For your information

Lebanon’s albatross

by Hadi khatib
written by Hadi khatib

For sale: one national airline carrier that has lost $360 million

in the last four years. Doesn’t make for a very appealing

advert. Could there possibly be any takers if Middle East

Airlines (MEA) isn’t first whipped into shape?

The International Finance Corporation (IFC) is the latest organization

to be contracted by the Lebanese government to assess the air

carrier and devise an action plan for the sell-off. Oddly enough the

central bank owns 99.37% of MEA; it would like nothing better than

to get rid of such a burden. Last July the bank signed a $1.3 million

agreement with IFC to help it do just that.

Reports have indicated that the study

would take 17 months to complete. But the

financing arm of the World Bank told

Executive that the report could be finished

much sooner. The plan seeks to find a

suitable partner for the carrier and to save

it from the political tug-of-war that has

turned the airline into an albatross.

Despite its worldwide experience in privatizations,

IFC faces a monumental task of convincing the government to take action. And, according to an official

at MEA, this is just the latest in a series of studies that have been

commissioned with the appointment of each new chairman. Since

1997, at least four foreign companies have performed a similar study.

But despite the wealth of reports, no decisions have ever been made.

The eternal question at MEA is the employee issue. Because of politically

appointed personnel, the airline has a staff of 4,500 to operate

a fleet of just nine planes. That carries a monthly cost of $5.5 million.

MEA’s employee-to-plane ratio is about 380 more than required to run

an efficient and profitable airline, according to international standards.

The employees’ union of MEA has claimed that the staff is just 2,700,

 while some three to four contractors each with about 200

employees are hired on a contractual basis. Regardless, that would still

put the number of employees at 180 more per plane than required.

Administrative reform of state-owned enterprises faces strong political

resistance because of the layoffs that would involve. The IFC is

expected to extend a 20-year loan of $40-$60 million to Lebanon for

end-of-service indemnities as a result of privatization. But because

politicians would interfere to protect their fiefdoms, it’s questionable

whether that money could ever be put to use.

Questions are also being raised about management

decisions in running the airline’s

operations. MEA doesn’t own any planes;

instead it pays about $250,000 per plane a

month in leasing fees. Although the price of

planes can range from about $70 million to

$180 million, few carriers choose to lease

when they can own the airplanes and pay the

same monthly installments over 20 or 30

years. MEA sold its three jumbos for a total

of $60 million in 1997, a deal that included $18 million worth of spare parts. That’s way below the estimated value

of$60 million each. The decision resulted in lost market share for MEA

as the jumbos had a capacity of 428 passengers compared to 186 for

the largest plane in its current fleet. ‘These decisions are part of years

of corruption and abuse that still contribute to the airline’s annual losses,”

says the MEA official.

Corruption and a lack of vision have brought the company to its current

situation, robbing the treasury of much-needed funds. Will the government

make the necessary decisions and implement the IFC’s recommendations

or will this report end up with the previous ones?

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For your information

The $10 rip-off

by Marwan Naaman
written by Marwan Naaman

Welcome to Lebanon -the land that has forgotten its role as

the region’s free economy, where levying taxes has

become the national sport and stupid government decisions

run free. The latest doozy was a gift from sports minister Mohammed

Youssef Beydoun. He decided to tax visitors $IO for each night spent

at any hotel during the Asian Cup and for the entire month of October,

claiming it w~ the best way to recover costs for the three new stadiums.

That’s on top of the current 5% tax on transactions at hotels, restaurants

and tourist attractions. The only people exempt from the new tax

were the football players participating in the Asian Cup.

The hotel industry cried foul – and rightfully so. Pierre Achkar, president

of the association of Lebanese hotel owners, resigned from his

post last month in protest. Josianne Chaccour, sales and marketing executive

at Palm Beach Sofitel, was appalled by the new tax. “We’ve had

many groups cancel their bookings,” she says. “The government

thinks that it’s going to make more money, but in fact it’s going to lose

money in the end.” Viviane Sarkis, public relations manager at Le

Bristol, also reports cancellations as a result of the tax.

But if the hotels are livid, those forced to pay the extra money aren’t

any happier. “Many visitors are outraged at the $10 tax,” says Ziad

Sarkis, director of sales at Holiday Tower in Dbaye, “because they are

not even here to view the sports matches. But they have to pay the exorbitant

tax anyway.” Tanios Kassis, development manager for Choice

Hotels, says that many visitors come to Lebanon as part of a package

deal and pay an average of $30 a night for hotel accommodations. “For

these visitors, the $10 tax translates into a 33% cost increase,” he says.

Noha Saliba, public relations manager at Phoenicia Intercontinental,

sounded the one positive note. ‘The tax is not a problem,”

she says, “because those who want to attend the Asian Cup will not be deterred by an extra$10.”

But its effects are mostly

felt by the smaller hotels,

not big outfits like

Phoenicia, according to

Enrique Byrom, CEO of

the Asian Cup accommodation

bureau: “If you’re

paying $200 a night and

you have to pay an extra

$10, that’s just a 5%

increase. But if you’re

paying $40 a night, that’s a

25% increase.” Clearly, if

a new tax was indeed needed, a flat $1 0 fee for all hotels was an irresponsible

decision, a half-baked idea at best.

A total of 26,000 reserved hotel nights were cancelled as a result of

the tax, according to Achkar. And of the 25,000 visitors expected to

come to Lebanon for the Asian Cup, just 2,000 actually showed up.

Kassis adds that the maximum amount that the government will raise

through the tax is $ I million (not nearly enough to cover the cost of the

stadiums), while it is estimated that the cancellations have resulted in

multimillion-dollar losses for Lebanon. The cancellations have been

particularly distressing for Choice Hotels, which has just opened a

Quality Inn hotel in Tripoli in honor of the Asian Cup.

While many point to the $10 tax as the main culprit behind

October’s mass cancellations, border tensions were also responsible for scaring away visitors. Just

before the Asian Cup’s official start,

Hizbollah captured three Israeli soldiers.

In response, Israel threatened

to bomb Beirut. While the Lebanese

may have become blase about

Israeli strikes, the same cannot be

said of the majority of tourists.

Byrom believes that the political situation

was the major reason for the

cancellations – more so than the $10

tax. “Lebanon’s problems are

always political,” Achkar concurs, but he’s also quick to single out the government as the party responsible

for the Asian Cup fiasco. ‘The ministry of tourism didn’t even

promote the Asian Cup outside Lebanon,” adds Kassis.

And herein lies the real problem: an inefficient and bloated government

that never accomplishes anything. ‘The ministry of tourism

should have top professionals,” believes Francesco Borrello,

Starwood Hotels and Resorts area manager for Lebanon and Syria,

“and it should play the most important role in the country’s government.

Instead, it’s doing absolutely nothing for Lebanon.”

The only thing it’s accomplishing is dreaming up new forms of taxation.

The result is that the government is making Lebanon too

expensive and thereby discouraging visitors from coming here.

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For your information

On shaky ground ?

by Peter willems
written by Peter willems

Devaluation. Is it a dirty word? These

days you can find doomsayers on

what will happen to the Lebanese

pound – but they don’t want to get

caught on what they say. “I believe that

devaluation is inevitable,” says one analyst,

“but don’t quote me on that.” Hiding

behind reports, graphs and charts, they say

the topic is ”too sensitive,” or, as one economist

says, “I’ll be blamed for the fall; I’ll be

seen as the catalyst if the pound drops.”

B ut it’s not only the fatalists that have kept a tight lid on

things. The central bank won’t reveal how much it intervenes

to keep the pound stable, and the total amount of net

reserves is always in safe storage. It’s as though the best thing to

do is to keep quiet about what might happen to the pound and any

danger will vanish.

But warning signals have been coming from abroad. In Merrill

Lynch’s latest report on Lebanon’s debt instruments, it states clearly

that the risk of local currency plummeting next year is real. ”The

country has reached the point that if steps aren’t taken right away,

the debt will get so high that it will be impossible to control,” says

Eric Lindenbaum, vice president of the emerging market fixed

income research department at Merrill Lynch. Merrill Lynch has recommended

avoiding eurobonds and holding T-bills only through

maturity in the first quarter of200 l. And it’s not the only foreign institution

showing lack of faith in Lebanon’s future. BNP Paribas has

said flat out to stay clear of investing in Lebanese debt altogether.

In September, Standard & Poor’s downgraded the country’s sovereign

debt and Moody’s put Lebanon on credit watch.

Up to now fiscal imbalances have been out on the loose. The government’s

deficit target at the end of the year – 37% – will be

missed by a long shot, while the gross public debt at the end of August

reached $23.7 billion (see graphs). “Lebanon is caught in a vicious

circle,” says Lindenbaum. ”There is hardly any growth while the debt

keeps on climbing.” According to Banque Audi, at the end of the third

quarter debt to GDP hit 142%. Audi also estimates that the economy

contracted by 0.5% in the first half of 2000.

On top of the fiscal fiasco, worries have been amplifying, putting

significant pressure on the pound. Even though strife between

Palestinians and Israelis sent ripples across the Middle East, most of

the uncertainties have been homegrown. Some believe that Rafic

Hariri could save the day, but the delay in appointing him prime minister created uncertainty.

And for many his image as savior is wearing off. While trying to rebuild the country during his first term,

he was the one who created a pile of debt. His plans are also vague:

No platform was presented during or after the elections. “There is

more confidence in Hariri than the previous government, but I recommend

caution,” says Lindenbaum. “He raised the debt and is now

in a very different situation. He can’t spend his way out of it.”

Analysts estimate that during the month and a half following the

elections, the central bank dished out an average of $150 million

per week to meet demand for foreign currency. That adds up to about

$1 billion. ”That’s a lot of pressure on the pound,” says Habib

Haddad, head of treasury at Beirut Riyad Bank. Most believe that

the motive behind the government issuing the last two eurobonds

was to help shore up reserves. ”That’s no solution,” says Tony

Hchaime, financial analyst at Arab Finance Corporation. “It’s

adding water to a bucket that has a leak.”

On the upside, solutions are clear and simple. Analysts are adamant

that the economy needs a kick-start, which will increase revenues for

the government to balance its budget and lower the debt. ”The government’s

main objective in the last two years was to decrease the debt

as much as possible. But as they concentrated on that – and failed

they also killed the economy,” argues Hchaime. ”We’re in a recession

and we have to get out of it. We have to concentrate on reviving the

economy, using the proceeds from the revival to reduce the debt.” An

attempt can be made without increasing government spending. The

initial step is to sell licenses to the two mobile phone operators,

LibanCell and Cellis, followed by selling another to a third operator.

Privatizing state assets – something that has been talked about for the

last two years but hasn’t been implemented- is another must, especially

the telecom. Not only would these actions bring in billions of

dollars in debt relief, but they would also generate confidence here and

abroad. ”There would be a positive reaction on the markets that would

allow interest rates to drop,” says Marwan Barakat, head of Audi’s

research department. With interest rates heading south and investments

coming in again, the economy would show signs of recovery.

The government has the tools it can use to disprove analysts expecting the worst-case scenario for this

country’s currency. But will the government

grab those tools and use them?

“There has not been any political will,”

says analyst Philip Khoury, ex-vice

president in the emerging markets equity

research department at Merrill Lynch .

“In the last two years the government talked about action, but there was no action on the ground. They agreed on

problems but never discussed solutions.”

The fate of the Lebanese pound

now depends on the new government to act. “Unless the government

takes drastic measures soon, it won’t be a question on if devaluation

will happen,” says Khoury. “It will only be a question of when.”

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Editorial

In motion

by Dany Rizk
written by Dany Rizk

Change and innovation are important in order to keep up

with the times in the New Economy. Cyberia, our cover

story this month, has been the leader among ISPs since the

emergence of the Internet in Lebanon. But not a company

to sit back comfortably, Cyberia is forging ahead into new

e-terrain.

EXECUTlVE is also moving forward. This month marks the

expansion of our magazine into eighty pages, including a

new section called Business Essentials that has difficult-to find

information for business people on the go. The section

has data on such things as tenders and conferences.

We’ve also added to existing sections. We now feature additional

pages of business briefs; newly registered companies

appear in Best Sellers; and Real Estate includes projects

under construction.

These additions help reflect our pursuit to provide the most

comprehensive business publication in Lebanon. On top of

our trademark analysis, we hope you’ll find this additional

information useful.

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FeatureUncategorized

Take my money, please

by Kirsten Vance
written by Kirsten Vance

Imagine being a poor student- not too difficult for those of us

who were once there. Your boots are falling apart and winter

is on its way, some of your clothes are so tattered they should

really be chucked out and replaced, while bare necessities like toilet

paper and food have to be stretched out to last, especially at the

end of each month. Then imagine you are the recipient of healthy

sums of money – student loans and cash from the parents, both

offered at pretty favorable terms. But you can’t get your act

together enough to actually spend it, so mom, dad and the government

have to keep encouraging you, pushing you to make use

of the money. Ludicrous, right?

Absurd as it may sound, Lebanon is that student. Of the $4.5 billion

in foreign funds that were available at the end 1999, almost half had

still not been contracted. “Sometimes you feel that you have to push

them to use it,” says Paolo Dionisi, economic and commercial attaché

at the Italian embassy. “It’s the opposite of how it should be.”

Last year was in keeping with Lebanon’s poor track record of the

previous three years, while there has been no significant improvement

in 2000 despite an effort by the council for development and

reconstruction (CDR) to speed up the process of project preparation.

”There is a stockpile of financing available, that’s not being committed,”

says Christian DeClercq, senior advisor to the UN’s resident

coordinator in Lebanon. Even once committed to specific projects,

the level of expenditures is sometimes still low. The slow rate at which

Lebanon uses foreign financing could put it at risk of losing some of

the funds and of attracting new money in the future.

Since the early 1990s, Lebanon has been a recipient of large

amounts of aid largely from the EU and the Arab world, while non aid

financing has come primarily from the World Bank and the

European Investment Bank. For a cash-strapped, indebted country that

is still in the process of post-war reconstruction, foreign funds represent

a vital source of financing. “It’s very important if you have hundreds

of millions of dollars pulled back because the government’s not spending,”

says a financial analyst, “especially when the country needs to

spend in order to bring itself up from Banana Republic grade three to

Banana Republic grade four.”

Even more important is that much of the unused stash is in the

form of grants and soft loans. More than two-thirds of the stockpile

carries extremely attractive financing conditions, according to

a report by the United Nations Development Program (UNDP).

“Soft loans and grants are more difficult to come by,” says

DeClercq. “Lebanon has really benefited from an important amount of goodwill on the part of donors and every effort should

be made to translate that into action so that more resources can be

made available in support of reconstruction.”

Not surprisingly, many point to the weak Lebanese administration

as the prime culprit for the backlog. “It goes back to the administrative

inefficiencies of this country,” says the analyst, “to the ill equipped

administration, the uneducated administration and totally

corrupt bureaucracy.” While the vast majority of funds are channeled

through the CDR, there is often a problem of coordination with

other ministries as a single project can involve numerous government

institutions. And within the government institutions themselves,

there is a limited capacity, often due to an insufficient number of qualified

staff. The political decision-making process can also create

major bottlenecks, according to donors, because even the simplest

decision may require the signature of the minister responsible, the

approval of the council of ministers or passage through parliament.

On top of all that, due to the government’s austerity policy, there are

often not enough counterpart funds. Investment to GDP stood at 20%

last year, compared to 33% in 1995.

But not all the blame can be lumped onto the lap of the Lebanese

government. “Also the donors have to do their part,” says

DeClercq, “because many of the delays have involved donors.”

That is due to complicated review and approval processes or

unrealistic expectations because donors were ill advised of the situation.

In addition, some aid comes with conditions of structural

reform. There is also the issue of tied aid – when contracts can only

be awarded to companies from the donor country in question, which

may not guarantee the best prices on tenders. According to

Bassam Othman, resident representative for the Kuwait Fund for

Arab Economic Development (KFAED), donors shouldn’t be

unbending. “You have to be flexible, you have to understand how

things get done in Lebanon,” he says. ‘Tm sure they’re genuine

about helping Lebanon and implementing these projects, but

maybe they have to go out of their way sometimes.”

Kuwait has been one of Lebanon’s largest sources of cash, with

about$416 million in soft loans and grants since the end of the war.

Projects it has helped finance include the Beirut airport, the north

and south entrances into Beirut and the construction of health care

centers. Kuwait is one of the few donors not reporting delays. “Most

of our projects are on time. They’ re disbursed according to schedule

and we don’t have any substantial delays,” says Othman.

“When you compare the implementation of these projects with other

countries, Lebanon isn’t behind.” Others say that the relative ease

for the Kuwait and other Arab funds comes from the fact that they

finance comparatively easier projects – basic infrastructure that

doesn’t involve capacity building in administration or projects that

are self-contained like roads or hospitals.

Many others aren’t having an easy time convincing Lebanon to

spend their money. Some like France have given time limits, which

forced the Lebanese government to work hard to meet the deadline

in order to have the protocols signed into commitments. A$ I 00 million

soft loan from Spain, that was originally made available in 1998,

was renewed last summer for another two years. At the World Bank,

Lebanon’s loan portfolio totaled $750.44 million at the end of the

fiscal year on June 30, but just $289.91 million had been disbursed.

The two loans signed this year are not yet effective, but half

of the remaining ten are considered unsatisfactory.

While closing dates can be extended, that is an unlikely event for.non-performing

loans, according to John Wetter, the bank’s country economist.

Japan has had a soft loan agreement worth $120 million on the books

since March 1997. The agreement’s deadline is 2003, but Yukinobu

Miyakoda, the economy attaché at the Japanese embassy, was expecting

the funds to be disbursed by last year. A delegation from the Japanese

Bank for International Cooperation was sent to Lebanon several

times to push for the money to be used. In February and June of this

year the two lenders were finally completed, but the money still hasn’t

been used. Until that happens, more funds will not be forthcoming.

It’s a similar story with the Italians, who will not agree to more

funds until there has been clear progress made in Lebanon’s

efforts to spend the $145.25 million in soft loans and grants available

through agreements signed in 1997 and 1998. The loans

carry an interest rate of 0.5%, a 35-year repayment period and grace

periods of 14 and 24 years, respectively. With such attractive

terms, one would expect the Lebanese government to scramble for

these funds. But it took 18 months just to get the first agreement

passed through parliament, and 10 months for the second. So far

only about 30% of the money has been used. “Now things are

beginning to move, but if they had done everything in due time they

could have negotiated another loan,” says Dionisi.

Clearly, there must be a more efficient use of foreign funds. The

Italians recently established a working committee with the CDR in

order to push things through. Efforts have also been made to streamline

bureaucracy at the EU; of the 184 million euros in grants made

available through MEDA I (1996-1999) just 40% has been used,

while 33 million euros of that amount is still awaiting signatures. “In

Brussels we have done our homework to simplify the procedures,

because this was also a problem,” says Dmitris Kourkoulas, head of

the EU delegation in Lebanon. Now the donors want to see a concerted

effort on the part of the Lebanese government to reform the

administration and reactivate investments. And unless that happens,

it will be difficult to convince the international community that throwing

new money this way will be of any use.

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Money Matters

In the safety zone

by Avo Tavoukdjian
written by Avo Tavoukdjian

Trading places with Adonis Insurance and Reinsurance

(ADIR) would be an irresistible proposition to many of

Lebanon’s insurance companies. The company knows

how to tum a profit and, let’s face it, at the end of the day that’s what

business is all about. In the eye of the hurricane that is Lebanon’s

turbulent insurance sector, ADIR operates as if completely

immune to the surrounding mayhem.

Accounting for less than 2% of the $400 million in life and nonlife

premiums sold last year, ADIR ranks 16th overall with a portfolio

of just $5.2 million. That’s up almost 100% from $2.7 million

in 1995. The increase in premiums has been more than matched by

profits, which rose by 135% from under $700,000 to $1.6 million

in the same period. So how does ADIR do it when the industry has

been caught in a nasty storm?

The insurance firm’s strength is derived largely from its parent company

Bank Byblos, which provides more than 80% of business.

Lebanon’s second largest bank in terms of profits and third largest in

deposits and assets, Byblos has demonstrated its prowess on more than

one occasion, especially with the unprecedented leap to become the

first to offer retail products such as personal loans, mortgages and certificates

of deposit in the early 1990s. The bank’s retail products include

insurance policies guaranteeing that whatever happens the bank

will get its money back. That resulted in net advances to customers

totaling nearly $1.44 billion last year. But being approved for that housing

or car loan is an unlikely prospect without the purchase of

accompanying insurance policy from none other than ADIR.

But ADIR isn’t unique in this respect (see “Come together,”

September 2000). More than ten of the banks have established

their own insurance companies, including Banque du Liban et d’Outre

Mer (BLOM) with Arope. Others, like Banque Audi with Libano

Arabe, have either completely acquired an existing insurer, or, Like

Bank of Beirut with Arab Lebanese Insurance Group (ALIG), have

taken a partial stake in an insurer.

ADIR’s strategy is simple. It takes advantage of the captive business

through Byblos by keeping costs low. ADIR need not worry about investing

in real estate since Byblos has over 50 branches that double as a source

of business for the insurer. “We are everywhere without needing to have

so many branches,” says Jean Hleiss, deputy general manager of ADIR.

“And our staff is very small compared to the market, so that cost is also

reduced.” ADIR has no need for sales agents or office personnel.

Profits remain in-house, instead of large chunks being handed out as commissions.

The savings are substantial since brokers take as much as a 60%

cut on premiums in some cases. “If you Look at insurance companies that

are owned partly or completely by banks, you’ll see they have either

small- or medium-sized portfolios,” says Fateh Bekdache,

general manager of Arope insurance. ‘They’ re all comfortable if you look at

their balance sheets. All captive business, zero receivables, they get paid upfront

and at the same time it generates business on a daily basis.”

ADIR also focuses on its bottom Line by doing a balancing act with

its portfolio, which is heavily weighed in the more profitable lines.

Life insurance – the most profitable – constitutes about 50% of premiums

at more than $2.6 million. That puts ADIR fourth in the

Lebanese market after American Life (ALICO) with $51.7 million,

Societe Nationalc d’ Assurance at$ I 0. L million and Libano Suisse with

$2.9 million. But, with the exception of ALICO, none are so heavily

weighted in life as ADIR. “It’s not a secret, life insurance is a very

profitable business,” admits Bekdache. “Nowadays it’s probably the

only profitable business.” Credit Libanais d’ Assurance (CLA),

owned by Credit Libanais, similarly handles the bank’s insurance

needs with over 55% of its $2.3 million portfolio in Life, and made a

tidy net profit of $912,000 in 1999.

At the other end of the spectrum, ADIR keeps unprofitable and

volatile medical at a minimum. Just 6%, or about $300,000 of its

business, is generated from medical insurance. That makes ADIR

31st in a market that averages 50% for the medical line. “It’s a losing

product,” says Hleiss. “Our hospitalization is limited and we

only cover people who are completely insured with us. We are not

interested in having hospitalization plans, and that’s one of the main

reasons behind our profits. “AI-Fajr, for example, has a portfolio

about the same size as ADIR’s at $5.6 million. But 39%, or $2.2 million,

of Al-Fajr’s portfolio is in medical resulting in profits of less

than $160,000 in 1999 (see “Profits not insured,” July 2000).

That’s a profit margin of3%, and only LO% of ADIR’s profits. Even

tiny Middle East Assurance and Reinsurance company

(MEARCO) with a portfolio of $1. l 3 million managed $159,000

in profits – a result of staying out of medical insurance. CLA doesn’t

even provide medical insurance unless it’s a client of the bank

or someone who has purchased other policies from the insurer.

But perhaps the best part of ADIR’s arrangement is what it means

to collection. Most insurers have to resort to drastic measures in order

to sell, including allowing extended credit facilities. While the

average collection period of the market fluctuates between four and

five months, there are many that allow as long as a whole year. ADIR

doesn’t have to deal with all this nonsense. ALI its accounts are closed

at the end of each month, meaning no receivables, which translates

into liquidity. Collection for insurance is included in loan payments.

That means premiums are secured with collateral along

with the loans themselves. Regardless, they hardly have to worry

about defaults on payments. Since captive business results from loan

applications, the second the client fails to pay the insurance premium

their credibility with the bank is jeopardized. “The bank will

assume the client will not make good on its payments on the loan

either,” says? Elie Torbey, manager of the life and bancassurance

departments at CLA. “They will take corrective measures.”

Other companies have to chase down their money. Some even have

receivables that exceed half their sales. “We don’t allow that,” says

Hleiss. “It reduces our expansion but we have made a choice. We

sacrificed expansion but we collect our money.”

Even with these advantages ADIR seems to operate in a naturally

protective mode. “In all our business we do very selective underwriting,”

says Hleiss. “For life insurance we ask for exams. Every

file is studied by us, our doctors and our reinsurers.” This reduces

the loss ratio. “I know some companies don’t do this for small

amounts, and these cases have a tendency not to disclose all the

facts,” he says. When a claim comes in the insurer might deny payment.

ADIR wants all the cards on the table upfront. “If you don’t

do that you’ll lose,” warns Hleiss. “We insist on having everything

clear at the beginning and we pay without questions. We have to

be cautious because we have the bank’s name to protect.”

ADIR’s success can’t simply be put down to its relationship with

Byblos. Not all insurers that are associated with banks are doing as

well. Over 50% of Arope Insurance’s $5.5 million portfolio is either

captive business from BLOM, or the bank’s products, yet their

profits for 1999 were just $474,000. A third of this insurer’s total portfolio,

or $1.65 million, is in medical. And direct sales-meaning neither

the bank nor brokers are involved-account for 30% of its portfolio,

while broker business comes in at 15%. That translates into

commissions, salaries and real estate expenses.

There are those who argue that catering solely to a bank’s needs

has its downsides. Allowing for other sources of business can be

important to increase a portfolio. “It’s not healthy to depend on the

bank all the time,” says Bekdache. “Direct business will generate

more income for you.” Salam Hanna, general manager of Libano

Arabe, which caters to Banque Audi, concurs: “Of course you have

a much faster collection, but it’s harder to grow your portfolio.”

CLA is a good example of a company that has found a balance

between bank business and outsourcing. While handling captive

business from its parent bank, it also provides services to over a

dozen other financial institutions, specifically in the area of credit

card covers, one of the factors that has led to the firm’s growth

beyond solely catering to Credit Libanais.

All in all, ADIR ‘s strategy is elegant. It avoids the hassle of collections,

cuts costs and has a constant flow of business. Sure that

has its limitations, but considering ADIR’s returns, who cares

about limitations.

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Best Sellers

A stitch in time

by Tania Avoukdjian
written by Tania Avoukdjian

Most Lebanese textile companies are holding on by a

thread in today’s difficult times. Customs duties on raw

materials range from 20% to 25%, higher than in

any neighboring country, while electricity, fuel and labor costs are

the highest in the region. The entire sector must also compete with

cheap imports from East and Southeast Asia and with finished big name

brands from Europe. ”The economy is falling and the textile industry is following it,”

says Sleiman Khattar, president of the Lebanese Textile

Syndicate and owner of  La Laniere Nationale.

Textile exports dropped from $73 million in

1973 to$35 million in 1999, while imports rose

from $168 million to $238 million during the

same period. In the last few years, several

local textile companies have ~one out of business.

But in the midst of this malaise, one

local clothing and textile manufacturer,

Kassem Mahfouz & Sons, has seen its revenue

grow from $5 million in 1995 to $8.5 million

in 1999, with a projected turnover of $9 million for 2000. Compare Boudakian – a textile

company that makes uniforms. It has decreased production to 1,000

pieces a day from about 1,600-1 ,700 at the start of 1999.

Mahfouz manufactures 70% of its clothes; the rest is either purchased

from local manufacturers or imported from East Asia. The company

concentrates on high volume sales at low margins. “Our main strategy

is to decrease prices and increase sales,” says Bassam Mahfouz,

the firm’s president. The company controls all stages of the production,

marketing and sales process, cutting out middlemen. “You

find other companies who work in specific areas, but we go through

the whole process,” he says. The company’s clothes are sold at

seven nationwide retail stores and two wholesale outlets. Mahfouz is

in the process of adding two more branches, one in the South and

another in Tripoli. When choosing the location of a new store,

Mahfouz is careful to select places that are far from potential competitors.

But when a competitor is nearby-such as in Choueifat, where

his store is close to another shop called Zakr- he is careful to make

sure that his prices are low and targeted at bargain-conscious consumers.

“Other companies don’t have the same customers I have, so

I feel no threat from them,” says Mahfouz. For this reason, Roy

Badaro, owner of children’s clothing chain Kindou, feels that

Mahfouz is no threat to him either. “Mahfouz has different customers

because of its low end products,” says Badaro.

Mahfouz has also been helped by recent

changes at customs. Last spring, the ‘specific

rights’ law went into force, charging customs on

textile imports by weight rather than value. For

each kilogram, an importer is required to pay

LL9,500. The new rule makes it difficult for

importers to cheat by claiming that clothes or textiles

are used or cost less than their real value. This

law has led to a decrease in imports, according to

the syndicate, hence boosting business for local

manufacturers. “Due to the new law, I started producing

at 70% capacity. I was originally operating at 40% capacity,” says Mahfouz.

His company’s biggest strength is socks. “We have one of the

biggest factories for manufacturing socks in the Middle East,” says

Mahfouz, who has the exclusive rights for the whole Middle East

to manufacture socks under the Disney brand name. “Mahfouz was

chosen because of its competitiveness, its new machinery and its

high-tech equipment,” says Khattar.

Mahfouz keeps up with the pulse of the market by attending exhibitions

in Europe and the Far East up to four times a year and by

browsing through catalogues. He tries to adapt the latest fashions

to the demands of the local market. “We usually start preparing a

particular collection one year ahead of time,” he says. Keeping up

with the latest trends is very important in this business, explains

Khatter. “Some of the factories that didn’t follow the fashion and

the new trends have been forced to close,” he says. “It’s important

that the right product is produced at the right time.”

Mahfouz also exports, with 20% of sales going to places like Italy,

Greece, Cyprus, Hungary and the Gulf. Mahfouz is a rare breed.

In an industry where most textile manufacturers are simply trying

to stay afloat, his company is operating in the fast lane. “I’m working

on increasing demand. I want to increase my production

capacity to 100%,” he says.

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Executive Living

Old and endearing

by Marwan Naaman
written by Marwan Naaman

As befits the ancient city of Berytus, Lebanon’s capital

city is a haven for antique lovers, with dozens of

antique furniture stores strewn throughout the city

and its suburbs. Whether you’ re seeking to enhance your home

with a lovely historical piece of furniture, or whether you’re

looking for an entire dining room or living room set, the best

place to start your travails is Le Voltaire, a charming boutique

in the heart of Badaro. Owner Nadim Braidi personally flies

to Prance and the US in search of I 9th-century furniture, paintings

and artworks for his seven-year-old store.

Most items on display are from one of the following

eras: Empire, Restoration, Louis-Philippe, Charles X and

Napoleon III. Among his most prized possessions (all of

which are for sale) is a Charles X wooden cabinet from the

1830s with intricate designs and an Art Nouveau statue in

silver metal from the famed WMF German catalogue. The

cabinet costs $7,500, while the statue bears a more accessible

$1,800 price tag. Braidi claims to have some of the lowest

prices in town: “Many local antique dealers buy my merchandise

and sell it at prices 30% or 40% higher than

mine,” he says. Braidi also warns antique lovers to carefully

inspect any items they wish to buy: “There are many fake

antiques in Lebanon, many of which are made in Egypt or

Malaysia. Buyers often do not have enough experience to

tell a real item from a fake one.”

While Braidi’s store is a study in minimalism and a showcase

of carefully selected antique items, Caravanserail in Jounieh is

literally bursting at the seams with hundreds of artworks,

pieces of furniture and intriguing objects collected by owner

Georges Doche over ·the past two decades. A man who finds

beauty in even the smallest of objects, Doche says that he hasn’t

left Lebanon since 1987 and he acquires his merchandise

either from people wishing to sell their family heirlooms or from

other local dealers. The most eye-catching antique in his store

is a I 920s bar made from banana and lemon trees and decorated

with artistic carvings. This particular piece costs a whopping

$45,500, but Doche also has infinitely more affordable pieces,

such as two matching Japanese pillows in lacquer priced at $300.

Caravanserail doesn’t specialize in any particular style or era,

although Doche does admit to certain personal affinities: “I prefer

Islamic art,” he muses, “but I buy anything that strikes me.

I don’t like conventional things. I am always looking for

something different, for a fantasy!”

Doche’s exuberance provides a striking contrast to the

understated elegance of Johnny Chartouny, owner of J-M

Antiques, Arts and Auctions in Ashrafieh. Along with his partner

Maha Sehnaoui, Chartouny specializes in 18th- and

I 9th-century antiques, although he does profess a personal

preference for paintings, silver and Bohemian crystal. J-M

Antiques has been in operation for nine years, but Chartouny

also owns two successful

antique shops in Brazil, both of

which have been open for 25

years. With a master’s in fine

arts (and an emphasis on sterling

silver items), Chartouny is

particularly well qualified to

advise people on which items

best suit their needs.

Chartouny also organizes

Lebanon’s most prestigious

and successful antique auctions.

Held roughly four times

a year, the auctions have featured

such objects as a Louis

XVI clock, Martin Giesen’s

painting Aurore sur Anjar and a

Venetian mirror from the late

19th century. Auctions usually

take place over a five-day period,

allowing for a three-day

preview before the auction

takes place. All merchandise

is priced at about 50% its

value, and proceeds go to the owner, minus the fee taken by

J-M Auctions, which includes insurance, transportation and

advertising. According to Chartouny, auctions are particularly

interesting because they allow antique lovers to buy authentic,

historical furniture, art pieces or paintings at amazingly low

prices. “During my la~t sale, 15% of the merchandise was sold

to local antique and art dealers,” he says. ‘They marked up the

items and sold them in their own stores.” In the past, Chartouny’s

auctions have attracted people from Turkey, Jordan, Syria,

Kuwait and Saudi Arabia, with overseas purchases making up

I 0% of total sales. The next auction is scheduled for November

12-15 (see box for location). Additional auctions will take

place in March and July 2001.

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Executive Living

Make it memorable

by Natacha Tohme
written by Natacha Tohme

That time of year is drawing near,

when companies start distributing

gifts to business associates for

the holidays. Unfortunately, it seems

that most corporate gifts end up in bottom

drawers. It doesn’t need to be so.

There are a variety of interesting

items available in the market. Keep

in mind that well-chosen corporate

gifts convey that clients are valued.

Agendas are undoubtedly the preferred

pick. “An agenda isn’t just

useful, it’s also a very powerful

advertising tool,” says Chantal

Chedid of Express International.

“People look at it at least twice a day, 365

days of the year.” That’s assurance that

company logos, which are normally printed

on covers and inner pages, make an

impression. Some companies have advertising

pages and brochures actually inserted

into the agendas. “The options are endless,”

says Chedid. “And we can meet

every budget and requirement.” The agendas

are produced in-house, with prices

determined by size and layout, customization,

cover material

selected and quantity

ordered. Over seven

cover materials are

available, the most

expensive of which is

genuine Italian calfskin

leather. Paper is

the most economical.

Thus prices vary from

$2 to $99 apiece.

The options at Express aren’t limited to agendas. Over 140

products are available, including~ books, credit card holders

and wallets. Pocket diaries cost as little as $1.15 apiece if

ordered in substantial quantities. For a general manager, the

Chairman Set for $150 is recommended. It includes a portfolio

diary, a wallet diary and pocket address book – all in genuine

calfskin. Be sure to have the GM’s name printed on it “It’s

more likely that people

will use something

if it’s personalized,”

says Chedid.

If agendas seem a tad

traditional, desk items

are a great alternative.

Habis Silversmiths has

over 25 silver-plated

items for the office,

priced to suit most

budgets. A small cardholder

costs $8 apiece,

while a letter opener

costs $25. “We give substantial

discounts on big orders,” says Fouad Habis, owner of

Habis Silversmiths. Corporate logos can be engraved on

most items for, on average, an additional $5 apiece. For top

executives it’s better to put together a set of three items for

around $100. Habis silverware is locally made, so the company

accommodates custom orders.

Most companies can’t afford expensive gifts and must settle

for giving out cheap trinkets. Be creative-handmade artisan

products are original yet inexpensive. Nour Shops has

arabesque fabric penholders (including pens), costing $1 each

for a minimum order of 1,000 pieces. Similarly styled mini

address books cost $9 before discounts. And company logos

can be embroidered on items. Elaborate artisan items are perfect

for executives, and they’re reasonably priced. Anamel

Arts & Crafts sells a unique desk set, which includes a letter

opener and magnifying glass, for $47. Made in Jezzine,

the stainless steel set has inlaid ivory handles.

But if you are planning to splurge on a few special executives,

make an impression with a top international brand. Manasseh,

the supplier of Baccarat and Christotle, has exquisite desk items

on offer. Crystal clocks by Baccarat, priced from $129 to $173,

are recommended, as are

Christotle’s silver clocks,

priced between $141 and

$203. Christofle also has a

great selection of silver

letter openers, priced

from $59 to $132. Don’t

want to fork out so much

money? Christotle has an assortment of silver bookmarkers

costing just $21 apiece. Like most places, discounts are

applied to high quantity orders.

Villeroy & Boch also has crystal items perfect for the office.

Penholders are priced from $66 to $94, and clocks from $119

to $130. Pyramid-shaped paperweights are $52 each. Elegant

crystal and sterling silver desk items are available from

Antoine Hakim, the supplier of Tiffany & Co. Look for the

crystal paperweights, priced from $60 to $190. The sterling

silver line includes a penholder at $330,

a memo pad at $160 and letter openers

from $105 to $230.

For top exec4tives it’s quite common

to give expensive personal gifts. An

extensive range is available at Georges

Abou Adal. Leather goods from Lance!

and S.T. Dupont are suggested, but

expect to pay considerably. Dupont

wallets start at $200, with briefcases costing between $700 and $1,000.

 Seiko watches, another good pick, cost from $100 to $500 apiece. Chinese lacquer

Dupont pens cost anywhere from $150 to $650.

You can never go wrong giving pens. Wadih Mrad carries

Cartier and Charriol pens priced from $140 to $600 apiece.

Tiffany & Co has ballpoint pens costing

$290, fountain pens priced at $360 and a Who has the gifts

lovely line of purse pens for women costing

from $50 to $70. Georges Abou Adal is also

the agent for Cross, which has sterling silver

pens for about $250, and 18-karat gold pens for

$600. Cross’ entry-level Solo line pens are

priced at a more affordable $17.

But what do you give the executive that has

everything? Two words: Cuban cigars. “A

cigar is associated with power,” says Fouad

Hamra of La Casa Del Habano. “It says ‘I

have it all, I’ve done it all.”‘ Cohiba is the

number one choice of connoisseurs. Also

recommended are the Romeo & Juliet

Churchill, the Hoyo Churchill and Double

Corona, and Epicure No. 2. These cost from

$250 to $476 for a box of25. It is possible to

buy single cigars. One Cohiba costs $21.

Cigar accessories are also great gift ideas. La

Casa Del Habano, Georges Abou Adal and

Wadih Mrad have a wide range of items to

choose from. The essentials are cutters,

lighters, ashtrays, cigar cases

and humidifiers. Dupont

lighters are priced from $170 to

$3,000 apiece. La Casa Del

Habano has an exclusive Elie

Bleu humidifier costing $1,700.

All shops provide engraving services al an

additional cost. Laser engraving on crystal is

costliest. It’s recommended that orders be

placed as early as possible, especially for

large quantities.

By Natacha Tohme

The right necktie can completely change the look of a suit

Ties are eternal

When does a boy become a man? Many people

might answer: when he learns to tie a tie. That

wonder of western civilization is undoubtedly

the most intriguing part of men’s apparel. Yet it’s simply a

strip of fabric wrapped around one’s neck, serving no real

function. (Although some might consider it a stress reliever.

Men are, after all, prone to fiddle with their ties when

they’re nervous.)

Either way, ties remain the smartest fashion accessory in

men’s apparel. Extraordinary ties commonly end up being

conversation pieces. “With a tie you can change the whole

look of a suit,” says Antoine Eid, general manager of

Joseph Eid & Co. How many ties should a man own?

According to Eid, about three to four per suit. Fortunately for

men, with ties there’s no need to fork out money every season

to keep abreast of the latest trends. Somewhat like men

themselves, ties rarely change. Unlike skirt lengths, which

change from season to season, blade-widths only vary from

one generation to the next. ln the I 950s, narrow ties were in

vogue while the I 9]0s were the era of the big broad ties. For

the last few years the trendsetters have decided that a somewhat

wide blade-width is fashionable, as are woven silk ties

with very small patterns printed on them – be they stripes.

polka dots, paisleys or floral. Solid colors are still going strong.

How can one be sure that he’s buying a smart tie? “All ties

are manufactured based on good taste,” says Souheil Metni,

owner of the men’s clothing store Jibran Metni. Eid and Metni

have one piece of advice: go for reputable designer brand~. ‘The

label is the guarantee of quality,” says Metni. Inexpensive mass produced

ties are usually not lined properly and can lose their

shape after a couple of months.

Top-notch international brands, such as Lanvin, Hermes

and Brioni, cost about $100 each. Ties by other notable

brands, such as Christian Dior and Hugo Boss, cost between

$50 and $70. If the prices sound steep, they’re not. It takes

about one meter of silk to make a tie.

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