The Automobile Importers Association teams up all local car agents who hold distributor contracts with international auto manufacturers. Avidly working to represent the interests of these primary agents, the AIA emphasizes a unified presentation of official importer concerns to the media and Lebanese public. EXECUTIVE talked to the president of the AIA, Samir Homzi.

E: What are the association’s main concerns?

SH: Our aim is to make new cars available to all people of all budgets. New car dealers are today making vehicles available in a price range that starts at around $5,000 to $6,000. These are economical, trouble-free new cars that consume very little unleaded gasoline. They are sold with manufacturer warranties and with payment arrangements over five years that make for monthly payments of $100 or $125 to families with a lower income.

E: How long does it take before new models are available in the local market?

SH: Sometimes new cars are launched in Lebanon prior to Geneva, Frankfurt, and Paris and in some instances, new cars have been launched in Lebanon for the Middle East and for the whole world. In many instances, new models are launched in Europe prior to being introduced to the Middle East. This is for technical reasons, whereby the manufacturer would like to optimize the vehicle for this area.

E: Turning to recent developments of automotive sales, is it correct that the association has observed a decrease of new car sales by 50% or more when comparing annual sales in 2002 with those in 1997 or 1998?

SH: The figures definitely went down. They went down first of all because of all the taxation. Vehicles are overtaxed in Lebanon. We are paying high customs duties in Lebanon, on top of which we are paying VAT, on top of which we are paying registration fees.A country like Lebanon deserves to have much lighter taxes.

E: Does the AIA have a figure for how many cars are operating in Lebanon today?

SH: To be really honest, the only way to get to this number would be to go to the traffic department and look at their data. They are getting better and better under the minister of the interior and have made great improvements. We prefer to keep track of only our own auto figures, which means each dealer provides his figures to the association and at the end of the day we calculate these figures as those of new car sales in Lebanon.

E: A study in the late 1990s placed the average age of cars circulating on Lebanese roads at about 14 years. Do you have any update or opinion on the current age of the country’s fleet of cars?

SH: I don’t think my figures would be far from that. But I won’t venture to give out figures because we don’t have the mechanism to determine what is the average age of the cars here. However, when you drive around, you can see that the age is quite high.

E: Can you comment on the mechanique fee schedule that does not advantage new or environmentally sound cars but is cheaper for the oldest cars?

SH: We worked on that issue but unfortunately we did not get what we wanted. We believe that the mechanique should stimulate people to renew the car stock in Lebanon. We are seeing every day cars on the road that nobody would accept in other countries. We would like to see these cars slowly replaced by new cars, and we are working seriously to have the government first of all cancel the registration fees and lower customs duties. Once the mechanique becomes a technical inspection in January 2004, we would like to see these cars pulled out of circulation because not only their appearance is less than exciting but also because they are a danger for people using the roads of Lebanon.

E: Without the high taxation levels, and under a favorable environment for financing of car purchases, how many new cars could the Lebanese market absorb annually?

SH: The total market today is about 12,000 units per year, distributed over 35 dealers. By contrast, in some neighboring countries, one dealer sells about 10,000 cars each year. We are not calling for elimination of customs but ask for their reduction and complete cancellation of registration fees, in order to encourage people to replace their old vehicles with new ones.

E: In a macro-economic context, how important is the contribution of automotive sector to fiscal income?

SH: Customs duties on vehicles and petrol tax and so forth make a very big contribution to the government income. But we believe that if registration fees are cancelled completely and customs duties are reduced, we will sell more vehicles. The government will benefit more from the taxes we just mentioned, and we would have cleaner air from cars that produce less pollution. We would have safer cars on the road, and more pleasant cars to look at for this country and its image as a tourism destination. On all fronts, we would be better off if we decrease the taxes.

E: How much does the automotive sector contribute to Lebanon’s GDP?

SH: Today we don’t have such a figure and I don’t want to jump and give a figure off the top of my head. We do contribute to the economy in various ways, to the banks and the insurance companies for example, where car loans and the motor insurance are important businesses.

E: How can the cost burden of car ownership be distributed more equally and fairly?

SH: If we dealers would take our profit margin up from 4% or 5% and put it at 25%, we would be selling a quarter of what we are selling today. That is not the case at all. As I said, competition is very high among the dealers and profit margins are very tight. But I am saying that with its tax burden, the government is trying to milk this cow to its limits. Asking too much from the cow and taking all eggs from the chicken is killing the chicken and killing the cow.

E: Would a change in taxation of cars not put the government under additional financial pressure?

SH: Sales of new cars should increase for three reasons: economic, safety and fiscal. The whole set of taxes today is too high. If it is lower, the fiscal power of Lebanon will be the first to enjoy a better situation. One point is that our invoices come from the biggest car manufacturers and there is no chance of them being tampered with. Importation of used vehicles happens not through a manufacturer but through a dealer or a roadside trader, who can deliver an invoice that does not reflect the value of the vehicle. If we can stop the importation of used cars, or at least limit it to vehicles of two years of age, plus have a flexible taxation, the government will be the first to benefit and the country will definitely be winning.

E: Do you have any information on the number of used car dealers in Lebanon?

SH: We have no relationship with used car importers. We have relationship with used car dealers with whom we exchange the vehicles that we receive from our customers. They take these cars from us and recondition them. These were cars that have run in Lebanon and were used in Lebanon. But we have no relation with importers of used cars. I have personally no contact with importers of used cars.

E: It seems that you view the activity of used car imports not very favorably.

SH: I said from the beginning that I wish to see the importation of used cars stop, or if that is not feasible, to limit it to the acceptance of vehicles two years of age. I believe that trashy cars, which were refused in Europe and should have gone to the junkyard, ended up here.

E: Apart from lower taxes, do you see ways in which people could reduce their cost of car ownership?

SH: Wherever you look here, you see that most cars only have one driver. When I was in the United States, I experienced car-pooling. In a company, three or four people who share the same office hours agree to travel together to and from the office, and each car owner has to use his car only four one week a month. In this country, we have invented the service taxi. It is a Lebanese philosophy. Why don’t car owners do more ride-sharing in Lebanon?

E: When you say you are looking for the best, what defines ‘the best’?

RM: A quality that I especially like to see it is the passion to make an impact on the world that goes beyond making individual gains. It begins with developing the professional side and the personal side and then reaching out to the community, in terms of giving back to society.

E: How do you spot these special qualities in applicants?

RM: They have that drive, that energy, that special electricity. When you see it, you know it.

E: Was it in any way a political or economic decision for the school to intensify your presence here?

RM: Not necessarily. We started in the Middle East about five years ago. Then all the disruptions occurred and we just pulled back. I feel the disruptions in the region will continue for quite some time, but I decided that it is time to come back, regardless, and be part of an answer to some of the problems instead of leaving things stay as they are.

E: Wharton does not have a shortage of student applications. What is the average academic level for students who gain admission?

RM: We use the GMAT score, and the average score is 714. But I think the range is much more important. It is from 640 to 780. You don’t have to have the highest score. It is everything else that really makes the candidate stand out.

E: Can people easily recoup their investment if they attend Wharton, which is an expensive program?

RM: The MBA is a long-term investment. In light of that, Wharton has created a number of programs for financing your MBA that help student to gain access immediately, through loans given to students based on their needs. We hope that students come with a contribution of some small percentage, 10% or 20 %. But if a student can’t do that, it really is the responsibility of the school to provide grants. Students might face short-term pain in terms of servicing loans. But longer term, they will be fine. The gains to society, themselves, and their company will greatly outweigh the short-term pain of those first initial years of loan repayment.

E: But in order to be able to pay back those loans, they almost automatically will have to take a job with an American or multinational corporation?

RM: There is an advantage in working in a different nation for a year or two in order to broaden the experience of the MBA. If a Lebanese student would opt for working in London or Paris to gain diverse experience in the first years, and then come back, usually the salaries and bonuses from those first years do a lot towards paying back the loan.

E: Do you have the impression that anti-American bias has grown in the target group that you approach?

RM: There is no anti-American sentiment when it comes to education.

E: How about visa?

RM: This last year, I had no problems getting visa for my students from the Middle East. They went through an additional screening process but they had no problems because they did things correctly.

E: It is then safe to assume that people coming to Wharton from the Arab world will not experience an anti-Arab bias stateside?

RM: Not at Wharton. After 9-11 and the whole student body was very protective of our Arab students.

E: How many Arab students does Wharton have at present?

RM: Probably 1 to 1.5 %; that is something I’d like to increase.

E: How high is the percentage of non-acceptance of applications?

RM: If we have about 7,000 to 8,000 applications and a class of 800, there is a lot of it. We use a structure where we view the application first and then evaluate these twice, dividing them into two groups, one of about 40 % whom we want to interview and another group whom we don’t want to interview and will deny at that point. We then weed the first group down. It works out fairly well.

E: But you would advocate Wharton as offering a better opportunity than a local school?

RM: Students, who really have aspirations to create value and provide leadership, need to get abroad. The MBA is much more than a functional skill at learning. It is an experience of other cultures, worlds. It is the intensity of the experience. But some people just want to be functional experts that don’t want to leave. There are those who want to make money and therefore are interested in taking the credentials. To them I would say, stay, don’t take that risk; don’t spend the money. It really depends on the needs.
 

When World Bank President James Wolfensohn opened the annual meetings of the World Bank and International Monetary Fund last month in Dubai, he said the world was out of balance, with one sixth of the global population controlling 80% of global GDP and the divide between rich and poor nations ever increasing. The head of the cornerstone institution for global finance felt the need to remind the assembled central bank governors and officials that world leaders had agreed to the goals of the United Nations’ Millennium Declaration in 2000 in order to address the world’s most pressing inequalities. UN member nations committed themselves to targets on improving provisions for health, education, equal opportunities for women and to cutting global poverty in half by 2015. To do so, developed countries pledged to open markets and increase aid, Wolfensohn said, while “developing countries promised to strengthen governance; create a positive investment climate; build transparent legal and financial systems; and fight corruption.”

When asking why many developing countries are not on track towards fulfilling the goals of the UN’s Millennium Declaration, Wolfensohn gave the answer himself. “Part of the reason is that reform is not happening fast enough in the developing nations,” he said. “There is still too much cronyism and corruption. In nearly every country, it is a matter of common knowledge where the problems are and who is responsible. Frankly, there is not enough bold and consistent action against corruption, particularly at the higher levels of influence.”

The reminder could not have been timelier for Lebanon. Over the past two months there has been much talk over several highly publicized cases involving corruption. The Al Madina banking scandal, the judicial investigation of former agriculture minister Ali Abdallah, and the outcry over funds that have disappeared at Electricite du Liban. Each charge involved allegations of corruption at high levels of influence. On the sidelines, the arrest and temporary detention of lawyer Mohammed Mugraby in August was decried by his supporters as an attempt to stop Mugraby from fighting corruption in the Lebanese legal community.

The standard definition of corruption is the abuse of public trust for illicit private or personal gain. This implies that the problem tends to manifest itself where the interaction of a public official with an enterprise or citizen opens the opportunity for improper conduct and illegal financial gain. As a rule, corrupt deals between the private sector and public servants involve a bribe giver and bribe taker. The initiative to embark on such criminal activity can originate from either side. Demand driven Ð the official whose responsibility it is to issue a permit or evaluate a project bid presents himself as unresponsive or slow, until his abilities are boosted with a bit of monetary medicine. In the most obvious and blatant cases, the bribe demand is blunt and explicit. On the other hand, the corrupting process may originate from the business end of the relationship. The corporation bent on acquiring a lucrative public project uses bribery, as a means to get a contract it might not win in fair and square bidding. In this example of supply-driven corruption, the criminal enterprise may explore the possibility of soliciting a public official by shelling out innocent gifts, which over time evolve into more and more lavish and potentially compromising favors that establish ties of complicity.

Beyond small-scale bribes there is of course high-level corruption, which can seriously damage a nation’s reputation, development and fiscal balance. Take for example Ferdinand and Imelda Marcos who plundered the Philippines; Nigeria’s Abacha regime which stole billions of dollars from the people of Nigeria; and Peru’s former president Alberto Fujimori who is wanted by his country’s prosecutors who claim he enriched himself from weapons deals and aid contributions while in office until 2000.

In these cases the sums of money in question are often hard to quantify. A declaration by African anti-corruption activists in 2001, estimated that corruption damages in Africa amount to anywhere between $20 billion and $40 billion. The Nyanga Declaration stated that this figure had “over the decades been illegally and corruptly appropriated from some of the world’s poorest countries, most of them in Africa, by politicians, soldiers, businesspersons and other leaders.” The declaration has since been quoted by a UN global study on illegal transfers.

The UN study, prepared at the beginning of 2003 for the committee deliberating on the world body’s impending Convention Against Corruption, listed some of the heads of governments and their families who plundered national resources, investing the money abroad. Mobuto Sese Seko pilfered $5.5 billion as president of Zaire, outdoing the Abacha regime’s estimated siege of over $2 billion; HaitiÕs Jean-Claude Duvalier transferred more than $120 million in presidentially embezzled funds out of the country, which is one of the poorest in the world. $227 million went amiss under Peru’s Fujimori government; the brother of former Mexican president Carlos Salinas raked in a fortune of $120 million as result of corruption, while Argentina’s Carlos Menem, left his country owing $90 billion.
 

Other reports on corruption in Africa suggest that, as a rough rule of thumb, a 5% bribe of a $200 million contract would get the personal attention of a head of state, while a government minister would be in the game at about one tenth of that. Nigeria’s problem is so chronic that the international community has suspended loans to the West African state.

These amounts are sharply set apart from the pots of petty corruption in the lower half of the corruption sphere. Here, you may be talking as little as a $1 bribe for a village official in an impoverished nation, or as much as $1,000 in exchange for gaining a contract to haul a company’s garbage or landscape the city parks in a G7 country. This realm includes anything from slipping a traffic cop a $20 bill rather than paying the $150 speeding fine, buying the city inspector a cozy lunch while the building crew pours that slightly doubtful looking concrete, the police detective enjoying himself “on the house” with the escort service – to a price fixing deal between the supplier of medical syringes and the purchasing manager in a public or private hospital.

In addition to dissecting these universally present layers of what has been called the “culture of corruption,Ó international corruption fighters Ð most vociferous among them the non-governmental watchdog organization, Transparency International (TI) Ð have been attacking specific cases of corruption such as that found in the global diamond trade, party financing, and money laundering. There is no indication that this web of grand and petty corruption, bribery, graft, and criminal egotism will shrivel up anytime soon, or that some countries and institutions are immune to the plague. The European Union, where six of the world’s ten least corrupt countries are located, has just been embattled by a $6 million corruption scandal at the Eurostat statistics institution and allegations of corruption in other departments. A glance into the pages of any respectable newspaper proves that corruption is one of the most frequently exposed evils to surface in media reports between Beijing and Cape Town, from Munich to Miami. The Enron scandal, showed that investor confidence can be maintained if corruption is dealt with immediately and swiftly.

In Lebanon, the general awareness of the existence of corruption appears to be nothing short of pervasive. “Corruption definitely exists in this country,” said a member of parliament who won his seat as an independent. “Even more, it is a requirement. The system here will reject anyone who doesn’t agree to be involved in a network of corruption.” As many local politicians will point out, corruption is found anywhere, said Yehya Sadowski, a political science professor at AUB. “The difference is that in most countries, you can reap revenue from corruption but you still have to deliver something. In many Middle Eastern countries, it is often a transfer of income without the bribe taker having to deliver anything,” he said.

From business leaders, journalists and consultants to financiers Ð Executive encountered no one who would deny the existence of corruption in Lebanon. The question, “does corruption exist in Lebanon” typically led to one of two initial responses; laughter, or a resounding “No!” of the type that a grownup would answer a five-year-old who asked: “Didn’t Santa Claus look just like uncle Joseph in Santa’s suit this year?”

The harder question is how prevalent corruption is in this country. Pundits claimed that the former minister of agriculture, Ali Abdallah, is being investigated for embezzlement of agricultural aid funds because his greed became too excessive, eventually grating the political circles that had previously tolerated his activities.

In the course of the Al Madina banking scandal, allegations of money laundering piled up on accusations of embezzlement and check fraud, standard financial crimes which the country’s financial and judicial authorities are usually more than keen to prosecute. As the Al Madina case dragged on for the better part of the past year, observers have repeatedly crowed that Lebanon’s central bank should have stepped in much earlier, and hinted at political interference in the investigation.

In the often-murky reports of the daily press, the case against Al Madina was supposedly even about to be suspended at one point this summer because the financial damage had been contained, and the file sent back to the Special Investigation Commission at the central bank. Amid the outrage, the central bank quickly clarified that it was only updating the information for the prosecutor’s office, and the office confirmed that the investigation into the criminal offenses was continuing.

Undeniably, the current policies and practices on informing the Lebanese public about cases of alleged or proven corruption, leave much to be desired. Accountable and transparent procedures in addressing the issue of corruption, evaluating its extent and exposing individual cases are imperative for improving the public perception that corruption is being fought. But Lebanon is at least not the last country to be in the dark. On a global scale, the fight against corruption is a recent one. Measuring and comparing the infestation of corruption country by country as a tool to strengthen the fight against this scourge has been a project that TI initiated first in 1995. By introducing the Corruption Perception Index (CPI), TI has significantly increased awareness of the issue and countries with a low score for good practice, such as Nigeria, have become bywords for countries that are bad for business. In many nations, TI’s CPI has become a widely used instrument of alarm that helps responsible officials and civil society groups in their fight against the syndrome. However, Lebanon until now had not ranked in the CPI, leaving it up to every person to guess where the country might stand in the global ranking. Lebanon’s corruption is of “Nigerian proportions,” suggested Sadowski, and the country should set itself a goal to reach the standard of China for its level of corruption in global comparison.

Here comes the good news. Starting this year, Lebanon will be included in the CPI, and there will be no more guessing about how the country is being perceived, based on the compounded findings from at least four studies sponsored by international agencies and independent consultants. TI set the release date for the 2003 CPI, rating 133 countries including Lebanon, for October 7. Although the exact ranking for Lebanon was not available at time of going to print, Executive learned that Lebanon will not score the lowest.

Whatever the score, some people will certainly be disappointed.

On September 30, Ayoub Humayed met with Executive for a political reality check on EDL, during which he answered questions on recent accusations leveled at EDL over corruption and criminal waste of public funds. In doing so, minister Humayed provided Executive with much anticipated answers on the issues of graft and transparency at EDL.

E: EDL has been specifically named in recent allegations of disappeared funds and inefficient management. Can you provide us with a precise figure on the cost of corruption at EDL?

AH: Lebanon is not an exception in the world. Corruption does not only affect developing economies. We should differentiate by looking at the causes of corruption. One cause of corruption is the lack of sustained and continuous supervision and accountability. Another factor is the lack of fair compensation that forces many EDL employees to supplement their salaries. Since I took office EDL and the water authorities have agreed to full transparency in any investigation. I am committed to facilitating the job of the investigative authorities in apprehending those who have abused the trust placed in them. The recent EDL crisis was purely financial. We needed money to buy fuel in the face of a global price hike. However, the debate became muddied by unhelpful side issues. [The minister then detailed how several measures were tried and abandoned until an agreement was reached under which $200 million could be borrowed from the central bank for the purchase of fuel.] In the course of these developments, the debate focused to the corruption and wastefulness that contaminated EDL in the past. Even though the director general of EDL and I have vowed to forward any information on irregularities we uncover, the ministry and EDL have no part in determining the direction of any investigation. Files on all previous activities at EDL have been made and are being investigated.

E: What about the stories that corruption was proven in these files?

AH: This issue does not concern us. A lot of noise has been made saying there is corruption, with people asking where the money went, and where wastefulness occurred. These questions have nothing to do with our present concern of finding money to buy fuel. These questions concern the past.

E: But the situation has become very heated and many people are stressing on the issue of corruption at EDL.

AH: Yes. Why we didn’t switch our power plants from oil to gas? Why are our networks and the tertiary links incomplete? Why can’t we erect power lines that would save millions? These are all legitimate questions, but some might have political reasons for raising these issues. Their motives may not be innocent. Today, these issues are in the hands of the judiciary whose responsibility it is to deal with any past irregularities. I am not in a position to pass judgment.

E: Could we talk about the underlying causes of the problems that are reflected in the situation of EDL. When did the problems start, and what was their effect on the plants, the networks, the grid, and power lines?

AH: We have a general problem in that there is too much ad hoc implementation of works with no proper planning. This is the main reason for irregularities in the public administration. This problem surfaces in every nook and cranny of our administration. You see a network of sewage pipes and no wastewater treatment plant and ask why do we need sewage pipes if we don’t have a treatment plant? I am not condemning nor am I excusing anyone. I am just not in the position to judge.

E: But we don’t want judgments.

AH: There are irregularities. I am not in a position to justify irregularities and mistakes. The issue of why there was an accumulation of factors that brought us to this explosive reality has aspects one cannot fathom with total objectivity and without bias or prejudice.

E: What is being done to remedy the problems at EDL?

AH: There are a lot of aspects to this topic. When EDL is suffering from the inner burnout of its administrative body and when one considers that there are 2,400 employees with an average age of 57 years, one can see that EDL cannot deliver what is required. For that reason, I said before that there are two sides to this issue. On the one side is the need to pump new blood into EDL through the activation of its human resources department. On the other side it is necessary to compensate employees fairly and give them incentives to work professionally.The reinforcement of human resources will mean that the administrative situation will improve, and so will the supervisory situation. It will also save money when compared to procedures currently used at EDL. It would bring great benefits if EDL can implement a system of bill collections, advanced meter readings and even prepaid cards. Completion of the 220 KV network and its connection to a six nation regional network should also provide energy at a lower cost.

E: Why weren’t these steps taken in 1994? What were the obstacles at the time?

AH: I cannot answer that. What I can say is that the funds that were received were destined for the reconstruction and rehabilitation of the power plants. These plants were destroyed more than once during the Israeli aggression, and the costs were prohibitive. If there had been no Israeli aggression, a lot of money would have been saved. Before the civil war and the Israeli aggression, EDL was profitable and productive. It is important to evaluate the entire set of circumstances in order to remedy the situation and not look back to the past and bring up corruption and waste. Our focus is the current operations at EDL, which are being handled in a scientific and practical manner to achieve a better future.

E: As many people feel no remorse over tapping into electricity lines or not paying their bills, how are you going to change the perception of EDL and produce an image of transparency?

AH: I already answered that in part. We always say that two matters go hand-in-hand. The first is the right of EDL to collect its dues, either from the citizen or from other administrative and public institutions. Secondly, EDL has to offer the citizen continuous electricity at reasonable rates. I gave directions and issued many statements to EDL staff that stressed an ethical interaction with customers. This very important at a time when the public sees EDL as corrupt and unable to provide a value for money.

E: If today there were no more theft at EDL, would the utility be working normally?

AH: When Italy’s power supply broke down the other day, the reason was traced to a power line between Italy and France that had become neglected. When electricity networks broke down in the US, it was also due to the age of the system. These are giant developed nations. It is easy to pass judgment in Lebanon but we have to be objective. We have to look at the circumstances that EDL is working under and consider the past.Due to severe space restraints in the magazine, Executive had to edit portions of minister Humayed’s sweeping answers. The Executive team made every effort to ascertain that no loss in content occurred as result of the editorial cuts and that the integrity of the answers was preserved to entirety.