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Imad Zbeeb

by Executive Contributor
written by Executive Contributor

The American University of Beirut’s Business Faculty is now offering a human resources management specialization, both at the undergraduate and MBA levels. It is the first such specialization in the region. EXECUTIVE spoke with professor Imad Zbeeb, who is overseeing the launch.

Why are you launching this specialization?

I realized, after doing some studies and research in Lebanon and the region that human resources management is not being taught in the right way. There is a need in the region for strategic human resources management skills. As part of several studies, we interviewed top managers in different institutions and organizations – in the banking, manufacturing, and other sectors – and we realized that human resources management, in many cases, doesn’t get its fair share of attention, and that those who are in charge of personnel departments do not have formal human resources management training.

How will it be implemented?

Here at AUB, we offer, of course, BAs in business administration, and management was one of the concentrations. We decided to break the management concentration down into clusters, to provide more specialties – and human resources management is one of them. So now, those who choose management as a concentration can pick either human resources, or entrepreneurship, as a cluster. For the human resources management cluster, we have designed a number of courses, such as employee development, training, compensation, human resources management and strategic human resources management.

At the graduate level, the management concentration has been divided into organizational behavior and human resources management.

What has the response been?

Many students and employees have shown an interest. Feedback from employers and AUB alumni suggests that a high number feel a human resources management concentration is a very good idea. Students are realizing that a general degree in management is not going to be very marketable, so they want specialties – human resources management, production operations management, or strategic management. They know how important these specialties are. My target, at the undergraduate level, is to have 125 to 130 students specializing in human resources management. At the graduate level, I’m expecting every year somewhere between 25 and 30.  

How do you market the course to students?

We raise awareness during basic, core courses like management and marketing. That is when students are ‘shopping’ for concentrations. And we invite guest speakers from the private industry who provide more insight into the importance and relevance of human resources management. Students’ awareness is also raised during their Junior year internship, when they realize the importance of a company’s human resources department.

Does this move reflect a desire maintain your alignment with US university programs?

Yes. Many of us here at the School of Business received our education abroad. Many of us have come from the United States. I spent 19-plus years in the United States, teaching in the areas of management. I chaired a department of management at one of the universities I taught at. So, we brought this American mindset with us. Many of our courses are interdisciplinary in nature. We follow the American system of education, in most cases. In addition, most of us here provide consultancy services to the private sector in the region. And those of us who were in the States, apply our American experience. So yes, we do integrate all of the practical needs that we have learned to respond to into our courses, and they are in alignment with what is being taught now in the United States.

How did you prepare for its implementation?

In addition to our experience in the field, we visited the websites of some of the world’s most prestigious universities and checked their curricula. And then we came up with what we feel is a very solid human resources management model. So, it’s basically a combination of our skills here at the School of Business – especially in the department of management, marketing and entrepreneurship – and the research we did on what is being taught and how it’s being taught.

Do you expect other universities in Lebanon and the region to follow suit?

Yes, and it would be healthy. The country and region are in need of such programs. It would be a compliment to us, not a threat.  

How has the lack of human resources management skills affected the productivity of companies in Lebanon and the region?

The issues of employee development, training and motivation have suffered. For example, Lebanese companies don’t invest very much in training. They don’t realize how important training and development is. In the area of salaries and compensation, there is no structure. Employees don’t know about many issues within the company. Awareness, commitment, all of these are lacking.

How do you see the program developing over the next few years?

At some point, we would like to have a degree in human resources management – both a BA, and an MBA. Many schools in the States offer such degrees. This would require more courses, more electives, and more faculty, and this requires time and resources. We would need at least 10 different courses in human resources management.

I would also like to start a human resources management chapter on campus; something like the “Society for Human Resources Management.” These are American and international organizations. 

Is there a possibility the program may not generate enough interest to survive, or evolve into a degree?

There is no risk of that. Our faculty is highly qualified. AUB has a very fine reputation in the region. We’re going to promote the cluster now, and the program later, very, very aggressively. There is demand for human resources management skills in the region. We will be contacting employers to tell them that we have this concentration. Our graduates will be our ambassadors in the future. We’ll do whatever it takes. All you need is: need, awareness, and commitment – and we have all of that.

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Money Matters

by Executive Contributor
written by Executive Contributor

$84.5 billion in Investments Needed for Regional Energy Sector

According to a study published by the Organization of Arab Petroleum Exporting Countries (OAPEC), the regional energy sector should raise nearly $84.5 billion for future expansions. Up to end-2006, the gas industry is expected to account for the majority of investments at $43 billion. In addition, $21 billion should be allocated for boosting crude production capacity, $19bn for petrochemical industries and the remaining $1.5 billion for the oil refining sector. OAEPC expects that 42% ($35 billion) of needed funds would be financed by Arab and foreign commercial financial institutions, while 13% would be extended by commercial financiers.  

Bahrain’s Ahli United Bank Reports 27% Growth in H1-2004 Profits

Bahrain-based Ahli United Bank (AUB) released its first-half 2004 results, reporting a 27% year-on-year growth in net profits to $62.8 million. The bank’s net interest income rose by 15% over the same period, while cost-to-income ratio slightly increased from 34.6% to 36.1%. AUB’s total assets stood at $6.4 billion, while shareholders’ equity amounted to $931 million. In addition, the bank’s capital adequacy reached 19.9% at end-June 2004.

Country Profile: Saudi Arabia

Emerging markets rating agency Capital Intelligence (CI) raised Saudi Arabia’s long and short term foreign currency ratings from A- to A and from A1 to A2 respectively. In addition, CI assigned an A long-term local currency debt rating with a “Stable” outlook. The upgrade reflected improvements in the country’s external balance sheet. Saudi Arabia’s gross external debt remained low at around 30% of current account receipts (14% of GDP), coupled with a strong net creditor position. On the fiscal side, CI expected the government’s budget to reach a surplus of 8.5% of GDP in 2004 (excluding sale of mobile licenses), thus enabling the accumulation of foreign assets and the partial settlement of domestic debt. However, Saudi Arabia’s ratings are still constrained by a weak budget structure (75% to 80% of revenues are oil dependent) and long-term demographic challenges associated with a young and growing population. CI advised Saudi Arabia to accelerate the pace of structural reforms aimed at increasing economic diversification and private sector growth in order to avoid potential social and fiscal pressures  

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Paying the hospitals

by Executive Contributor
written by Executive Contributor

After much back-and-forth in the media, in mid-July an agreement was finally hammered out between the Syndicate of Hospitals and the various government entities and public employee groups that collectively owe almost LL500 billion in unpaid hospital bills. The terms of the deal stipulate that the hospitals’ primary public debtors – including the ministry of health, the labor ministry, the army, and the National Social Security Fund (NSSF) – would each pay the entire amount they owed from 2003 by the end of August.

Although the president of the NSSF’s administrative board, Maurice Abu Nadher, had previously argued in published reports that the Fund’s outstanding bill was the result of incomplete applications on the part of hospitals, as well as a lack of government funding for the Fund itself, he told Executive there now was “no problem, we have the money … I think we will be able to make our payments by August.”

Saleem Haroun, the Syndicate of Hospital’s president, is not entirely convinced. “They have made agreements before and then broken them. Either way, we are still owed for the last seven months of 2004 and still face serious problems as long as there are delays in payment.”

Abu Nadher, for his part, isn’t entirely convinced of the hospitals’ woes: “I don’t think they are facing a dire situation. After many years, they are making too much money.”

For Antoine Abi Akl, a hospital payment’s manager at Berytus, a health insurance provider, private insurers will most likely continue to be caught in the middle. He said: “Hospitals try to compensate by putting more pressure on the private sector to pay their bills,” since private insurers customarily pay their bills within two to three months.

Lebanon’s AIDS problem?

According to the UN’s latest annual report on the global HIV/AIDS epidemic, the number of individuals in Lebanon living with the disease jumped 40% between 2001 and 2003, from an estimated 2,000 cases to 2,800 cases.

The increase seemed to buttress the stark warning issued earlier this year by the National Aids Control Program (NACP), a joint effort by the ministry of health and the World Health Organization, that “HIV/AIDS could emerge in a few years as a primary threat in Lebanon, which will affect major sectors including health, social affairs, tourism, and labor. It will be an additional burden on a slowed down economy, increasing the costs of the health care, and on a social structure barely developed after years of civil troubles.”

Although one NACP official stressed that the UN’s number was only an estimate – there are currently 756 people in Lebanon known to be living with HIV/AIDS – the globally respected report may just provide some much needed fire for the government to move even more quickly on key elements of its recently issued five-year strategic plan.

Key among the goals envisioned by policymakers in the plan is a greater involvement on the part of the private sector – especially in so far as private hospitals and the media are concerned. As the plan noted, “the private sector’s involvement in the fight against AIDS is imbalanced.” What’s more, there have been “few links” established between the government and private hospitals, which treat 90% of HIV/AIDS cases.

The plan also looks toward the creation of a “legal and policy environment which protects the rights of all persons” infected with HIV/AIDS – an effort that would invariably affect private companies in Lebanon, since few have formal policies regarding employees living with HIV/AIDS.

Indeed, according to a recent World Economic Forum report, fewer than 6% of firms say they have such policies in place. “Companies are not particularly active in tackling AIDS, even when they expect the epidemic to cause serious problems for their business,” the report said.

Bad medicine

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.’

Happy hotels

With Lebanon perhaps heading for an all-time record in terms of the number of visitors entering the country, hotel occupancy rates are soaring this summer. In the first six months of 2004, 506,367 foreigners entered Lebanon, up from 348,542 during the same period last year. In July and August the number is expected to almost double. Last year some 300,000 Arab visitors came during summer alone.

The ministry of tourism this year expects a total of some 1.5 million tourists to enter Lebanon, which would break the 1974 record of 1.4 million. And so it is a perfect summer for Lebanon’s hotel sector. Beirut’s luxury hotels claimed an occupancy rate of 75% in June, which is expected to increase by some 10% in July and August. Nizar Alouf, general manager of the Riviera, claimed an occupancy rate of 73.3% in June, which he expected would increase to 80% July and August.

The Phoenicia InterContinental, Beirut’s largest hotel, saw 77.4% of its 13,800 beds occupied in June, while Rotana, one of the smaller hotels with a maximum capacity of 3,840 beds, boasted the highest June occupancy rate with 91%.

But it is not just Beirut that is reportedly doing well. The Sheraton in Bhamdoun is “nearly full” the whole summer, according to the reservations desk. A smaller hotel in the Bhamdoun-Aley area, the Carlton, saw a third of its 70 rooms occupied in June, yet is fully booked during July and August. The medium size Sheikh Hotel in Bhamdoun reported similar rates. Though Bhamdoun is picking up rapidly, Broummana, in the Metn, is still doing well, as it did last year. The Grand Ville Hotel, with its 118 rooms and 52 apartments, had an occupancy rate of 50% to 60% in June and September, and of almost 85% in July and August, according to its reservations manager. The Belle Vue Palace, a small family hotel of 65 rooms, has been fully booked for the whole summer. Nearly all hotels reported that some 80% to 90% of their summer clientele originates from Saudi Arabia and the Gulf.

The Arabs are landed

The latest report issued by Ramco Real Estate Advisers last July concluded that Gulf investors buying Lebanese land have poured some $680 million into the Lebanese economy between 2000 and March 31, 2004. The report added that “taking into account the additional investment on project development the amount could easily more than double.”

RAMCO noted some interesting buying trends. While last year saw the highest activity in land buying by Arabs, when no less than 800,000 square meters were bought in 56 separate deals, the first months of this year saw a slowdown in the number of purchases: only 122,000 square meters were bought, mostly by Saudi investors. RAMCO estimates that having bought large chunks of land last year, Arab developers “need some time to digest the flurry of buying.”

Also, while Kuwaitis were known to be the most active buyers in recent years, Emiratis concluded nine out of the 20 largest deals over the last 32 months, followed by four Saudi and four Kuwaiti deals, and one Qatari and one Syrian.

A total of no less than 2.03 million square meters of Lebanese land were sold between 2000 and March 31 2004 in 109 large deals. “All these deals,” RAMCO reports, “involved lands larger than 3,000 square meters, the maximum holding allowed for non-Lebanese.” The two largest purchases of land – of 368,723 square meters and 123,492 square meters – were concluded by Kuwaiti investment groups in the region of Qornayel.

The Arabs’ most preferred purchase targets are in the mountains, yet not too far from Beirut. So, 38% was bought in Baabda, 27% in the Metn and 18% in Aley. Only 1% of all land deals took place Beirut, which still represented the largest value for the Lebanese economy.

Kill those lines

The first consumer boycott of the Lebanese cellular network was endorsed by a wide coalition of syndicates and professional organizations. The main organizers of the boycott were the consumer rights non-governmental organization, Consumers Lebanon, which had urged the country’s nearly 800,000 mobile phone users to press for a cut in basic rates and per-minute charges by shutting down their mobile phones for 24 hours on July 15.

Initial estimates of participation in the boycott varied wildly, from more than 60% by the organizers to little over 10% by the ministry of telecommunications, which is in charge of setting mobile phone rates for the two network operators LibanCell and Cellis. Notably however, the telecommunications minister, Jean-Louis Qordahi, responded to the boycott’s substantial public attention by saying the ministry would shortly be submitting a revised cell phone pricing structure to the Cabinet.

A few days later, representatives of Consumers Lebanon modified their high estimates of the boycott. Business users could not be expected to switch off their mobiles for a full day, the executive director of Consumers Lebanon, Abdelrahman Berro, told Executive while making a rhetorical claim to the protest’s general support: “For us, 95% of users are with the boycott,” he said. “Who is against a reduction in costs?” The target of the boycott was the government, not the mobile phone operators. Berro attributed to government manipulation the fact that excessive cellular rates were blamed on the networks’ operators.

If no change in prices comes about, Consumers Lebanon plans to repeat the boycott in mid-August. The organization has set its mind on creating a permanent framework for staging civil disobedience against numerous government-mandated costs. “We will make many boycotts,” Berro said.

Corruption as thick as oil

While Lebanon bakes in the summer heat and people bend under the weight of high gasoline prices and seasonal energy shortages, the judiciary recently launched investigations into high-profile corruption and squandering of funds at the national power utility, Electricité du Liban, (EDL) and the ministry for energy and water resources. Two advisors to the ministry, Rudy Baroudy and Majed Qostantine, were taken into custody and questioned over their alleged involvement in fraudulent trade with oil derivatives and with illegally enriching themselves.

From late June, investigative authorities issued a flurry of summons for questioning against the two advisors, employees at EDL and businessmen working in the import of oil derivatives. The cases of fraud and graft in the oil sector partly date back to 1999, when the former oil minister, Shahe Barsoumian, was arrested for supposedly skimming funds in the magnitude of $800 million from illicit oil deals. At the time, observers considered Barsoumian to be a possible scapegoat for other figures implicated in the oil scandal, and until today the file of suspicious affairs in the energy sector remains multi-faceted: Alleged wrongdoings also include charges relating to shady contracting and consulting agreements as well as to opaque procedures in awarding operator contracts for the nation’s power plants.

While results of the current investigations have yet to be made public, it is curious that the problems in the energy sector attracted such intense official scrutiny just after high energy costs played a big role in the severe unrest during the May 28 demonstrations. Did new evidence surface or could politics and election-time machinations have been involved in the investigation? “We are researching why these investigations have come to the fore right now,” said Charles Adwan, anti-corruption campaigner for the Lebanese chapter of watchdog organization Transparency International. 

New winery in Kefraya

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.”

Taking a Spin

Local supermarket Spinneys is giving away 10 new cars as part of its 100-day promotion and advertising drive from May to early August. Lebanon’s expansive supermarket chain describes as “by far the largest ever” for such a campaign in retail here.

Putting out prizes worth “just short of $300,000” and investing into advertising and below-the-line product promotions, the three-tiered campaign carries a value of $600,000, Spinneys’ Middle East retail director Michael Wright told Executive. Results have been in line with expectations and have brought the company month-on-month sales growth of 15% to 20%.  

The campaign’s unprecedented size is based on both sales volumes and increased geographical presence of Spinneys markets in Lebanon. “Our advertising budget is directly related to our top-line sales,” Wright said. When the company operated at single branch level, even nationwide campaigns had been of limited effect, because customers would not find their way to the store, he added.

While some of the chain’s previous promotion efforts, such as introduction of coupons in 2003, seemed over-complicated for local habits and were not carried further, the current high visibility campaign apparently strikes a strong chord with Lebanese consumers. Under the rules of the campaign, a customer receives one ticket participating in the draw for the car prizes per each $34 in purchases.

The mechanics of the car giveaway follows the rules for lotteries under Lebanese law, by which prizes must amount to at least 3% of the accumulated value of participating tickets. Thus the campaign is geared towards achieving $10 million worth of tickets. For those who have a penchant for a gamble, this places the odds for winning an extra four wheels with your LL50,000 purchase at one in 30,000.

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Less popular cruises?

by Executive Contributor
written by Executive Contributor

While 60 cruise ships dock at Beirut each summer only one, the Ausonia, takes on new passengers, and for three years now, Lebanese holidaymakers have signed up for the weeklong Greek island cruise, organized by the Cypriot company, Louis Cruise Lines. That was until this year, when prices went up by about 5%, noted Toufic Keyrouz, general manager of the travel agency Lebanese International Tours, who feels that the budget cruise may have had its day.

Paul Zahlan, a director of Lebanon’s Aeolos travel and cruise agency, which helps Louis organize the cruise, said roughly 1,000 places are sold to Lebanese each year. Aeolos spends $20,000 to market the trip on LBC, Light FM and Radio Free Lebanon and the company also relies on word of mouth from what it hopes are satisfied customers. According to Zahlan, the Ausonia, which accommodates a maximum of 690 people, is no luxury vessel, but its prices appeared to fit in with Lebanese budgets.

However, lure of cheap charter flights, luxury cruises, and more stringent visa application processes since Cyprus’ accession to the European Union may conspire to reduce the number of Lebanese interested in the cruise, he said. “I don’t think we will sell as many places this year,” Keyrouz warned.

His prediction comes at a time when local travel agents are selling week-long holidays to Turkey’s highly regarded resorts for under $400 per person. Prices on the Ausonia start at $500 per person going up to $1,030. 

A taxing transfer

As they prepare to transfer management of the mobile network over to German firm Detecon and Kuwait’s Mobile Telephone Company (MTC), the two mobile telephone operators, Cellis and LibanCell, contend that their employees do not have to pay taxes on their indemnity packages following their voluntary decision to resign. The companies contend that they received confirmation of this in a letter from Sarkis Saker, the finance ministry’s tax department director.

However, the validity of the letter has since been thrown into doubt. An independent Audits Court is currently deciding whether the indemnity payments, ranging from $20,000 to $133,000, should, in fact, be subject to 20% taxation. A current Detecon employee, as well as a former Cellis one, told Executive that they had seen the letter. They both asked not to be named. The Detecon employee suggested there was a misunderstanding, or that a decision had been taken at a certain level but not at another. “If Sakr doesn’t represent the ministry, then who does?” asked the Cellis employee.

Saker confirmed that the letter had been sent, but said he was unable to comment further since the file was with Fouad Siniora, the minister of finance. He said he didn’t know when a decision would be taken. An official at the ministry said that  Jean-Louis Qordahi, minister of telecommunications, wrote to Siniora on May 17 urging him to speed the decision process up.

A spokesperson for Detecon said less than 20 people had chosen to revoke their decision to voluntarily resign from Cellis by mid-afternoon on May 18 – the deadline given for doing so. MTC, for its part, said about 20 LibanCell employees had decided not to resign after all. More than 300 people at both Cellis and LibanCell have resigned.

How Smart a purchase?

With gasoline prices hurting the purse of most drivers, Mercedes importers Gargour & Sons were given an added fillip for the launch of the roughly $20,000, four-seat, four-door variation of their hip, compact Smart car, which can do about 350 km on a full tank per 20 liters. DaimlerChrysler chose Lebanon as the first Middle Eastern country in which to introduce the Smart series, and launched the 1.5l, four-cylinder 109 horsepower “smart forfour” at the new Smart showroom in Saifé.

A spokesman for DaimlerChrysler said the auto giant had picked Lebanon as their point of entry the region because it regards Beirut in particular as sharing the ‘hip lifestyle’ image it associates with the brand, which despite its obvious attractions has yet to catch on with the mainstream Lebanese car market.

At the newly-opened showroom 18-year-old Ibrahim El Zein agrees. “This is the best car for my age,” he said, before acknowledging that his parents would be footing the bill. Buyers said their attention had been drawn to the car by a successful billboard campaign, and noted that at a time of high petrol prices, the “smart forfour’s” fuel efficiency influenced their decision to buy.

By mid-June, Gargour had sold 17 of the cars. The distributors hope to sell 110 by the end of the year. But this may be overly optimistic. Mathieu El Hawa, a 33-year-old events organizer who has just bought a “smart forfour” at $22,500, said he thought the price was “at the upper end” of the range for that kind of vehicle. “I think the price will deter buyers,” he warned.

Overall, Gargour & Sons have sold about 80 smart cars – including the smart 4.2 and the roadster, exceeding expectations, said Aoun, who boasted that the “smart forfour” would help sales to continue “snowballing.”

Losing money, tranquilly

Restaurant owners on Maarad Street are angry that a walkway under construction behind buildings on one side of the street still has not been completed. The path will flank the rear façade of several restaurants as part of a “Garden of Forgiveness” – which will incorporate a portion of Beirut’s ancient ruins.

Before work began in September last year, the restaurants were using the space for outdoor seating. They have since been deprived of valuable income, and losses are growing as the summer season sets in. Revenue at Casper & Gambini’s Maarad Street outlet – which lost 120 outdoor seats when work on the path began- – has dropped by 50%, according to the restaurant chain’s director of research & development, Carol Maalouf. The neighboring TGI Friday’s has lost more than $100,000 since construction began.

Initially, restaurateurs had been promised that the walkway would be finished by March or April. “I am going to look into it to see if the delays are minor or major,” pledged Beirut Mayor Abed El-Menem Ariss. “The municipality does not delay things.” He said he was unable to say when the walkway would be finished.

Restaurateurs had also been told they would be allowed to set up outdoor seating again once construction had ended, Maalouf said. But it is now unclear whether the restaurants will, in fact, get their terraces back. “Halfway through they said no,” stated Maalouf. She said that the sudden volte-face had been prompted by Beirut Municipality concern that restaurant tables might spoil the tranquility of the garden. A Solidere urban development manager who asked not to be named said he was “extremely concerned about the abuse of space.” We don’t want the garden overwhelmed by commercial activity,” he said. The delay could, he acknowledged, have “something to do with that.”

Crashingly low payment

Half a year after a disaster of a Union Transports Africains flight cost the lives of over 130 passengers, most of them Lebanese, the carrier and its insurers issued an offer to compensate the families of victims. According to a press release by London law firm Barlow Lyde and Gilbert (BLG), UTA and its unnamed insurers established a “humanitarian fund” willing to disburse $10,000 per adult and $5,000 per minor killed or injured onboard the Boeing 727 that crashed on Christmas Day 2003 during takeoff from Cotonou (Benin) to Beirut.

The size and form of the proposed settlement raised questions in Beirut, as the amounts offered are unusually low for compensation commonly paid in airline accidents. Several families of crash victims immediately rejected the offer and some called the amounts “insulting,” said lawyers Youssef Mouawad and Diane Armaleit, who represent the interests of about 20 affected families.

According to Mouawad, the exact terms of the settlement proposal had not yet been conveyed to him and his clients by mid June. While some might be tempted by it, he said “the families of many victims are not going to accept this,” and would press for establishing the criminal culpability of the airline’s [Lebanese] owners in court.

Because of the circumstances of the crash, attributed by initial investigations to massive overloading of the plane, the families would aim to have the UTA owners charged with “gross negligence amounting to fraud,” Mouawad said, as soon as the final disaster investigation report is issued.

British law firm BLG, which administers the portentous fund and appointed lawyer Fady Mallat as their Beirut representative to submit claims to, would only state that the fund was established “outside of the terms and conditions of UTA’s insurance policy” and told Executive that it could not comment further.

Information sector disinformation?

A new study on the Lebanese information and communications technology (ICT) industry puts the sector’s size at 600 companies with a workforce of up to 6,750 employees and annual sales of up to $400 million. It affirmed that ICT is “a significant, vibrant and productive industry sector in Lebanon.”

The study, which canvassed sector companies based on commercial directories in March and achieved a response rate of just under 25%, was conducted by California-based research firm SRI (formerly Stanford Research Institute) and funded by the USAID mission in Lebanon.

Based entirely on industry responses, the survey found that 51.4% of sector companies are medium-sized firms ($100,000 to $1 million in sales). Almost 40% are active only in software development, where companies achieved almost triple the annual business growth of pure hardware firms. Regardless of their specialization, small firms (22.6%) reported higher growth rates than medium and large players. Companies said that insufficient information about export markets was their main challenge to growth and presented themselves as fairly confident of their technical and management skills.

Often hailed as key industry with international growth perspectives, the Lebanese ICT sector had suffered for years from an absence of reliable industry data. SRI cautioned that the survey results did not allow drawing implications for any strategic change.

Officials of Lebanon’s Professional Computer Association, which participated in the commissioning of the study, welcomed the results. But Fares Kobeissy, president of the Association of Lebanese Software Industry, questioned several figures, such as the reported annual industry growth rate of 12.5% over the past two years, based solely on information from companies in a sector known for presenting overly rosy figures. “We know that we have a lot of problems in our sector,” he said. “Unless we can be sure that they are 100% correct, such numbers are not going to help us.”

Have a Spin(neys)

Can you use new wheels? Try Spinneys. Ten spanking new cars are the main feature in a 100-day promotion and advertising drive from May to early August, which Lebanon’s expansive supermarket chain describes as “by far the largest ever” for such a campaign in retail here.

Putting out Toyota cars as prizes worth “just short of $300,000” and investing into advertising and below-the-line product promotions, the three-tiered campaign carries a value of $600,000, Spinneys’ Middle East retail director Michael Wright told Executive. At its mid-point, results were in line with expectations and brought the company month-on-month sales growth of 15% to 20%.  

The campaign’s unprecedented size is based on both sales volumes and increased geographical presence of Spinneys markets in Lebanon. “Our advertising budget is directly related to our top-line sales,” Wright said. When the company operated at single branch level, even nationwide campaigns had been of limited effect, because customers would not find their way to the store, he added.

While some of the chain’s previous promotion efforts, such as introduction of coupons in 2003, seemed over-complicated for local habits and were not carried further, the current high visibility campaign apparently strikes a strong chord with Lebanese consumers. Under the rules of the campaign, a customer receives one ticket participating in the draw for the car prizes per each $34 in purchases.

The mechanics of the car giveaway follows the rules for lotteries under Lebanese law, by which prizes must amount to at least 3 percent of the accumulated value of participating tickets. Thus the campaign is geared towards achieving $10 million worth of tickets. For those who have a penchant for a gamble, this places the odds for winning an extra four wheels with your LL50,000 purchase at one in 30,000.

The politics of economic reform

Politically driven economics were high in the decision to initiate an early swap of $7.5 billion in Lebanese Eurobonds maturing in 2005 and 2006, for a new debt maturing in five years. The swap was approved on June 17 by the Cabinet, authorizing finance minister Fouad Siniora and central bank governor Riad Salameh to start negotiating a swap operation with commercial banks.

On contending sides of the issue were Prime Minister Rafik Hariri, who had opposed the measure, and President Emile Lahoud, who initiated it. Hariri stated that the national debt has reached $35 billion and could rise to $45 billion over the next three years, unless the country achieved its long-called-for economic reforms. Lahoud argued that the swap would ease pressure off the economy and that, done early, it could save the country money by achieving lower interest rates than those expected in international markets next year.

These latest economic policy arguments between Lahoud and Hariri grew from a seed planted a month earlier when the prime minister announced that he intended to orchestrate a third international donor conference for Lebanon, dubbed Paris III, in 2005. As pundits saw it, a new donor conference would underscore the importance of Hariri’s role for Lebanon’s economic recovery, weakening the president’s chances of an extended or renewed mandate; whereas avoiding such a conference would work to strengthen the position of Lahoud.

The question not commonly addressed in the dispute was why international institutions and donor countries would be interested in participating in yet another meet to rescue the Lebanese economy when the country has failed to deliver its promises made at the Paris II conference of November 2002. International economists observing the Lebanese scene immediately doubted that donor countries would have the stomach for yet another Paris round.    

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Getting empire right

by Michael Young
written by Michael Young

President Bush: dogged by economic challenges

Not long ago, one of the more pervasive explanations for the American war in Iraq was that the Washington had somehow embarked on an imperialist binge. Many a learned scholar clamored that what was on display was, in fact, “neo-imperialism” fashioned by a small clique of right-wing hotheads who had infiltrated the highest echelons of the Bush administration.

How quaint the explanation now seems, as the US has spent the past several months proving that, if a new imperialism was indeed once a mantra (and nothing proves this), then very poor imperialists the Americans have proven to be. As the presidential election approaches, in Iraq the US is suffering from, to quote British historian Niall Ferguson, “attention deficit disorder.”

Ferguson has been making this case for over a year now, in the context primarily, but not exclusively, of the Iraqi conflict. However, his argument is also much more general, and underlines a belief that the world can indeed benefit from a liberal empire, similar to the British Empire during the 19th century. Ferguson’s argument is primarily an economic one, and he develops it in his most recent book, Colossus, on the price of America’s empire. He writes: “The evidence that, in an increasingly protectionist world, Britain’s continued policy of free trade was beneficial to its colonies seems unequivocal. Between the 1870s and the 1920s the colonies’ share of Britain’s imports rose from a quarter to a third.”

Ferguson goes on to write: “The British Empire was an engine for the integration of international capital markets. Between 1865 and 1914 more than ?4 billion flowed from Britain to the rest of the world, giving the country a historically unprecedented and since unequaled position as global net creditor, the ‘world’s banker’ indeed, or, to be exact, the world’s bond market.”

Based on this, and after cataloguing the myriad failures of third world countries having undergone decolonization, Ferguson argues that the US must embrace the liberal imperial mantle. The only problem, he notes, other than Washington’s propensity to abort its overseas ventures too early, is that an American empire faces both economic and manpower challenges: economically, the US must manage startling long-term domestic challenges, including a ballooning fiscal crisis nourished by the American propensity to consume much and save little. At the heart of this is an impending social security crisis. Americans are living longer and the present fiscal system remains entirely inadequate to pay for future generations of far more numerous retired people.

The ways of dealing with this, writes Ferguson, are to engage in massive increases in income and payroll taxes, or to slash social security benefits by equally dramatic amounts, or to cut discretionary spending to zero! This leads him to conclude: “[T]he decline and fall of America’s undeclared empire may be due not to terrorists at the gates or the rogue regimes that sponsor them, but to a fiscal crisis of the welfare state at home.”


A second challenge the US Empire faces is that it does not have enough people under arms to manage its vast global backyard. This stems, in part, from the fact that Americans are not instinctively “imperial” and hesitate to finance too martial a society. This, Ferguson suggests, is why “if Americans are reluctant peacekeepers, they must be the peacekeepers’ masters, and strike such bargains as the mercenaries of the ‘international community’ may demand.”

Has Iraq proven Ferguson’s point? Certainly in the past months the US has resorted to a more multilateral approach to the conflict there. The Bush administration virtually begged the UN to help it set up an interim Iraqi government, and would be delighted to see foreign forces, for example in the context of a NATO deployment, relieve American troops. That’s unlikely to happen, but long gone, apparently, are the exclusivist impulses that accompanied the American entry into Iraq over a year ago.

However, behaving multilaterally hardly prevents a powerful state from acting like, or indeed being, an empire. Take American behavior during the Cold War: the Western alliance was built on multilateral foundations, yet no one would deny that that was the time when the US took on its most forceful imperial identity.

What is critical, as Ferguson and others point out, is the deficit in American will in Iraq. As Middle East scholar Fouad Ajami wrote in the WALL STREET JOURNAL: “It is in Washington where the lines are breaking, and where the faith in the gains that coalition soldiers have secured in Iraq at such a terrible price appears to have cracked. We have been doing Iraq by improvisation, we are now ‘dumping stock,’ just as our fortunes in that hard land may be taking a turn for the better.”

How reminiscent that is of Ferguson’s own comment on US experiences in post-World War II Germany and Japan, which are often touted as examples of American nation-building success, but that were, in fact, very problematic ventures: “What was planned did not happen. What happened was not planned. This was not so much an empire by invitation as an empire by improvisation.”

So, will the US agree to be a liberal empire? For the moment the answer can be found in the Middle East, where the difficulties in Iraq may have prompted Washington to give up on its “liberal project” for the region. Instead, we risk seeing a return to the realist policies of the past that tolerated, indeed encouraged, autocratic regimes. That would be a shame. As the September 11 attacks made clear, only an international liberal order can buy America true security.

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Business

Tourism’s dark side

by Peter Speetjens
written by Peter Speetjens

A proud tradition

Lebanon’s adult entertainment industry/sex trade is worth an estimated $140 million (although this figure could be much higher), and employs over 4,000 people. Lebanon has always worn a patina of sin, one that represents a not insignificant portion (7%) of the tourist industry, around even though the ministry might prefer to focus on Lebanon’s more family-oriented attractions. Though hardly transparent, the market can be characterized as highly diversified, as it encompasses everything from the Super Nightclubs of Maameltein, with their bevies of Eastern European hostesses, the new wave of massage parlors (or anti-stress clinics), and the red light bars for the less well-heeled customers. There is also a thriving local and regional market for Lebanese “escorts,” and models. And then there are, of course the freelancers, the women (and men) who work the hotels, cafés and sidewalks, practicing the oldest profession in the world.

The law

Contrary to what most people think, prostitution is not illegal in Lebanon, in the sense that it is not included in the penal code. Only the act to facilitate or encourage prostitution is penalized. Prostitution is regulated under a 1931 law related to the “preservation of public health,” which stipulates that prostitution must take place in a “public house” or “meeting house,” both of which must be run by women over 25-years-old in accordance with the rules of the particular neighborhood. Other regulations stipulate that prostitutes should be at least 21 years of age, be subject to a medical exam twice a week (the fees of which are to be paid by the municipality) and that policemen can make spot checks whenever necessary. In other words, most prostitution in Lebanon is illegal, simply because it’s not done by the book.

Super nightclubs also fall under the law, as they need permits to serve alcohol and (according to a 1947 ruling) stage “non-cinematic” shows, i.e., cabarets. Finally, a 1929 government ruling controls the daily comings and goings of foreign “artists” employed to dance in bars and nightclubs.

These so called artists need a permit issued by the Surete Generale. The text stipulates that the person in question needs to submit “a certificate of previous work or be a member of a known artistic organization.” In case the artist does not fulfill these conditions, the Surete Generale can still authorize her to work “if investigations show the artist is good and qualified.” It is also worth noting that “exciting” dancing and dancing in indecent clothes are also prohibited. The text also regulates entry and stay in Lebanon. Policy today is that “artists” who enter the country as dancers can only stay for six months.

Super Nightclubs

The biggest money-spinners in the adult entertainment sector are the Super Nightclubs, which account for nearly $100 million annually. (For a popular operation, business can be lucrative. Overheads – rent, electricity, salaries, permits, “unofficial payments” etc. – account for 40% of revenues and, given the nature of the business, the finance ministry will find it hard to get a clear picture of monies earned.) There are an estimated 80 genuine super nightclubs in Lebanon, some 40 of which, including the most upscale ones, are historically located in the Jounieh neighborhood of Maameltein. The rest are dotted around Hamra, Ain Mreisseh, Tabarja, Mansourieh, Hazmieh and the mountain resort of Aley. The number of girls employed per club varies from five to 30, but the top clubs such as the famous Excalibur, which can employ up to 40 hostesses, have more. In theory, all so-called super nightclubs offer cabarets, but in reality only in the bigger ones are shows performed, mainly by girls from Eastern Europe and the former Soviet Union.

Show or no show, the main business is about spending time with the girls. The deal generally is that if you spend $60 to $100 on drinks, the girl of your choice will keep you company for around 90 minutes. The easiest option is to buy her a bottle of Champagne, but Whiskey will suffice. Your own drinks at $10 each come on top of that.

For men visiting a super nightclub with the idea it being a brothel, the experience can be rather disappointing. In principle, customers are not permitted to leave with a girl and girls are not allowed to offer sexual favors. The clubs are not bordellos and are subject to regular spot checks by undercover policemen or Surete Generale officers. However, if the customer spends the minimum $60 to $100, the customer is entitled to ask the girl “out” the next day between 1pm and 7pm. (The Surete Generale, which regulates the entry and stay of the girls in Lebanon, demands that the girls are to be in their hotel by 5am. They are not allowed to leave before 1pm and have to be back in the club by 8pm, hence the specific window of opportunity).

This does not mean that she will consent to sex. While some will (the rate is roughly $100), others will merely go for a walk or have a meal. In rare cases, clients can take a girl home the same night, but this is risky and restricted to long-term customers and both club owner and girl must agree. The fee is usually $300, $50 of which goes to the girl. The rest is divided between the owner (for loss of business), and the hotel owner, who must pay off the policeman who checks the hotel in the morning.

From Russia with love

For a foreign worker (they are mostly Russian) to find employment in the Lebanese super nightclub circuit, she must first sign up with an agency (most are in Moscow). A successful applicant’s contract will not stipulate the entire range of what is expected of her once she starts working in her new country of employment, but most arrive with their eyes open. (see Global Trade)

The Lebanese club owner pays a fee of about $150 per girl to the agency and must buy the girl a return ticket of some $800 and pay her an average salary of some $300 a month plus commission (based on her ability to sell bottles of champagne). Girls working in the top clubs however can earn salaries of $600 and even a $1,000. The employer pays some $400 for a permit and medical tests, as well as some $350 for medical insurance. Girls share a room in a hotel. Most club owners will pay for the cost of accommodations, which is roughly $300 a month per girl. Cases have been reported however, in which the hotel fee was deducted from the girl’s basic salary. Total cost to the employer per girl for her six-month stint in his employ is some $5,300.

Massage Parlors

Found throughout the Greater Beirut area, massage parlors, or anti-stress centers, as they are euphemistically known, are technically legal and generate as a “sector” over $20 million per year. Generally clean and well-run, these operations employ some six to 12 mainly Lebanese or Filipino girls, who will give a regular 40-minute massage before offering the extra service. The massage usually costs $20, which goes to the house, while any extras, usually another $20 to $30, is kept by the masseuse, who will often cater to around seven customers per day. A few years ago a string of parlors was raided by police and closed down. Today this “problem” has been resolved and many of the best businesses openly advertise in the local press.

Girlie bars

This cottage industry, the closest you will get to a traditional brothel in Lebanon, generates revenues of roughly $6 million per year. There are about two-dozen in Hamra and Ain Mnreiseh alone, recognizable by the universal red light outside their door. The price of a drink is about the same as in your average club on Monot Street, but there all similarity ends. The madam will waste no time in asking you right away if you want to take one of the three or four (often mature) ladies employed in the bar to a quiet place upstairs or behind the bar. The police are paid off at a local level and the cost of full sex is about $50.

Call girls

The top end of the “adult entertainment” market is dominated by the fearsomely popular Lebanese call girls, who ply their trade in the hotels of Beirut and the Gulf countries. Many of the less ambitious operators advertise in the local press as dancers seeking employment or women looking for a marriage partner, but for the high-net worth clients, the local model agencies and pages of the glamour magazines (showing contestants at bikini contests etc.) are their tele-shopping heaven. In these cases, the agency will arrange a contact and take a cut. In this sense, their activities are indistinguishable from regular pimping. The girls, often aspiring singers or models, can earn up to several thousand dollars a night, more if they are requested (and agree) to travel on one of the regular weekend party charter flights between Beirut, Saudi Arabia and other Gulf countries.

The Freelancers

At the budget end of the market are those women who ply their trade at the street level. Still, they are a solid component of the industry and contribute around $4 million to the sector. They are generally Lebanese, Syrian or African and offer their wares mainly on Raouche and the Jounieh Highway, but they can be found all over Lebanon. They charge between $25 and $50.

Many women (and men) work out of cafés, especially in the BCD, and in collaboration with a waiter who acts as a middleman between the professional and the potential client. She will charge anything between $100 and $500. Given the nature of their work, it’s difficult to estimate how many women are on the game, but it is assumed the number is in the high hundreds.

Lebanon and the Lebanese: part of a global game

Early last month, former British model David Barnett, was sentenced to four years in jail for running a jet set prostitution racket of 40 men and women for rich Lebanese and Saudi businessmen, including members of the Royal family. Barnett was sentenced to four years in prison. Among his four accomplices was 31-year-old Lebanese Wissam Nashef, who helped Barnett to find prostitutes. Nashef was sentenced to three months in jail and had to pay a 3000 euro fine. During the trial Nashef admitted to having pimped for wealthy clients from Lebanon and Saudi Arabia. The global trade in women to work in the sex industry is estimated to be worth between $7 and $12 billion. Since the fall of the Berlin wall, Russia and Eastern Europe have taken over the role dominated by the Asians in the 1980s. An estimated 500,000 Russian girls, or “Natashas,” are working in the global sex industry today, as well as some 100,000 Ukranians and up to 100,000 Moldavians. An estimated 1,500 of them reside in Lebanon.

Keeping up with the neighbors

In Israel the situation is somewhat different. It’s estimated that every year some 3,000 women are smuggled into the country by the Russian mafia and sold for $3,000 to $6,000 each. According to a local media investigation, these unfortunate women work up to 12 hours a day, serving 10 to 15 clients for an average of some $30 a customer, of which the pimp takes up to 90%. In July 2001, the US State Department placed Israel on the black list of countries that do not meet the criteria for dealing with sex crimes.
 

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Economics & Policy

Slippery Business

by Anthony Mills
written by Anthony Mills

Declining domestic consumption and an inability to compete on the international volume market are forcing Lebanon’s olive oil producers to go niche. It’s a nice idea (selling as it does, Lebanon’s ancient olive-oil-producing heritage and a quality attributable to the country’s soil, climate and general environment), but for the $250 million olive oil sector, which accounts for only 0.2% of worldwide production, it is a strategy that is fraught with challenges, not least the need for regulation and quality control. In a local market that is defined by brand fraud and sub standard products and flooded with cheaper oil (often smuggled from Syria), local producers have little incentive to make a high-end product, especially when exports represent only 10% of production. “I don’t see any hope for regulation,” said Ramzi Ghosn, producer of NAY olive oil as well as Massaya wines and arak. “Even if the laws existed, no one would comply with them. This is a bulk market and cheating is the name of the game.” Ghosn and other olive oil producers argue that the only way to reduce the volume of inferior quality oil is by building a brand image, but he said that the conditions do not exist for such an initiative. “So far, the market is not ripe enough for the development of brands. It is only ripe enough for bulk sales and cheats,” Ghosn said. This state of affairs in a sector once touted by the UN as a potentially lucrative agro-industry has forced many producers to reconsider their strategy. Ghosn admitted that the optimism with which he began producing his olive oil a few years ago had been misplaced. “We thought it would develop fairly fast. It hasn’t. We have put our olive oil operation into a dormant phase and are focusing on wine.”

Roughly 30% to 40% of olive oil sold in Lebanon enters the country illegally. In such an environment, the opportunity for brand fraud is considerable. “Some producers import low-quality olive oil and then market it as extra virgin Koura oil,” noted Mousa Nimah, an American University of Beirut professor of agriculture and food sciences who is a specialist on olives. “It’s not good quality, but it’s cheaper.” This focus on price means that less than 10% of olive oil produced in Lebanon is of “extra virgin” quality.

The doubt over quality extends to supermarket brands, which are assumed to have a quality threshold. Spinneys told EXECUTIVE that “its own label products are tested at the Industrial Research Institute and follow the strict regulations set by the ministry of economy and trade,” and that its “extra virgin” oil came from the “finest olive trees” in Koura. However, one international agricultural consultant who is working to bolster Lebanon’s olive oil sector, said that in the absence of stringent compulsory government controls, it was impossible to monitor – or guarantee – the quality of these products. “They sell it at a higher price because they say it is ‘extra virgin’ but where is the piece of paper proving that?” the consultant asked. Wafa’a Dikah, head of the ministry of agriculture’s agro-industry department, confirmed that an informal team of international olive oil experts spot tasted alleged “extra virgin” olive oil at a variety of Lebanese supermarkets. “Not one conformed to the organoleptic (involving use of sense organs) characteristics of ‘extra virgin’ oil,” she said.

Because of the worrying domestic situation, the quality of Lebanese olive oil cannot be guaranteed abroad. Often, oil marketed as high-end Lebanese is simply foreign oil bottled in Lebanon. “There should be rigorous pre-export testing,” said Nimah. “The absence of it is probably what has killed our markets abroad. Instead of applying the law, we help those who break it, and then break it again. You have to separate politics from production and marketing.” The government should be doing more to market high-quality Lebanese oil around the world than simply buying in bulk for the army, critics say, but in the absence of export quality controls this is a well-nigh impossible task. Exporting is made harder by the restrictions on imported olive oil imposed by the European Union to protect the olive oil produce of member states like Spain, Italy and Greece, which produces further hurdles for Lebanese exporters of quality oil hoping to establish markets in Europe. “It is a hidden way of creating trade barriers,” said a condemnatory Ghosn. “The government should have included these unreasonable restrictions on Lebanese olive oil in its trade discussions with the EU to make it easier for us to sell.” Meanwhile, the absence of major producers has affected the sector’s lobbying clout. “Big producers would have had enough power to get the government to put this on its agenda,” Ghosn said. So, for the moment, marketing initiatives, with the exception of those espoused by the non-governmental Rene Moawad foundation, are individualistic, place greater emphasis on price than quality, and do little to buttress the image of Lebanon’s olive oil at home and internationally. Olive oil farmers and the NGOs helping them say they also need research, training and equipment under government rural development projects if they are to assimilate to an evolving international market and to ensure that exports conform to its standards. “To have high quality, you need special training courses. We need new machines to compete at the international level,” said Mansour Azzi, an olive grower from the Chouf region. He said olive growers also needed government assistance to fight off an insect plague that was destroying up to 60% of crops. “In Europe, the governments are doing something. Here, no.”

The ministry of agriculture contends that with a limited (and shrinking) budget, it is doing all it can to bolster the sector. Dikah acknowledged that agriculture was not the government’s top priority but she said that the ministry was now trying to modernize the marketing of olive oil in Lebanon and was distributing machinery and hosting educational seminars. The ministry is also working on olive-oil-specific legislation that would allow for increased regulation of quality – both on the domestic market and with respect to oil bound for foreign countries. Those in the ministry believe a crackdown on illegal olive oil imports across the notoriously porous Syria-Lebanon border could in fact be implemented although the industry says this is unlikely. Dikah also pointed to increased olive oil funds from international donors such as the Italian government and the EU. A current agreement under negotiation with Italy would provide for $3 million in assistance. But it would be channeled through the Council for Development and Reconstruction – a body that has been criticized by observers in the past over alleged impartiality and corruption. “At the ministry, we treat all regions equally,” asserted Dikah. “There is a recognition of the importance of the sector, of producing quality olive oil. But things won’t change just like that,” Dikah continued. Overall, the future is bleak and any efforts to establish Lebanese olive oil as a luxury, top-quality product is a pipe dream – a pity since, according to Naame, “virgin Lebanese olive oil is among, if not the, best olive oil in the world.”

But not everyone is pessimistic. The Rene Moawad foundation, which together with USAID has created an olive farmer cooperative, constructed technical premises, provided technical support to farmers, organized olive oil conferences, and invited olive oil experts to Lebanon, exudes optimism about Lebanon’s olive oil sector potential. It says that the ministries of agriculture and economy have understood the need for development of the sector and that Europe is not the only potential market for Lebanese olive oil. It points, in particular, to Asia. Fady Yarak, the Rene Moawad Foundation executive director, declared: “Lebanese olive oil can compete in quality terms with any other international oil on the market.” The foundation boasts that thanks to its efforts, Lebanese olive oil is now sold by French firm Olivier & Co., but it acknowledges that certain kinds of Lebanese olive oil, although as good as their European counterparts, are excluded from the EU market because of the restrictive criteria, which cannot be fulfilled by certain varieties of Lebanese olive oil.

And the foundation concedes that even if some momentum has been generated, change on the ground may not be just around the corner. “I am sure that when the proposed legislation comes before the parliament, something [negative] will happen,” said one consultant who works with the foundation. However, time for genuine change may be limited. In Choueifaat, a region southeast of Beirut once renowned for its olives, concrete has replaced groves in an ominous trend that is gathering pace across the country, much to the chagrin of people like AUB professor Naame. “Choueifaat was full of olive trees. Now you can’t find a tree,” he lamented. “Lebanon is becoming interconnected with cement.” As a consequence, he said, olive oil production had decreased by 10% to 15% over the last decade, a development hastened by the declining social status of working in the olive groves. “Young gentlemen don’t want to work in the fields,” he noted. “They don’t want to dirty their hands.” Instead, Syrian, Egyptian and other foreign workers provide cheap labor. Often, though, they lack know-how passed down from generation to generation, let alone any modern training, and unwittingly help produce the inferior quality oil that is sullying the image of Lebanese olive oil in general.

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Real Estate

Old may be cheaper, but it’s harder to sell

by Anne Robinson
written by Anne Robinson

To Rita Fakhoury it was the find of a lifetime. The three-bedroom apartment in Beirut proper was on the market for just $80,000. It was a little higher than the budget she and her husband Nadim had set but the prospect of a 160m2 home right in heart of the capital was a dream. In any case, they hoped to bargain the price down a little.

The 42-year-old building in Ras El Nabeh is solid but run down. Their new home on the third floor needs rewiring, replumbing and redecorating. But, having spent weeks trying to bring the price down – it finally went for $76,000 – they calculated on renovating the place at a speed they can afford and without piling up massive debts. To the young couple and their two small children, it was a passport to the Lebanese dream. To own their own home with no mortgage and no bank loan for restoration.

The flip side will come only if the Fakhourys ever want to sell the place. According to real estate experts, they are highly unlikely ever to get their money back. Indeed, they will face considerable difficulties in finding a buyer at any price. Rita Saade, a real estate consultant with The Landmark company in Riad Al Solh Street downtown, said even if the figure sought was very low, most buyers would not rush in. Price was a much lower factor among buyers than the amenities offered and the overall condition.

She said around 80% of the market was in new homes – “new” being defined as anything up to ten years old. Most of the rest is taken up with home-hunters seeking traditional Lebanese dwellings, with high ceilings and character, leaving minimal demand for everything in between.

“The attraction for young couples in a new building is that is likely to contain all the facilities that make life easier,” said Saade. These include parking space, a heating system and a standby generator. The properties in Sodeco, for example, don’t have underground parking because it wasn’t a requirement at the time the area was developed. For Rita and Nadim the lack of underground parking is the least of their concerns. They don’t even have a lift. Their bit of heaven is reached by a stairway.

The current trend, Saade added, is for people to move in from the suburbs and seek apartments in Beirut because of the increased potential for both work and entertainment in the capital, as well as the happy avoidance of the daily commuter battleground known as the feeder roads into the capital.

The benefits come at a price. Modern properties in Beirut rarely come at less than $1,000/m2 and can easily be double that figure. And even those numbers refer only to buildings outside the Beirut Central District (BCD) area, where $4,000/m2 is closer to the mark. It was a swift retreat from the high prices and an abiding fear of the never-ending process of repair and replacement involved in an old building that encouraged Christine Haddad to buy a home in Mansourieh. For $18,000 less than the Fakhourys paid for a wreck in the city, she bought a new three-bedroom apartment directly from the builder, who also helped to fix the financing. The 180m2 ground-floor home has a small private garden, an uninterrupted view down to the sea and the advantage of having a few minor defects fixed free-of-charge by the builder.

“My two girls go to school locally and happily I don’t need to travel regularly into Beirut,” said Haddad. “There is no way we could have afforded this level of comfort in Beirut itself and, in any case, I am confident that if in the next few years we need to sell the house and move we would be able to find a buyer.”

Saade confirms that view. “There is definitely a market for modern apartments and there is even a possibility that the seller may make a 5% 10% profit on the deal, depending on overall confidence in the economy at the time,” she said. The prospect of making a killing out of soaring property prices – as in, say, Britain, where values have increased by more than 500% in the past eight years – doesn’t exist. BCD is seen by people in the real estate business as the only area in the country where values may double over a period.

“In any case,” said Saade, “buying property in Lebanon is most often done on the basis of buying for a lifetime. Chopping and changing every few years is a phenomenon that doesn’t exist.”

Selling up and moving on was never in Farida Khazem’s mind anyway when she opted earlier this year to buy an old home in Sanayeh. “I know that almost no one else would want it, but that’s irrelevant to me,” she said. “I bought what I could afford in Beirut to be free of negligent landlords and to be close to all the amenities.” What is of “no value” to anyone else is, after redecoration and some repairs, a priceless palace for Khazem.

What consistent small demand there is for old homes that don’t quite fall into the category of “charming period Lebanese home” depends on the location and the fact that the apartment does have at least, as Saade put it, “some cachet.” It’s not enough to say Ashrafieh in this regard; it depends on which bit of Ashrafieh. Sassine down to Abdel Wahab, Tabaris, Monot and Gemmayzeh is a much easier sell than Jeitawi. Sioufi falls somewhere in the middle. Most difficult of all is to try to sell a soulless home in a place like Sin El Fil or Jal El Dib. What emphasizes that difficulty is the fact that some buildings were very poorly constructed and may even be illegal in respect of both planning applications and building standards.

“At the time, these cheap apartments in the suburbs were attractive for people with very limited budgets who wanted to move down from the mountains and be nearer to Beirut,” said Saade. Nowadays there are very few takers for these homes. Even some of the newer apartments suffer from questionable construction practices but since the amateurs have been squeezed out of the building market in the past three to four years, average standards have risen.

An added difficulty to modernizing older blocks was highlighted by Mark Morris Jones, a real estate consultant at Michael Dunn and Company. “The chances of getting a collection of existing owners in a building to share equitably the installation of a generator or the provision of parking facilities is often so small as to be negligible,” he said. Even where agreement was reached, the improvements would be solely for the benefit of the owners since it would have little effect on the resale value of the property.

One section of people on the move that form an increasingly significant factor in the residential real estate market is the Lebanese diaspora and other Arabs. While an image exists of the mega-wealthy moving in, exemplified by the reported $12 million paid for the downtown Park View penthouse by Mohammed Sleiman, chief adviser to Saudi Arabia’s King Fahd, the bulk of the market is much more mundane. The demands of Lebanese expatriates – and most other Arab buyers – are predominantly similar to those of the domestic market. They want modern apartments with modern facilities.

“The budgets of expatriates tend to be a little higher than those of people already living here,” said Saade. Their choices of what to go for are unaffected by the reason for buying – either as a personal home or as an investment to rent out. Just as it’s more convenient to move into a home where everything is both clean and functional, so it’s easier to find a tenant for a modern apartment than for an old building. The percentage return is also better and, with reasonable tenants, the income from a new lease can make it a sound investment.

Cheap old houses bring in much smaller rents and much larger headaches as far as maintenance is concerned. But the Fakhourys didn’t enter the market to make money. They see the mountainous list of tasks to be done to convert their decaying acquisition into a home fit for the family more as a labor of love than a headache.
 

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Economics & Policy

Reviving capital markets

by Nicolas Photiades
written by Nicolas Photiades

Back in the mid 1990s, Lebanon showed a promising entry into the world of capital markets, which coincided with the significant boom of emerging markets during that period. The first Eurobond in US dollars issued by an Arab state was the 1994 $400 million Eurobond issue by the Lebanese Republic, which also became “Eurobond deal of the year.” The Lebanese government went on to issue debt securities, both domestically and internationally to this day, and at one stage became the only “frequent issuer” of debt securities in the Arab world. The Lebanese corporate world also followed suit in 1994 and subsequent years with a series of Eurobond issues by the larger banks, around five GDR (Global Depositary Receipts, or a form of stock issue) issues by Banque Audi (two issues), Banque du Liban et d’Outre Mer, Banque Libanaise pour le Commerce, and Solidere, and a few initial public offerings (Bank of Beirut, Rymco, Bou Khalil, etc.). The first Banque Audi GDR was also the first GDR issue in the Arab world and in the Middle East North Africa region ever, and was considered by finance specialists and investment bankers in places like London to have been a very gutsy decision by Banque Audi’s management.

But what happened since? With the exception of the odd Lebanese government issue (generally to repay the older issue, which had come to maturity) and the recent bond issue of First National Bank, the Lebanese capital markets are now considered to have lost their momentum. One of the main reasons for the relative dying out of the Lebanese capital markets was that domestic investment banks never established themselves properly. The few investment banks that had set up shop in Beirut in the mid-1990s either had extremely limited human, operational, and capital resources to build the foundations of large and liquid capital markets in Lebanon, or were staffed with inexperienced individuals, who lacked the necessary rigor and diligence, so crucial in this industry. Most of these investment banks have now been reduced to very small sizes, while others have been absorbed by the larger local commercial banks. The rare competent investment bankers have now left the country for greener pastures, and are now exercising their craft in a booming investment banking industry in Dubai, or are trying to make it as golden boys in London, New York, and even as far as Hong Kong.

The burst in the emerging market bubble in the late 1990s did not help the Lebanese capital markets’ cause either. With demand for bonds and stocks issued by Russian, Asian, Egyptian and South American companies and governments collapsing overnight, the Lebanese dream of developing the capital markets turned into a nightmare. Indeed, the Lebanese government, which had issued a series of Eurobonds and Lebanese pound Treasury bills before the emerging market crisis, found it much more difficult to issue bonds (mainly to repay old issues) and became constrained to selling their new issues to the local commercial banks, who became stuffed with highly risky and lowly rated debt securities. The Beirut Stock Exchange on the other hand, witnessed a drop by half in its market capitalization, and it became virtually impossible for any Lebanese institution to carry out an initial public offering or issue GDRs internationally. Moreover, the privatization window of opportunity of the mid 1990s period had clearly been missed, as politicians decided to kick-start the privatization program too late, towards 1999. This program is yet to really take off, and one of the privatization methods, which consists of selling shares of the privatized entity to the public via the domestic capital markets, is clearly out of the question for the time being, partly due to a lack of demand by local and international investors and partly because of a weak domestic infrastructure.

Another reason for the short life of the Lebanese capital markets has been the lack of interest by international investment banks for the Lebanese market. Lebanon is judged to be too small and too risky by international investment bankers and investors alike, and there is little hope that any global investment banking group would take interest and invest in the necessary resources for the development of the Lebanese capital markets. When companies such as Merrill Lynch, Citigroup, or Deutsche Bank act as bond book-runners for more than 300 to 500 issues each for total amounts exceeding $150 billion, in an international bond market exceeding $2 trillion (as at the end of 2003), the Lebanese market is obviously insignificant and simply not worth the hassle or investment banker’s time.

A developed and well-regulated domestic capital market environment is crucial if Lebanon is to come out of its economic inertia. The rate of national savings would also increase significantly and the development of debt capital markets would definitely provide a savings alternative to the population. For the capital markets to take off in Lebanon, domestic commercial banks need to take their self-assumed “universal banking” role much more seriously, as they are the only financial institutions in Lebanon to have the necessary financial resources to develop strong investment banking and capital markets capabilities. These banks must start showing greater flexibility in their dealing with their corporate clientele and suggest bond or equity issues when appropriate. Advisory services within the banks should be developed, not only for the development of primary and secondary securities issues, but also for the establishment of a wide institutional and retail investor base on a domestic basis.

It will not be sufficient for banks to convince a company to issue bonds or stocks. A solid and efficient secondary trading market must be established by at least the ten largest banks in the country, which would also have to develop a professional and transparent research capability. A domestic rating agency may even need to be set up, as ratings play a catalytic role in the development of capital markets and are vital for the initial pricing of primary bond or other debt securities issues. The local banks and insurance companies will have to work hand in hand to accomplish the important task of setting up a series of mutual, pension, venture capital, and other types of funds, which, under any circumstances, constitute the core of any investor base.

Simultaneously, the privatization program must resume in a transparent and highly proclaimed way, with the government making it clear to the public that every significant privatization will include a regional and domestic initial public offering. It will be indeed crucial for the development of local equity capital markets to list the newly privatized institutions on the Beirut Stock Exchange (BSE). The latter would, in this way, see its market capitalization increase substantially, and, thanks to active market making, secondary trading and research by the local banks, would become an interesting investment alternative once again.

The government would also have a role to play. For a start, it can announce a major securitization program for its government institutions. Securitization is the most efficient restructuring tool, which has been widely used by other governments prior to launching their own privatization programs (Greece carried out more than €10 billion worth of securitization transactions in the last few years). It is a way of getting financed more cheaply, by issuing debt securities, which would be secured by the cash flow ability or collateral value of a specified asset or pool of assets. For example, the Lebanese government tried recently to securitize tobacco customs’ duties. The aim was to issue debt securities, which principal and interest rate would be assured by the cash flow emanating from the payment of customs’ duties over a ten year period. Such a transaction never got off the ground for political reasons, and also because few people understood its meaning and realized its long-term benefits.

It is vital that Lebanon does not follow the trend of many Asian economies in the late 1990s, when the reasons for the market collapses of 1998 were attributed to the absence of a developed domestic debt capital market. Indeed, when Asian shares (mainly of banks) collapsed, and simultaneously, bank deposits became unsafe, retail investors and savings could not fall back on any other alternative source of liquid investment. Hong Kong was the rare Asian country to have survived the crisis, thanks to its developed local debt capital markets.

Lebanon needs to embark on capital markets reforms, which should be carried out with a high degree of conviction and vigor. The development of the debt capital markets means the creation of an entire financial sector, including the establishment of a long-overdue capital markets authority, which would boost national growth through the more fluid financing of both the private and public sectors.

The development of investment banking activities by local banks, a privatization take-off, and the launch by the government of a securitization program, are essential components of a capital markets development trend. Well-regulated and developed capital markets would inject life in a moribund economy and avoid ultimate catastrophe. Their development must be considered as a priority.

 

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Business

Turning Japanese

by Anissa Rafeh
written by Anissa Rafeh

It is estimated that Lebanese consume about seven million pieces of sushi each year. Of those seven million, about 500,000 are ordered from Sushi Bento, the sushi delivery service established in July 2001. Revenues for the first year totaled $300,000. By 2003, that figure increased by over 33% to reach $400,000, and it is projected to hit the $500,000 mark by the end of 2004. Not bad for a company that started out with an initial investment of just $12,000.

“We realized that there was a gap in the market, for high quality, low budget sushi. So we thought, let’s eliminate everything that makes costs higher,” said Imad Abi Chaker, the general manager of Sushi Bento, who along with two other equal partners founded the business. The first part of the elimination process was to scrap the idea of a restaurant and the costs that come with it. The core business would lie in delivery.

“When I was studying in the US, I learned to eat sushi there. It’s not considered a luxury like it is here, so I got used to eating sushi – it was cheap,” explained Abi Chaker, who is also the general manager of his family owned food distribution company, ManyFood. “But when I came back here, I realized I was spending most my salary on sushi. It was my visa bill that gave me the idea to open Sushi Bento.”

Abi Chaker and his two partners began by picking a name: Abi Chaker wanted a Japanese word that was easy to pronounce and translated into ‘box,’ or ‘package,’ so ‘bento’ was chosen. Second came renting a small apartment in Ashrafieh. Using their initial capital of $4,000 each, they installed an industrial kitchen, and hired a chef (who is now Bento’s head chef). In the first three months, they made back their initial investment, and by the eighth month the partners plowed $38,000 back into the business, allowing them to shore up what until that point was a shaky delivery service.

To accommodate higher demand, the company relocated to larger premises, still in the Ashrafieh area, bought a bigger, 300m2 kitchen and hired more staff, taking the payroll to 25 employees. Despite a growing business, overheads were always kept at 20% of the monthly turnover.

Three years down the road, Sushi Bento has seen a rash of copycat operations popping up around the country. But, according to Abi Chaker, along with an increase in competition has come a surge in sushi’s popularity in Lebanon. “The competition is really helping more than hurting by creating a bigger market, so our numbers didn’t decrease,” explained Abi Chaker. “They helped us create an awareness of sushi and we are all benefiting from the [bigger] customer pie.”

Fighting off the competition is not a major concern because, said Abi Chaker, “Ashrafieh is expensive so it kept investors away.” Plus, it helps that Sushi Bento has a firmer grip on the market than most. Although no formal statistics on sushi exist in Lebanon, Abi Chaker estimates the market worth about $5 million, with Sushi Bento holding about 60% of the delivery market.

Not surprisingly, in a business that deals in raw fish, Abi Chaker claims that his major selling point is quality. Sushi Bento imports its fish directly from Japan and the Philippines, with the salmon obtained from local importers. Abi Chaker was quick to point out that Sushi Bento only buys Scottish salmon, as opposed to Norwegian salmon, as it is less fatty and of an altogether higher quality, even though it is about $3 to $4 more expensive per kilo. “We have the quality advantage and have managed to sustain a high quality product,” said Abi Chaker.

After the success of their initial venture – Sushi Bento saw its customer base increase by 500% – the next logical step was expansion. The company is now enjoying a growing franchise business, with the first branch already operating in Jal el Dib (another branch in the Palm Springs Village is owned by the Sushi Bento company).

“We try to get the first move advantage and reach underserved markets,” said Abi Chaker, adding that although he would rather not divulge the location, another franchise branch is expected to open in Lebanon very soon. He did, however, reveal that further franchises are in the works, not only in Lebanon but also in the region within the next 12 months.

“There is definitely more demand for our item, and the market is still underserved,” said Abi Chaker. “We’ve had many solicitations for franchises outside the country but have been reluctant to accept because of a lack of human resources to send out and train staff,” he continued, explaining that the current economic situation was also not the best climate in which to rush headlong into a hasty expansion program.

For now, however, Sushi Bento is concentrating on its budding catering business, which was introduced in 2003. Usually provided through another catering service, Sushi Bento sushi can now be found at all sorts of events, including dinner parties and weddings. Mostly operational during the summer months of June to September, the catering business makes up about 20% of the company’s yearly revenues.

And what of the challenges Sushi Bento has faced? Other than at first trying to convince Lebanese to eat raw fish, Abi Chaker said that the main obstacle they have come across is keeping up with the high demand. “Demand grew much faster than our production, that’s why we had to move to a bigger location.” Today, Sushi Bento delivers between 50 to 60 orders a day – that translates into about 1,000 pieces prepared daily.

Of the most in-demand raw fish treats, salmon ranks number one by far. In second place comes tuna, followed by the yellow tail. The most luxurious item on Sushi Bento’s menu is Unagi, or eel, which is also the most costly, ringing in at just under $4 per piece. “It’s the most rare type of fish [on the menu],” explained Abi Chaker, “and is less in-demand. It’s not a mass seller.” Another seafood delicacy is the fatty tuna, which is also very rare.

But above providing raw seafood right to your doorstep, Sushi Bento focuses on customer satisfaction. “One drawback [of a delivery service] is that we don’t see the reaction of the customers,” said Abi Chaker. So, to maintain good customer relations, 10 to 12 people are selected randomly each day and are asked for suggestions or comments on the Sushi Bento service. Luckily, none of the complaints have been too drastic so far. “We never, ever, had any complaint about quality – only about delays in delivering!” stressed Abi Chaker.

As for the future of sushi-eating in Lebanon, Abi Chaker has no qualms about sushi going belly-up. “Maybe it’s not as fashionable as it used to be,” said Abi Chaker, “but the sushi craze is here to stay.”

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