high-profile Lebanese NBA player, and organized a promotional competition in 2003 to attract young, new talent to basketball.

“LBCI has done a good job of promoting the game, creating a hype – that’s why we have been sponsoring the game for the past three years,” Safi added. “As all the games are retransmitted, there is a lot of brand visibility, so branding on courts has been a good investment for us.”

Too much hype?

The sport reached it peak in 2000, after which the hype began to fizzle. Explaining William Lawson’s decision to terminate its sponsoring contract with Sagesse in 2000, Vincenti said: “Once you’ve reached the top it’s difficult to keep the interest going. They won the Asian Championship… then what? When you win the Lebanese championship ten years in a row, it becomes boring.”

For now, the brand is not considering returning to sport sponsorship any time soon. “Lebanon is not sports-oriented,” Vincenti said. “Actually, they are quite sports oriented, but not toward local sports, it’s much more international. Football is small and basketball was basically the most popular sport.”

It’s the economy stupid! Compounding the slump was the slight problem of a recession. Sponsors are pulling out, contracts are going for less, and advertising spots are being sold for a fraction of the price they used to. Getting one’s brand on the coveted center circle of the basketball court once went for $50,000 to $100,000, depending on the club. Today, it can go for as little as $6,000.

“The economic situation in Lebanon has been getting worse in the past five years, and thus the overall advertising budget is also down proportionally, by nearly 30% compared to what it was six years ago,” Choueiry complained last year.

Tabet agrees. “Instead of having a contract for $50,000, probably now they are negotiating for $15,000 to $20,000.”

Following the withdrawal of LibanCell, Sagesse is now saying goodbye to Adidas, its second biggest sponsor and one that had been with the team for years. “Adidas sponsored us for five to six years,” said Barakat. “This is in part because they are transferring their regional headquarters to Dubai, but it is also due to the fact that they are cutting down on their sponsoring budget and focusing on big international teams.” Adidas declined to comment on the matter.

The vote of no-confidence will undoubtedly affect the earning power of Lebanon’s top players, many of whom earn as much as $20,000 a month. “Even Lebanese players are earning between $5,000 and $7,000 per month,” said Barakat. The unraveling of the sport

However the sport’s struggle to obtain sponsoring cannot only be blamed on the economy. Crises, scandals, and mud-slinging have destroyed confidence among fans, players, team owners and sponsors alike. Topping the list of scandals is Café Najjar’s decision to dissolve its team following the brawl that erupted between its players and an Algerian team at the Arab Championships in Jeddahin May 2004. “Georges Najjar was unhappy with the fact that a team associated with his company, which is expanding into Algeria, was seen fighting on TV with the Algerian team,” the agent explained. “There are problems in Lebanese basketball,” admitted Joseph Abdel Massih, a member of Champville’s Sports Committee. “The championships never really finish. Every year you have a problem at the end of the championship. The clubs and the Federation need to solve these problems –sponsors don’t want to see players wearing their jersey having problems. Everything has to be calm.”

To others, the problems go beyond the perpetual feuds between the FLB and the teams. “The problem is that we’re in Lebanon – no law is applied, there is no legal recourse,” a Blue Stars affiliate complained. “It’s the law of the jungle, the law of the strongest that prevails. And who is the strongest here? Choueiry.” But while Choueiry’s sudden departure from Sagesse left a few rubbing their hands in glee, the most prevalent reaction was that of widespread regret. That the sport will suffer a set-back financially due to his retirement is beyond doubt and many patrons are abandoning what they see as a sinking ship. Henri Chalhoub is apparently to leave Champville and take UFA’s sponsorship with him. “I am almost certain that we won’t sponsor Champville anymore,” an associate of Chalhoub confided.

The challenges ahead

As patrons and big sponsors desert the court, the onus is on the sport to clean up its act, and on the teams to build up a strategy to re-attract enough sponsors to become self-sufficient. “Within five years, we plan to have sponsors covering our budget,” said Riyadi coach Abou Chacra. “We can achieve this target. This team will be able to attract all the big companies – it has the biggest number of supporters and it’s the oldest club.”

Others are more cautious in their predictions. Acknowledging that Choueiry’s departure will require an extended recovery period for the sport, they do however, point to the strengths Lebanese basketball has been able to build up over the recent years: the number of enlisted players, the enduring preference for basketball over other sports, the continued broadcasting on LBCI and the on-going plan to establish a Lebanese-Syrian-Jordanian Superleague.

“This [super league] will attract sponsors,” said Sagesse technical director Rizkallah Zaloum. “Next season the sponsorship will increase.” Pepsi is cautiously confident. “We do research assessments on the game’s appeal every year, notably to see if it is still attracting youth,” said Safi on behalf of Pepsi. “If it is still generating the interest that it is now, that will serve as a major factor in our decision as to whether or not we will continue sponsoring the sport.”

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Society

Battle of the Titans ends in merger

by Anthony Mills
written by Anthony Mills

This year, more than four million cinema tickets will be sold in Lebanon, despite the offer of a cheaper alternative by hundreds of cable TV and DVD pirates. The ABC mall cinema in Achrafieh has finally thrown open its doors – after months of delay. A 12-screen multiplex north of Beirut, reportedly the Middle East’s biggest, is slated for completion by year’s end. The big story however, is the merger between Lebanon’s two major cinema distributors, Planete and Empire. The move comes after an almost ten-year battle for market supremacy, one in which Empire ultimately prevailed.

Both companies confirmed to EXECUTIVE that Planete has committed to a November 4 management takeover by Empire, in a possible prelude to a buy-out. The announcement comes after Planete saw the 65% market share it acquired in just a few years after its 1995 launch drop to less than 25% in 2004. The official announcement of the deal will come in mid-October. The decline in Planete’s share of the roughly $20 million Lebanese cinema sector was precipitated by an aggressive Empire campaign to rebuild its market share, primarily by renting more space for cinemas. Unable to follow suit, because unlike Empire it had already spent a fortune buying cinema space, Planete looked on helplessly as Hollywood studio giants Warner and UIP re-defected to the Empire camp two years ago, and revenues plummeted. “We had different strategies. We invested much more than they did. Our strategy was to run theaters we owned. Theirs was to manage theaters. Now we understand that their strategy was the right one, and we were wrong,” declared Planete Manager Gilbert Chammas.

Planete’s brisk march to success after it broke into the sector almost 10 years ago took Empire by surprise. “We hadn’t taken Planete seriously,” admitted Empire Manager Gino Haddad. “But after the first year we saw that their figures were good. They began to eat away at our market share.”

When, after only a few years, Planete had a bigger market share than Empire, the alarm bells started ringing. The problem, explained Haddad, was that Empire simply didn’t have enough screens to satisfy distributors by playing all their movies, and keeping them on offer long enough. And so, a number of the distributors had decided that their interests would be better served by Planete. Empire’s response? “We opened more cinemas,” chuckled Haddad. “And we took the prime locations: Sodeco, Dunes, and recently the ABC mall cinema.”

In the absence of a counter move by Planete, the additional high-end Empire screens quickly tilted the market share balance back in Empire’s favor. Distributors began drifting back. But Chammas contended that they didn’t move back solely to maximize ticket sales. “When UIP was with us, they used to have 400,000 to 500,000 admissions a year. With Empire they now have only 150,000,” he asserted. He refused to reveal what he believed the distributors’ true motives were, saying only that Empire benefit from the alliances.

“Planete was starting from scratch,” echoed Haddad. Empire, on the other hand, has been around in one form or another for almost a century. The business distributed Lebanon’s three highest-grossing movies ever – TITANIC (about $2 million),” The PASSION OF CHRIST (about $1.4 million), and THE MASK OF ZORRO (roughly $600,000 – and sold about 2.6 million seats in 2003.

“Planete, I think, welcomes the management takeover move because all the major movies shown in Lebanon are now shown by Empire,” declared Haddad. “This year, our market share has grown to 78%. If things had continued like this, maybe next year we would have had 85%. And that’s how it would have ended. This is actually in the interest of Planete.” “It’s a win-win deal,” agreed Chammas.

Negotiations began over six months ago, according to Haddad. Both he and Chammas declined to disclose who initiated the merger discussions, but they stressed that the talks were amicable. Asked if Empire planned an eventual buyout of Planete, Haddad said: “There is the possibility of a buyout if the price is convenient for both parties.” Yes, he added, there had been discussions about whether or not Empire would be interested in buying. Planete was valuing itself in excess of $5 million, he said. Chammas confirmed the possibility of a buyout at a later stage. Haddad claimed, though, that Empire was adopting a cautious approach to the buyout option. He said the earliest a buyout would come in a year, after Empire had had time to assess the prospects of Planete cinemas under Empire management.

“Buying today is a risk, because in ten years’ time, I can’t tell you if Abraj and Zouk will still be doing the same figures,” he said. It is still unclear, he explained, what effect the ABC mall cinema will have on other cinemas. “ABC is exactly four-and-a-half minutes’ drive from Abraj, along the motorway. For every cinema that goes up, one goes down. ABC has gone up. Either Sodeco or Abraj will go down.”

Under the terms of the management takeover deal, Empire is to assume control of Planete’s Tripoli, Zouk and Abraj cinemas, which will retain their Planete brand identity. Planete will continue to manage its Concorde venue in Verdun. Overall, Planete theaters count a total of 28 screens and about 5,500 seats. The merger will give Empire control of 60 screens in Lebanon.

Empire is to pay Planete a percentage of revenue or “rental fee.” Haddad said he was unable to reveal figures, but said the fee would represent a “good chunk of revenue,” at least equal to current Planete earnings. A product of the merger, said Haddad, will be the homogenization of cinema movie selections across Empire and Planete screens. The curtains will be drawn on an almost-10-year Empire-Planete tussle for exclusive agreements with international distributors and on the mutually exclusive Empire and Planete movie listings these fluctuating alliances spawned. Soon, choice of movies will no longer figure among the criteria used by cinemagoers to decide which cinema to head for. Instead, they will be paying greater attention to décor, surroundings, location (including proximity to home), and atmosphere. “We want to get to the point where, like in the United States, people choose the site, and not the movie,” stated Haddad. “Having all the good movies in each cinema will increase revenue.”

And once the audiences are choosing sites, not movies, Empire intends to charge more for high-end venue tickets than for others. Just as moviegoers pay £11 to see a movie at a Leicester Square cinema in the heart of London, and less in the suburbs, so, Haddad explained, Lebanese audiences will be charged more to watch a movie at the ABC mall in Achrafieh, than at a cinema in Tripoli. “We might price tickets at new sites, with the best seats, sound and screen, at $10. But we would price the same movie at an old, dying site at $5.00,” he said. Even Sodeco tickets would cost less than ABC ones.

Another product of the deal will be the amalgamation of Empire Espace and Planete Zouk, both north of Beirut, to create a 12- or 13-screen 3,000-seat multiplex venue, complete with a media store and entertainment facilities. Espace Planete, as it will be known, will be the biggest multiplex venue in the Middle East, according to Chammas, and is scheduled to begin screening before the end of the year.

Empire believes there is money to be made from the massive influx of Gulf Arabs. The company’s newly-opened cinema at the ABC mall in Achrafieh attracted flocks of Gulf visitors in July and August, according to Haddad. In part to cater to Gulf Arab visitors, Empire is pioneering a staggered show-time approach – already standard practice in America and Britain – at its ABC mall cinema. Instead of showing movies at fixed times, a new screening begins in one of the nine theaters every 15 minutes. This routine allows viewers to dispense with the bustle of getting to the cinema ‘on time,’ and to integrate their cinema visit with a ramble around the mall, or a bite to eat at one of the shopping center’s cafés or restaurants. Gulf Arab families who have come to Lebanon to relax welcome the stress-free approach.

Although Gulf Arabs still represent a fraction of Lebanon’s annual box office receipts, they spend far more than Lebanese viewers at the concessions stands. “The average Lebanese spends a dollar or two. A Gulf Arab spends $7 to $10,” observed Haddad. And concession takings constitute between 20% and 30% of Empire’s overall annual revenue, he noted.

When it comes to taste, the younger Lebanese crowd isn’t too hot on Arabic movies, apart from the iconic ones like “West Beirut.” That explains why you might see only one Arabic movie a year in an Empire cinema, observed Haddad.

And there is no hope at all in Lebanon for art house movie theaters, which are popular in the West. “We tried,” said Haddad. “But no one wants to go to those kinds of cinemas anymore here. If there was a huge library in Lebanon, like in France or England, with old, interesting books, how many people would you see in it?” Home theaters are taking a steadily increasing, but bearable, toll on cinema owners. DVD and cable TV pirates, on the other hand, have, for several years been slashing huge chunks out of cinema revenues. According to lawyer Walid Nasser, who has been tasked by major American film studios with limiting the damages to their interests caused by piracy in Lebanon, cinemas here have lost more than 50% of their audiences because of the problem. “And the government is doing nothing about it.”

Nasser said there were as many as 700 pirate cable companies operating in Lebanon, with up to 750,000 subscribers, who pay an average of $10.50 each a month. This translates into a total monthly revenue of over $7.5 million for pirates.

“You can buy fake DVDs from Malaysia here for $2. We have pirated cable TV providers who play all the new movies. It’s a huge problem. In other countries they are finding solutions, but not in Lebanon. There are too many people involved. There’s too much money being made by people who control the market and have an interest in keeping things as they are,” lamented Haddad. “It’s like the electricity problem. In Jounieh, everyone pays. In Dahieh, no one does. It’s simple: politics. At the border, when they bring over pirated DVDs, someone gets $100 and a phone call. And even if pirates do get arrested, nothing happens to them. They have to pay $400 or $500, or another phone call is made.”

“There was one case in Sidon, where we went to raid a major pirate,” recalled Nasser. “He had a Kalashnikov on his desk. That put an end to the raid pretty fast.”

Asked if some pirates were protected by powerful public figures, Nasser said: “Frankly, I wouldn’t be surprised because of the amount of money that’s collected on a monthly basis – $7.5 million is a lot of money.”

If piracy was being combated properly in Lebanon, Haddad said, Empire would double its DVD sales. On a positive note, though, in contrast to other Arab countries, censorship in Lebanon is no longer proving too much of a headache for cinema industry professionals. “We have come a long way from the days when you couldn’t show a breast,” remarked Haddad.

TYRING TO REMAIN INDEPENDENT IN A CHANGING MARKET

Cinema runs in the blood of the Fathallah family. Since its inception in the age of silent movies, the Fathallah family cinema business has been passed down from generation to generation. Today, the Fathallah Films Co. rests in the hands of A.K. Fathallah, independent owner of the one-screen Aresco Palace and Montreal cinemas in Sanaya and Hamra respectively. Unable, though, to compete with Empire and Planete in the English-language film market, or to survive on Arabic film screenings alone, A.K. is battling the unthinkable: an inauspicious shutdown of the family’s cinema business interests.

Years ago, Fathallah Films used to distribute to cinemas across Lebanon, from Tripoli to Sidon, and throughout Beirut and its suburbs. Today, it finds itself confined to two locations in Beirut.

“There used to about 20 theaters in Hamra. We are the sole survivors. We’re trying to continue,” mused A.K.. “These days, we can show only Arabic movies, because Empire and Planete, who own all English-language film distribution rights for Lebanon, won’t give us any movies. Sometimes they say they don’t have enough prints, sometimes that they are waiting for confirmation from America. But the truth is they have their own cinemas and have no interest in letting anyone else show their films.”

A.K.’s audience numbers have been given a modest boost by the increase in Gulf Arab visitors. This year, A.K. opened a cinema for two months in Bhamdoun, to tap into the summer Gulf market up there. But there just aren’t enough popular Arabic movies, or Gulf tourists, around to pack A.K.’s cinemas consistently. During the lulls, he rents out his theaters for plays and shows. A mark of desperation? “It’s difficult,” A.K. concedes.

Increasing cable piracy since the end of the war in 1991 has only made matters worse. “The last five years have been terrible,” declared A.K.. “Everything is working against cinema. And no one is helping. They ask me for my certificates. Why does no one ask the pirates for theirs? People can watch 100 stations at home and pay nothing. Nowadays, to get someone out of their chair to go to the cinema, you need to offer a big choice or a big movie.”

Fathallah Films’ plight has been aggravated by changing audience preferences. Today’s younger generation in Lebanon is shying away from Arabic movies and one-screen cinemas, in favor of action-packed American blockbusters and multiplex venues. Back in 1980, Fathallah Films drew audiences to one of its cinemas for a year with the same Arabic movie. Today, that would be inconceivable. A.K.’s cinemas draw about 55,000 viewers (or roughly $260,000 revenue) a year, a far cry from Empire’s 2.6 million. No one has offered to buy out Fathallah Films’ cinema interests – an ominous indication, maybe, that, from a market perspective, they are simply not worth buying. This explains why the company has, in recent years, placed ever-greater emphasis on its non-cinematic interests. “We are shifting from cinema to television,” stated A.K. Fathallah Films distributes programs, including documentaries and cartoons, to television broadcasters like MBC and Dubai Television. Asked if Fathallah Films could survive today on cinema alone, A.K. responded: “Never. It’s impossible to survive on our two cinemas and low audiences.”

“I hope we don’t have to close down our cinema interests altogether,” he added. “I love cinema. My brother loves cinema. Our family started this company with cinema.”

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Business

Head shots

by Michael Young
written by Michael Young

Oh, how Adam Smith would have shuddered to know that the “invisible hand,” which he described as the guiding force of markets, can be seen most often these days cutting the necks of videotaped hostages in Iraq and Saudi Arabia – and that this, too, is guiding a new and exotic market, that of execution CDs. In September, the passion to film atrocities was evident in Beslan, South Ossetia, where Chechen gunmen shot footage of the booby trapped gymnasium where they were holding hundreds of captive schoolchildren, though the exact reason why they filmed remains unclear. Perhaps it was to warn off Russian security forces by showing them the surfeit of explosives in the room; perhaps it was to record the event for posterity or for propaganda purposes. That said, few experiences are more ghastly than watching similarly reasoned videotapes from the Chechen war, where rebels filmed themselves cutting the throats of pleading Russian prisoners.

Everywhere, it seems, militant Islamists, or self-described “freedom fighters,” have been transformed into ghoulish Irving Thalbergs, producing what was hitherto an urban legend: snuff films. And where there is sensationalism, there is supply and demand: According to a Reuters reporter in Iraq: “The hottest-selling item at Baghdad’s video CD market is not a movie or a music video –it’s an ordinary Egyptian whose beheading was filmed by his Muslim militant captors.” And how big a market is that? “We see about 300 to 400 clips a week,” said one shopkeeper, who didn’t have the nerve to watch what he was selling. At about 70 cents a CD, that’s (for Iraq) a respectable $210 to $280 a week. The paradox of the execution CD sales, much like that of al-Qaeda’s ability to use new computer technology or to decipher and exploit the Byzantine ways of international financial transfers, is that utterly illiberal gentlemen are at ease in the ways of the free market. The market is, in theory, amoral, so that whichever product finds an aficionado should also find a price for its purchase. In fact, that rule is repeatedly broken, for example in the sale of child pornography or the distribution of drugs. But where do the execution CDs take their place?

The answer would appear simple: in the dustbin. But that’s clearly not where Iraqi shopkeepers are storing them, or where avid spectators are watching them. Why? Because somehow death has been hitched to things regarded as legitimate: anti-Americanism, the alleged apostasy or guilt of the filmed victims, perceived resistance, and the like. More easily illustrating this trait, another of the big CD sellers in Iraq show images of the young cleric Moqtada al-Sadr edited in with war scenes showing people lying in their own blood. Watching exhibitionist violence becomes eminently acceptable if viewers regard it as part of a justifiable experience, a fact splendidly exploited by Al-Jazeera, which has embraced, if not largely propelled, the market of videotaped captive-taking.

In that context, for example, Iraqi viewers may watch CDs with images from Abu Ghraib (with spliced-in scenes from a Hungarian pornographic film showing alleged American soldiers raping Arab women) because he or she feels it is a duty to confirm the evil nature of the American occupation. NBC correspondent Hanson Hosein recently quoted a shopkeeper: “The Abu Ghraib scandal CDs are very popular … people are angry at what the American soldiers are doing.” Of course, one cannot underestimate the brute titillation some members of the public feel while watching someone being butchered. It’s apparently not all stern duty. And one suspects that not a few Al-Jazeera viewers (or those of Al-Arabiya, which is less beloved by the chop-chop set) watch the edited murders much as they would a spectral scene from Werner Herzog’s NOSFERATU THE VAMPYRE. What is the moral of the atrocity CDs or videos making the rounds in Baghdad or Riyadh? That even those who wish to carry the world backwards to some vague time immemorial will adopt the most modern techniques to do so; that even the most outrageous of human actions can produce a market of sorts, proving that free minds and free markets need not invariably be one; that human beings will readily watch other humans being killed for various reasons, and will usually seek to justify this on moral or political grounds; and that even the most ardent defenders of freedom, in particular the freedom to broadcast and watch atrocity tapes, can define it truly only as the right to be free without harming others.

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Business

Taking retail to the next level

by Thomas Schellen
written by Thomas Schellen

ADMIC, operator of the Monoprix and BHV stores in Lebanon, are adding to their retail stable. The company has begun its PR and marketing campaign for the 200,000 square meter City Mall, due to open at the northern gateway to metropolitan Beirut in three stages between December 2005 and the end of 2006.

ADMIC chairman and CEO, Michel Abchee, told EXECUTIVE the mall will open on the ground floor with specialty shops and one new ADMIC-operated anchor store, the 11,000 square meter hypermarket Casino Geant. In the second phase, the food court and shops on the upper level will open in early spring; followed by a 18,000 square meter BHV outlet as a second anchor and a nine-cinema multiplex at an unspecified date in 2005. The company is in negotiations with a sporting goods store that would function as the mall’s third anchor. The $70 million project is running slightly above budget, due to euro-related increases in construction costs and because of adding areas onto the initial blueprint. The financing of City Mall is based on retained earnings from ADMIC operations, capitalized at $50 million, and bank loans under leadership of the retail company’s house bank, Banque Méditerranée. “We were able to get an investor base that was interested in what we are doing and in our market. Our shareholders have pushed for the development of ADMIC by reinvesting profits instead of paying out dividends,” Abchee said. “This really helped in our development of growing from 50 employees [in 1998] to over 1,000 employees today and 1,500 by the end of the year 2004.” That the retailer stepped outside of its core business competencies by taking on a real estate developer function, was explained by a desire to meet international standards and customer demand. He admitted that the country has an oversupply retail space in real terms, but when it came to quality and specifications required for a project of an international standard, most locations and developments did not measure up. Thus, when ADMIC investigated the possibilities for establishing a hypermarket they opted to build an entire mall from scratch on their preferred site. The site, on the north side of the Dora Highway, satisfied the company’s preferences for easy accessibility, significant traffic flows and a good catchment area in Beirut and the Metn region. With new tenants coming onboard daily, Abchee is confident that the City Mall will stand out in Lebanon’s convoluted retail landscape and attract sufficient consumer spending despite the nation’s reduced purchasing power. “We have received positive reactions from the representatives of international brands,” he said. “We really built a mall suited for Lebanon and suited to international clients. The mall will be the first of its kind.”

While all this may contain a degree of hyperbole, the ADMIC project appears to indeed fit well into the evolutionary pattern of mall developments in Lebanon over the past decade. The profound changes in the nation’s shopping patterns began as malls made their entry onto the local retail scene when the resurging post-war economy saw developers carve shopping centers like the Concorde Galleria in Verdun out of existing real estate as well as purpose-build a number of projects from the Freeway Mall in Sin El Fil to the Sodeco Square in Ashrafieh. But although a good number of these retail sites came to the market in the mid 90s bearing labels of malls, they represented more of an intermediary link in the advance of shopping from traditional high street and small store environments to new retail destinations. A few of the early projects initially flourished as urban shopping centers offering specialized retail (mostly fashion), entertainment facilities (cinemas and unsophisticated arcades) and small food courts, but many soon struggled, floundering in the recession. In this evolution, in which Lebanon today pursues modern retail concentration trends ahead of Syria and Jordan but substantially behind the Gulf economies, the current period marks a further stage of retail refinement through construction of larger, efficient malls. What makes ADMIC’s entry into the mall operating business interesting is that the company is consolidating an already entrenched position in the re-shaping of Lebanon’s shopping culture. The company’s new position in mall management converges with its role as multi-brand retail store operator and leading supplier serving Lebanese consumers in less than six years.

The larger businesses in Lebanon’s fast moving consumer goods (FMCG) retail sector can be broadly divided into traditional and entrepreneurial retailers. While the former constitute a host of family-centric companies with decades of entrenchment in relations with local manufacturers, traders and old-style exclusive agents, the entrepreneurial side of FMCG retail is really made up of two firms: ADMIC and Spinneys. Entering and immediately shaking up the highly contested market in the late 90s, both companies struggled with the sector’s entrenched business patterns, consumers’ shrinking purchasing power and the political and legislative environment.

Nonetheless, the two companies have risen to preeminent positions in the local market, expressed in combined 2003 turnover figures of roughly 1% of GDP – tendency pointing strongly upwards. According to Abchee, from already achieving slightly over $100 million in annual turnover, ADMIC looks to reaching $150 million by the end of 2004 and, including the new stores, aims to double 2003 turnover by the end of 2005.

In addition to the growth in volume, the company targets a wider customer spectrum through rolling out the Geant hypermarket brand, which aims to attract all income segments. Understanding itself as a firm that promotes the Lebanese middle class, ADMIC hitherto tended towards an image of addressing middle to upper income audiences with the BHV non-food product segmentation of clothing, perfume, electronics, household, sporting goods and do-it-yourself items. The Monoprix stores initially catered to medium to high earners, but now expanded their approach to appeal to cost-conscious shoppers with Monoprix-branded food items and their own-brand clothing labels. Last year, ADMIC began to strengthen Monoprix by adding three new stores to their portfolio. Another area where Abchee presents the company as having a different approach is in financing. “What we tried to do is separate the expansion from the day-to-day business,” he said. Under dependable participation by board members and banking partners, ADMIC made their investment calculations without thinking to involve operational resources. This resulted in keeping relations with suppliers free from financial hiccups, he claimed. “We are paying our suppliers on time and intend to continue to do so. We can take credit for respecting our engagements with suppliers.” As for concerns on possible internal cannibalization of revenue streams between stores, he said that the addition of stores did not produce significant cuts in turnover at the company’s stores in Jnah and Ashrafieh, calling a 6% to 7% contraction in turnover in Jnah “a big success for us” in light of the increased competition from the largest Spinneys outlet, which opened late last year two blocks down the street from the BHV/Monoprix complex. As a clear bonus on the operational side, ADMIC anticipates the expansion of retail floor space, first through opening the three new stores and then through the Geant and BHV stores in City Mall. As this reduces costs, the retailer’s improved bargaining position in sourcing products from local suppliers could mean some welcome reductions in retail prices.

Also outside of price benefits to Lebanese consumers, which were helped visibly by the competition between the Monoprix stores, the Spinneys chain and the traditional supermarkets over the past five years, ADMIC operations changed the retail sector in several other aspects. This impact extended from opening a small do-it-yourself niche in the Lebanese market and introducing new concepts on perfume sales – when launching the BHV cosmetics department, the company encountered “huge resistance against our presentation” from suppliers – to leading the sector in marketing and advertising campaigns, which were later followed by competitors and resulted in sector wide increased advertising spending, the manager claimed. The company also contributed in two ways to greater transparency, one by centering billboard advertising campaigns on aggressively priced sales items and two by declaring their policies and charges in allocating shelf space to suppliers. In the push and shove negotiations with manufacturers and brand representatives desperate to secure optimal positioning and maximum space for their products, supermarkets had commonly placed certain demands on suppliers – which smaller importers often found excessive – but these positioning conditions were usually not transparent. Industry insiders maintained that these arrangements were open to corruption. By laying open their policies on this matter and telling suppliers that their shelf space depended on their market share and their practices with ADMIC, Abchee said his firm could take credit for bringing much needed clarity to the process. In Abchee’s view, all these moves have successfully challenged conventional practices by established retailers and the major companies acting as FMCG suppliers. “All the big groups were traditional in their thinking. It took us a long time to change the way how these people are thinking,” he said. “We are helping in the evolution of consumer behavior and in the evolution of relationships between customers and suppliers.” On charting and analyzing consumer behavior, the company claimed to have no figures on the number of tourists frequenting the stores in the summer season and the contribution of their purchases to the turnover at BHV and Monoprix. Abchee explained the absence of detailed figures with ADMIC’s reluctance to undertake polls and surveys that customers might perceive as hurting their sensitivities. However, he confirmed that VAT reimbursement claims and credit card-related data were indicators for the high significance of purchases by tourists and summer guests for the company’s revenue stream, and the company made it a point to advertise at Beirut Airport. In fact, tourism was also an important consideration in ADMIC’s corporate strategy behind developing the City Mall project – and one where the manager became vocal on the absence of government support. If one looks at the reality of Lebanon as a tourism destination, retail shopping is one major way in which the country attracts visitors but the government has not given priority to supporting retail projects as tourism magnets, ignoring the issue “for all the wrong reasons,” Abchee said. “It is a major strategy in our marketing plan that we place special budgets to attract tourists. The only problem is that we are doing it alone. The government is counting a lot on the private sector for tourism development but not giving breaks in return. We would recommend closer communication between the government and the private sector.”

A second matter where public-private sector interactions are relevant to ADMIC’s devlopement concern the company’s plan to bring a store of French fashion retailer Galeries Lafayette to the SOUQS of Beirut. The plan, hatched several years ago between the Groupe Galeries Lafayette (which is also the parent company of the BHV and Monoprix chains) and ADMIC, has not been abandoned but has been deeply packed in ice by the quarrels and delays surrounding the downtown SOUQS project. Considering ADMIC’s evolution has involved a degree of learning by adapting the BHV and Monoprix formulas to local customer preferences, success has not been as easy as the smooth growth figures and available financial results of the privately held company suggest. “We listen to our customers. From five years ago until now, our stores have evolved and adaptation to the local market is our main issue,” he mused. “Some people say we like too much to take risks. We are taking more risks than others but calculated risks can be good.”

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