For your information

We can use more education

by Executive Contributor
written by Executive Contributor

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
For your information

Competing over Martyrs Square

by Executive Contributor
written by Executive Contributor

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

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

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

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
For your information

The perils of cheaper gas

by Executive Contributor
written by Executive Contributor

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
For your information

A diplomatic advertiser

by Executive Contributor
written by Executive Contributor

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

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

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
For your information

Bad medicine

by Executive Contributor
written by Executive Contributor

The Lebanese Pharmaceutical Importers Association (LPIA) claims the import of counterfeit pharmaceuticals and the illegal import of registered products have increased over the last few months. “We have no estimation of the volume,” said LPIA president Armand Phares, “but several of our members have witnessed more incidents of illegal imports and-or counterfeit products on the market.”

It’s estimated that about 6% of the $230 billion pharmaceutical market worldwide includes counterfeit medicines. Generally, the percentage is higher in developing countries, yet surprisingly a recent documentary on France’s TV5 showed that in the USA an estimated 15% is counterfeit. In Lebanon, according to Phares, “it’s definitely far below the world average.” Still he called upon importers and pharmacists to remain vigilant and to inform authorities and the public whenever they come across smuggled or bogus products.

Preventing the import of such products is the duty of the customs authorities. But at the same time it is the task of the inspection department at the ministry of health, as well as the Order of Pharmacists, to conduct “heavy controls,” so that products are located and people dealing with them arrested and judged.

Meanwhile, to make illegal imports more difficult, the LPIA has decided to introduce a special hologram, which will be added to import forms. By law, a pharmaceuticals importer must put two stickers on the outer pack of a medicine, one indicating the registration number at the ministry of health, the other indicating the price in Lebanese pounds.

“Having noticed that this system can be easily falsified,” Phares said, “the LPIA has decided to introduce a 3D hologram showing both the LPIA and the importer’s name, which is very difficult, if not impossible to falsify. This will take a few months to implement, but will give very strong protection to patients.’

0 comments
0 FacebookTwitterPinterestEmail
For your information

New winery in Kefraya

by Executive Contributor
written by Executive Contributor

The Saadeh Group, which already has wine interests in Syria, is building a new winery, Terres & Vignobles, in Kefraya in the Western Bekaa. Yussef Kamel, the Saadeh Group’s vice-president for investment, refused to reveal any details of the venture, but admitted that “planting would begin very soon,” an indication that the new winery will grow its own grapes rather than buy from local growers. If this is the case, it will be at least three years before Terres & Vignobles will produce it first harvest and also means that further planting will take place in an area where wine grape growers have seen prices fall by as much as 40% over the past three years.  

Still, Kamel was upbeat. “We believe that wine is a business Lebanon should leverage, given the obvious qualities of the country’s soil and weather, adding, “If there were a danger of saturation, we wouldn’t be in the business.”

The new venture comes at a time, when Lebanon’s $25 million wine industry is at a crossroads in its development. UVL (Union Vinicole du Liban) President Serge Hochar has said that the long awaited national wine institute, must, like in France, control the level of planting according to demand.

Unchecked expansion would, according to one local producer, affect the price and quality of grapes and threaten the quality of future vintages. For a country, whose only hope of competing in a fiercely competitive international market, is to create a boutique identity, this would be a disaster.

“There is a danger that such uncontrolled development – not necessarily by the Saadeh Group I must add – could damage the reputation of Lebanese wine,” he said. “The sector is now in such peril of being overwhelmed, and damaged, by unrestrained investment and unethical practices that the government and associated legislative bodies must step in to protect us.”

0 comments
0 FacebookTwitterPinterestEmail
Society

Battle of the Titans ends in merger

by Anthony Mills
written by Anthony Mills

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TYRING TO REMAIN INDEPENDENT IN A CHANGING MARKET

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

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

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

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

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
Business

Head shots

by Michael Young
written by Michael Young

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

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
Business

Taking retail to the next level

by Thomas Schellen
written by Thomas Schellen

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

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

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

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

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

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

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

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

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Uncertain times ahead

by Tony Hchaime
written by Tony Hchaime

There has been much speculation surrounding the implications of the presidential extension, especially given the reservations articulated by international leaders, the UN, and prominent members of the Arab League, including the GCC and Jordan.

Lebanon’s economy is highly fragile and vulnerable to local and regional political developments. Historically, times of uncertainty led to economic downturns, with slowdown in production, exports, and tourism, with only local consumption supporting the economy. Today, however, local consumption has been hit by a drastic deterioration in the standard of living in the country, flaring concerns about the economic implications of the Lahoud extension, the potential departure of Hariri, changes in the relationships with Syria and the incumbent developments in foreign relations, especially with the US and Europe. While no crystal ball is available to foresee the new Lahoud era, and no logical reasoning can prove Lahoud’s claims that his new term will be “different,” Lebanon’s economy continues to shoulder a massive public debt, recurring budget deficit, and delays in reforms. Public spending and budget deficit

Government spending on infrastructure and other public expenditures has historically been a main driver for economic growth in Lebanon, at least under the various Hariri governments. The market clearly recalls an economy on the verge of collapse during the Selim el Hoss government in 2000, when the government at the time put a lid on expenditures by blocking many infrastructure projects. Over the past years, the Hariri and Lahoud camps have been balancing each other out on the issue. Hariri’s camp, much more inclined towards spending, has been pushing for more and more infrastructure projects, while the Lahoud camp’s more conservative approach managed to keep the resulting budget deficit from blowing through the roof. Hariri seems sincere about his intention to quit the government if Lahoud stays in power. Should this be the case, the country may witness a serious shift in policy on government expenditures on construction and infrastructure. With no clear sign of who the incoming new prime minister would be, it is anyone’s guess as to what the budget would look like one year from now, and what the economic impact of a major change would reveal.

Alternatively, government public revenues would also be seriously affected by a change in policy. The Hariri government’s policy has typically been in favor of raising taxes and custom duties as a means to improve government revenues, especially as no serious plans for privatization or securitization are in the pipeline. The reason why such plans have not yet been implemented is because of differences of opinion between Hariri and Lahoud, differences of opinion that would no longer exist should one of them depart. Does this mean privatization and securitization are to take place if Lahoud stays and Hairi leaves? Why it may be the case, no one can really predict the outcome of such a development, and if it would obtain the optimal valuations.

Interest Rates

Changes in government policies regarding revenues and expenditures would surely affect the government ability to borrow funds, and ultimately interest rates. Recent efforts by the Hariri government to lower interest rates in an effort to boost economic growth and reduce the debt-servicing burden on the budget have been haled as somewhat successfully. On the other hand, however, interest rates are mainly a function of two parameters in Lebanon: the demand for money, mainly resulting from government borrowing, and the market’s assessment of the risk associated with lending.

Over the past 18 months, the government has managed to keep a tighter lid on borrowing, and has successfully swapped some long-term debt into another at cheaper rates. With Lahoud’s typically conservative view on spending, the upcoming government might just be successful at keeping a tab on borrowing. The problem, however, may fall on the other side of the equation. Basic economics stipulate that nominal interest rates in any economy are a function of the market’s risk assessment of lending, among other things. Uncertainly yields higher risk, and the uncertainty surrounding Lahoud, a new government, the UN resolution, the US stance on Syria, and the Syrian military presence in Lebanon create an unmatched recipe for uncertainty. Let alone international lenders to the Lebanese government, local lenders – large Lebanese banks – have recently showed reluctance to lend to the government, as illustrated by the significant shrinkages in the government securities portfolios of the banking sector in Lebanon. As such, interest rates are likely to raise, providing a more attractive risk premium to attract potential local and international lenders. Would this adversely affect economic growth and to what extent remains unclear, but a sudden rise in interest rates just as the Lebanese economy may be clawing itself out of recession would probably shove it back into it rapidly.

The banking sector

So how would the famed Lebanese banking sector be affected by such political developments, and how would it respond their various financial and economic implications? As mentioned earlier, banks in Lebanon have been recently reluctant to lend money to the government, thereby reducing their exposure to government securities and the Lebanese pound. While the latter may not be at risk due to the more than sufficient foreign exchange reserves of the central bank, a continued support for the domestic currency, inevitable during times of uncertainty and ill confidence, would seriously strain such resources.

Therefore, the first bank to be affected by such developments would be the central bank, which is likely to struggle to keep the Lebanese pound afloat.

Commercial banks, on the other hand, face a much higher risk. Political instability is often associated with capital flight from the country host to the instability. The extension to Lahoud’s term and the ensuing international upheaval are again casting a blanket of uncertainty over the country, and would, if sustained, drive away funds belonging to Lebanese as well as other Arabs. It is no secret that money follows safety, and a deep rift among the Lebanese people, Syria, the US, the UN, and the rest of the Arab world is far from being a good prescription for financial safety and stability. Aside from potential capital flight, another risk, relating to banks and associated with recent political developments is the cost of sources of funds. Banks in Lebanon have been reluctant to extend corporate loans, and as they are now reducing investments in government securities, they are struggling to find optimal uses of funds for their excess liquidity. Lower interest rates over the past year have failed to create a significant jump in corporate loans and credit facilities, making the task of finding optimal uses of funds even more difficult.

Making things worse, a rise in interest rates would increase the banks’ cost of funds, as rates in deposits would no doubt increase substantially. As such, higher cost of funds coupled with more scarce investment opportunities are likely to adversely impact the sector’s profitability and liquidity. That is, unless, we fall back into the vicious circle where the banks are forced to swallow government debts, the latter is forced to raise interest rates to keep borrowing, and ultimately reach a point where banks are overexposed to country risk and the Lebanese Pound, and the private sector is completely crowded out or unable to function at such high interest rates.

Time, along with Mr. Lahoud, Mr. Assad, Mr. Annan, and Mr. Bush, will tell.

0 comments
0 FacebookTwitterPinterestEmail