SLOW MOVERS? Some shop owners say the project has taken far too long

Despite experiencing a drop in sales revenues of up to 40%, Hamra retailers are confident that the on-going construction work and facelift will eventually help Hamra become a thriving retail area, serving Ras Beirut’s middle-market catchment.

After nearly one year of road works, the rehabilitation of Hamra Street is nearly complete. Roads have been asphalted and paved, pavements widened, trees planted and the colorful overhead jungle of electricity wires has been buried underground. The renovation effort is part of a $12 million project to rehabilitate five major streets in Beirut (including Corniche al Nahr, Monot Street and Barbour) and paid for by the Arab Fund for Economic and Social Rehabilitation. The Council for Development and Reconstruction (CDR) had earlier appointed Dar al Handasah Nazih Taleb & Partners to design a new Street.

However, while most shopkeepers praise efforts to upgrade what was once Lebanon’s main shopping boulevard, a few claim that the project has taken too long to complete, resulting in a loss of revenues of between 15% and 40%.

“Of course we have had less customers,” said Hala Shaftary, store manager of Librarie Antoine. “For months Hamra was hardly accessible. On days when they were working in front of the shop, we hardly saw any customers. But I think we suffered less than others, as we have a lot of regular clients.” According to Librarie Antoine’s general sales manager, Emile Tyan, the 40-year-old Hamra store is the best performing of the chain’s ten outlets. He estimated a loss in sales of 15%. Elsewhere, Mohamed Bushnak, manager of Starbucks Hamra, the American coffee chain’s first branch to open in Lebanon, estimated a loss of up to 20%, blaming the lack of parking.

Ghassan Mahfouz, managing owner of Marilou Women’s Wear, estimated his losses to be some 35%. However, he did not to place all the blame for bad sales figures at the government’s doorstep. “Business has been going down since 1997, ” he shrugged. “Business was good until then,” he said, “then it went down by some 20% a year. We are in a recession and the middle class is suffering.” Some retailers are less forgiving. Most volatile among Hamra’s retailers is Georges Moujaess, who founded Roi Des Frites in 1967. The snack bar is one of the most famous fast food outlets on Hamra and is normally open till the early hours of the morning. The construction work forced Moujaess to a hang a banner reading “The King is off due to works,” in front of his closed facade for the two months he was forced to close. The closure cost him $60,000, while overall business has been hit by the lack of pedestrian traffic.

Moujaess blamed the contractors for the delay, claiming they worked slowly to earn more money and that the whole project had been flawed from the start. “They dug up the road twice. First they did the sewage and water and then they closed it. The next month they opened it again to fix the electricity.”

Aynan Bassam, secretary of the Hamra Traders Association (HTA) sympathizes but does not agree with all the complaints. He estimated the average losses of Hamra’s shopkeepers not to exceed 15%, while according to him the project has been largely executed according to plan. Currently, most of Hamra Street is open again to traffic and heavy works are only taking place in front of Hamra Cinema. The project will be completed when the Fransabank building is reached.

“The project started on May 12 and is due to be finished on June 31, which it will be,” said Bassam, who owns Al Bassam, a 650m2 ladies fashion and lingerie store in the heart of Hamra. “The contractor gave us a choice,” Bassam said. “Either to execute the works fast, which would mean the area would remain closed for several months or to do it in stages. We chose the latter.”

The main work was carried out to replace 2,000m of Hamra’s 50-year-old drainage and sewage system, which was dealing with waste and rainwater with one 6-inch pipe, which, in heavy winter rain, would flood, creating a terrible stench. Now, two wider and separate pipes take care of the effluents. The project is in anticipation of the completion of the wastewater treatment plants being built in Ouzai and Dora. The South for Construction’s project manager, Rabiah Dejhaim, said traffic would return to normal by the end of June and admitted that work may have seemed to drag on, but said this was due to special seasonal requests. “It was the HTA and others who asked us not to work during Christmas and the February shopping festival,” he said. “That’s why we closed and opened the street again, and had to ask for an extra $2 million for the total of five streets.”

Still the reality is that business suffered and it wasn’t just the shops. Crowne Plaza’s Sales Manager Ziad Bassila estimated a 30% lower occupancy rate, which increased when the heavy machines reached the hotel entrance. Najib Nasser, manager of the Plaza Hotel, said: “we suffered like anyone else, as for three months we hardly had any customers.” He was nonetheless realistic about the situation. “I don’t like to point fingers,” he said. “Hamra Street is much better now. Let’s hope it will only get better in the future.”

It should. Before the war, Hamra was everything Beirut stood for. It was not just the city’s high-end shopping street, but also a place to go out and have fun. Hamra boasted no less than ten cinemas, and a string of cafes and clubs. Those who have cited the demise of the Modca Café (rented to the Vero Moda chain for $20,000 a month) as the final nail in Hamra’s cultural coffin have missed the point. The street is prime retail with rents that have still to reflect its potential. Bassam, who can remember the so-called good old days, is convinced Hamra will get back on its feet. To him, the rehabilitation of Hamra Street is but a first step. His dream is to see it turned into a pedestrian zone.

The retail experts point to the thorny issue of old rents as a factor that held up Hamra’s post-war development. “The biggest problem facing Hamra after the war was the large number of displaced people who lived in the many empty buildings,” said Raja Makarem, managing partner of Ramco Real Estate Advisers. “This gave the area a shabby, insecure feel.”

Today, the squatters have mostly left and Makarem believes that Hamra has all it takes to become a genuine highstreet and the retail backbone of the area. Crucially, he does not see either Verdun, downtown or the rise of shopping mall culture as a major threat.

According to Makarem, Hamra is affordable. Today, the average rent for new retail space is between $500-$600 per m2 a year. At Hamra’s more affordable poles, rent is even cheaper, with shops at the Sadat Street junction offered for a mere $300 per m2 a year. And it has a social fabric. “Someone coming from the mountains to Beirut will not feel comfortable in downtown, where he can’t even pay for a coffee,” said Makarem, who lives in Hamra. “Hamra is the only place that still has the fabric of old Beirut, a place where rich and poor, Christians and Muslims can meet. What used to be downtown before the war will become Hamra: the melting pot of Lebanon.”

Cliché or not, he has a point. It is a target rich environment, serving the area’s relatively affluent community, a significant percentage of whom work in or attend the Lebanese American University, the American University of Beirut and the Law Faculty of the Lebanese University. It is also close to the beach and the Downtown.

Hamra measures some 2 km2, hosting 1,000 retail outlets, 500 companies, two main hospitals, several smaller ones, 450 private clinics, 65 banks and 24 hotels, among which are the Commodore Le Meridiene, Crown Plaza and the nearby Gefinor Rotana. It has a population of 20,000 and this does not include the 13,000 students and 22,000 employees. The area has an estimated 100,000 visitors a day.

“I’ve got high hopes for Hamra,” said Makarem. “With the new city center and Verdun both targeting the upper segments of the market, Hamra is giving a chance to reposition in the middle market segment. This would entail a gradual upgrade of the street’s merchandising, and this is exactly what seems to be happening after an initial shift to the lower end of the market with the likes of Eldorado, Akil and Big Bros.”

Innovation has helped. Hamra’s cinemas although beautiful, remain unrestored since the 1970s and are not in touch with modern cinema-going trends, which dictate a ‘more screens for less seats’ policy. Today, following a $2 million renovation, the old Eldorado cinema earns its owners an annual rent of $250,000, as a 4-storey budget “department store” and one of the street’s best performers. However, the trend is mainly heading up-market and in 2003, many new outlets such as Vero Moda, Jack & Jones, Dunkin Donuts, La Senza and Librarie Orientale have opened in Hamra Street. However, apart from the Crowne Plaza much of the Taj Tower’s 5,000 m2 retail remains unoccupied.

“Of course, we have been affected by the works,” said Taj Tower owner Omar Ramadan, who is asking for an average of $625 per m2 a year for his new shops. “But we’re also in the process of refurbishing the building, as we separate the entrances of hotel and mall. Now that the street is finished we hope things will get better.”

In the first six months of last year, Adidas Lebanon’s general manager, Zeina Hallak, noticed that sales of the famous sports clothing had dropped by 20%. What she discovered was disturbing. Not only were illicit dealers selling faked Adidas products, but also official Adidas outlets had replaced authentic goods with fake ones. Their excuse? “They said they had to protect their revenues as customers were buying fakes elsewhere. Adidas was potentially losing millions of dollars,” Hallak said. Fearful that the local company would be downsized or restructured by Adidas worldwide, Hallak began implementing a tough anti-counterfeiting plan that cost hundreds of thousands of dollars. Lawyers were hired, dozens of raids carried out, and over 50 law suits filed. Although 10,000 items have so far been confiscated, Hallak said there are tens of thousands more hidden away. Adidas has also launched a PR campaign warning retailers that it would be fighting counterfeiters tooth and nail and that they had two months to clear their shelves of fake merchandise or lose their contract with Adidas. And they had to commit, on paper, to steering clear of fakes. Only those who signed appeared on a list of authentic Adidas dealers printed in a newspaper ad taken out by the company.

What happened to Adidas is the tip of a very costly iceberg. From car parts, CDs and handbags to painkillers and sports clothing, the trade in counterfeit goods is costing the Lebanese government and private sector roughly $500 million each year (a spokesperson for high-end clothing retailers Aïshti estimated the cost of counterfeiting to the fashion retail sector alone – including watches and jewelry – at over $100 million a year). When the bill gets that high, it’s time to fight back. In recent months, brand distributors have launched their counter attack: they have hired lawyers, adopted controversial marketing tactics, clamped down on rogue retail outlets, and are hiring informants to lead them to warehouses, dodgy dealers, and containers full of fakes hidden among toys from East Asia. The government says that, with meager resources, it is trying to help and although some industry executives laud what they call a positive official attitude, others say the fight against counterfeiting is in fact being hindered by powerful politicians whose private interests are too close to their public ones.

The counterfeiting scourge is also frightening off foreign investors and seriously damaging the country’s international image as it strives for World Trade Organization (WTO) membership. In fact, the quest for WTO accession may explain the government’s recent efforts to at least appear involved in the anti-counterfeiting fight. Lebanon is already bound under an agreement it has signed with the European Union to combat counterfeiting after the EU expressed concern that Lebanon could become a regional counterfeit hub. Most of the imitation merchandise on sale in Lebanon comes from East Asia, Turkey and Syria. Observers agree that the process is facilitated by corruption – which the ministry of economy and trade insists is being tackled. The permeability of Lebanon’s borders is taken full advantage of by smugglers, bringing in easy-to-smuggle watches and jewelry. Once the fake goods arrive in Lebanon, they find their way to stores across Beirut, from Bourj Hammoud, Hamra and Dahia to the downtown district. A number of shops in the downtown area offer fake luxury handbags. Other districts, throughout Beirut, are full of imitation Nike, Adidas and Puma sportswear, as well as fake designer clothes, shawls, watches, bags, perfumes and footwear. Retail outlets only hold a fraction of the imported imitation merchandise, though. The bulk is stashed in warehouses that, despite the financial incentives for informants, are notoriously difficult to locate. Thus, when those inspectors motivated enough to raid an outlet do spring into action, they confiscate only a handful of items.

Counterfeiters pay minimal import duties. Although fake brands are often sold for significantly less than genuine ones, a bogus pair of Nike sneakers sold for $12 by someone who paid only a dollar in import duties and has almost no overhead costs, represents, across tens of thousands of pairs, a significant profit – which infuriates authentic brand agents, who pay around $13, or 1,300%, more in duties to import a pair of sneakers.

“We have a lot of employees. We pay at least 10 times more duty than they do. They bribe to get their merchandise into Lebanon. They don’t pay VAT. We are fighting a big mafia,” stormed Robert Elias, manager of Puma Lebanon. He said he had invested around $3 million in the company. “This is very dangerous. What will happen to all our investments if this is not fought in the proper way?” he asked. He said that between 10,000 and 50,000 fake shoes or garments are confiscated at Beirut Port alone every month. If that wasn’t enough, Elias is currently suing the former Puma agent after it was discovered that he had been selling certificates of authenticity to counterfeiters. Abdo Kassir, general manager for Nike Lebanon, said the counterfeit trade eats away an annual 30% to 35% chunk – nearly $1 million – of his revenues. According to his estimates, clothing and footwear counterfeiting is costing the private sector “tenfold that amount.” And, he complained, it takes a year to a year-and-a-half to plow through a court case against a counterfeiter, who is then ultimately slapped with a token fine. Nike, alone, does not have the funds to take on counterfeiting. That is why it has banded together with other brands to stem the flow of imitation goods at the primary source, East Asia. Fighting the fakers at home however is equally serious business. Brand agents employ undercover spies, paid informants, hush-hush telephone calls, and cash rewards in secret locations. “We have five or six people doing nothing but going around giving us information, giving us the names and addresses of shops. We have people down at the port, at the airport, at the border,” acknowledged Elias. “All information is paid for.” For his part, Kassir said that Nike has “dedicated persons within the company” who follow the counterfeit mafia on a daily basis. “Normally, we shouldn’t have to have these kinds of persons,” he sighed. Other companies operate a “reward scheme” under which informants who lead them to warehouses or containers are given $2 for each item (mainly shoes) confiscated. Some warehouses and containers hold tens of thousands of items. The scheme has led to four raids at the Port of Beirut and four on warehouses, the manager added. Asked if they were concerned that they might be putting informants’ lives at risk, especially since they lack police training on how to handle informants, one manager admitted that he was worried. “One informant has been promising us information since last August. So far he has given us nothing, even though he knows everything and could make a fortune. He says he is afraid of the counterfeit dealers. They can hurt him.” “All the big brands have this system,” said GS Chairman Samir Rayess, one of Lebanon’s most respected clothing retailers and whose brands include Timberland, Springfield, Bossini, and Polo jeans among others. Rayess had another concern: the possible abolition of exclusive dealerships, without concomitant progress on the anti-counterfeiting front. “If something is not done to fight the counterfeiting trade, we will be very negatively affected,” he warned. “It would be very bad if exclusive dealerships are abolished while at the same time the brands are not protected against counterfeiting.” Rayess, and other agents, fear that a multitude of dealers would be less likely to present a united front against brand imitators. And in a retail sector with multiple agents, the opportunity for retail fraud would probably multiply, because it would become more difficult to keep track of legitimate importers and to identify the fraudsters. The incidence of corrupt practices would, in all likelihood, also rise. Overall, it would become much more difficult for already overburdened governmental anti-corruption staff to respond to complaints and to enforce the law. In another effort to combat the counterfeiters, some brand distributors are adopting controversial marketing tactics. Nike has discount stores selling previous years’ lines of clothing and footwear at prices comparable to those of the fake Nike products, while Adidas has told its retailers who were peddling fake products to replace them with authentic reductions. “We dumped the prices of certain products,” conceded Hallak, “to ‘kill’ the counterfeiters.” Although such outlets and sales strategies are part of everyday retail life in the West, not all brand agents applaud the tactic. Detractors say its proponents are giving in to counterfeiters and doing immeasurable damage to their brand image and to the country. “This is very, very wrong,” warned Elias. “They should fight counterfeiting in the way we are.” But so far, he noted, very few brands have committed to the effort. Kassir defended his strategy as a justifiable way of countering counterfeiters by offering authentic goods at realistic prices to people who cannot afford the higher ones. Nike has three or four discount stores selling past years’ goods at up to 50% less, he said. “If I try to sell something at $80 and the counterfeiters are selling it at $20, then I end up with a huge stock that cannot be sold. We propose the product at much lower prices, to give a message to the counterfeiters. It’s fighting them on their own ground, not giving in to them. Resorting to bribery would be giving in.”

Although a decades-old Lebanese law clearly prohibits the trade in counterfeit goods, almost no perpetrators are sent to jail and only pay puny fines. However, the sad reality, according to observers and industry insiders, is that the counterfeiting business is propped up by corruption, operating at the highest political level.

Francisco Acosta, first secretary for political and economic affairs at the European Commission’s Beirut office, who recognized the steps taken by the ministry of economy and the customs department to combat counterfeiting, said: “The problem with Lebanon is the economy is so interlinked you don’t know who is managing what. Some of the people importing counterfeit products are linked to the government. Others have links to Syria. You cannot have a policy on counterfeiting as long as private and public policy are so close.” He added that there was a, “reluctance in some parts of the government” to commit to anti-counterfeiting moves. Hallak of Adidas said: “Even when sports goods shipments were all passing through the Red (Customs) Zone, other containers were still coming in unchecked. We knew that this was because a senior politician had given instructions. A lot of people have an interest in maintaining the status quo. As long as this remains the case it will be very difficult to control counterfeiting.” Asked if Syrian interests were involved, she answered: “I am sure.”

An official at the ministry of economy and trade, who spoke on condition of anonymity, acknowledged that some members of parliament with “narrow interests” protected counterfeiters from their constituencies, while Kamal Abi Merched, of the ministry’s Intellectual Property Department, identified what he called “the great negative impact of political parties that benefit from this corruption.”

But the ministry itself has not been without blemish. According to ministry of economy and trade director-general, Fadi Makki. Up until the end of 2003, seized imitation brands were routinely allowed into the country if importers removed the labels and pledged to desist from ever importing fake goods again. One brand executive, who said that the law was clear in its prohibition of the practice, described the policy as “absurd.” Makki conceded that counterfeiters were not abiding by the gentlemen’s agreement and in theory made the ministry an accomplice to the crime. “Somebody is trying to be lenient with the smugglers,” Elias said. “Everybody has his own way of making his earnings.”

Hallak was more straightforward: “We identified a container with 3,400 pairs of fake Adidas shoes. Because the importer had an inside connection, he asked to be allowed to import the shoes if he removes the logos. I think we will lose the case. Imagine that. The law is clear. We paid thousands of dollars for the information. Yet a law will be invented to allow them to import the shoes. We were told it was a decision taken by the ministry of economy. They told us it was customs and customs told us it was nothing to do with them. And there is no paper with this decision on it.” Hallak also pointed to the revocation, in January, of a recent agreement with customs, under which all sports goods entering Lebanon had to go through the Red Zone, where there was greater scrutiny, as further evidence of double standards. The ministry, which said it could not give a figure for the revenue it has lost because of counterfeiting, says it does not have the manpower to launch a comprehensive crackdown. Anything short of all-encompassing raids would create political problems: “If we crack down in one area, I will be asked, ‘why didn’t you start with another region?’” said Makki. “It would be politically unsustainable. Therefore, I am not going to go out of my way to combat counterfeiting in the market. I’ll try to handle it at the source and wait for complaints.” Perhaps this might explain why Beirut is still awash with counterfeit products, many on open display, even in the downtown district. Makki also stressed that brand distributors have an obligation to share the burden of the anti-counterfeiting battle, in conjunction with NGOs, by raising awareness among consumers. This obligation is enshrined in a new consumer law that has to be ratified by Parliament and which should be in force by the end of the year. Makki said that the partial delegation of responsibility to the private sector was a reflection of the ministry’s dire financial condition. “We’re not allowed to recruit. I know that next year I am losing about 10 or 12 inspectors. Every year I lose three or four,” he lamented. The problem of understaffing at the ministry is so acute that 10 already-overburdened anti-counterfeit inspectors from the Consumer Complaints Department are also working for the Intellectual Property Department. Some observers have suggested that Makki’s emphasis on the ministry’s lack of resources and the shifting of the anti-counterfeiting burden to the shoulders of the private sector reflects, in an indirect manner, an unwillingness to take on the powerful political interests embedded in the counterfeit trade.

If passed, the new law should provide for stiffer penalties for counterfeiters. They can theoretically expect fines of up to LL150 million ($100,000). But without enforcement it will be toothless. “We lack effective enforcement by the judiciary,” said Ghaleb Mahmassani, of Lebanon’s Intellectual Property Commission. “A law by itself does not take you far.” According to Francisco Acosta, “Lebanon has to make an effort to properly apply and enforce the law. The laws are being modernized but the application is still lacking. You have to have political willingness to apply the law.” Judges lacking in counterfeiting expertise merely aggravate the issue. Adidas manager Hallak said the company has to send lawyers along on police raids to make sure the officers do their job. “This doesn’t happen in Europe. Here, the government announces one thing but what happens on the ground is completely different,” she said. Managers like Elias want laws that are effective. “The government is not helping us,” he said. “It is impossible to hurt the counterfeiters.” And the counterfeiters do not appear particularly concerned. They seem confident that their business will continue to thrive – fueled by image-conscious Lebanese with limited buying power and coddled by a judiciary unwilling or unable to implement the law. “Yes, the inspectors came to my shop,” said one counterfeit retailer. “They were responding to a complaint but didn’t take away all my fake stuff.” Would the inspectors win at the end of the day? He shrugged. “There are thousands of shops like mine. They can’t close them all so why should they pick on me and not the rest?” Despite the words of defiance, Samir Rayess chairman of GS expressed a cautious optimism. “Yes there are major problems that need to be addressed, but positive aspects of our growing retail sector must not be overlooked. However, if we are to capitalize on our reputation as a retail hub and encourage regional shoppers to visit Lebanon, then our reputation must be whiter than white and that means stamping out those that sell fake goods.

On Monday morning, April 19, hundreds of Lebanese educators, academics and policy makers took their seats in the UNESCO Palace auditorium to listen to a series of presentations on what the ministry of education and higher education (MEHE) billed as a preliminary framework for a national education strategy, the final version of which will be released in October.

Unfortunately, for many in the room, the topic, as well as the specifics of what was discussed seemed all too familiar. Indeed, some skeptics of the ministry’s latest efforts say that the real test will be whether the relatively new administration of Samir Jisr will go beyond the work of his various predecessors to actually implement some badly needed reforms – many of which have been on the table since the mid 1990s.

Moreover, several experts, including members of the government itself, wonder whether all the new efforts are being adequately coordinated with various other stakeholders, like the ministry of labor and private sector concerns, in what they say must be a serious effort to finally develop a comprehensive, multi-sector human development strategy for the Lebanese workforce.

With youth unemployment estimated at a whopping 40%, the continued emigration of skilled university graduates (for whom unemployment is almost as much a fact of life as it is for lesser skilled workers), and a bruising public debt, time may be running out for reform.

“People are tired of this,” said American University of Beirut (AUB) education professor Munir Bashshur. “Everybody knows that the question is not really a lack of a strategy. You can have all the strategies and plans you want. But if you don’t really have the political will to move forward, it is not going to happen.”

Indeed, since the mid 1990s, the Lebanese government has produced a series of earnest policy statements aimed at improving Lebanon’s education system – a system that includes almost one million school-age students spread across more than 2,800 public and private schools, 84,000 teachers and a budget that is more than LL812 billion annually.

While there are many reasons why education reform has stalled in Lebanon, the notion that the country must address its economic problems first before human development reforms could even hope to work, has created a particularly unproductive obstacle – even if, at first glance, it appears valid.

If students are more skilled, the argument goes, they will simply leave the country – if they are able to – because the absorptive capacity of the job market is severely limited. So why focus scarce resources on improving education?

This argument has been conveniently buttressed by the inwardly complacent conviction, expressed at many different levels, that Lebanon is itself an “island of educational excellence” – that instead of some schools, mainly private ones, being individual “islands of excellence,” as the UNDP has put it, the entire education system is a sort of jewel in the Middle East. This is where the argument moves from being merely unproductive to downright destructive.

“You find the worst kind of schools in Lebanon and the best kind of schools in Lebanon. The mixture is amazing,” said Bashshur, dismissing any illusions to the contrary. “What is good in Lebanon, however, is because of the private system. What is bad in Lebanon is because of a lack of coordination between the private and public [systems],” he added.

And indeed, if one looks at the available statistics (of course, the poverty of statistics is certainly a huge part of the problem), there is a welter of evidence to support his claims. 35% of all youth between the ages of 14 and 19 are, in effect, school dropouts. The average age of teachers is approximately 50, with only 38% of primary education teachers holding a license (among the lowest percentages in the Arab region).

What’s more, few teachers have undergone regular professional development, much less the kind of Information and Communications Technology (ICT) training that is increasingly so vital for the new economy. Not surprisingly then, as the last UNICEF State of the Children in Lebanon report put it, “the education level of our population is poor. 45.22% [of the population] have not completed the basic schooling necessary for social integration at all levels.”

Lebanon is also burdened by the fact that it spends vastly more per pupil than neighboring countries ($1,122 per student in primary education and $938 per student in secondary education; see chart for comparison). While this normally would be a cause for celebration, it is unfortunately more an indication of inefficient resource allocation, a deep level of corruption rooted in confessional politics and the degree to which the entire system is geared more to the employment needs of teachers, rather than the educational needs of children. Indeed, the Lebanese Transparency Association has reported that some schools, particularly in the South, even have more teachers than students – a costly proposition to say the least.

With an overall pupil to teacher ratio of 9:1 in Lebanon’s public schools – a figure that should be the envy of the entire world – and with a costly system of educational subsidies for the children of government employees – who often move their children into the private system at taxpayer’s expense – the idea that Lebanon’s school system costs so much generally provokes only shrugs from experts and government officials alike who are all too familiar with the profligacy and gross inadequacies of the current arrangements.

Another discouraging aspect of its high per pupil cost is the fact that according to UNDP’s 2003 Human Development Report, Lebanon’s spending on education as a percent of its GDP (3%) is less than that of other countries in the region like Saudi Arabia (9.5%), Israel (7.8%) and even Syria (4.1%). Although Lebanon’s system is expensive, it is, paradoxically, not funded like the national priority that many say it should be.

Perhaps more problematic than the corruption and inefficiencies though, is Lebanon’s approach to education – an approach that many experts agree is simply not getting the job done at either the purely pedagogical level or at the level of responding to the actual demands of the labor market.

As a March 2004 ESCWA report noted, “secondary education in Lebanon is based on a one-track system [where] it is difficult to transfer from one field of specialization to another. Furthermore, higher education is still based on an old-fashioned structure of specialization that is incompatible with the requirements of employment in the 21st Century.”

“In many cases,” said the same ESCWA report, “the education system produces a highly skilled and well-educated workforce that lacks the skills needed in the new economy.”

And the problem is not just confined to the general or advanced education levels; it extends to vocational and technical education as well.

After merging with the MEHE two years ago, the Directorate General of Vocational and Technical Education (VTE), an office charged with transferring skills at a relatively advanced level, is now also facing the hard reality that its programs are not meeting the demands of the labor market.

In order to address this situation, as well as to finally gauge the actual shortcomings of its system, the VTE has been included in the MEHE’s latest education strategy effort – although Ghassan Kabbara, who is coordinating the project for the Ministry’s Educational Center for Research and Development, could not say when the VTE component of the overall project would be finalized. According to the director general of VTE, Youssef Dia, the hope is that once the agency gets a handle on its programmatic weaknesses and gathers precise information about the needs of the market, its bureaucracy can then move from a supply driven training model to a demand driven one that is accountable and, most of all, flexible.

As it currently stands though, VTE, like the general education system, is doing a poor job at what it is specifically responsible for: providing high-quality skills that are in demand. And it is private sector employers that are complaining. According to one World Bank report on the system: “In Lebanon, syndicates representative of different economic sectors have expressed frustration that the training institutions are not producing graduates with the required level of employable skills.”

Also problematic is the fact that VTE’s responsibilities – and thus its ability to both gauge effectiveness and provide ongoing support services – wholly end after a student receives his or her diploma. “Our last contact with them is when we deliver their certificate,” said Dia. The newly skilled student is thus left on their own to compete in a domestic labor market that has not been well understood by the agency that provided the training in the first place.

Of course, it is difficult to imagine that the VTE could even afford such follow up services, much less undertake expensive data collection or market analyses on an ongoing basis, since its own budget is perpetually in deficit. In fact, VTE recently scaled up the number of students it serves from 23,000 students to an astounding 36,000 students – a 57% increase in program enrollment over just one year.

“It is a political decision,” said Dia’s assistant Maurice Rizk. “You cannot say, ‘no,’ we can only take 30,000 or we can only take 20,000 and all the others, we have to throw them out. Our government will not be satisfied.”

Even more incredibly, the increase in the number of students – which was mirrored by an increase in VTE schools from 42 to 66 last year – comes while teachers at 14 vocational schools have not been paid yet. Although VTE asked for LL42 billion this year, it will only get LL25 billion, far short of what it needs to operate at current levels, much less meet the needs of the population.

Given these common themes across the different components of the education system, it is encouraging, say some experts, that the emerging national education strategy is focused on implementing reforms across the board.

“This is a major change in policy,” said education consultant Marquis Bureau, who is a part of the World Bank funded team developing the strategy. “We are at a point now where we have collected regional data, we have a national summary and the next step is to bring the expert content together with the content that we have collected from each region [and] provide the base for which we will address strategic objectives.”

Among its components, the strategy will develop an integrated policy framework for general and vocational education, undertake a labor market needs analysis for both, build a unified Education Management Information System, complete an up-to-date study on education financing, design a professional development program and create a framework for active participation by the private sector.

It is an exhaustive, and not surprisingly, expensive to-do list, to say the least – which is perhaps why decision-makers won’t even speculate on the problematic issue of cost.

Another potential weak spot is the fact that, despite sincere efforts at coordination across bureaucratic boundaries, the Ministry of Labor (MOL) has mostly been left out of the MEHE strategizing process.

According to a spokesperson for the International Labor Organization: “There is some coordination between [MOL and] the Ministry of Education … unfortunately not enough is being done in this regard, particularly with the increasing number of youth leaving the country.”

Significantly, the Ministry of Labor runs its own VTE program, mainly for lower skilled workers, coordinates labor policy and, through the National Employment Office (NOE) and its board, is supposed to collect labor market data, coordinate policymaking with other ministries, and involve the private sector.

But, as Jamal Fakhoury, legal advisor to the minister of labor, explained: “It is not organized between all of these parties involved in the employment affair that is related to the education affair.”

When asked if MOL had been consulted about the emerging national education strategy, Fakhoury said flatly: “we have not been consulted about it. But it does not mean we do not approve … although we could give them so many ideas about it.”

And indeed they could. The MEHE and VTE are aimed at gaining precisely the kind of data and coordination that Fakhoury knows is also vital for the MOL, if it is to reform its own practices. But avoiding duplication and realizing system-wide economies of scale are apparently not high on the agenda of either ministry.

The result, as Fakhoury pointed out, is that the demands of the labor market are not being met by the education system or the MOL, despite its own ongoing reform efforts. As evidence, he cites two sectors that are actually growing in Lebanon – tourism and health care. “The actual graduated or prepared people for the needs of the [tourism] sector are very far below the numbers needed. [Moreover], we have about 200 hospitals in Lebanon, but we have 10% of [the workforce] that is needed. The education system is not producing enough for this sector,” he said.

Fakhoury, like others, hope that the new education strategy and promised reorganization within his own NEO, especially in the realm of statistics, will bring real improvements to Lebanon’s human development capacity – something that will ultimately be reflected in the country’s economic performance. “We are aware,” said Fakhoury at a recent conference on human resource management, “that out human potential is our only real capital.”

For those Lebanese who are either forced to stay in the country because of socioeconomic reasons or who want to stay and contribute to their native land, they can only hope that this time, the government, at its various levels, will finally make good on its promises.

Municipal finance is a cornerstone of successful decentralization in government. In light of ongoing discussions over proposed new legislation and the municipal elections this month, EXECUTIVE talked to attorney Ziyad Baroud about the state of municipal finance and municipal reform proposals. Baroud, who teaches municipal law at St. Joseph University and is a consultant with the UNDP, is also an activist for municipal reform and development.

How important is the finance issue to Lebanon’s municipalities?

The law of 1977 gave the municipalities wide jurisdiction in governing their local affairs. If the municipalities do not have the money needed to implement projects, which are their prerogatives under the law, they cannot fulfill their mandates.

What difficulties hamper the financial aspect of municipal governance?

The problems begin with size. Small municipalities do not have enough resources. Another problem is that some of the funding that is in principle due the municipalities via the central government has not been distributed equally and regularly. Going into details, municipalities have two sources of income. First, taxes from residents on properties, shops etc, are payable to the municipalities. The other source is a share of phone and electricity bills and certain customs duties. This money goes into the Independent Municipal Fund (IMF), which was created in 1977. This fund is supposed to serve all municipalities but mainly to finance small municipalities, which do not have enough income from direct taxes.

How much money are we talking about here?

The total amount collected in this fund between 1997 and 2001 was LL890 billion, or almost $600 million. This is a rather large amount. There are criteria for distributing moneys in the fund. But money was not paid out regularly, and distribution was based on political considerations. Take for instance one QADA where you have 40 municipalities and another where you have 26. In the first one, LL4.7 billion were paid in 2001; in the latter, LL19.6 billion were paid. Revenues in the IMF need to be distributed equally and regularly.

If properly distributed, would the funds make municipalities more effective?

They would be sufficient only for large municipalities. Before the 1998 elections, we had around 750 municipalities. Today, we have around 900, in a country of 10,000km2; so an average of one municipality per 11km2, which is very small. So you see a need for a redrawing of the municipal map?

Yes. We need to resize municipalities. Jordan restructured its municipalities two years ago. They have around 240 municipalities today, and Jordan is larger than Lebanon.

What activities fall under the financial authority of the municipalities?

86% of municipal expenditures go to services. Some municipalities undertake infrastructure projects because they have the financial support to do so, often from international donors. Others do not implement infrastructure projects, because they don’t have the means. It is not the nature of the project that influences decisions, but the availability of funds

Do municipalities have the resources to hire employees?

Unfortunately, municipalities have been forbidden from hiring anybody since the Council of Ministers decided in the early 1990s to impose a hiring freeze in the public administration. We have municipalities that are without civil servants and qualified employees. Instead, elected council members and municipality presidents do the jobs if they are qualified. Plus, employees are underpaid. Wages in the municipalities are worse than elsewhere in the public sector.

What is the total employee count on the municipal level?

We do not have these figures because there are no centralized data. Employee numbers vary from 2,500 in Beirut to zero in some municipalities. All municipalities need more employees.

Are municipal budgets published?

Not by virtue of the law. Some municipalities publish their figures, but as far as I know, not more than five are doing so. A new draft law should oblige municipalities to publish their budgets so that citizens can be aware of how funds are being used. Municipal funds are public funds.

Are there audit procedures for municipal budgets?

Yes, municipalities are not free to do whatever they please. We have financial controls, judicial controls, and controls by citizens. One of the positive points in the new draft law involves auditing. However, we need to rethink how the auditing of municipalities can be conducted without having the central government directly involved.

Is implementation of financial autonomy more important than elections for building good municipalities?

No. It is very important to address both political and financial issues. Municipalities are a good exercise in democracy, transparency and accountability. What makes the financial issue so important is that you cannot give municipalities a range of prerogatives but deny them the means to accomplish them.