Interminable terminal

The saga concerning the private jet terminal at the Beirut airport continues. The new terminal was supposed to open its doors last June, but until now it has not.

Israel’s surprise attack on Syria shattered nearly 30 years of calm between the two countries, since the guns fell silent after a negotiated truce following the October 1973 Arab-Israeli war. Despite this, the “situation” between Syria and Israel has been one of a conflict under control.

However, Damascus does periodically pop up on Washington’s political radar screen and since the war in Iraq began last March, President Bashar Assad’s Baathist government has never truly been completely out of Washington’s line of political fire. Particularly active in the drive to keep the Syrian issue alive in Congress are Bush’s neo-conservative friends and Lebanon’s former army commander, General Michel Aoun – strange bedfellows, indeed, when you stop to think about it. But you know how the old adage goes, the enemy of my enemy … and so forth. And there is hardly a town that loves complex politics as much as Washington.

Since the invasion of Iraq began, various members of the Bush administration have at times accused Syria of assisting the Iraqi military and abetting Saddam Hussein’s regime. Among the alleged offenses are the claims that Syria is sending the Iraqis night-vision equipment, allowing Islamist jihadis to cross the porous border into Iraq to fight American troops, supporting major “terrorist” organizations (a number of which maintain offices in Damascus) and of possession and continued development of weapons of mass destruction. Some even went as far as to assert that Saddam hid his WMD in Syria shortly before the outbreak of hostilities. Syria denies the charges and claims the offices maintained in Damascus are “information bureaus” of groups it regards as resistance movements.

However, at a roundtable discussion on Syria last month on Capitol Hill, Congresswoman Ileana Ros-Lehtinen, a Republican from Florida, accused the Syrians of running “a terror center near Damascus.” Of course, no mention was made of the intelligence center that is reportedly based near Aleppo and where Syrian intelligence is rumored to be closely cooperating with the CIA in the war against terrorism. This might explain the White House’s reluctance in signing the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003, calling for economic sanctions against Syria unless it deploys out of Lebanon and alters its policy towards these groups regarded as terrorists by the US State Department. But again last month, friends of Israel and enemies of Syria stepped up their efforts to pass the bill in a renewed effort to have sanctions imposed on Syria as punishment for failing to toe the US line. Marc Ginzburg, a former US ambassador to Morocco, said, “Syria continues to believe it can ignore any threat from the US.” Syrian Foreign Minister Farouk Shara, however, said earlier Syria would meet any “reasonable” US request for help following US accusations that Damascus was not doing enough to end support of “terrorist activity.”

Undersecretary of State John Bolton also announced last month that the administration had now dropped its objection to the bill and Representative Eliot Engel said, “I think it’s time to pass this important legislation.” Engel said the bill has the support of the majority of the House (266) and the Senate (73), including the majority of Democrats and Republicans. It would be worth looking at what those sanctions would in fact accomplish should President Bush, who last year opposed passing the act, now decide to sign it.

However, a number of high-ranking seasoned State Department officials, who have served many years in Damascus and other Arab countries, and together possess more than 100 years of experience in the Middle East, believe passing the anti-Syrian legislation would be counter-productive and would not profit US interests. Instead, they say it would marginalize Syria, rendering future negotiations all the more difficult, and further infuriate an already volatile Arab world. They say it would be seen as an insult by Syria, whom the US needs as it continues to fight its war on terror. Particularly at this point in time, when events are not turning out as smoothly as the Pentagon expected.

Closing offices of what the US and Israel consider terrorist organizations, the State Department diplomats argue, would force the groups underground and would simply render the task of keeping tabs on them all that much harder. Far from solving the problem at hand, it would create new ones. Its only accomplishment would be to mark political points, which would not translate into much in real practical terms. Particularly in the spotlight are Hamas, Hizbullah, Islamic Jihad and the Popular Front for the Liberation of Palestine-General Command.

Maintaining relations with Damascus allows the United States to pressure Syria to, in turn, pressure Hezbollah, the Lebanese Shiite paramilitary organization, which Syria partially funds and somewhat controls. Consigning Damascus to the proverbial corner would remove those constraints, rendering the situation along the Lebanese-Israeli border all the more precarious. This would have the opposite effect of one of the intended aims of the Syria Accountability Act — that of providing greater stability and protection for Israel from cross-border raids on northern Israeli towns and settlements. Aoun, a staunch opponent of the Syrian presence in Lebanon, accuses Syria of “playing the role of both arsonist and firefighter.” Given the influence Damascus holds in the political arena, Syria, in this instance, can indeed be the firefighter, if it chose to. Imposed sanctions on Damascus would be received as a slap in the face and could well find them playing a single game, that of arsonist, a move that would be counterproductive in any future peace effort, say Middle East analysts. Meanwhile, following his appearance on Capitol Hill, the Lebanese government censored Aoun for his remarks. While the economic sanctions that would accompany the Syria Accountability Act does somewhat worry the Syrians, its ramifications are not all that devastating, seeing the current level of trade between Syria and the US is not all that important in the first place. According to the US-Arab Chamber of Commerce and the US Census Bureau, exports to Syria from the US in 2002 amounted to a pitiful $274.1 million, while imports from Syria for the same year were only $148.1 million. And sanctions aimed at keeping technology out of Syria would simply not work. “If Syrians need a computer, they simply drive to Beirut,” said a veteran US diplomat, intricately familiar with the area. Smuggling banned items into Syria from Lebanon would be all the more simplified by the fact that Syrian troops are still present in large chunks of Lebanon, especially along the border between the two countries. In any case, those trade figures do not represent the real volume of imports, seeing there already exists much transport of goods between the two countries. And that’s not counting imports from American companies based in Europe.

Engel, one of the congressmen pushing for the bill, blames the lack of progress on the State Department, which he said “seems to be full of Arabists supporting Syria over Israel.” The State Department, which he called “one-sided,” continues to “frustrate” the issue.

Leading up to the war in Iraq, the administration – particularly the Department of Defense – chose to ignore the State Department’s advice, whose “Arabists” seemed to know the mindset of Iraq and the Arab world far better than most others in the administration, particularly the neocons closest to the president. The rest, as they say is history. Let’s hope that this history, in this instance, does not repeat itself.

(Claude Salhani is foreign editor and a political news analyst for United Press International in Washington, DC.)
 

Lebanon’s ranking in the 2003 Corruption Perception Index of international watchdog organization, Transparency International (TI) was poor. Receiving a rating of 3.0 on a scale ranging from 0 (totally rotten) to 10 (impeccably clean), Lebanon ranked 78th for perceived levels of corruption in 133 countries. However, it did rank significantly higher than the dirty dozen of nations that earned less than two on the scale. According to TI founder and chairman, Peter Eigen, the ranking puts Lebanon on the borderline of highly corrupt countries, and in middle of the pack of the world’s less affluent countries which are all cursed with the affliction. “Five out of ten developing countries score less than 3 out of 10, indicating a high level of corruption,” Eigen said at the release of the 2003 CPI on October 7.

To Mohammed Matar, president of Lebanese TI affiliate La Fasad, the outcome of the poll is useful as a wakeup call. “Having countries such as Syria come out ahead of them will be shocking to the Lebanese,” he said. But he also cautioned that the CPI represents perception levels, not an actual base of statistical evidence on corruption, leaving Lebanese civil society, “to reach our own evaluation of the results.”

Lebanon’s relatively low regional ranking may be less disturbing than at first appears.. The point is technical in nature but as the CPI ranks countries based on a compilation of several indices, each rating reflects a larger or lesser span of divergence. Lebanon’s high-low rating discrepancy is less than those of these neighbors (2.1 to 3.6 for Lebanon, versus 1.8 to 5.3 and 2.0 to 5.0 for Egypt and Syria). In a nutshell, the rating for Lebanon may reflect the actual perception of the polled rather accurately whereas the wider discrepancies between surveys for other countries in the region could be indicative of tendencies to project a positive image against more accurate knowledge. Could this, however, be an excuse for turning a blind eye to the immense threat of corruption? Even as companies here are weary of the damages that a low reputation of Lebanon could cause for their chances to win international clients and investors, they do not actively pursue an anti-corruption stance. What fetters the corruption resistance of companies is the perception that the advantages of paying bribes and swimming with the flow of corruption outweigh the benefits of fighting it. But that, say advocates of transparency and good governance, is the fundamentally wrong idea. Patterns of corrupt dealings divert the power of trust in relationships into a closed system where the first order is self-enrichment at total disregard of greater structures. As such, corruption is based in an amoral attitude of egotism that refuses to take others into consideration or strive for success based on real achievements. This is bad for both company and economy. The latest business wisdom therefore teaches that a base of trust founded upon transparency enables players to achieve mutually beneficial relationships that are profitable in the larger frame of providing added value to market and society.

Not the least factor to drive home the lesson how detrimental corruption is for business was the wave of American corporate accounting and ethics violations that ruined once mighty companies and decimated US stock values over the past few years. Comparing the impact of the 9-11 disaster on the financial world with that of the scandals at Enron, WorldCom, Tyco, Arthur Andersen et al, purely on economic grounds, there is no doubt what impacted most on the US stock market.

All these developments, the scores of company breakdowns and prison sentences handed out to executives found guilty of corruption in the US and elsewhere notwithstanding, when it comes to instigating real changes in business practices, making more money by doing it cleanly could be the biggest motivator. Small and medium enterprises – ie, the overwhelming majority of Lebanese companies – could dramatically improve their funding and profit prospects through greater financial transparency. This proactive message fits well with aims for reducing corruption in the business community, and it has recently been pushed by a coalition ranging from the Association of Lebanese Industrialists and the Kafalat loan guarantee corporation to the Lebanese American University. Small and medium sized, family-owned businesses are vulnerable to corruption, especially if they succumb to shortsighted views on reducing their tax dues by underreporting financial results or mixing company and personal funds, thus opening the way for abusing corporate money for private pleasure, said Josianne Fahed-Sreih, assistant professor at LAU and head of the university’s Institute for Family and Entrepreneurial Business. Family-owned businesses in Lebanon are still lagging on issues of transparency and disclosure and should create structures that fit the requirements for long-term success of good governance for both family and business, she told EXECUTIVE last month during a conference organized at LAU. “Organizations have first to institute rules on the side of the business, but they also have to do so on the side of the family, differentiating between the two.”

At the core of this new initiative promoting financial transparency to Lebanese enterprises is a brochure explaining the pathways by which an SME can acquire funding if it meets the requirements of good governance and accountability.

“In a mathematical equation, the financial benefits of transparency would far outweigh the financial benefits of underreporting. The issue is not preaching to them but highlighting the benefits of financial transparency and accessing varied sources of funding and attractive funding terms,” said George Azar, director of financial consulting firm GAConsult. “If Lebanese SMEs are looking for institutionalization and growth – which is a must for survival in the context of regional integration of the Middle East – it would be foolish not to lure those funds through good governance, cost efficiency and transparency.” Azar, whose firm produced the SME guidebook under a grant from the US Agency for International Development, USAID, noted throughout his career how local businesses encountered growth barriers because of transparency problems. “Companies have felt the pain of financing all their investment needs through debt,” he said. “I look at good governance, transparency and profitability as the three prerequisites for tapping into alternative sources of funding.”

The business sector on its own would nonetheless be overstretched in trying to clean up the national act. It is established that corruption and incompetence breed one another. Public sector implementation of administrative reforms and legislation of measures to support transparency and curb corruption thus are equally indispensable for advancing good governance on a national scale. But under consideration of the national experience in the last decade and in light of a recent World Bank analysis that diagnosed MENA countries with a significant deficiency in good governance, it is hardly surprising that Lebanese analysts and pro-transparency campaigners view civil society as offering better prospects as cornerstones in building transparency.

“Being ranked on the CPI might move businesses to do something more to improve transparency,” Matar said. “But I don’t expect much from the political elite.”

In context of building a wider culture of non-corruption, civil society could play an enormous role in combating the decay of ethics in public and private sectors, said transparency and accountability activist Randa Antoun. “It is a civil society responsibility to make things better. It is easy to complain and criticize; we think this is not good enough,” she told Executive. “We are fighting corruption indirectly, through good governance, by encouraging people to know their rights and supporting a higher role for civil society.”

Antoun, a professor of public administration at AUB, is involved in promoting civil society responsibility through the same US AID funded program that provided the grant for the SME financial transparency brochure. Under the name TAG (Transparency and Accountability Grants) and managed by US-based education and training organization Amideast, the initiative has financed numerous projects by Lebanese NGOs, including a regional study, executed by research firm Information International, that made Lebanon’s inclusion in the 2003 CPI possible. “We are trying to increase the abilities and capacities of local institutions to tackle these issues,” said Amideast Lebanon country director Barbara Batlouni. “We do not work with government departments as such but with NGOs that work with government departments.”

Many of the projects supported by Amideast with funding and advice since March 2001 have helped informing citizens about procedures in dealing with government institutions on all levels. In her quest for better governance, the presence of corruption in itself is not what worries Antoun the most. “The worst thing in Lebanon is that people now have reached a state of apathy in accepting corruption,” she said, diagnosing a sharp contrast to a past where the country and its people had been reputed for hard work and honesty. To Antoun, the years of internal conflict carry much of the blame in explaining the rupture in societal attitudes and spread of lassitude. “Never underestimate the impact of the war,” she said, confessing little hope that structural changes would begin to reduce the presence of corruption here unless the country’s international donors force changes upon the system.

But for a nation tempted to torment itself to death with lamentations over its countless problems, civil society’s interest in transparency and good governance is actually very strong. The NGO sector in Lebanon is dynamic and has much more leverage than in other countries of the region, Batlouni said. “Our assumption in this project is that the Lebanese are not corrupt by nature.”

This high interest in transparency grants is documented in the fact that Amideast in little over two years received 157 proposals for funding TAG projects, of which 59 were granted. Also from the side of donor, US AID, the high response rate drew a positive reaction. “Demand was high,” Antoun acknowledged. “Because of this demand, we were successful in that the program was extended twice.”

In these extensions, US AID raised the budget for the TAG program from an initial $500,000 for one year to $3 million and extending the duration until 2005. Interestingly enough, the entire initiative was ignited by the 1998 inaugural speech of Lebanon’s president, Emile Lahoud, whose strong verbal commitment to a fight against corruption motivated US AID to back and then launch the program.
 

Driving your car in Lebanon has never been so expensive. Neither has the government swallowed a more substantive share of the transportation budget from private households. Since the introduction of value-added tax in February 2002, the government’s revenue participation has reached and exceeded 50% on the amount a consumer spends on the purchase of a new car, even in the middle market segment of cars that cost $20,000 to $30,000 ex factory. Data from Lebanon’s ministry of finance (MoF) reveal that on the level of fiscal income, government revenue derived from the car sector has increased from 4.9% to 16% of total government revenues. These revenue streams are a combination of registration fees on cars, excise taxes on imported cars collected at customs, and excise taxes collected on fuel.

The most pronounced increase has impacted fuel costs, where the fiscal burden on Lebanon’s driving population ballooned from little over $50 million in 1998 to almost $465 million in 2002, or 12.02 % of the government’s total revenue of $3.95 billion. Often summarily called customs duties in conversations by tax-weary citizens, excise taxes on new and used cars imported to Lebanon also brought a massive boost to government revenue, reaching $100 million in 2002. From a fiscal perspective, the only dent in recent revenue optimization from the car sector was that excise tax collection from car imports, which last year registered a 21% decrease over 2001, from roughly $126 million to $100 million. This decline in car imports (from $619 million in 2001 to $558 million in 2002) is widely accepted to be a result of the implementation of VAT. However, if last year saw no decrease in the government’s revenue from car imports, it was because of VAT. Of over $500 million, which the government collected from VAT on imported goods in 2002, $127.5 million (25%) were levies on mineral products, fuel mostly, and $58.5 million (12%) on transport equipment, mostly cars. Adding these amounts to the $620 million which the government-generated from excises and registration fees on cars and fuel, the fiscal revenue linked to automotive sales and car usage reached a cool $806 million, 20% of the MoF’s total revenue generation for 2002. Not forgetting of course the vehicle maintenance fees, or MECHANIQUE, which added nearly $86 million to the purse. Driving license fees netted the government over $8.5 million.

The government rationale behind increasing the taxation of fuel consumption and car purchases was, quite evidently, revenue optimization, Chadi Abou Chakra, a tax analyst at the ministry of finance, confirmed to EXECUTIVE. It did not include obvious components aiming at controlling the number of vehicles on the road or reduce fuel consumption out of environmental concerns. “The perspective of the government is to generate revenue,” he said, “by taxing people who make more money than others.” Some of the fees charged car owners in Lebanon, such as the MECHANIQUE fee, are quite low in comparison to other countries, Abou Chakra added, but he could not say if the car sector was generally overtaxed because the MoF has not yet undertaken a study of the automotive sector and related economic activities. For consumers, the most inescapable tax dues in the entire transportation scenario were evidently the petrol taxes. Here, taxation rates differ by fuel type. According to Abou Chakra, the rates also fluctuate frequently because the ministry of energy adjusts them in response to the ups and downs of the oil price to maintain the stability of the respective mandated gasoline prices at the pumps. As a combination of excise tax on fuel and VAT, however, the share of government revenue from each liter of gasoline sold at the service station pump is roundabout 75%, or LL15,000 out of a LL20,000 gas tank filling, the MoF analyst said.

Driving being perceived as daily need by at least two thirds of Lebanese households, the fairly consistent levels of government revenue from petrol taxes suggest that citizens, however grudgingly, paid the increasing charges on gasoline consumption without radically changing their driving patterns. They did not, however, renew their vehicles at the rate of earlier years, as evidenced in the 2002 contraction of the value of total car imports by almost 10 %, after VAT introduction altered the whole equation of buying.

The reason is simple enough to compute. The combination of customs duty, value-added tax and registration fees racked up the cost counter radically. Car dealers say they have to calculate 20 % in customs charges for the first LL 20 million of new car value. On the remaining value of the vehicle above LL20 million, the duty is 50%. Above a base charge of LL5 million in customs duty and excise taxes on used vehicles valued up to LL20 million, the duties on a used car are also 50% on the amount of its value that exceeds LL20 million. Although handsome, the fiscal revenue participation does not stop here. After the dealer has added his margin, the customer has to pay 10% VAT on the car’s value, which now includes both customs duties and dealer margin. As icing on the automotive revenue cake, the buyer faces an additional fee of 6% to 7% for registration – calculated not based on the car’s factory price but the transaction value between dealer and consumer that already includes two hefty tax components.

Based on a dealer markup of 5% – which local dealers say is barely enough to sustain their business – the price for a new sedan that left an American or European factory with a $20,000 dealer invoice thus will have jumped to more than a $32,000 acquisition cost to the Lebanese customer. If the car’s base price was $30,000, the driver here will have shelled out more than $50,000 by the time he turns the ignition. For a car that left the Ferrari workshop in Modena or the Mercedes factory in Sindelfingen with a sticker price of $150,000, one can liberally add 80% as surcharge of that original cost to see the fancy wheels spin in Beirut or Beckfaya. The regime of overlapping taxes has wiped the smiles of the faces of many a car dealer in Lebanon. From over 22,000 new cars that were sold in Lebanon in 1998, the sales dropped to some 14,000 units in 2002, according to figures published by the Automobile Importers Association (AIA). Dealers say an annual sales level of 12,000 to 12,500 units is today realistic in the new car market, and some describe the business as reaching the point where it starts to look unfeasible. It is beyond question that the high taxation of car imports has a strong negative effect on the automotive sector in Lebanon, even as it cannot be assessed with exactitude how much this field contributes to the Lebanese economy. According to Samir Homsi, president of the car dealers’ association, the country’s 35 car agents with official distributor contracts from international manufacturers employ about 2,500 persons directly. Adding to that the importers of spare parts and automotive supplies, plus a vast number of independent small car repair and service workshops would bring the number of people living in one form or another from the sale and servicing of motor vehicles to easily more than 10,000 employees or self-employed individuals and their families.

Other than in car manufacturing countries, the automotive sector in Lebanon is organized only to a very small degree, and even fundamental data on car usage are often broad estimates.

The Lebanese government’s policies of automotive taxes and taxation of fuel consumption, based on the country’s dire need for fiscal revenue, cannot be expected to change fundamentally. But evidence from the fiscal revenue evolution supports the claim of AIA president Homsi that the reduction of the government revenue share in the cost of newly bought cars would not harm the fiscal revenue stream. In an interview with EXECUTIVE, Homsi named the tax and fee burden as one of the main reasons why sales figures of AIA members have contracted. “I believe that if the taxes went down, the volume could go up. Then the government will be happy and the consumer would be happier, because he would be able to renew his old vehicle, which is now polluting the country and creating hazardous transportation conditions through the use of very old vehicles.”
 

We are living in a brave new auto world. Still fairly early into the automobile’s second century, fuel economy and safety features of modern cars have reached levels that make automotive technology appear close to the point of quasi-perfection, where further improvements, short of reinventing the wheel, seem hardly worth the additional effort. A look at the latest auto salon, or report, by professional car testers is enough to prove the point. Up to 10 airbags, traction control and electronic anti-skid devices, on-board computers and self-diagnosing engines, all the way to rain sensors and distance alarms, manufacturers have developed more means than ever before to take the human risk out of the daily driving grind.

At the same time, the choice of designs, brands, and philosophies has reached a degree of diversity against which all earlier epochs in car making pale in comparison and car dealers certainly have the means and profits to make these dream machines available. But even if the painful taxes were taken out of the equation, it appears that between meeting customer demands, the need for continuous improvement of their services and the necessity to develop the Lebanese automotive culture, local dealers are facing a sufficient load of challenges when promoting the sales of their cars. In many ways these challenges are related to the evolution of the car. While the global automotive culture, as set by the small group of advanced primary car-manufacturing countries in Europe, North America and the Far East, has achieved immense progress, it has also undergone significant changes. Lebanon has kept up with many trends but has yet to catch up with many others. Take for example manufacturers, who build cars that are primed for high-tech servicing. With more electronics under their hood than your average home PC, these cars require specialized equipment and technical knowledge that car mechanics of earlier generations did not need. To provide professional service and qualified repair jobs on an ever-larger share of models, mechanics need manufacturer supervised training and regular updating of their knowledge, and workshops have to acquire expensive diagnostic equipment and tools. These make their repair centers look like veritable automotive clinics, but also make it almost prohibitively expensive for small independent mechanics to service contemporary cars.

Lebanese car agents have in recent years made substantial investments to upgrade their workshops and provide the service level mandated by the brands they sell. At large distributors such as Impex, Gargour and Kettaneh, these investments ranged from several hundred thousand dollars to more than $1 million. It is obvious that these investments have to be recouped over years, and some dealers admitted that they still have much ground to cover in educating drivers about service schedules and additional service concepts, such as full-care options where the sales contract covers all maintenance for up to two or three years. Besides the expansion of workshops, distributors need to follow the marketing development of the manufacturer they represent. Numerous agents in Lebanon recently faced the need to invest heavily into new showrooms to comply with the presentation strategy of the respective automakers. Impex is an example of a distributor that just embarked on a $300,000 showroom expansion and refurbishment to accommodate the General Motors strategy of separating Chevrolet presentation facilities and representing both GM luxury brands, Cadillac and Hummer. A related inherent burden for every brand dealer is the dependency on manufacturer policies. Whatever the marque, the agent has to go with product policies determined elsewhere. This can require adjusting to changes of the brand or waiting out periods when an automaker does not supply a model that fits the taste of a particular market if the distributor cannot generate interest in the vehicle through localized marketing and advertising. A brand such as Isuzu has been fairly dormant in the Lebanese marke because the image of its Trooper decreased with the ageing of the model. The rejuvenation of models by Swedish manufacturer Volvo could give the brand a boost in the Lebanese market, said Sleiman Khoury, sales manger at importers Gabriel Abou Adal. But he noted that the new target group of younger customers first has to be convinced of the new sporty identity of what used to be regarded as a boxy, conservative vehicle, known primarily for its workmanship and safety. On top of brand policies and perceptions, there are the relationships between local agent and manufacturer or his regional office to be managed. As Volvo was integrated into the Ford management structure, the channel of relationship switched from a direct link with Sweden to an American connection by way of a regional headquarters located in Turkey. According to Khoury, this arrangement impacted the dynamics of the relationship, when, for instance, it came to pricing policies. “In Lebanon, you cannot erase the human factor and personal contact,” he said, “with the Americans, you feel as if you are losing this human touch.” Dealing with two manufacturers revealed different business and communications cultures, observed also the marketing manager for the Renault brand at Bassoul Heneine, Philippe Leclerq. In his experience, communicating with the French manufacturer was sometimes easier than relating to the Dubai regional headquarters of BMW – a brand also represented by Heneine – because managers in Dubai tended to view Lebanon as they did other Arab markets and did not take into consideration their differences. On the financial side, recent exchange rate volatility between the euro and US dollar has been one major cost booster and factor of uncertainty for importers of European cars. Agents tried to absorb the exchange rate increases as best they could and some reached special agreements with their European suppliers to have prices based on the US dollar, but many importers were forced to switch to pricing their cars in euro.

The market for new heavy truck sales was hit particularly harshly by the euro factor, dealers said. In addition, they cited lower demand for lorries here after the government mandated closure of many sand quarries. “It is a very bad market,” said one importer, “people who want to buy trucks cannot pay for them and banks are very reluctant to provide loans for financing a truck purchase because they fear borrowers will default on their payments.”

Financing options for car purchases are more accessible and have progressed over the past few years, but consumers still do not encounter arrangements that are as appealing as distributors sometimes advertise. With interest rates for a new car loan, based on a 20% down payment, standing in the 4% to 5% bracket as a flat interest calculated on the finance amount and charged at that height for each year of the contract, these car loans may still require a bit of development. Especially in this area of financing, however, a cancellation of registration fees and/or reduction of entry duties for new cars could go a long ways towards improving the attractiveness and feasibility of packages. On a car with a factory price in the $20,000 range, for instance, a political decision for limiting excise tax to 20% and annulling registration fees would easily bring down monthly payments by $100 for a buyer with a five-year finance contract. All things considered, car agents in Lebanon face what one could call a double reality. The infatuation of the Lebanese with their cars is instantly recognizable. However, it may not be quite as inimitable as the international business magazine, THE ECONOMIST, suggested in its 2003 fact book. The publication placed Lebanon on top of the world for its population’s rate car ownership, at 773 cars per 1,000 inhabitants. The assessment appears to be primarily an indicator that even the most reputed business magazines and their researchers are not infallible in economic and business matters. While there are no recent census figures on the number of actual roadworthy and circulating motor vehicles on our roads, Lebanese ministries and planners commonly assume a stock of between 800,000 and 1.1 million vehicles, including trucks and buses, a number that is nowhere near a global record in relation to the size of the population. The last available representative survey of households, undertaken by the Central Administration for Statistics in 1997, found that 62.4 % of the nation’s approximately one million households owned one car, including 15.4% owning two or more. Furthermore, 83.8% of the cars under ownership by the Lebanese were at least seven years old, including 12% with more than 20 years on their chassis. The over aged stock of substandard cars on Lebanese roads will gradually have to be pulled out of circulation if the country does not want to ruin some of its most important assets – namely, the health of the population and its appeal as a vacation target. On the positive side, both the demand and supply should in the long term be encouraging to Lebanese car dealers. Indeed, more than one agency has already shown in recent years that it succeeded in improving its presentation, service quality and even sales. The market here is small but it definitely appreciates cars, and the social environment favors even expenditures that most European societies would frown on. Lebanon’s wealthy – and sometimes the not so wealthy – display a fascination with classy automotive appearances and large engines that seems to know no restraint. And although many manufacturers nowadays have their regional distribution centers in the Gulf, new car distributors here still like to speak of Lebanon as the automobile showroom of the Middle East.

On the other hand, the relationship between the Lebanese and their wheels still requires a lot of improvement. From education of drivers to enforcement of traffic rules, society has not yet left driving attitudes behind which work only in a very small and informal frame. Respect of others on the highway and in city traffic, proper care for cars and adequate disposal of unusable vehicles and the regular pollutants resulting from driving, humane urban planning and clean public transportation are all hallmarks of advanced automobile cultures, and improvements are warranted here in each realm. Regulations and business standards that protect people against fraudulent roadside importers of cars with undocumented problems are as much in the interest of society as of the official car agents. But car buyers and interest groups also deserve to enjoy a market where fair competition is ensured for large and small players. The public have a right to be informed of industry developments, attempts by agents to change customs rates or governmental fee structures, and the real costs of owning and operating cars in this country.

Regarding these issues, the industry concerns of professionally structured automobile importation businesses and auxiliary suppliers and service companies coincide with the interests of their stakeholders, which in the matter of autos clearly comprise the majority of the population. Meeting these industry concerns would also work towards an automotive culture where the pleasures of ownership and driving tie in with the responsibilities of care and respect for driving etiquette, traffic rules and for the environment. The possibilities are here and car agents, like Volvo’s Khoury, obviously agree. “Lebanese car dealers are nice people.”