Just like mama used to make

by Anthony Mills September 1, 2004

written by Anthony Mills

Naji Khairallah, owner of Fattoria del Sole (Factory of the Sun), Lebanon’s only producer of Italian cheese, prefers to preface the good news by recounting the bad. The story begins in 1997, when Khairallah, who had spent 30 years in Italy as an interior designer, and an Italian business associate were having dinner in a Beirut restaurant. “We asked for fresh mozzarella and the waiter brought us the yellow, imitation kind,” Khairallah recalled. “We thought: why don’t we set up a mozzarella factory here?” And so it came to pass. In its heyday, five years ago, Fattoria del Sole used to produce 20 different kinds of FORMAGGIO including MOZZARELLA, PROVOLONE, RICOTTA, and PECORINO. Khairallah employed 36 staff and turned over $50,000 to $55,000 a month. Then came disaster. Khairallah’s Italian partner was imprisoned for conning a Lebanese bank out of $1 million in bad checks. The factory had to close down for three years – during which Khairallah was hounded by debt collectors and lawyers, and lost a sizeable portion of his $500,000 investment.

There was however, a bizarre twist. While serving his three-year sentence, Khairallah’s former partner made friends with a fellow inmate who was due for release. The ex-partner told the inmate that he was appointing him director of Fattoria and ordered him, upon his release, to go to the plant and take over control from Khairallah. “One day, a guy shows up here, and without saying good morning orders me to hand over the keys of the plant and my car. I said: ‘Who are you?’ He said: ‘I am the new director, appointed by the Italian in jail.’ They were in the same cell together. So, I hit him. He came back 11 times, and each time I hit him. And then I closed down. The police came here 11 times and took me away. From the first time, I told him: ‘Every time you set foot here, I will hit you.’ But he kept coming back.” “I lost money and customers,” acknowledged Khairallah. “When we opened again, it was very difficult to reintroduce ourselves to the market. All the customers thought we might close again. We are still making up for the three lost years. It’s very hard. They were the worst three years of my life.”

Since the factory reopened in 2002, the battle to regain lost momentum has been an uphill one. Today, Fattoria employs only around seven staff, produces only five or six kinds of Italian cheese because it no longer employs an in-house Italian cheese production specialist, and turns over less than half its pre-closure revenues. But Fattoria del Sole is back. And despite the turmoil of the past, insists the brawny Khairallah from behind a large wooden table in a makeshift kitchen inside the plant, the future is bright. “I can do the work of 10 men,” he boasted. “No one can follow my pace. People thought we would close again within two months. Now it’s been two years, and we are growing.” Today, Fattoria enjoys a 70% to 75% share of Lebanon’s mozzarella market and 40% of the country’s Italian cheese market overall.

Khairallah has drawn a line under judicial proceedings related to his former partner, who is now back in Italy (the money he conned the bank out of was never retrieved). Khairallah’s lawyer has convinced him that a court case brought against him by a bank demanding repayment of a loan taken out as part of the initial Fattoria investment will remain bureaucratically bogged down for 10 to 15 years. And he has taken out another 7- to 10-year, 5% interest, $400,000 small-to-medium-sized industry loan to finance Fattoria’s rebirth. Within the next four to five months, he predicted, the factory should break even. This year, the plant is selling twice as much mozzarella and ricotta as a year ago. Revenue for 2004 is projected to grow by 40% over 2003. “I’m not worried,” he chuckled.

However, Khairallah tempers his optimism. “In the current economic environment, our strategy is to grow slowly,” he said. Fattoria has not resumed exporting – before its temporary closure, about 10% of its products were channeled to foreign markets. “It is important for us to grow again domestically. Then we can think about exports,” Khairallah said, noting that Lebanon has one of the highest per capita dairy product consumption rates in the world. Khairallah said he expected the market for mozzarella and ricotta, at least, to grow, but admitted that they only constitute 5% of the cheese market. “A lot of people don’t know what mozzarella, ricotta or provolone is,” he said. And any attempt to increase awareness of Italian cheese in Lebanon would have to rely on substantial advertising, Khairallah said. “I just can’t afford to do that.” Asked if he thought he would ever be able to sell Italian cheeses to small groceries, Khairallah responded: “Absolutely not, even though the Italian cheeses I produce are not much more expensive than the Arab ones. They don’t understand the difference between good cheese and bad cheese.” Fattoria supplies only restaurants, resorts, hotels and supermarkets. Under the current cheese market conditions, Khairallah agreed, a factory producing only Italian cheese would not survive and so two months ago, Fattoria began producing Lebanese cheeses, such as halloum and akkaoui. “The market for Lebanese cheeses is bigger,” Khairallah conceded. But Khairallah is finding competition in the Arab cheese sector stiff, particularly in the form of cheap Syrian imports. He implied that Syrian cheese importers were benefiting from an unwillingness on the part of the Lebanese government to protect Lebanese cheese producers. “It’s a pity that here in Lebanon we promote the interests of other people ahead of those of the Lebanese. Competition is not fair,” the Fattoria boss grumbled. He pointed to his high overhead costs – electricity, fuel, and telecommunications and compared them to Syria, where they are much lower. And he observed that while Lebanon allows Syrian cheese imports, Damascus has barred cheese imports from Lebanon. “It’s politics,” Khairallah remarked resignedly. He implied, as well, that some Syrian cheese importers might be compromising on quality. “I don’t understand how they can sell halloum at LL3,500 (about $2.30) a kilo,” he said, and suggested that the situation was being aggravated by the government’s failure to enforce quality regulation.

Another problem is the lack of regulation: of the 150 to 160 dairy factories in Lebanon, only about 25 have a license, according to Khairallah. The unlicensed ones are able to produce cheaper, inferior-quality cheese. And certain dairy factories in the Bekaa Valley use cheap, imported Syrian milk to produce cheese, putting plants like Fattoria – which uses Lebanese milk – at a further disadvantage, Khairallah said.

He said his Arab cheese market share wasn’t even 1%, although he expected the figure to grow because Fattoria’s low-salt Arab cheeses were attracting ever-more buyers. Fattoria keeps the salt content of its products down in part so they can be sold as light and healthy to an increasingly health-conscious clientele, but also, because according to Khairallah, there is a general demand for low-salt Arab cheese.

For the moment, Fattoria is still the only producer of Italian cheese in Lebanon. Khairallah doesn’t expect a domestic competitor anytime soon. He argued that this was because the necessary investment in machinery was prohibitively high. But in a country in which successful schemes are quickly emulated, the absence of Italian cheese-producing copycats may be a sign that not everyone shares Khairallah’s faith in the business. Fattoria must, however, compete with Italian imports – such as imitation (processed) mozzarella, which Khairallah plans to begin producing soon. It will be sold for use on pizzas and mana’eesh, and will allow Fattoria to tap into a market that is creating demand for between 1,500 and 2,000 tons of imported imitation mozzarella cheese a year. Fattoria mozzarella sells at less than half the price of Italian imports, and is better, because it is fresher, Khairallah said. “Imported mozzarella has a shelf life of one-and-a-half to two months. It’s not fresh. It contains preservatives. Our mozzarella has a shelf life of 10 days, and our ricotta five. We don’t add anything.”

Except perhaps, a bit of Lebanese determination.

September 1, 2004 0 comments

Society

Sex and the city, Beirut style

by Anthony Mills September 1, 2004

written by Anthony Mills

This year, record numbers of Gulf Arabs came to Lebanon. They came for our cooler temperatures, terraced cafés, chic shopping, beaches, and late nights. They came to turn heads with flashy cars with tinted windows, shiny credit cards and designer clothes. They came to drink openly (or discreetly) in bars, clubs, restaurants, and cabarets. And they also came for sex. And while they were, on the whole, satisfied with what they got, some did complain that there weren’t enough hotel rooms, that the food and service in many restaurants was substandard, that telephone calls were scandalously expensive, that Lebanese shopkeepers were charging them outrageous prices, that the country’s internet service was ineffective, that water shortages were too common, that something had to be done about the traffic jams, that the shopping was better in Dubai, and that there were too many prostitutes in the hotels. But hey, you can’t have everything.

For their part, the Lebanese publicly celebrated the record arrivals and rejoiced at the funds that would funnel into the economy. But privately, they complained that the (mainly GCC) tourists, although cash-heavy, didn’t spend that much, quibbled while shopping and taking taxis and were unpleasant and disrespectful to the Lebanese who serve them, while a significant number sullied Lebanon’s honor by chasing anything in a skirt (or trousers). “Dealing with Gulf Arabs is unlike dealing with anyone else,” said one exasperated luxury hotel employee. “We can’t check them out before four, because they don’t get up before then. Cleaning up after them is a nightmare. They spill drinks, scratch the floor, and ruin the furniture. Once, they covered one of our most beautiful suites in narguileh smoke. They even covered the smoke detectors up and had a barbecue.”

But Abbas Mohamed, a 42-year-old UAE banker in Lebanon for a month with his wife and two daughters, said he and other Gulf Arabs were not always being treated decently either. “In Bhamdoun and Aley, 70% of restaurants are below standard. They place greater emphasis on the number of customers than on quality,” he said. “The shops increase prices to ridiculous levels for Gulf Arabs,” charged another disgruntled Gulf tourist, sitting on a bench in the new Ashrafieh ABC shopping mall (where curiously enough many of the outlets were on sale). Lebanon’s shopkeepers claim that over the last few years, the Gulf Arabs have become even more reluctant to spend like they used to. “They aren’t spending blindly, like in the eighties,” said Ziad Annan, director of the new Rolex showroom in the downtown. “Nowadays, they are a lot more careful.” Others disagreed. “It’s ridiculous. They sleep on money,” mocked a taxi driver. “They don’t respect us,” complained another. “They spend a thousand dollars on a hooker and won’t give us a dollar.”

He has a point. One 22-year-old “businessman” from the UAE, who had just emerged with two friends from a custom-made reflective silver Audi glinting in the afternoon sun, said his nine-day shopping bill would run at around $50,000. He and his friends are staying in a four-storey palace, complete with its own chefs, and have had another three vehicles flown over for their visit – a Mercedes MacLaren SLR, an SL55, and a Bentley. Some hotels reported bills of $500,000, settled directly by the guests’ banks. A prince staying at one luxury hotel was spending in excess of $100,000 a day, said a hotel employee. Jewelry has been the big-ticket item this summer. When EXECUTIVE visited Chatila jewelers to ask about summer business, one customer was inquiring about stones worth millions of dollars. Other Beirut jewelers confirmed that over 90% of buyers were Gulf Arab women, who when alone might spend a paltry few thousand dollars, but when accompanied with their husbands would shell tens, even hundreds, of thousands. “After all, the husbands are the bank,” quipped one jeweler. Another popular outlet is Abdul Samed Al Qurashi’s House of Aoud, Amber and Perfumes in the downtown, where vials of rare scents can fetch thousands of dollars, and a kilo of Indian amber retails for $35,000. Also fashionable are the $31,500, VERTU diamond-encrusted cell phone and the ever-popular Rolex watches – although gophers, sent to buy the prestigious Swiss time pieces for clients sleeping off the excesses of the previous night are politely sent away. “We don’t sell to pimps,” said the director of the Rolex showroom. But the pimps sell to others; and it is the world’s oldest profession that has stolen the show this summer. The big money has, and always will, go on the hookers.

“Our hotel has changed. All we need is a red light above our door,” complained an employee at one of Beirut’s most luxurious hotels. It was now impossible, she said, to control the flow of prostitutes in and out of the hotel. She claimed that the staff, such as housekeepers and valet parking employees, were providing prostitutes, pimps and drivers with the room numbers of single, male Gulf Arabs, who are then solicited by phone. Security guards, in turn, were being paid to let the prostitutes into the hotel. A taxi driver outside the hotel said drivers regularly arranged prostitutes for guests. “They say: ‘I can arrange anything for you’,” he said.

“I have seen this hotel change,” said a 29-year-old Kuwaiti tourist sitting in the lobby. “Over the last two years, it has gotten much worse.” He said prostitutes now roamed the hotel corridors, loitered in lifts, and knocked on the doors of single male guests, ostensibly by mistake, to make contact. “You can see them in the lifts. They are wearing tight clothes. They look at you in a certain way, eye you in certain places. They move from room to room, knocking on doors. Then they pretend they have made a mistake, but get talking to you. They say: Are you Ali? I say: I can be Ali, or whoever you want me to be.”

“Sometimes I have a massage,” he conceded. “And I take the ‘extra’ massage. After all, the massage must be perfect. You don’t cut something off half way through. But no sex,” he added quickly. He said he did frequent Super Nightclubs – cabarets at which meetings with prostitutes can be set up for the following day – every night, but only to relax and drink screwdrivers.

Two years ago, security wouldn’t let prostitutes into the hotel, he added. Now, he confirmed, they were doing so, in return for a cut of the prostitute’s earnings. Sometimes, he claimed, security would also solicit money from the prostitute’s client. They had done so to him. An employee of the hotel acknowledged that prostitutes operated in the hotel. “The reputation of the whole area is suffering. It is happening in all the hotels. But at the end of the day, it is a source of revenue for the country.”

An 18-year-old Saudi tourist standing next to his bright red Chevrolet Lumina in a downtown side street said he will spend around 20 nights in Super Nightclubs, and routinely meets prostitutes the following day – feeding a roughly $17,000-a-month holiday bill. Along with beaches, high-end nightclubs like Cassino, Crystal and Tempo, and the free flow of his favorite alcoholic drink, Black Label, Jounieh’s Super Nightclubs are the prime attraction in Lebanon, he admitted. The Super Nightclubs he frequents are packed with Gulf Arabs of all ages, many of them drinking, he said. Behind the wheel of a giant jeep he’d been hired to drive by Saudi tourists, a Lebanese driver spoke angrily of the shame brought upon Lebanese women who cater to the sex tourists. He claimed there was particular demand for virgins.

“Every night, the guys I drive around spend until six in the morning in the Super Night Clubs, drinking,” he continued. “They’ve been doing it for five weeks. They go to Jounieh, Kaslik, or Maameltein and spend thousands of dollars on prostitutes. It’s a shame Beirut has become a whorehouse.” He said that minibuses full of prostitutes pass by the Ain Mreysseh hotel strip, stopping just up the road. “Scouts” for wealthy clients then peruse the occupants, choosing those deemed satisfactory. “They cost $600 to $800,” he said.

A tourism ministry official, who asked not to be named, shrugged off the complaints: “Yes, [some] people, especially from the Gulf, come here especially for [sex]. But this kind of tourism is everywhere. And we have other things as well, like eco-tourism.”

For some Gulf Arabs, a trip to Lebanon also means enjoying a few drinks, but although they are emboldened by Lebanon’s more liberal mores, most drinkers prefer to be discreet. “They drink beer out of teapots, or whisky out of glasses wrapped in cloth. Sometimes, they leave their families at the table, come to the bar for a couple of beers, and then go back to the table,” the downtown restaurant employee noted. “It’s not the Lebanese they’re concerned about. It’s the other Gulf Arabs.”

Plus ça change.

Box

Bhamdoun’s mayor, Osta Abou Rejeili, likes to see himself as something of an enforcer. And while Lebanon’ sex trade may be booming elsewhere, he insists the mountain resort of Bhamdoun is strictly family oriented. “They know what will happen if they set foot here,” says Abou Rejeili, sitting a restaurant from which he surveys the town’s main shopping street, two-way radio in hand. “We have made it clear through action in the past. The road to Bhamdoun is blocked for people seeking prostitutes. There is not a single bar or Super Nightclub in Bhamdoun.” While he became uncharacteristically coy about what action had been taken in the past against suspected prostitutes, Abou Rejeili is nonetheless determined to maintain the secure family environment he says is the secret of Bhamdoun’s success in attracting ever-increasing numbers of Gulf tourists. He has employed a host of undercover security officers to safeguard an atmosphere, which allows women and children to stay out safely late at night. A few weeks ago, an undercover squad observed a man verbally harassing a female tourist. “He got what he deserved,” declares Abou Rejeili. “They didn’t break his neck, but they roughed him up real good – not a little bit – real good, in front of everyone, to set an example. Then he was handed over to the police, and deported. We mean it. We will never allow anything to disturb our way of life here. We are on full alert. Our eyes and ears are everywhere.” Abou Rejeili acknowledges that his undercover forces had no written mandate to act as law enforcement officials and detain, let alone “rough up” troublemakers. But he says he had a verbal understanding with all the security services allowing his forces to act in such a manner.

Other forms of “unacceptable behavior” are also not tolerated. “One guy was walking along with his elbows out. He nudged a girl. I stopped him. I said: ‘Keep your arms down. This is a public street.’ If someone is walking along in a tank top, we ask him to change. If he’s carrying a beer we ask him to go and drink in a café.”

On the street, the effect of Abou Rejeili’s security regimen is palpable. A 46-year-old Saudi tourist, in Bhamdoun with his family for the 6th or 7th year running, said: “Saudi Arabia is very safe. But it is even safer here. I feel as though everyone is a policeman.”

September 1, 2004 0 comments

Executive Tools

Imad Zbeeb

by Executive Contributor August 28, 2004

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.

August 28, 2004 0 comments

Money Matters

by Executive Contributor August 28, 2004

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

August 28, 2004 0 comments

For your information

Paying the hospitals

by Executive Contributor August 28, 2004

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.

August 28, 2004 0 comments

For your information

Less popular cruises?

by Executive Contributor August 25, 2004

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.

August 25, 2004 0 comments

For your information

Taking a Spin

by Executive Contributor August 13, 2004

written by Executive Contributor

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 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.

August 13, 2004 0 comments

For your information

Corruption as thick as oil

by Executive Contributor August 13, 2004

written by Executive Contributor

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.

August 13, 2004 0 comments

For your information

Kill those lines

by Executive Contributor August 13, 2004

written by Executive Contributor

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.

August 13, 2004 0 comments

For your information

Gulf Arabs buy land

by Executive Contributor August 13, 2004

written by Executive Contributor

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.

August 13, 2004 0 comments