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Business

Clean and clear

by Michael Karam October 1, 2003
written by Michael Karam

Mohammed Samir, the Egyptian head of P&G (Proctor and Gamble) Levant is sitting in the conference room of P&G’s offices in the prestigious Atrium building in the BCD. Next to him, above to his right is a massive bag of Ariel. On his left is Monica Mogabgab, P&G’s communications officer. P&G has built up a whiter than white corporate image and, rather like its detergents, they want to keep it that way.

In fact, Samir is talking about soap powder. “The ingredients of household washing power varies globally from region to region, depending on local habits,” he explains. “In the Middle East there is less demand for an ingredient that removes red wine, but it may include other ingredients that help erase stains from the specific oils and fats we eat.” And the trivia doesn’t stop there. Feminine products – sanitary towels, tampons and the like – are also packaged to dovetail with local sensibilities, while, the fact that Arabs have different hair to Europeans is also reflected in the basic ingredients of locally-sold shampoos. Such is the world of fast moving consumer goods and it is one that P&G bestrides like a colossus.

For the benefit of those who have been living on Mars, P&G has been making baby, health, family and beauty products since 1838. It has a stable of 300 brands, which its sells to 5 billion consumers worldwide in more than 160 countries. It has global sales of $45 billion (three times Lebanon’s GDP) and manufactures 14 brands that generate revenues of over $1 billion each. P&G products – which nowadays include Ariel, Pantene, Herbal Essence, Always, Head & Shoulders, Crest, Pringles and Yes – have been on the Lebanese shelves since 1946, but it is only in the last two years that Beirut has been designated P&G’s regional headquarters for Levant, serving Lebanon, Syria, Jordan, Cyprus and Iraq. Locally, P&G claims a 10% market share of the $500 million consumer goods market and, as a result of its presence on the ground, has experienced what Samir calls “double digit” growth. “These figures justify our move from Switzerland,” he claims, adding that like all good multinationals, P&G has been robust in communicating it’s corporate message through the community by a series of health education programs.

In fact sustainable development has been the cornerstone of P&G’s international corporate image. P&G’s Pampers and the South African government are spearheading a campaign to fight maternal mortality in childbirth; Secret, a P&G deodorant for women, is lending its name to an initiative that helps American teen girls develop their self esteem, while Dash, the popular Italian detergent, has been supporting rural communities in Kenya for 15 years.

While all this may be very noble, the sharp end of the FMCG market is ruthlessly competitive. Samir, who says he “enjoys a good fight,” can proudly claim that P&G products are leaders in every category they compete in. “This is a fun market,” he enthuses. “We are up against all the big global brands, Unilever, Colgate Palmolive, L’Oreal and Henkel as well as the local brands, which are also pretty strong performers and cannot be discounted.” Although Lebanon is third in overall sales behind Iraq and Syria, its per capita spend is only bettered by Cyprus. “The Lebanese consumer is very demanding and incredibly price-conscious,” he explains.

Had P&G been able to respond to the arrival of the supermarket brands? “We pride ourselves on being able to respond to our consumer needs and we offer our customers a range of products for a range of budgets that are all underscored by our quality threshold,” says Samir, a P&G man since leaving university. P&G products vary in price (net of taxes) from country to country. Given the price sensitive nature of the local market, it would appear P&G’s competitive options are either to take a cut on margins to ensure a presence in every household, or be seen as a quality product ensuring strong brand equity. Samir outlines the pricing priorities, keeping his cards very much close to the corporate chest: “We must satisfy consumer needs in the best possible way,” he explains. “To do that we build a strong relation between the brand and the consumer to ensure that we are offering to the consumer the best value.”

One of the difficulties in having so many brands is that often the multinational is hidden. A consumer may be convinced by the P&G corporate ethos or a particular brand but may unknowingly buy detergent from P&G, toothpaste from Henkel and shampoo from Unilever. Can a multinational seriously command loyalty when it is hidden behind such strong brands? “We are a company of brands. We talk to our customer through those brands,” says Samir, employing a level of obfuscation normally found at a White House press briefing.

Regionally, Iraq represents P&G’s biggest market, but the situation on the ground means that P&G has not yet been able to fully exploit the post-war opportunities. “We have expansion plans for Iraq as well, which will rely heavily on the security and stability in Iraq in the coming few months,” Samir says. “As a Company, we strive to have leadership shares in the categories we compete in especially the core ones.”

Samir added that he hoped to achieve the same in Syria. “Our brands are already present [in Syria] and we look forward to launch more categories and brands there.”

Locally, he cannot envisage any time soon when P&G will appoint what it calls contract manufacturers for their goods. “We have done this in Syria and Egypt,” he says, “but it depends on two factors: the size of the market and/or the level of government incentive offered to us in order to take such a step. As we speak, neither of those criteria has been met.” As the conversation turns to environmental issues, Samir’s eyes light up. Ever the company man, he is quick to point out P&G’s gleaming record, even in developing countries. “We have our own rule book so even if the country in which we are operating has a poor environmental record or does not enforce international regulations, we will produce goods that have a benchmark.”

October 1, 2003 0 comments
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The Buzz

The Feng Shui of life

by Kameel Mroueh October 1, 2003
written by Kameel Mroueh

Unlike in the West, where it is all the rage, and the East, where it originated, in Lebanon Feng Shui (pronounced ‘fung shway’), is still clouded by skepticism and ignorance. In a country where buildings spring up without any coherent urban plan, it may be asking too much for people to consider repositioning their front door to face southeast in the belief that its new position will bring health, happpiness and prosperity.

However, there are pockets of devotees and it may just be that the the benefits of this ancient art, in which harmonious living is enhanced by balancing the elements within our living environment, will filter down into Lebanon’s often conservative mentality. Take the Aboulhosn family, who “Feng Shui’d” their apartment in Beirut and their houses in Hammana, and Virginia in the US. “We used a Lebanese Feng Shui professional,” said Ayla Aboulhosn. “She did two on-sight consultations for our two homes in Lebanon and looked at the plans for our house in the US.”

In Lebanon, it costs about $1.80 per m2 to Feng Shui a residential home (it’s about $2,000 for designing Feng Shui-friendly houses, depending on the size of the property). A Feng Shui master “measures” using a Luo’pan or Geomancer’s compass. The Luo’pan is used to determine the most favorable orientation of a building and the correct arrangement of its interior contents and architectural features. It has four principal directions associated with the Four Animals: The Dragon, Tiger, Phoenix and the Turtle. They symbolize the forces of nature and each has its own mythology and characteristics and its own element. For the Aboulhosns, the expert took the names and birthdates of everyone living in the apartment and, based on these dates, calculated the measurements of everything including the positions of the front door and door frames to the oven and the head board of the beds. All need to be assessed in order to generate the maximum “chi” or positive energy. The Aboulhosns did however have a “problem” with their swimming pool, which was situated behind the house. In the world of Feng Shui, this encourages robbery and causes financial loss for its inhabitants. It is no coincidence, then, that the house has been broken into nine times in the past six years. The draining of the pool does not create good chi and mirrors money disappearing, as does the flushing of the toilet, hence the reason many devotees feel that the toilet seat and bathroom door should be shut at all times. The practice of Feng Shui, which originated about 5,000 years ago in China, is founded on the belief that the arrangement of our exterior world exerts a powerful influence on our interior equilibrium and personal happiness. The balance of hidden forces in the landscape is maintained when certain laws of object placement and design are adhered to. This is where your expert, or Feng Shui master (Hsien-Sheng), comes in to harness beneficial Chi (Sheng Chi) and to deflect destructive Chi (Shar Chi) from a given location, and to also determine the level of Yin and Yang in that place. Good Feng Shui – the pooling of Sheng Chi – results in health, wealth, success and stability, whereas bad Feng Shui – the predominance of Shar Chi – will lead to illness, unhappiness, accidents and financial loss. It’s all in the Chi, so to speak, which flows along hidden veins or ‘dragon lines’ in the earth, and is both beneficial and harmful. Over the centuries, Feng Shui has evolved into a highly complex art. It is intrinsically linked to traditional Taoist philosophy – which looked upon the Tao, the way of the universe, as the architect of essential laws – yet enriched by folklore, mystical beliefs, metaphysics, mathematics and astrology. In Taiwan, Hong Kong and Singapore its influence has never deteriorated and it is an extremely important part of everyday life, infiltrating both private and business worlds. Ninety percent of buildings in Hong Kong were built according to Feng Shui principles, including the Hong Kong and Shanghai Bank. Feng Shui has seen a marked increase in popularity in the West over the past fifteen years. Marks & Spencer, Body Shop and Virgin Megastore are only some of a few establishments that construct all their stores according to the principle of the Wind and Water. Even Hillary Clinton saw to the repositioning of the White House’s furniture with the aid of a Feng Shui master to bring a little harmony and stability in the first family’s life. But even Feng Shui couldn’t solve all Hillary’s problems.

October 1, 2003 0 comments
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The Buzz

Oriental bull market

by Isabelle De La Bruyere October 1, 2003
written by Isabelle De La Bruyere

Prices for paintings of Middle Eastern subjects, especially those of the so-called Orientalist school, have soared since the 1973 oil boom, escalating from a mere $3,000 to $500,000 for top-quality works. Today, the record price for an Orientalist work is held by Christie’s for the Ludwig Deutsch’s1892 painting The Palace Guard, which they sold for a staggering $3,192,500 in 1999.

Wendy Goldsmith, former head of the 19th Century European Art Department at Christie’s and now an art advisor, noted: “The demand for Orientalist pictures is going from strength to strength but only, however, for a certain segment of the market. More and more new clients from both the Middle East and America are looking for top works by the major artists such as Jean-Léon Gérome, Ludwig Deutsch and John Frederick Lewis, and this is driving prices ever higher. They are very particular in their tastes, and don’t want to “settle” for more medium artists or works, unless they are extremely decorative.”

Indeed, Orientalist art is one of the few areas in which collectors can still find affordable museum-quality pieces, and with more and more of these top works going into private collections – leading to a decrease in supply – we will most likely see prices continue to rise in the coming years.The term Orientalism describes a penchant for the iconography connected with the Near and Middle East, and from the early decades of the 19th century and well into the 20th century, Orientalist art was created with a variety of motifs and collected passionately in the West. Widespread interest in the genre began soon after Napoleon’s abortive 1798 venture into Egypt and started to boom some 40 years later, courtesy of the expanding railway lines and the relaxation of the Ottoman Empire’s travel and trade restrictions.

Indeed, beginning around the end of the 18th century, European travellers set out to explore the East, and set their courses on the established pattern of what has come to be known as “the Grand Tour,” proceeding from the north or the west towards the south and southeast. The Grand Tour was often conducted out of a zeal for archaeology, and many artists, such as the Scottish David Roberts, placed a high value on topographical exactitude and worked from sketches made on the spot. Yet, as the genre became increasingly popular, other followers began to paint Orientalist pictures without ever leaving their studio, and simply used reference books and local models dressed in imported costumes and posed with imported props.

Typical subjects included the horse fair, the slave market, the mosque, the Holy Land landscape, and studies of caliphs, muezzins, Nubian slaves, and soldiers. One of the most favored subjects, however, was undoubtedly the harem, filled with its sensual odalisques and rich interiors. Such images were typically painted in the intensely detailed and realistic academic style, which ruled Europe for several centuries until Impressionism arrived on the scene.

By 1910, however, Orientalism had virtually disappeared from view in the West, not because of its subject matter, but because of its style. Throughout most of the 20th century, academic art was no longer attractive, giving way to a more modern style.

Isabelle de La Bruyère works in the Oriental department of Christies of London. She wrote this column for EXECUTIVE.

October 1, 2003 0 comments
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The Buzz

Fools or angels

by Fay Niewiadomski October 1, 2003
written by Fay Niewiadomski

The deeper I get into the business of managing change, the deeper my conviction becomes that you must have the blindness of a fool or the quiet wisdom of an angel to succeed. That point was powerfully driven home during the two-day Forum organized by TMS Development in Dublin, Ireland, which brought together 20 international change management consultants from different parts of the world to exchange views and share expertise on the challenges we face in the course of our work.

TMS Development International develops and produces a suite of sophisticated instruments designed by Dick McCann and Charles Margerison to assist consultants in change management, organizational development, human resources management and training and development work. With offices in the USA, UK, Australia and Europe, TMS management considers bringing together consultants from around the world in such a forum of utmost importance in promoting the exchange of ideas and the advancement of the systems.

Twenty consultants specializing in managing change around the world and working with both the public and private sectors gathered together. I was the only delegate from the Middle East and the title of my presentation was Managing Change in a Re-emerging Economy: a Case Study from the Lebanese Banking Sector.

The Forum provided the opportunity for us as change management consultants to exchange views and experiences with one another on the diverse projects we have worked on, further strengthen our international network, build stronger bridges for communication and collegial support using the internet or arranging collaborative projects where we can provide complementary expertise. I would like to focus on some of the issues that were raised and that have direct bearing on our current situation in Lebanon. All ‘change’ processes, regardless of the label, (downsizing, upsizing, transforming, restructuring, re-engineering or re-inventing) have one thing in common: they all impact the lives of people in the organization at all levels. The impact may be for the better or the worse, depending on how the issues being tackled are managed. It is certain that change processes require people to behave differently, establish new relationships, acquire new skills and continue learning throughout their professional lives.

Change management consultants also play an important role in facilitating the integration processes vital to the successful conclusion of mergers and acquisitions. They help individuals in the public and private sectors refocus or change careers or even adapt to leaving one kind of job or organization and accepting another, or taking on a completely new role. In brief, change management consultants deal with the human and organizational dimensions of change in all phases and at every level within organizations undergoing developments or transformations.

Public sector issues that were raised during the forum and that are relevant to us in Lebanon are: Making Sense of Your Career in a Changing Environment, Developing Private Sector Management Skills within a Civil Service Culture, and what statistical analysis of work preferences can tell us about Professional Patterns in the Office of National Statistics. The unifying theme was the need for a leaner, more accountable civil service modeled along the lines of private sector productivity. The changes to be integrated are: the need to give up the idea of a job-for-life in the civil service; civil servants now need to think, work and continuously develop themselves to keep jobs that are becoming scarcer and scarcer. Second, managers must work with their staff to develop their skills and empower them to view their roles not as caretakers, but as individuals responsible for the input, output and outcomes – i.e., what they put into their jobs, the results they produce and the effect this has on the people receiving the service.

What was apparent from these presentations is the effort that is being invested in changing the traditional approach to civil service work and civil service expectations so that people now see themselves as ‘servants of the people’ who must deliver quality service to citizens. The civil service employee cannot expect to keep a job unless the results of the work done justify the resources invested in the production. The achievement of this new mind-set is considered a very difficult task in countries like England and Ireland and highly challenging in places like Hungary and Poland.

I asked myself what words could be used to describe the colossal difficulties we face in Lebanon? We not only have to change details but need to leap across a 50-year time gap created by the war and the local mind-set. We need to bring our facilities up to date; we have to rebuild from scratch all that was destroyed; we must bridge the information and technological gulf imposed by years of isolation; we must review our laws and regulations, modify and modernize them, and most difficult of all, we need to work on attitudes and behaviors that hold us back from achieving our full potential individually and collectively.

On the private sector issues, the topics tackled were linked to strategies for handling global competition by forming new professional partnerships; the redefinition of corporate missions and the translation of these into improved performance and greater profits; ways of unlocking a team’s creativity and innovation potential and turning it into competitive advantage for the company; using influencing skills to sell change within organizations and several other issues directly relevant to the needs of our own situation in Lebanon.

Do we need anything like this in Lebanon? Yes, we are hungry for progress, innovation, success, modernization, world-class standards in what we produce and high profit margins to go along with them, but many seem to want to achieve all this without any pain at all. No matter how smart we work there will be a fair dose of pain and hard labor in getting where we want to be in our businesses. Are we ready to accept the things that these changes will impose on us? As we approach the challenges of managing change in our organizations we will face some monumental obstacles. How should we face them? Have the blind optimism of a ‘fool,’ taking the matter lightly and expecting that things will eventually work themselves out without the cost of our full commitment, total focus and unwavering dedication to a crystal clear mission? Or should we approach the management of change with the wisdom, patience and goodwill of an ‘angel’?

My view is that the challenges that stand before us in Lebanon require the intercession of thousands of angels accompanied by carefully considered intelligence and hard work on every aspect of a change project. This is vital if we are to navigate a safe and successful journey through the treacherous waters that lie ahead. We have little choice. The tides of change are so strong that we must prepare our survival strategy and do it quickly.

We must also be prepared to have the agility of adaptation to the unexpected at any moment during our journey. We do need to believe in the power to achieve the seemingly impossible and we need the energy of the incurable optimist to see us through to safe shores as we cross the turbulent waters of change. In Lebanon we need to be both fool and angel to meet the challenges we set for our businesses and ourselves.

Fay Niewiadomski is the Managing Director and Senior Consultant in Change Management at ICTN-International Consulting and Training Network, sarl

October 1, 2003 0 comments
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Society

Money back guarantee

by Michael Karam October 1, 2003
written by Michael Karam

In the first six months of 2003, over $1 million in VAT-refunds have been reimbursed to tourists and non-resident Lebanese. It is estimated that 15,000 tourists, roughly 1.5% of all foreign arrivals, took the time to put their purchases through the Global Refund tax-free shopping system, collecting an average of $66 from new tax-free shopping desks at Lebanon’s main border crossings.

Since 2001, Lebanon has touted itself as a shopping destination to eventually challenge Dubai. This claim has been strengthened by the evolution of the BCD, the arrival of modern, well-specified shopping centers and the long-overdue appearance of high-profile international consumer brands have proved a popular complement to Lebanon’s established tourist attractions. When it is eventually built, the long awaited Souks project will be the jewel in Lebanon’s retail crown and the center of tourist shopping.

Retailers can now point to defined shopping periods: summer, Eid el Adha and Eid el Fitr. ”Our boom periods are dictated by the Islamic calendar and, to a lesser degree, Christmas,” explains Khalil Achkar, Global Refund’s general manger in Lebanon. The company works in collaboration with the ministry of finance to refund VAT in return for a 1.85% handling fee. Global Refund operates VAT refund services in 35 countries in four continents. “We service over 210,000 outlets and deliver 10 million refunds globally,” boasts Achkar.

The profile of tourists’ spending habits is still far from comprehensive, but a survey of those who chose to collect on their VAT shows that 74% of purchases took place in Beirut – mainly in the BCD and Verdun – with 18% of shopping activity taking place in the Metn – mainly from the ABC, GS and Sports et Loisirs branches in Dbayeh.

Saudi Arabians make up the bulk of Lebanon’s tax free shoppers (a shopper qualifies for tax rebates if he or she is a foreign national or Lebanese who spends less than three months a year in the country) with Kuwaitis and Egyptians coming second and third respectively, ahead of those nationals from the UAE, Jordan, the US and the “rest of the Arab world.” Clothes (62%) and jewelry and watches (12%) are the most popular purchases, according to global refund statistics. “When it comes to clothes, Lebanon is surprisingly competitive compared to Dubai, but the emirate still has the edge on us in terms of electronic goods,” says Achkar According to Achkar, Arabs are very discreet shoppers. “They show off at home but they shop abroad,” he explains. “Ever since September 11, many have chosen to do their major shopping in Lebanon. There isn’t the stigma towards Arabs that has developed in the West, there are cultural similarities and now many international brands are available here. It is the ideal destination.” Nonetheless, Lebanon’s is still very much a fledgling culture when it comes to international retail. To attract the big rollers, Beirut would have to market itself to the big three international spenders: the Japanese, the Russians and the Americans (not Lebanese Americans). China’s dormant spending power is stirring. The world’s most populated country, which is becoming richer through a modern industrial revolution, recently overtook Hong Kong on its way to becoming the fourth in the top spending nationalities table. Saudi nationals are the world’s eighth biggest spenders.

Global Refund began operating in Lebanon in June 2002, five months after the controversial introduction of VAT. Over 1,000 stores have signed up to offer the service. Achkar says that the more sophisticated retailers are enthusiastic. “They have been quick to understand that offering rebates is an asset to the overall shopping experience,” he says. “Others are fairly ambivalent or just assume that it’s a service that solely benefits the shopper.”

Shops that wish to offer tax-free shopping pay an annual fee of LL75,900, which gives them an unlimited supply of refund checks, technical support, training and, most importantly, monthly data on what is being bought by whom.

Data is a dirty word in Lebanon. Those who do give out statistics often inflate their figures, convinced that the other guy is doing the same. Global Refund’s reports are allaying this national paranoia and setting a new benchmark in transparency.

Although the company can only chart the shopping habits of those customers who choose to use the tax-free shopping process, Achkar believes it paints a valuable picture of what tourists are spending. “The feedback tells the retailers who their customers are and where they come from,” say’s Achkar. “Based on these reports, a retailer might then want to recruit sales staff who speak a certain language (shops in Europe have sent their staff on a basic Japanese course) or who may be more sensitive to the needs of gulf Arabs. Retailers can also plan ahead better if they can identify the trends.” However, Achkar believes there is still more that can be done to get a better profile of the tourist shopper. “Most of those shoppers who are listed as American are in fact Lebanese and many of those who come in on Kuwaiti and other GCC passports are also originally Lebanese. If we could know who are Kuwaiti and who are Lebanese-Kuwaiti we would be able to get a better idea of shopping trends. Lebanese and Gulf Arabs have different shopping habits.” Achkar says that although training seminars (the cost of which is included in the annual fee) are held regularly, retailers have been slow to take advantage of the service. “We do our best to make it attractive by holding the sessions at hotels, but the invitations require a lot of follow up,” he said. “You can just send an invitation the week before and expect them to come. You have to remind them and even pick them up from work and take them to the venue.” The need to train staff may put a strain on main of the smaller retailers but the big players – Aïshti, BHV and GS stable of outlets – have embraced the new system and say they are reaping the benefits of offering the service.

Aïshti was unavailable for comment, but Achkar hinted that the up-market clothing store, which sells Gucci, Burberry and other designer labels and which has three outlets in the BCD, was among the most popular outlets for tax-free shopping. Fadi Rayess of Hamra shopping, which owns the GS brand and sells Timberland, Springfield, Hugo Boss and Ralph Lauren Polo, among others, believes that the system is putting Beirut on the retail map. “Our foreign customers are satisfied with the VAT refund process,” he says. “This is a good step towards placing Beirut among the [region’s] top shopping destinations.” Gerard L’Hotel handles the tax-free shopping at BHV, the appliance-driven department store in Jnah. “We had a very good summer especially with those customers from Saudi Arabia,” he says. “We trained our staff in June in anticipation of the rush. It was a good move as we were dealing with purchases made in all departments of the store.” Achkar says it is too early to give accurate measurements of year-on-year growth for tax-free tourist shopping. “Last year we were not at cruising speed,” he says, “so it is difficult to say how we compared year-on-year. Next year’s results will give a clearer picture. This year, there has been greater awareness and this can only increase.”

October 1, 2003 0 comments
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Finance

Tough sell

by Tony Hchaime October 1, 2003
written by Tony Hchaime

Recent data suggests that commercial banks and financial institutions in Lebanon are increasingly shying away from corporate lending. In fact, most major banks remain wary of the Lebanese corporate environment, as they still attempt to mend their existing portfolios of corporate debt, to the extent of actually reducing the size of their portfolio of commercial loans. BLOM Bank, Banque Audi, and Banque Saradar saw their portfolios of commercial loans shrink anywhere between 1% and 8% over the past year. Typically, and perhaps oddly, the bulk of non-performing loans held by most banks fall into the corporate lending category, as opposed to retail lending to consumers. Corporate banking – including corporate loans and financial assistance – thrived in the mid 1990s as the economy was perceived to accelerate its post-war recovery with a GDP growth of 8.8% per year. Banks were typically more eager to help finance business ventures in Lebanon, coupled with equity capital being contributed by domestic and regional investors alike. New companies were being established, consumption was high, real estate prices were soaring, and the overall outlook for the economy was rosy, to say the least.

In 1996, as banks continuously enlarged their portfolios of corporate debt – typically of a long-term nature – things rapidly took a turn for the worse. Economic growth slipped into reverse, consumer confidence, and consequently consumption, toppled. As businesses saw their margins squeezed by high interest rates on their financing and lower revenues, bankruptcies thrived, creating a substantial burden to anyone and everyone with any kind of exposure to the Lebanese corporate environment. Despite the promising signs of an economic recovery observed over the past few months, and the increased consumer and investor confidence pursuant to Paris II, Lebanese banks are not likely to expose themselves to additional corporate debt until they improve the status of their existing portfolio to a point where they can take on additional exposure, a task typically of a high risk nature considering the unpredictability of the Lebanese economic and business environments.

While no bank has categorically ruled out any form of lending, credit assessment is stringent at most institutions, and conditions for acceptance are as such because only large, well-established businesses are eligible to apply. Many Alpha group banks are extending corporate loans, albeit on a very conservative basis, requiring substantial due diligence and a number of guarantees.

Smaller banks, on the other hand, seem perhaps more eager to venture into corporate lending. Typically, smaller banks have less balance sheet exposure to corporate loans from their past activities. This, coupled with an increasingly competitive environment in retail lending, has prompted a number of medium sized banks to draft strategies that would focus on business loans. As such, conditions are less stringent, interest rates are more flexible, and leniency is more commonplace.

However, the major factors behind the reluctance of banks to finance businesses in Lebanon are being exacerbated by their own policies on the matter. Small and medium sized enterprises have always been the backbone of the Lebanese economy. In fact, SMEs represent around 95% of total industrial enterprises, and employ up to 65% of the total industry labor force. Moreover, SMEs contribute over 40% of the country’s industrial output. Unfortunately however, most SMEs are foregoing profitable business opportunities and are operating below full potential. Production is being limited by the overall reluctance of major banks to provide fairly priced financing facilities to expand production.

While the Lebanese government is attempting to nurture this appetite for small enterprises through subsidies, it does not do so for all sectors, as many promising entrepreneurs are facing difficulty in obtaining debt financing for their projects.

A significant level of risk is typically inherent of small businesses, whose operations are of a typically high volatility. Such a factor is deterring banks from extending to them the much-needed facilities, to the benefit of large and well-established institutions. Such an attitude is somewhat detrimental to the overall growth of businesses in Lebanon, since large institutions typically make use of credit facilities to maintain their operations; whereas small businesses make use of funds made available to them to open up to new markets, increase their product lines, and focus on promotion and advertising.

It should be noted, however, that banks are not the only ones shying away from corporate lending. While Lebanese banks are typically reluctant to offer financing services to local companies, such companies themselves often find it detrimental to make use of such services if and when they are provided. In fact, the cost of debt on corporate loans is so high that it significantly eats into profit margins and forces companies to forego promising investment opportunities. According to Central Bank statistics, interest rates typically charged by Lebanese banks do not fall below 10% p.a. on average, a drastically excessive figure given the typical returns on investments in the country.

A high cost of equity resulting from the geo-political and economic risks associated with the country, coupled with a high cost of debt, are severely undermining appetite for investments in Lebanon. Sought after investments should currently achieve returns in excess of 15% in order to marginally exceed their cost of capital. The issue has been raised numerous times recently, namely in the industrial sector. A number of Lebanese industrialists are reducing output, moving production to other countries, or outright shutting down their operations due to – among other reasons – the high cost of financing their working capital.

It appears then that would-be entrepreneurs should shift their focus towards a perhaps more expensive source of financing: equity capital. Equity capital for new innovative businesses often comes in the form of venture capital, especially in the West. A solid equity base would provide a newly established company with a solid base to launch and expand its operations. Moreover, the ability of a company to attract regional strategic partners would assist in expanding across borders, a critical factor given the limited size of the domestic market in Lebanon.

In addition, a well-capitalized company offers an added incentive to banks to provide debt financing, as the perceived risk to the banking institutions is reduced by the availability of a solid capital base.

It appears then as though the Lebanese business environment suffers from a basic flaw, which severely reduces its ability to promote investments and attract foreign investment capital. Bank’s preferences towards government bonds instead of loans severely limits the sector’s ability to play its basic role of channeling funds from depositors into investments. Several steps should be undertaken, and promptly so, to remedy the situation. It surely does not suffice to attract Arab funds into Lebanese banks if their primary use is lending to the government, and consequently crowding out the private sector. In fact, the government itself should promote corporate lending by reducing interest rates to spur investments, offering subsidies, and encouraging banks to open up their vaults.

October 1, 2003 0 comments
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Society

It’s all in the name

by Toby Stevens October 1, 2003
written by Toby Stevens

Did it ever occur to you that your email address could be presenting you in a bad light?

Last year, 31 million emails were sent each day. According to the International Data Corporation, by 2006, this number is expected to reach 60 billion, while the number of worldwide email addresses is expected to increase from 505 million in 2000 to 1.2 billion in 2005. Subscribers to email providers such as Yahoo! and AOL are also increasing, with Hotmail the market leader with over three million members. With all the spam (electronic junk mail) received daily in most in-boxes, many email users are growing tired of using the popular, and free, hotmail, yahoo, or AOL services. In fact, in the corporate arena, employees assess how important a company, or individual, is from their email address. More attention is likely to be given to emails using a company’s domain name ([email protected]) rather than an email using an ISP’s domain name ([email protected]). Even riskier is using free email services ([email protected]). “I consider an email message more credible when it has a corporate domain name, rather than a hotmail domain, which I usually discard,” said Rami Majzoub, account director for Levant and Egypt at Reuters Middle East. “ Unfortunately, some Lebanese companies, even well known banks, still use their ISP’s domain name, which shows a lack of seriousness and awareness on their part,” he added. According to Michel Kilzi, general manager at Internet Facilities Group, the reason most corporate employees in the Arab world still use their personal emails for work related issues is because of the lack of awareness and widespread internet penetration. “Whether it is a small, medium sized or huge corporation, all the emails I receive from Europe and the US use the domain address of the corporation,” said Kilzi. “Since most companies have a certain amount of control and restrictions on their corporate emails, every employee separates between their business and personal email accounts. But this is not the case when it comes to the Arab countries. Sometimes I receive an email from Saudi Arabia, Syria or Kuwait from a CEO using his hotmail or yahoo account and I don’t take them as seriously – it’s as if they don’t have a company profile or business card,” added Kilzi.

One thing is for sure, the lack of corporate domain usage is not due to financial or economic constraints. Most companies can register a domain name on the net for as low as $25 per year, and with hosting fees, the cost could reach a maximum of $100. “In Lebanon, 60% of companies have their own domain name, 5% still use hotmail and yahoo, and the rest use their ISP’s domain,” said Rita Hayek, sales and marketing manager at Terravision. “Lebanese companies understand the importance of having their own domain name. It is usually students or small companies that usually use hotmail and yahoo, and they are probably unaware of the importance of a domain name.” Lebanese companies can also register a .lb domain for about LL900,000, or $600. However, some find the procedure too complicated, as they need to register their company trademark with the government before receiving their domain registration. “We have seen many Lebanese companies register .com because they don’t want to go through the lengthy process of registering for the .lb,” said Rim El Kady, IT unit manager at AUB. Companies should especially take care about the email addresses of its employees because, according to analysts, a domain name speaks volumes. For example, it can determine how a corporation treats its employees. If a company uses the full name of the employee in the email address (like, [email protected]), it shows that the organization views its employees as independent entities that provide added value to the company, and as such, respects their individuality. If only the position is used (as in [email protected]), the company is considered more impersonal and viewed as valuing company divisions and apparatuses over personnel. “Sometimes, it is easier for the IT department to create an impersonal address so that when an employee leaves they don’t have to go through the hassle of changing names, adding new ones and deleting old ones,” one IT administer explained. A third method adopted by companies is incorporating the initials of an employee followed by numbers (e.g., [email protected]). In such a case, analysts say the company views its personnel objectively and in a hierarchical manner, while recognizing that they are in charge of services and activities.

But for those of you not wanting to be pigeon holed by a company domain name, or wanting to stand out from the hoards of millions using hotmail and yahoo accounts, do not fear – there is a domain out there for everyone. If you want to show you have a funny bone, you could try [email protected]. Not really in a social mood? Well then [email protected] is just right for you. Whoever said ‘what’s in name’ obviously never had email.

(Box) Revealing messages: Is your position affecting the way you write your emails?

According to an article in The Guardian, your position in a company could influence the way you write your emails. For example, did you know that the higher up you are, the more likely your emails are full of informalities. Since, big honchos have already made it, so to speak, they don’t feel the need to impress through meticulous email writing. In fact, senior executives rarely use corporate jargon and are more likely to talk to a person face to face. Furthermore, the powers that be are less like to use the cc option.

For the middlemen, the story is a bit different because they have a lot to lose or gain. If you’re only half way up the corporate ladder, you probably write lengthy emails to try and impress the higher ups. Middle management also like to sign off with signatures, which include name, position and sometimes a quote even. At the entry level? Well, in that case, according to the Guardian, you like to crowd messages with emoticons, like smiley (?), sad (?), or anxious faces (:S) that MSN or Yahoo messenger have made so popular. Being at the lower end of the corporate food chain also means that you have time to send conversational emails to colleagues, mainly not work related of course. Low status employees are, not surprisingly, more likely to send all those annoying jokes and forwards.

Who knew an email could say so much?

October 1, 2003 0 comments
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Business

So just how much trouble is Bush in?

by Claude Salhani October 1, 2003
written by Claude Salhani

Events in the Middle East are not exactly turning out the way President George W. Bush would have liked, and this is particularly bad with an election year just around the corner.

The situation in Iraq is not progressing nearly as fast or as successfully as was initially hoped for. Rather, resistance to the continued US occupation is escalating. There are approximately 10 to 15 attacks carried out every day against American troops, though the military only reports them when a death occurs.

“There has been a dramatic worsening in the security situation in Baghdad, with attacks against the coalition forces remaining a daily occurrence,” stated a September 8 report from Baghdad issued by Centurion Risk Assessment Services, a firm specializing in providing protection services to many media and non-governmental organizations operating in Iraq. “Many parts of the city are out of bounds due to the increase in violence,” added the report.

So, understandably, the president is asking for help. Bush has requested from Congress an additional $87 billion (above what has already been allocated) to help support military operations in Iraq and Afghanistan and to combat ongoing threats of terrorism, which have also not abated. In fact, since September 11, 2001, rumblings of a possible new al-Qaeda attack on America are louder than ever. In a recently released message, al-Qaeda vowed to hurt the US in a way that would make them forget the attacks on Manhattan and the Pentagon.

Interestingly, the president is now seeking help from the United Nations, as well as from the Europeans, two groups his administration cold-shouldered in launching the invasion of Iraq earlier this year that got the Bush administration in the Iraqi mess in the first place. Bush is beginning to feel the pressure. Since June, his approval ratings, according to a Zogby International Polls survey, have dropped by 13 points, while his disapproval ratings have risen by 12 points.

Consider the following: in mid-June the president commanded a 58% approval rating. That number went down five points to 53% by July 1. The president then lost another point by August 19th and ultimately sank to a low of 45% by September 6.

So, just how badly does the president need a successful turn in the Middle East to win the next election? Why is he spending that astronomical amount on Iraq? If a price tag could be placed on that question, the answer would be $87 billion.

Eighty-seven billion dollars buys a lot, particularly when compared to what has been earmarked in the Fiscal Year 2004 Budget for Discretionary Programs.

As rumblings over the increased war spending begin to gather momentum, Democratic presidential hopeful Joe Lieberman called Bush “the most fiscally irresponsible president in the history of America.”

But in the reverse sense, how much does the Middle East need Bush? With American casualties in Iraq surpassing the number of killed during the actual offensive, a debate is beginning to brew in Washington whether there is a need to dispatch more troops to Iraq or not. Some say yes, while others, such as Secretary of Defense Donald Rumsfeld, say no, the current numbers can adequately do the job. Others in the administration, such as Karl Rove, the president’s senior advisor and Richard Pearl, the former chairman of the Pentagon’s Policy Advisory Board, are now advocating leaving Iraq altogether. The reality, however, lies somewhere in between.

Following the horrific blast at the Najaf Imam Ali mosque on August 29, which killed Ayatollah Syed Bakr al-Hakim and some 100 others, the bombing of the UN headquarters in Baghdad on August 19 that killed its representative, Sergio Vieira de Mello, and another 20 people, some voices argued for reinforcing “boots on the ground.”

The Najaf and UN attacks, which came on the heels of a similar attack on the Jordanian embassy and the sabotage of major water and oil conduits, as well as another car bomb outside a Baghdad police station on September 2, reinforce the belief that the current level of troops is simply not enough for the task at hand. There are currently about 130,000 US, 11,000 Brits and some 8,000 soldiers made up from the rest of the coalition.

Others argued for more international troops from Europe, India and other friendly nations, particularly Muslim countries, that would allow American soldiers to be less visible, thus less prone to attack. The counter argument opined that more troops would simply offer those targeting coalition troops greater opportunities to kill American (and other allied) soldiers. The attack on the UN, after all, was not aimed at American troops. There is, indeed, something to be said for that.

In truth, it’s not more American troops that are needed in Iraq, but rather, speeding up of the process required in order to replace coalition troops with autochthonous forces.

In terms of simple numbers, Iraq had the largest army in the Middle East before the US-led invasion abolished it last April. According to a 2003 CIA estimate, Iraq had about 3.5 million men fit for military service. Deduct from that number those who were killed and disabled in the war and those who were too closely linked to the old regime in one way or another. Filtered down, you should easily come up with at least 100,000 able men. Why not mobilize them? And if you really want to revolutionize the country, allow Iraqi women into the armed forces, too. That should easily provide an additional 5,000 to 10,000 troops.

By now, more than five months into the occupation of Iraq, coalition commanders – with assistance from their friends in the Iraqi National Council, Kurds and others – should have no trouble identifying a cadre of friendly Iraqi officers able to lead a reformed military to take over control of much of the country’s security. At least as far as high-profile assignments go, such as the guarding of government buildings, major intersections, bridges and other sensitive installations. Let the Iraqi people feel they have direct involvement in the rebuilding of their nation, instead of appearing as bystanders with little or no say. The current situation in Iraq leaves little room for doubt; something needs to be done to prevent the country from becoming a refuge for Islamist militants and other groups opposed to democratic reform. And it needs to be done quickly. Every day that goes by draws more and more anti-American (as well as anti-democracy) forces to the region. So much has been acknowledged by American intelligence agencies. Note to those who opposed the United States’ unilateral policy or who might regard US policy in the Middle East as neo-colonialist imperialism: before you begin to applaud America’s headaches in Iraq, be advised that continued unrest in Iraq will also weaken the rest of the region. An unstable Iraq will only endanger the whole Middle East. The attack on the UN has changed the face of this war.

“If the Americans pull out now, it will open the area to the forces of darkness, the nihilists, the (Osama) bin Laden supporters, and others who will regress the area into the dark ages,” said a seasoned Middle East observer. Or, as President Bush pointed out to an American Legion convention in St. Louis on August 26, “Retreat in the face of terror would only invite further and bolder attacks.”

What we are seeing in Iraq in many ways is a repeat performance of what happened in Lebanon in 1982 to 1983, when a multinational force was dispatched to restore order to the war-ravaged country. Lebanon, at the time, was torn apart along sectarian lines with Christian militias opposed to a fractured Muslim-Leftist-Palestinian alliance. Much as the Shiites, Sunnis, Assyrians, Kurds and Turkmen are in Iraq. The difference in Iraq is that the various factions are not fighting each other at the level the Lebanese were, at least not yet.

Following the bombing of the US marines and the French army barrack attacks in Beirut 20 years ago this month, the multinational force decided to cut its losses and leave, abandoning Lebanon to its own predicament. The Bush administration, however, does not have that luxury in Iraq (particularly if he is looking towards the 2004 elections). Abandonment in its current state is not an option. Which is why two things need to happen with haste.

First, more international troops should be brought in, because security is a concern. The attack on the UN building demonstrated that this was not simply an assault on US forces, but also on the international community. And second, Iraqis should be given a more direct role in the running of their country sooner rather than later. Only at that point will the US be able to withdraw without dire consequences and begin to save taxpayers’ dollars. Until then, Bush needs Iraq as much as they need him, although both would like a quick divorce.

Claude Salhani is a senior editor and a political news analyst with United Press International in Washington, DC.

October 1, 2003 0 comments
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Business

The wedding planners

by Anissa Rafeh October 1, 2003
written by Anissa Rafeh

This year, roughly 1,000 couples, spending between $25,000 and $35,000 each, retained the services of wedding planners, those hardy souls who organize, advise, coordinate and offer a shoulder to cry on. Essentially an American import, wedding planning has evolved from a few scattered operators into a lucrative $7 million niche sector, serviced by a dozen established names.

Planners argue that what they do is not a fad. Whether you are opting for a grand marriage or something a bit more restrained, hiring a wedding planner can often make sound financial sense. One of the main advantages of hiring a wedding planner is that they can provide their clients with discounts on everything from entertainment to flowers. “We can save our clients up to 20% in discounts on high quality items,” says Raya Zahlan, manager of Weddings 4 Life. “People are learning more and more that it is very hard to organize weddings and to remove the stress from the bride,” says Vivianne Ajini of Weddings “R” Us, “it a huge, huge thing.”

Nathalie Rahal Abou-Jaoudé, general manager and owner of Amareyn, another leading wedding planner, agrees. “Weddings for Lebanese people are very important,” she says, “they will spend money on a wedding, even if it means taking out a loan.”

Abou-Jaoudé estimates that about 40% of couples (or in 95% of the time their parents) spend more than they can actually afford. And with amounts of up to $35,000 being doled out, it’s no wonder that they have to go cap in hand to the bank. “But,” Abou-Jaoudé points out, “a small budget doesn’t mean that you can’t have a nice wedding.” Some planners see themselves as artists and Zahlan insists that planning a wedding is “not about the money” – well, not only about money. She and her business partner and cousin, Maya Zahlan, take into consideration a client’s background as well as their budget. “We prefer to plan weddings for clientele from a certain background so that our work is appreciated.”

It is an industry that attracts people from all professional backgrounds. Zahlan admits she fell into the job. “I majored in psychology and education, and my business partner studied interior design.” She points out that the paramount skill is the ability to communicate with people. But how much does good communication cost these days? Ajini explains that it is often difficult to give a clear picture of fees simply because they vary according to each wedding. “We could charge anywhere from $5,000 to $50,000, depending on the client.” However, most charge either a fixed fee or take commission based on the client’s budget (the Weddings 4 Life team charges a fixed fee, while Amareyn’s costs range from $2,000 to $15,000 for what she calls ‘big’ weddings with budgets of $400,000 plus, which represent 10% to 15% of the high-end market).

According to Abou-Jaoudé, there are four main variables that affect the cost of any wedding: the number of people, the season, decorations and entertainment (music, dancers, fireworks, special effects etc.). When deciding on the venue, Abou-Jaoudé says that most halls and major hotels charge similar fees. Cocktail receptions can cost from $15 to $30 per person, whereas seated, or buffet dinners, about $30 to $150, depending on the quality of the menu (traditional Lebanese cuisine, for example, is cheaper than an all seafood menu). Bridal gowns, invitations, flowers and invitations all combine to send the bill into the stratosphere. Not surprisingly, it’s big business and this is good news for the fledgling sector. Abou-Jaoudé says that since starting Amareyn five years ago, her clientele has doubled so that her company now plans about 80 events per year. Weddings 4 Life boasts even higher figures, with 150 weddings per year, 70 to 80 of which are in the high season (May 15 to end of September and the entire month of December). Still, to survive, wedding planners have to be up to speed with current trends and ideas if they are to sell themselves as cutting edge. “We are here to create something new and different for every wedding,” says Abou-Jaoudé. “Our job equals details.” Some of the big trends hitting Lebanon’s weddings this year were splashes of big color and the use of special effects. According Zahlan, weddings no longer stick to a specific color theme, with vibrant hues making their way onto the scene in the form of flowers, tablecloths and other decorations. Becoming increasingly common is the not-so-white wedding gown, with champagne shades making the most waves. Special effects are also no longer limited to fireworks displays – which are not exactly unique here. Now even the first dance sequence can feature a fog machine, complete with falling confetti spread with the use of a giant fan. The end result is much like the couple’s very own music video.

In order to stay on top of her game, Abou-Jaoudé employs a team of 22 – interior and graphic designers and technicians etc – during the high season and admits annual operating costs of over $200,000 a year. “Our telephone expenses alone are a catastrophe!” she moans.

Removing stress was the key factor that prompted Nada Afeiche-Shehadi to hire a wedding planner for her 2002 nuptials at Sursock. “I only had a little time [two months] to plan everything and needed someone who could have everything done at short notice,” she says. She was especially pleased with the party favors suggested by Zahlan – a little cedar tree to represent Lebanon since many of the guests were coming from the United States. Afeiche-Shehadi was also comforted by the fact that the Weddings 4 Life team would be present at her wedding to orchestrate everything at the church and the reception. “For me, it was more about having peace of mind than anything else,” she says, adding that little unexpected perks from the planners, like a guest book and special decorations on her table were a nice touch. So, was it all worth it in the end? For Afeiche-Shehadi it certainly was but she was quick to point out that hiring a wedding planner is not necessarily the best route for everyone. “At the end, it’s really the couple that makes the wedding.”

October 1, 2003 0 comments
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Q&A : Pierre Achkar

by Peter Speetjens October 1, 2003
written by Peter Speetjens

E: How would you describe Lebanon’s summer in terms of tourists?

PA: If summer means July and August, then summer was excellent for Beirut. Like last year, it was also good for the regions of Jounieh, Broummana and Bhamdoun. Our aim, however, is to extend the summer season from April to October, as in the rest of the Middle East.

E: From where did most tourists originate?

PA: Most of them came from Syria, Jordan, Egypt, Saudi Arabia and the Gulf. But don’t underestimate the number of Lebanese expatriates. About 35% of summer visitors are Lebanese coming back from Africa, the Arab world or South America. Many of them stay in hotels.

E: Does one good summer mean Lebanon has regained its pre-war status as a top tourist destination?

PA: Since September 11, we’re again the biggest and best summer resort destination for the Arab region. But we have a problem attracting European tourists, even though any kind of tourism can flourish here. Just look at the country. There’s the sea, mountains, clubs, pubs and freedom for women to dress and behave as they like. Lebanon has the best of two worlds, East and West, and so it should be able to attract people from both sides.

E: Why aren’t the Europeans coming?

PA: Lebanon has an image problem. The international media only report about Lebanon in terms of terrorism, Israel and the civil war, even though these ended years ago. We have to change the image, but that cannot be done overnight. We’re talking big politics here. If a certain world leader says a certain group in the country is terrorist, this affects Lebanon’s image, and tourism. We need to change the image to attract a big tour operator who buys 10,000 room nights, like in any other top world destination. Here we generally talk about 10 to 50 room nights, which is too little for prices to really come down.

E: What do you think to do about it?

PA: So far, the Lebanese who profit from tourism have all been working on their own in promoting Lebanon. We’ve suggested that the ministries of tourism and economy, IDAL, Solidere, MEA, Casino du Liban and others cooperate under one umbrella. That would save costs and enable us to make a bigger, better impression at the big international tourism fairs. Secondly we’ve found a niche in the market. From now on, we will focus more on countries like Poland, Ukraine and Russia, as Eastern Europeans are much less impressed by the “propaganda” of the international media. During the second Gulf War hardly anyone cancelled their flights to the Middle East, while some 80 percent of the Europeans and Americans did.

E: How would you characterize the Lebanese market?

PA: Highly competitive, especially outside the summer months. There are just too many hotels for existing demand, especially in the four- and five-star range and there are still another 1,500 rooms under construction. Average occupancy rate in Beirut is some 59 percent; it should be at least 65 percent before further investments are needed. But what happens? As soon as there’s a big conference and most Beirut hotels are full, everyone calls for more hotels, while only 20 minutes away in Jounieh and Broummana most hotels remain largely empty.

E: What are the hopes and fears for the future?

PA: One of the problems of Arab tourists coming back again and again, is that at a certain point they will rent a furnished apartment or buy one. The market for furnished apartments is already booming, which is a big threat to the hotel business. The hope for the future, as I said before, is an improved image abroad, which would enable us to attract more European guests.

E: What should the role of the government be?

PA: We live in a free economy, so we don’t want a government ban on building more hotels. The problem is that the government is badly organized. We all know that. But the least we expect is decent, reliable data on which we can make our management decisions. Apart from that, we would like to see more cooperation. One thing the government can start doing is providing everyone promoting Lebanon with one and the same logo.

October 1, 2003 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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