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.

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.    

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.

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. 

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.

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.

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.