Society

Visitors to Lebanon, what do they want?

by Thomas Schellen
written by Thomas Schellen

Lebanon’s inbound tourism in 2004 kept or exceeded virtually every promise and expectation. After ten months of the year, the ministry of tourism could announce that over 1.12 million visitors had arrived in the country, reaffirming mid-year expectations that this would be the best figures in 30 years and a stepping stone towards future growth.

Stakeholders all around the sector confirmed that the year had been memorable. With the exception of a lower than anticipated turnout during EID AL FITR, hotels reported excellent occupancy rates throughout the year. Tour operators spoke of their best year ever; some were up by 50% or more in 2004 business and already received enough advance bookings for 2005 to foresee continuation of the trend. Tour guides said that even until the middle of November, they were flooded with work showing European groups around the standard sites of interest.

The year had started with some doubts about the sustainability of tourism growth: the summer season alone had proven too short to keep the sector afloat, the composition of visitor flows was uneven, and the funds available for the promotion of Lebanon abroad were far too few. Tourism experts reported from London that the country lagged heavily behind other Middle Eastern destinations in both marketing and bookings.

As the year unfolded, however, things quickly looked up. A series of commercials were produced in collaboration with CNN and shown on the ubiquitous news channel. The spring season surprisingly saw a near doubling of arrivals from Europe, and one of the old world’s leading travel companies, Thomas Cook, returned to Beirut after a long absence. Arab tourism was also in full swing, with Aley and Bhamdoun overflowing with visitors, while new resorts opened along the coast. The nation’s tourism officials enthused about reaching a visitor count of four million persons by the year 2010.


With its progress on all tourism fronts, the year 2004 is also an opportune moment to look at the composition of visitor flows and make efforts to understand their habits, preferences and evolving demands. This seems especially appropriate since the promotion of Lebanon in 2004 was still in its infancy and many operators detected only very limited contributions of the new marketing efforts on CNN to the increase in business. As promotion of Lebanon as a “destination” is still in its infancy and must be accepted as a long-term project in order to bring results, analysis and planning become tasks of vastly heightened importance for the national tourism development.

A thought-provoking statistical exercise on Lebanese tourism trends in 2004 is the comparison of total visitor increases to the number of persons who make the journey to the nation’s classic tourism sites. These comprise the 10 sites where entrance fees and access statistics are collected by the ministry of tourism as well as the Jeita Grotto, which is operated under government contract. From January through September 2004, the most highly frequented cultural sites were the ruins at Baalbek and the Beiteddine Palace, followed at some distance by Byblos and the National Museum. Baalbeck and Beiteddine attracted almost 89,000 and 79,000 visitors, respectively; 49,000 explored Byblos and just under 40,000 found their way to the National Museum.

In terms of increases in visitor numbers when compared to the first nine months of 2003, the four sites saw increases in visits of 32% for the Museum, around 60% for Beiteddine and Baalbeck, and more than 130% for Byblos. This notwithstanding, the four leading historic sites combined this year (again) drew in fewer visitors than the Jeita caves, which counted 321,551 admissions in the first three quarters of 2004. While all five sites, and the other attractions managed by the ministry of tourism, including the Saida and Tripoli crusader castles, Tyre, Anjar, Fakra, and Niha are highly deserving of visitor interest, Jeita can safely be regarded as the one site leading in popularity with regional tourists.

Interestingly, the visitor numbers to Jeita increased not only by 33% in the first nine months of 2004 over the same period in 2003, but also showed a whole-year increase of 10.4% from 2002 to 2003. By contrast, nine out of the ten sites under administration by the ministry had recorded drops in visitor numbers from 2002 to 2003, and only the archeological district in Tyre deviated from the trend by recording a small increase. Therefore, Jeita achieved the most consistent growth of all sites over recent years and could increase its appeal to wider audiences despite its relatively substantial entrance fees. This suggests that the private sector management has succeeded in upgrading the marketability of the caves through augmenting their natural magnetism by integrating a cable car and other sidebar attractions into the concept.

The Jeita approach may be worth a consideration under perspectives of enhancing tourism at other locations. The archeological sites in Baalbeck and Byblos have benefited greatly from the addition of museum facilities but those may not have added all that much for making the sites appeal to audiences who aren’t already interested in antiquities. Experts on promotion of equitable development in Lebanon lament that the community of Baalbek participates only in minimal form in the revenue flow created through Baalbek tourism. This is often associated to some degree with the demographics of the local community. However, the lack of strategic concepts for creating synergies between site and immediate surroundings seems to apply to numerous communities with historic treasures, including Beiteddine and Tyre.

Certainly, one will want to avoid turning revered historic treasures into theme park environments – but at the same time, a strategically integrated development of surrounding areas to offer compatible attractions could enhance both the economic value of sites and their ability to rise in the appreciation of visitors. As urban or communal planning is not practically implemented in many municipalities, a tourism infrastructure development approach could also constitute a novel path towards inducing balanced growth.

For the time being, it can only be said that despite the overall increases in visitor arrivals to Lebanon over the past three years, numbers for admissions to several key historic sites in much of 2004 have only returned to levels similar to those recorded in 2001. For sure, when viewed against the pulling power of the world’s big museums and a whole arrear of moderately famous historic sites – some of which have much less to offer in archeological or cultural terms than Lebanese sites – the current flows to any of the country’s core guidebook attractions account per month to no more than what many other locations rate per week or even day. At least this could be a huge advantage temporarily. In emerging from nothing to becoming a destination, Lebanon has the opportunity to portray itself as a country where visitors can visit world class culture sites without waiting in long lines or dealing with large crowds. Such is a rarity.

The image can even mash with another limited-time opportunity that emerged in autumn of 2004 in terms of exploring new trails in tourism that have been hitherto neglected but may soon enough be part of the beaten path (see box). The project of promoting Lebanon to the resident Lebanese as a treasure cove of uncharted domestic attractions in nature, culinary and religious tourism is a major step towards diversifying the sector in the long term. For 30 years, tourism has been the utopia of Lebanon’s economy – a promised state of being able to attract millions of revelers to the country that perceives itself as the pearl of the Mediterranean.

Like all utopias, the hope looked to be out of reach and went unquestioned as long as it was a theory. In 2004, the utopia stepped towards reality. With it, many an economic vision can grow and at the same time, new questions are to be answered. Elementary management knowledge shows that rapid growth is one of the most challenging periods for any enterprise. Tourists of the 21st century have different expectations from their hosts. They have been alerted to social and environmental issues. They look for authentic experiences. They are great consumers of hospitality. As contributors to the global economy, today’s leisure travelers spend more money on their journeys than ever, but in turn they have high demands and are often fickle and even litigious customers. With such high aspirations for the long and sustained growth of its tourism sector, Lebanon and its hospitality stakeholders have a lot to live up to.

Discover Lebanon

A white-topped peak looms in the distance over hills lined with houses, which from a distance look supremely peaceful. The city awakens to its business exercises, with well attired managers dropped off at their place of work. Overhead, a blue sky and to top it all off, a cruise liner slowly glides into the picture from the left. Date: December 4, 2004. It is 8am and we are a small group that is setting out to take a day-trip to the southern Lebanese town of Hasbaya, where we want to discover the region’s ancient religious heritage.

As the bus drives into a catalogue-perfect day, past banana and olive groves, it carries us through a landscape that, in spite of desertification and erosion, has a mythical ring of clarity. Inside, we hear of the source of the river that is the main tributary of the river Jordan that we are going to visit, of the tombs of Biblical prophets, and of a village where people flock to a stone purported to bear the hoof marks of St. Georges’ horse.

Discover Lebanon is the theme of not only this excursion but an entire program. It is a new and growing branch of tourism aiming firstly at giving Lebanese domestic tourists a new taste for the proverbial variety of the country’s charms, exploring them from cedar forests to tobacco plantations. Activities of the program’s 34 excursions include light hiking and moonlight fishing as well as trying one’s hands at olive picking or one’s tongue in wine tasting, but more daring minds can also opt for (carefully supervised) paragliding and speleological adventures. The program was developed by local tour operators in collaboration with US development consultants SRI with the aims of promoting economic growth for rural Lebanon and opening new avenues for tourism in areas that are attractive but have been bypassed by the tours to the traditional attractions. After a positive response from the first phase in autumn 2004, its second stage trip offering was expanded to more than 70 trips in a winter/spring 2005 catalogue.

Tour operators participating in the program found the experience encouraging. “It is positive to have local tours for the Lebanese, because they often don’t really know about Lebanon,” said Tania Amm, inbound tourism manager at operator Wild Discovery. The company decided to increase their participation in the second stage of the project from two to five tours, she said.

“This project enhanced and supported my business,” said Pascal Abdallah, manager of operator Cyclamen, who devised the trip to Hasbaya. Through his participation, he found access to domestic customers and even entered a project partnership with another operator.

Of course, not everything in the new tours goes picture perfect. The weather is not always providing blue skies with winter sun and some trips in 2004 had to be cancelled for falling short of minimum attendance. The tour of Bekaa vineyards, organized by Wild Discovery, showed that the idea of a Lebanese TOUR DE VIN could benefit from better coordination among wine producers in creating presentations that compliment each other. As for Hasbaya, the emphasis was a bit stronger on visiting a mosque, a church and a Druze mausoleum than on learning about the respective religious heritages. But such imperfections account for part of the enticement; they remind you that these tours are not routine yet. BOX II: Resorts

With regards resorts, the year 2004 started with a thunderclap in January when developers As Salam presented their project for transforming the back slopes of Mount Sannine into Sannine Zenith, a resort of in the country previously unheard of proportions. Residential villages, hotels, ski slopes, golf courses and all the trimmings of recreation and relaxation were outlined in the Sannine Zenith brochures.

With the tremendous scope of the project – despite declarations of some downsizing after stirrups over its alleged sellout of one percent of the nation’s territory, the plans aim for inclusion of about 100 million square meters of land – it could be premature to consider Sannine Zenith a done deal. But with the announcement of Sannine Zenith, the perspective of Lebanon resort tourism got widened in a single instant. The mountain resort was such vast a project that it clearly needed to appeal to more than a small clientele of the very wealthy. It showed that for an economically sound future, new Lebanese resorts would have to provide class at affordable cost.

Already in the preceding years, people with resort ideas had elevated the pastime of a relaxing day on the beach to a new level of recreational quality – without making the pleasure contingent on long-term club membership or expensive shareholding. From Oceana to La Voile Bleu, quality beach resorts became synonymous with customer satisfaction. Resorts following this philosophy in 2004 achieved good profits. The evolution pointed also at the potential of good beach resorts to become all-round centers of enjoyment. Expanding their range into nighttime activities was slow for some but others, like Edde Sands, reported that about one third of their customers and their revenue in 2004 came from special events and evenings. Well-designed beach and après-swim resorts have every potential for contributing to the further blooming of domestic and inbound tourism.

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Society

Q&A: Elie Nakhal

by Executive Staff
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.

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Society

Tourism Voices – High flying times

by Executive Staff
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.

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Real Estate

Real Estate Voices – No alternative to Lebanon

by Executive Staff
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.

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Finance

No monkeying around on the markets

by Tony Hchaime
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.

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Economics & Policy

Communications – The ongoing drama

by Thomas Schellen
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.

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Economics & Policy

Industry Voices – Light at end of tunnel?

by Executive Staff
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.

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Economics & Policy

Q&A:Ineke Botter

by Executive Staff
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.

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Industry

Industry retrospective

by Tarek Zein
written by Tarek Zein

The year 2004 was one of mixed feelings for Lebanese industrialists. The global energy crisis sent crude prices rocketing to a record $55.17 on the New York Mercantile Exchange, battering a local industry already groaning under prohibitive production costs – considered the highest in the region – making them even less competitive. Lebanese industrialists were forced to pay $400 for the ton of diesel, while their regional counterparts were paying a shade under $200 for the ton.

Nonetheless, despite all this, 2004 was the year in which Lebanese industrialists were still able to increase exports by 43.5% during the first nine months of 2004 compared to the same period in 2003 – marking a new export era for the sector. 

However, the government has, yet again this year, persisted in believing that the service and tourism sectors were the only engines of economic recovery and has once more refused to set a clear an effective industrial policy, reduce infrastructure costs and ease labor laws.

A prime example was its inefficient handling of Electricité du Liban (EDL), forcing local industry to pay a hefty 13 cents per kilowatt hour, compared to 3 cents in Egypt, 3.2 cents in Saudi Arabia, 3.7 cents in Syria, 5 cents in the UAE, 6.4 cents in Jordan, and 6.5 cents in Turkey. Add this to the high costs of labor, land, industrial components and energy, and the reasons why Lebanon’s industrial sector is still the most uncompetitive in the region are clear. This is reinforced when statistics from the Lebanese Industrialists Association (LIA) point that the cost of production, including the cost of energy, has increased by more than 37% since 2000. And to make matters worse, because of the continuously spiraling debt, local banks’ high interest rates on loans has once again made it difficult this year for industrialists to access much needed money to invest in productivity.

To help relieve the pressure caused by the energy crisis, in the second quarter of 2004 the government promised industrialists to lower their electricity bill by reducing the utility’s price from 13 cents per kilowatt hour to 6.6 cents. As of today, this promise has still not been kept.

Export growth         

According to figures from the ministry of industry, industrial exports totaled $1.087 billion for the first nine months of the year compared to $757 million and $624.4 million for the same periods in 2003 and 2002, respectively – a 43.5% increase over 2003 and a 74% increase over 2002 (see box). The main reasons for this substantial increase in industrial exports, which represents approximately 95% of total national exports, can be attributed to the ever-strengthening euro versus the dollar – making Lebanese products more attractive to Europe – and the opening of the American fueled Iraqi market.

But these reasons are not solid enough to anchor a future success of the country’s industrial sector since they are neither orchestrated by the Lebanese government nor controlled by the Lebanese industrialists. However, these events have opened a narrow window of opportunity for the industrial sector in 2004. 

Raising quality

Industry in Lebanon, which represents approximately 20% of the gross domestic product, can never produce in large quantities, due to the restricted manpower and the high costs of production, and thus can never compete with regional and Asian countries. However, the potential behind Lebanon’s industry lies within its ability to produce quality products, with a high added value such as agro-food, wine, software, jewelry, furniture or high-end garment, in order to target regional and international niche markets. And if there is one main element to be remembered for 2004, it would be the industrialists’ sudden awareness to raise the quality of its products through quality control mechanisms.

Economists agree that the competitive advantage of an industry comprises two-thirds of macro-economic reasons and one-third on the ability of industrialists to adapt to its environment. And since the government of Lebanon has not yet shown signs of its willingness to counter-balance the disadvantageous macro-economic factors, 2004 was the year in which industrialists started to talk about the cost of not having quality controls or conformity assessment.

Conformity assessment is a tool that has been used by many industrial nations worldwide not only to cut the hidden costs of industrial rejects and increase efficiency through vocational training of employees, but also to penetrate markets with high product regulations and standards. And with the emergence of regional free trade agreements, such as the Euro-Med Agreement and the Greater Arab Free Trade Agreement (GAFTA), as well as Lebanon’s expected accession to the World Trade Organization, it has become essential for local industrialists to demonstrate the conformity of their products if they want to sell worldwide, or even keep a decent local market share.

The EU Association agreement with Lebanon, signed in June 2002, calls for the gradual reduction in Lebanese tariffs on EU industrial products over a twelve-year period. This period started following the entry into force of the agreement trade provisions with a five-year grace period. Thus, tariffs will be reduced from six years to twelve, when they will all be zero. On the other hand, EU markets have been duty and quota free to Lebanese industrial products since the 1977 Cooperation Agreement.

Regarding agricultural processed products (agro-industry), Lebanon received a special treatment that no other EU-Mediterranean partner enjoyed: a total exemption on the industrial element of all exported agricultural processed products in addition to a total exemption on the agricultural element of 77 similar products as well as a quota free system. In return, Lebanon will benefit of a five-year grace period after which it will progressively reduce its custom tariffs on the European processed agricultural products imported over a twelve-year period. This dismantling will be complete as regards the products that are subject to a 5% tariff and will be reduced to 30% for the other products. Such an agreement would, in normal cases, be very beneficial for Lebanon since the 500 million strong European markets is completely open to Lebanese produce.

However, one problem emerges: very few Lebanese producers can export towards Europe since an overwhelming majority cannot meet the European standards. And this brings along another problem: if Lebanese producers cannot secure new markets, and tariffs on similar imported products from EU or Middle Eastern countries are to be decreased, then industrialists will soon be facing one of the fiercest competition on their home turf, and many will lose. However, if the quality of products is raised and international standards are met, then not only would Lebanese products be able to enter into the European market, but they will also be more attractive regionally and locally.

This concept has been known by local industrialists for some time now, but very few have undertaken the difficult task of raising the quality of products.

Financing and investments

Nevertheless, when the statistics for imported industrial machinery and equipment are analyzed, one can see that a new trend is taking place. Up to September 2004, some $106.8 million worth of industrial machinery and equipment was imported into Lebanon – a 36.5% increase compared to the same period last year when only $78.2 million was imported. Out of the total industrial machinery and equipment imports, 27.3% came from Italy, 25.8% from Germany, 6.4% from China, 4.8% from the USA, 4.1% from Taiwan, 3.8% from France and 3.4% from Switzerland.

The relative improvement in industrial investments has contributed to the value added creation over the first nine months and fits within the context of the significant needs for enhancing the output and quality of the productive sector.

But when other statistics show that Lebanese banks have granted just a trivial $34 million in loans to the industrial sector in the first six months of 2004 because industrialists are afraid to borrow money at the current high interest rates, then how can the industry sector modernize to survive? How can the comparative advantage of the Lebanese brainpower put its thoughts into action without having quick access to liquidity? 

A survey conducted in early 2003 by the Chamber of Commerce, Industry and Agriculture of Beirut and Mount Lebanon (CCIAB) to reveal industrialists’ perception of problems and hurdles that impair their activity shows that a striking 54% of respondents ranked expensive bank credit at the top of the list of financing problems industrialists have to contend with. 29% of the respondents believed that limited access to subsidized financing was the main financing problem, while 15% believed the main financing problem to be that bank credit requires excessive collateral. 

It is true that industrialists have been very creative in finding new sources of financing and that there are many new financing programs that banks have implemented with the help of the European Union Commission in Lebanon and the European Investment Bank, but one of the biggest problems that exists today is the fact that there are very few investors which are willing to risk investing in a sector that is not on the top of the government’s agenda and in a country without an independent judicial system that fosters investments.

Over the last 10 years, local manufacturers have invested just over $1 billion to improve output – a figure which is inconsequential when the sector’s potential is put in perspective.

At the same time, statistics from the Investment Development Authority of Lebanon (IDAL) also show how the government’s view of a Lebanon that caters only to services and tourism has hurt the industrial sector: out of the $1 billion investments that went through IDAL between the 2003-2004 period, only 0.3% was invested in industry, 0.4% in the agro-industry and 1% in the technology industry.

Prospects

The potential behind Lebanon’s industrial sector lies within its ability to create high added value products fit for export. For this reason, industrialists’ quest to raise the quality of products will speed up throughout 2005 due to targeted programs initiated by the EU Commission (see box). However, the productive sector will not be able to maximize its returns to the national economy without a long-term industrial plan set by the government. The government has to realize that controlling Lebanon’s spiraling national debt doesn’t only depend on cutting expenditure costs, but also by boosting productivity. According to the latest industrial figures from the Central Administration of Statistics, there were 824 newly registered establishments in 2003, with a working capital of LL178,902 million, creating 6,721 new jobs. It is anticipated that some 10,000 new jobs will be created by the industry sector in 2004. The Lebanese Industrial Association is confident that if the government sets up an equipped industrial park, where infrastructure and natural gas is available and where one can obtain a building permit in adequate time, then industrialists can easily create some 15,000 to 20,000 jobs per annum and increase exports to $3 billion within three years.

(Box) The question of the EU

To help fill a gap and speed up banks’ loaning activity to the industrial sector’s thirst to raise quality, the EU Commission in Lebanon began a new 15 million euro program in October 2004 called Quality Project and will re-activate another one – the European Lebanese Center for Industrial Modernization (ELCIM) – in the first quarter of 2005.

The four-year quality project will seek to start the development of the conformity assessment institutional chain in Lebanon and aims to improve competitiveness and access to Lebanese products to international markets and ensure an improvement of consumer protection. The project includes three main components: to support the government in the definition of a legislative and regulatory framework; support the development of institutions which have an essential role in analyzing the quality and conformity of products; raise the awareness of enterprises to make them adopt better practices for improving product quality.

The ELCIM project, which will be known as ELCIM II, is a program initiated for the support of small and medium sized industrial enterprises and hotels in order to develop their performances and promote their products to achieve international standards. Their services involve Technical Assistance and Financial Assistance. The Technical Assistance begins with a free diagnosis and could go as far as the action plan and the implementation phase. 

As for the Financial Assistance, ELCIM provides advice on long-term financing and capital investment, and facilitates the financing process through its prominent contacts with the relevant bodies. The European Investment Bank has set up a 60 million euro investment fund with ELCIM, which will be distributed, under certain terms, via 11 local banks. 

(Box) A good year for the export 2004

The industrial sectors that gained the most ground during the first nine months of 2004:

Prepared foodstuffs producers with a 3.8% increase to $108 million.

Mineral products producers with a 107.5% increase in export to $83 million.

Optical instruments and apparatus producers with a 100% increase to $10 million.

Base metals and articles of base metal producers with an 89% increase to $163 million.

Machinery and mechanical appliances producers with a 76% increase to $214 million.

Fats and edible fats and oil producers with a 71.4% increase to $12 million.

Stone, plaster and cement goods with a 66.6% increase to $40 million.

Plastic producers with a 55.55% increase to $42 million.

Wood and articles of wood producers with a 54.54% increase to $17 million.

Miscellaneous and manufactured articles with a 44.8% increase to $42 million.

Footwear, headgear and prepared feather producers with a 42.85% increase to $10 million.

Chemical products producers with a 26.5% increase to $105 million.

Textile and textile articles producers with a 24.4% increase to $56 million.

Transport equipment producers with a 23% increase to $16 million.

Paper and paperboard producers with a 21.6% increase to $73 million.

Raw hides and skins, leather and fur skins producers with a 10% increase to $11 million.

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Region

Region VOX

by Executive Contributor
written by Executive Contributor

Samir Kassir: Author, university professor and columnist for the Lebanese daily An Nahar.

What can Palestine after Arafat realistically expect in terms of domestic changes, particularly the emergence of a legitimate new leadership, internal unity and a stable domestic political order? How will this affect the ongoing fight against Israel? What can Palestinians expect in terms of international support in their claim for statehood and in terms of concessions, if any, from Israel?

The problem in Palestine is occupation, not the lack of democracy as George W. Bush has argued. True, there are some shortcomings in terms of transparency, but there is no problem of legitimacy, at least until Yasser Arafat’s death. That is why, and contrary to what is commonly said in the Western media, Arafat’s death does not provide an opportunity, but is rather a genuine loss that the Palestinians will only overcome with tremendous effort.

The Palestinian leadership has shown great maturity in managing a smooth transition, but that shouldn’t mislead anyone to assume that everything will be easy. Problems could well appear after the January 9, 2005 presidential election; despite the formal legitimacy the poll is likely to give to the favorite, Mahmoud Abbas. The real problem could be, once again, Israel’s refusal to give Abbas anything in exchange for his commitment to the peace process.

It is clear that Israeli Prime Minister Ariel Sharon is not ready to concede anything to the Palestinians. His plan for a withdrawal from Gaza is not linked to the Middle East “road map.” He is offering “Gaza only,” not “Gaza first.” And it is not likely that the Bush administration will stand by its commitment to the “road map.” The diplomatic efforts that followed Arafat’s death seemed to be more form than content, or rather it was a post mortem effort to prop up the lie that Arafat had been an obstacle to peace. In the end, I don’t think 2005 will be a crucial year unless there is fundamental change in Israel.

*          *          *

Chibli Mallat: Author, lawyer and law professor at St. Joseph University, Beirut.

How realistic is it to hope that Iraq will make, however tortuously, a successful transition to democracy and stability in 2005? What more needs to be done to win the confidence of all Iraqis that this mission is for the national good?

Beyond the elections of January 2005, the transition in Iraq will be defined by a new parliament, a new government and eventually a new constitution. What happens next year will depend on these three institutional pillars working out. The January elections are key: the configuration that emerges will face a number of constraints, some of them with deep roots in Iraqi history, others more recent. 

The major problem in Iraq arises from its tripartite sociological division between Arab Shiites, who make up an absolute majority seeking power commensurate to their numbers, Arab Sunnis, who represent 15% to 20% of the population, and Kurds, mostly Sunnis, who represent about 20% and feel distinct from the Arab majority. Unless all groups are represented in government, Iraq will remain fragile. The secessionist trend amongst Kurds is real, and their accommodation will depend on their effective role in government and the resolution of potential conflicts in areas of Arab and Kurdish settlement, especially Kirkuk.

More difficult to solve is the issue of majority power in Baghdad among the Arabs, as the legacy of Sunni dominance is not easily jettisoned. For stability to be restored, a difficult combination is needed: reducing through force the armed resistance and politically co-opting Sunni leaders under a scheme where they no longer play a dominant role in national politics.

Ammar Abdulhamid: Coordinator of the Damascus-based Tharwa Project on minorities and currently a visiting fellow at the Saban Center for Middle Eastern Studies at the Brookings Institution in Washington DC.

What role can Syria expect to play in 2005? Do you consider the current leadership capable of seriously moving forward on domestic reform, particularly political and economic reform; and if not, what alternatives does the future hold?

The year 2005 will be critical for the Syrian regime. Pressures on it from the US are likely to continue now that President George W. Bush has been reelected. Meanwhile, Syria’s presence in Lebanon will bring pressure from Europe as well, especially France. If Syria signs its association agreement with the European Union, this puts the regime under nonstop scrutiny and will test its ability to develop a serious program of economic and political reform. If it fails to do so, the regime will likely be seriously isolated internationally by year’s end.

Do the reform elements in the regime appreciate the seriousness of the situation?

Their previous record betrays a propensity for halfhearted steps and for backing down at crucial junctures. Meanwhile, Syria’s political opposition has so far proven unequal to the task of providing alternative visions that can allow it to negotiate a role in the decision-making process.

Independent civil society actors and organizations, therefore, seem to represent the only hope for change. But unless laws governing media and associational activities are liberalized, the ability of these players to have influence and to compensate for the regime’s and the opposition’s shortcomings will remain limited.

Michael Scott Doran: Author and assistant professor of Near Eastern Studies at Princeton University.

Will Saudi Arabia seek to take advantage of the general letup in American displeasure (paralleled by an apparent cutback in terrorist actions) and seek to implement reforms and improve its political and economic transparency? If so, why? If not, why not?

The Saudi family will muddle through, avoiding all serious reforms. It is internally divided and incapable of reaching a consensus. The huge spike in oil revenue and the weakening of Al-Qaeda has taken the heat off, giving Riyadh non-reform policy options that few Arab regimes enjoy.

Politics is a contest between clerics and liberals, who are deadlocked. Traditionally, however, the clerics hold the advantage. In addition, they have helped to strengthen the government against Al-Qaeda. Riyadh, therefore, will appease them by refraining from enacting the liberals’ reform agenda.

Washington will do little to strengthen the liberals’ hand. With Iraq in turmoil, a nuclear Iran looming, and oil prices at record levels, the Americans will, as usual, opt for stability. Riyadh will throw them a bone by enacting meaningless reforms (the municipal elections), which it will trumpet as the bright dawn of democracy.

While the Islamists sometimes talk about transparency, they will be satisfied if the government merely places the liberal reformers on ice while continuing to direct resources to the clerics. Having said as much, the desire for significant reform is palpable. The belief that the status quo is untenable pervades many significant Saudi groups. Such a climate can generate unpredictable outcomes.

Michael Young: Opinion page editor at the Daily Star newspaper, Beirut

If we assume that the second Bush administration is in a position to seamlessly pursue it regional objectives, what changes do you expect to see in the region over the next four years?

The first matter at hand will be for the Bush administration to reaffirm what its regional objectives are. I continue to believe that Iraqi democracy, as a keystone of regional democracy, was a leading US ambition in the run-up to war in 2003, although the administration was too convinced that that justification wouldn’t hold water with the public to over-emphasize it. As the situation in Iraq has gotten worse, democracy is still on the priorities list, but has been kicked down several rungs in favor of Iraqi security. Yet for the US-led war to be meaningful, the administration must reassert the primacy of its democracy objective, on the sound grounds that Iraqi democracy is vital to spurring regional pluralistic impulses, which in turn would make the US safer by providing Arab populations an alternative to militant Islam of the sort that led to September 11.

That, of course, requires success in Iraq, which is still possible if there is patience and far less of the blundering that took place once the war ended in April 2003; it will also mean putting the Palestinian-Israeli negotiations back on track. Given the Palestinian leadership vacuum and Israel’s reluctance, I’m not optimistic, but the U.S. can no longer be seen to advocate democracy and liberty for some Arabs, but not for others. Four years is enough for substantial success in Iraq and progress on the Palestinian issue, but the administration will have to hit all the right buttons, which will depend on the bureaucratic give and take in Washington.

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