Real Estate

Student housing: A booming market or a bad investment?

by Marianne Mirabeau
written by Marianne Mirabeau

With an increasing number of foreign and local students in Lebanon, real estate developers have tapped into a new market. Private student dorms, hostels, hotels and furnished apartments ranging from the five-star to the budget are opening on an almost monthly basis, ready to cater to the ever-widening range of needs and demands of the student population. Yet real estate developers are divided as to the commercial viability of such projects, saddled as they are with low returns and high wear and tear. There is also the specter of an increase in supply of on-campus accommodation. But for the time being at least, many students are opting for the off campus option.

Taking their business elsewhere

The need for privacy tops the list of requirements for many students, in addition to the desire for space and cleanliness. With some rent prices off campus comparable to those of the student dorms, several students are choosing to hit the private housing market. “I saw the dorms at LAU, and it wasn’t pretty,” Natasha Kaskas, a 20 year old graphic design student at LAU, commented. “Nor were the AUB dorms. They’re not clean, and there are too many girls for one bathroom. It’s just not sanitary.” Kaskas opted for a private student dorm – one of the many that have been flourishing around the AUB and LAU area. University Residence has been her home for the past three years. At $375 a month for a shared room – less than LAU’s student dorm rents of $400 a month – Kaskas gets a bathroom to share with her roommate, cable, internet access, hot water and electricity 24/7, free cleaning and laundry.

“I looked everywhere, and there were no good places to live, except for here,” said Kaskas. “It’s cleaner and more private. You only have to share your bathroom with one roommate, but you also have the choice of living alone. There are just so many facilities here. I’m all set.”

The all women’s private dorm has experienced a steady increase in applications since it opened over three years ago, most notably from foreign students. “Our main target is foreigners – Saudis, Kuwaitis, Jordanians, Syrians,” building manager Abir Alameddine explained. “The number of applicants have more than doubled over the course of the last two years. Right now, the most represented nationalities in the dorm are Kuwaitis and Saudis.”

In addition to the free services – which appeal to the students – the dorm has successfully been able to gain the confidence of parents through its strictly enforced no males and no alcohol rule, as well as its 24-hour security service and the option of an imposed curfew on the resident. As a result, some parents are willing to pay up to $630 a month for a suite for their daughters in the dorm.

This high-end of the market is one that developer Ramzi Tarcha, owner of Koura Residence in the north of Lebanon by Balamand University, has successfully exploited.

At rates ranging from $210 to $290 a month – high by local standards – Tarcha offers luxury accommodations replete with a restaurant, gymnasium, pool room, in addition to standard services such as internet, cable, laundry and cleaning. “We studied the market for some time and gathered that there was a demand for it,” he explained. “We decided to go for a luxurious place, so as to differentiate ourselves from other student accommodations, and basically give students a five-star hotel life-style. Also, by deciding to locate up north close to Balamand University, we got rid of most of the competition – Beirut being completely overcrowded – and were able to buy land at a much cheaper price.”

Despite the steep rent, Tarcha said many residents take the double rooms for themselves, willingly paying twice the price for their rooms. “The residence can accommodate 100 people, but a lot of students take a double room for themselves and pay double the price, so right now we have 76 people who provide us with full occupancy,” he said.

Tarcha puts his success on finding an underexploited niche in the market, in an area where demand for student housing is rapidly increasing. “We have targeted different people with a different mentality, who are willing to pay a great deal of money to provide their children with a certain comfort to entice them to study,” he said. “So far, our marketing strategy has proven to be a good one. Also, the Balamand University dorms only have room for 150 students, and the university keeps on growing, so we are benefiting a lot of this.”

Hard to break even

Yet despite Tarcha’s success, some real estate experts would say his experience remains an exception to the rule. Lara Kanj of the real estate department of the Ashada Group, which specializes in the construction industry, has conducted two studies on the profitability of developing land for student housing purposes. Both times, the conclusion was that the investment would not be worthwhile. “If you want to break even, you should sell, not rent out, especially if rent is low,” Kanj explained. “If you build a building for the purpose of renting out the units, the rent is usually set at 8% of the costs. But with student housing, the rent needs to be much lower than that – it would take too long a time to break even.” Kanj recommends investing in student housing if you are already a building owner. “If you already own a building and you are breaking even with the finishing costs that you invest in it, then you could get by,” she said. “But if you are starting from scratch and need to take a loan from a bank, than you are not likely to make it.”

Ahmad Jammal, the manager of a furnished apartment residency by Verdun, who wrote a thesis on the real estate market in Beirut, concurred with Kanj. Starting off with a strategy of targeting students for his residence, Jammal rapidly reevaluated his plan and switched to the expatriate market instead.

“It does bring in profit, but it is not justifiable compared to the profit you can make in renting to non-students,” Jammal said. “Students will always reach a maximum level of rent beyond which you can’t go. To be profitable in this business you have to target those people who are willing to pay more. Students require a lot of overhead: you need to do a lot of repair after them, as they tend to break things, they get things dirty … they are a little careless. So the combination of low to medium rent, in addition to a lot of overhead, makes this a non-profitable business.”

Supply at risk of exceeding demand

Compounding the challenge is the gradual crowding out of the market. In addition to the multiplying number of private housing facilities for students, the universities themselves are stepping up to the plate to meet their students’ needs. USJ is in the process of building a student dorm, predominantly meant for its foreign students, which will be ready in 2005. AUB is following suit, and is conducting a market study to assess the competition it is up against from the outside. Considering the fact that the university is presently able to meet its entire demand for housing, an increase in its offer could well ensure it’s recovery of a larger chunk of the market. Despite the lack of privacy and restricted freedom through curfews, the AUB dorms do offer the advantage of relatively low rent – set at $1,060 per semester for a shared room – and the convenience of living on campus, with fellow students.

“The social life is very important to the students, which plays a big factor in their decision to stay here,” said Nawal Semaan, co-coordinator of student housing at AUB.

The campus dorms also guarantee greater security, which, according to Tarek Naawas, dean of students at LAU, has been a problem for some students living in private accommodations. “We do fear that parents might have issues with the level of security in these places, which are definitely not comparable to the security we can provide our students,” he said. “So when we are asked, we do inform parents of this. There have been many complaints linked to security and to theft.”

Some also question the likelihood of the number of students continuing to expand. “There isn’t a crowding out yet, but in five years there probably will be,” a real estate expert, speaking on condition of anonymity, predicted. “Both AUB and LAU fees are increasing, and if you look at the income per capita in Lebanon, you understand that it is getting harder for people to afford university fees. There were more financial resources to assist students in the past. These have now stopped because the focus is to develop technical expertise over academic expertise.”

A potential goldmine upon certain conditions, the student housing market remains one to be carefully trodden into.

An ever expanding student population

Traditionally a destination for study in the Middle East, Lebanon has seen a significant rise in the size of its student population over the course of the past decade. Between 1993 and 2001, the student population in Lebanon increased by close to 60%, reaching 119,487 students by the academic year 2000 to 2001.

The events of September 11, 2001, further boosted numbers, with an increasing number of students from the region turning to Lebanon out of frustration with lengthy US visa procedures and the threat of discrimination.

For the academic year 2003 to 2004, Nadine Naffah, an associate director of admissions at the AUB was quoted as telling the DAILY STAR that the number of students applying from the Arab world had jumped by 41%, with the largest number of applicants coming from Saudi Arabia and Kuwait. “September 11 probably affected the numbers, but we can’t be sure of that,” she said, adding that the increase could also be linked to the university intensifying its recruiting efforts in the region.

At the AUB, the number of students has been steadily increasing by 7% to 8% over the last five years, reaching close to 7,200 today, a quarter of which are foreign students. USJ has seen its student population increase by over 10% since 2000, from 7,200 to over 8,000, with its number of foreign students rising by 34%. LAU has witnessed an increase of 40%, with approximately 7,200 students today.

Many Lebanese students, especially freshman students who live far away, like to live in the dorms, as their parents prefer for them to live on campus. Both LAU and AUB are rapidly reaching their maximum capacity intake for student accommodation. The former can accommodate up to 120 students at its Beirut campus – 2% of its student body. For AUB, the figure stands at 474 places for women and 374 for men – 12% of its student body. USJ presently has no student dorms available. With the number of applicants rising, both LAU and AUB are seeing themselves forced to make students double up in rooms.

“Many students ask for private rooms, but we can’t give it to them until we have met all the demands for accommodation that we’ve received,” said AUB’s Semaan. As a result, the university is presently meeting all its demands for accommodation, but the number of students granted their own rooms are few and far between.

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The Buzz

Emotional intelligence and the mood of your organization

by Tommy Weir
written by Tommy Weir

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

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

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

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

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

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

Sample EI test questions include:

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

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

3. Are you open to candid feedback?

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

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

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

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

Ask yourself these further questions:

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

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

Is it too late to learn? No!!

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

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

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


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

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Comment

Mutton dressed as lamb

by Yasser Akkaoui
written by Yasser Akkaoui

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

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

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

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

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

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Special Section

Convergence and synergies happy hour

by Thomas Schellen
written by Thomas Schellen

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Money Matters

by Executive Contributor
written by Executive Contributor

Capital Intelligence Raises Shamil Bank’s Rating to BBB-

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

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

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

Country Profile: Jordan

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

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For your information

Welcome back

by Executive Contributor
written by Executive Contributor

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

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

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

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

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

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

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

  

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Money Matters

by Executive Contributor
written by Executive Contributor

Capital Intelligence raises ARABIC’s rating to A-

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

Bank Muscat issues $64 million bond

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

Country Profile: Palestine

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

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For your information

Strength in the face of adversity

by Executive Contributor
written by Executive Contributor

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

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

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

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

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A tough financial run

by Executive Contributor
written by Executive Contributor

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

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

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

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

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

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Growing mini cards

by Executive Contributor
written by Executive Contributor

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

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

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

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

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

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

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