CommentIndustry & AgricultureWine Industry

What now for Lebanese wine?

by Michael Karam
written by Michael Karam

Lebanese wine is at a turning point in its long and proud history—and it is a positive turning point too. But first, a little context: For those who do not know, Lebanon, or what is now Lebanon, has been making wine for thousands of years. Only the people of the Caucasus have been making wine for longer. But even if they made it first, it was our ancestors the Phoenicians who, courtesy of their vast trading fleet, gave wine to the rest of the world, and at one point—in the height of Phoenician commercial dominance between 900 and 330 BC—wine from Byblos was among the most sought-after wines in the then-known world. It was the Pétrus of its day.

But it was the Jesuits at what is now Château Ksara, making a modern, dry wine in the Bekaa Valley in the mid-19th century, who upped our game, while the subsequent arrival of the French after World War I ensured that a wine culture endured. If Lebanon had been run by the British, I would not be writing this article.

The local wine industry, as we know it today, really began in the early 1990s, after the civil war, when five wineries, Château Kefraya, Château Ksara, Château Musar, Château Nakad, and Domaine des Tourelles, dusted themselves off after 15 years of fighting and looked toward a bright future. They were joined by half a dozen exciting new producers and, by the mid-90s, we had around 14 wineries. Today, we are nudging at 60, with Lebanon firmly on the world wine map.

But there is much work to do. At home, we need to protect our industry, not necessarily by taxing the hell out of imported foreign wines, but by encouraging everyone to “Buy Lebanese” and convincing them that home-made bottles can be as good, if not better, than one of the very ordinary—not to mention overpriced—Bordeauxs on the local market.

We also need to admit that we are too dysfunctional to ever activate the National Wine Institute, the so-called public-private body created to run the sector, which has been gestating for nearly 15 years and does not look likely to be born anytime soon. We should leave the running of the industry to the Union Vinicole du Liban, Lebanon’s official association of wine producers, which has done more than any other body to build and promote the sector in the last three decades.

Selling our wares

But abroad is where our fortunes lie. We make roughly 10 million bottles each year, but we still only drink a shade over 1 liter per capita, compared to 45 liters in France and Italy, 36 in Germany and 24 in the UK. The few tourists we do attract do not knock back wine in the quantities we would like—certainly not enough to ensure we drink all of our output at home.

So how do we move forward in the international market? We need to be different. We need to highlight indigenous white grapes like the white Obeideh and Merwah, and what I call the red “heritage” grapes, such as Cinsault, Grenache, and Carignan. If you give the international market something it has never seen, the wine will fly off the shelf. You do not believe me? Just ask Château Ksara, whose hugely daring Merwah varietal is now selling out wherever it goes, likewise for Domaine des Tourelles with its Vieille Vigne Cinsault. Vertical 33, a boutique winery, is doing great things with Obeideh, as are Château St. Thomas, Domaine Wardy, Château Kefraya (in limited quantities), and Coteaux du Liban. And get this: Latourba and Batroun Mountains have made Lebanon’s first sparkling wines, released in 2018 and 2016 respectively. Innovation, enthusiasm, and adventure are essential in our business.

The superstar grapes, the grapes we all know courtesy of the emergence of New World varietal wines in the last 30 years, such Cabernet Sauvignon, Merlot, Syrah, Chardonnay, and Sauvignon Blanc to name a few, are all brilliantly suited—Cabernet, Syrah, and Chardonnay especially—to Lebanon’s terroir. The trouble is that everyone else, from the Australians to the Chileans, use them. We have to learn to compete better in an increasingly competitive global market.

Throwing another Cabernet Sauvignon onto an already huge global pile without telling the consumer why he should buy it over, say, a Californian or a South African one, will not work. It’s all down to basic marketing, and it is essential we revive the award-winning, but prematurely terminated, “Wines of Lebanon” campaign. It must be, at least in part, state funded and rolled out across strategic markets, even if the rewards take years to show up on the bottom line. It cannot be stressed enough how important it is to keep reinforcing the idea of Lebanon as a winemaking country. Stop anyone in the street in the UK and ask them what they know about Chile, and I wager they will mention wine before naming the capital, Santiago, or the Andes. Meanwhile, wine has helped boost a positive reputation for post-apartheid South Africa, and could do the same for us. I think you will agree that we need all the beneficial PR we can get.

Quality wins out

But the wines still have to be good. No one would be going crazy about Syria’s Domaine de Bargylus, which comes with exciting war stories to rival that of the late, great Serge Hochar of Château Musar, if what was in the bottle was not truly sumptuous, approved by the best palates in the world.

And while it is one thing to make good wine, it is another thing to sell it. Bargylus’ Lebanese brother, Château Marsyas, as well as a handful of other dynamic producers, such as IXSIR, the aforementioned Château Kefraya, Château Ksara, Domaine des Tourelles, and, of course, Château Musar, have shown that well-positioned, premium Lebanese wines can survive at a brutally competitive price point in some of the most sophisticated markets—as long as the brand is compelling. At Château Marsyas, the wines are beautifully-packaged, while the owners, Karim and Sandro Saade, are young, likeable, attractive, and able to tell a good story. It is a basic formula, and if you get it right, you’re halfway there.

So, let us nurture a new generation of Lebanese winemakers who can make beautiful, thrilling wines that evoke a sense of place and can excite an increasingly well-informed modern consumer. If we can do all these things, then we can, once again, conquer the world of wine lovers.

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Industry & AgricultureProfilesWine Industry

Profiling new Lebanese wines

by Nabila Rahhal
written by Nabila Rahhal

The Lebanese wine industry continues on its growth trajectory, and it seems that every year we hear of new wine labels entering the market. Executive profiles a selection of the newest wine labels to make their mark on  Lebanese palettes, outlining their story and their business strategy.

Rather than being the products of proprietary wineries, the four wine labels profiled in this article currently rent sections of established wineries instead. The owner of each tells Executive the reason for renting, which is becoming more common in Lebanese viniculture.   

Muse

Muse is the brainchild of Nadim Khoury, an agricultural engineer who owns Khoury Agriland, a business that cultivates and sells table grapes in the Bekaa Valley. Khoury’s passion for wine pushed him to apply his agricultural background to growing grapes for wine production. Khoury chose the name Muse for his label because his mother is named Calliope, after one of the muses in Greek mythology, and because he sees wine as an inspirational product.

Khoury believes that as an agriculturalist, his role is to provide the winemaker with the best quality grapes, thus enabling him or her to make good wine. Since he wanted to position Muse as a high-end wine, he spared no expense and hired the renowned Michel Rolland as a consultant and winemaker, ultimately choosing Ainata, Bsharri, as the vineyard’s location. “When you work with a consultant, he typically has in mind what kind of wine he wants to produce, and this will dictate the kind of grapes you need, and therefore which area they would best grow in,” Khoury says. “Through our experience with Roland, we finally decided to plant our vineyards in Ainata, close to the Cedars of God, at an elevation of 1,800 meters.”

Through a BOT (build-operate-transfer) contract, Khoury rented a 600,000 meter squared piece of land in Ainata for 25 years, and began planting it with grapes in 2016. To date, Khoury has planted 200,000 mother plants and plans to rent additional land in Ainata to reach 1 million square meters. “In 2019, we will plant another 50,000 mother plants, and in 2020, another 50,000, and then we will reach the 1 million square meter of planted wine grapes,” he says, explaining that they began their production by using the land’s already established grapes, which were over 20 years old, but was soon limited by the amount of existing grapes, which is what led to their expansion. Khoury says they are currently producing 30,000 bottles, but his eventual target is to produce 200,000 bottles once his vineyards have expanded and matured. 

Muse’s vineyards are the highest  by elevation planted in Lebanon, and the highest in the Mediterranean in terms of the grape varieties being used—but this does not come without challenges. “When you are planting at that elevation, there are many risks involved,” Khoury says. “The [cold] weather is one of them, and the mother plant will not bear enough grapes to make [a high] enough quantity; the same mother plant in the Bekaa Valley will bear three times the kilos of grapes at a high elevation. But the advantage is that the grapes benefit from pristine environment, and this was the vision of Rolland—it comes with the personality of the wine he is making. The outcome was good because the taste of the wine is good.”

Planting in such an elevated and remote area is also expensive. “Everything is costly with Muse, starting with the wine consultant; the elevation, which creates a low yield; the mother grapes, which were all imported from France; and transportation from Ainata to the winery,” says Khoury. To date, he has invested $1.5 million in Muse. The initial funds were mainly for the rent, the preparation of the land and planting, and the cost of the mother trees. But to Khoury, Muse signifies quality, and as such, no expense can be spared. “There is a target out of any commercial project you make: My target is to hopefully break even in 10 years if I can. I will be very happy then, because this is my passion,” he says.

Khoury believes Muse’s positioning as a high-end wine is signalled through the etched labeling, the bottle design, and the quality of the wine itself. As such, the price is medium to high range, starting from $12 for a bottle of white wine and reaching up to $20 for the red.

To Khoury, the essence of a wine is its vineyard not its winery, which he says is essentially dormant save for a month or two of the year. To get Muse started, he rented space in an established winery in Lebanon and brought in his own equipment. “There are many wineries in Lebanon who may have difficulties or extra premises they don’t need, so for us to cut on time, we rented a part of a winery ,and we are producing according to our personality under the instructions of Rolland, using their premises. We bottle everything there and take it to our warehouses,” Khoury says.

Still, Khoury plans to construct a small vineyard in Ainata starting in 2020, complete with a small guesthouse and boutique restaurant. “The restaurant and guesthouse are mainly for the brand image. If you welcome people into your winery, and they make this trip all the way to Ainata, they need a place to eat, and a place to stay,” Khoury says. “The profits will go to cover the expenses of the location for the two summer months, during which it will welcome visitors.”

While Khoury is not against winery premises being used as a wedding venue, he says the Ainata location is not suited to this. Instead, he is planning to develop a relais (guesthouse) by 2023, somewhere in Mount Lebanon. This facility will take over part of the wine production, most likely the aging or bottling phase, and will also serve as an events venue and restaurant location.

Distribution of Muse is handled in-house. To date, the label can be found at 18 points of sale, including both on trade and off trade businesses. Khoury believes this restricted POS presence is reflective of Muse’s exclusivity and scarcity, making it a sought after product.

Vin Du Marje

Carole Tayyar Khoury had always enjoyed a glass of wine, but she never imagined that she would one day be in the winemaking business. Her story with wine begins in 2010, when she and her family returned to Lebanon after having lived in Dubai, for 20 years. During her absence, the south of Lebanon had been liberated from Israeli occupation and Khoury could finally consider investing in a five dunams (5,000 meter squared) plot of land she owned in Jdeidet Marjeyoun, a town on the southern border of Lebanon, where both she and her husband hail from. She wanted a project that would both contribute to the revitalization of the economy in her beloved hometown, by generating jobs and attracting local tourism, and be a viable business that her children could be involved in that would tie them to Lebanon and the land.   

She studied the businesses in the area and realized that there were no wineries in the region, which opened her eyes to the possibility of developing one in Marjeyoun. The first thing she did was hire experts to test the viability of her land as a vineyard, in terms of soil quality and climate. She was told that her plot was suitable. 

Having no background in agriculture or viticulture, Khoury knew she needed to recruit external support to realize her winemaking project. The days passed, and although the idea of starting her own winery never left her mind, Khoury did not take steps in that direction, having planted the land with olive, pine, and pomegranate trees instead. At the time, she recalls, she found this an easier and safer investment, given that olives are a very popular crop in the area, and many knew how to tend to them. Since olive trees are often planted alongside vineyards, she was reassured that this move would have no negative implications for her long-term goal, when she chose to achieve it.

Then, in 2016, Khoury was introduced to Vigna Verde—the owning company of Château Barka and also a wine consultancy—through work contacts of hers, learning that the family business helps interested investors cultivate their vines, equip their wineries, and produce wines of all varieties. This encounter empowered her to embark on her winemaking project. She decided to call her wine label Vin Du Marje, in homage to Marjeyoun.

Khoury began working with Vigna Verde in 2016, asking their winemaker, Hisham Geagea (a co-owner of the company, along with his brothers), to visit her land in Marjeyoun to determine which grape varieties should be planted. Syrah, Cabernet Sauvignon, Viognier, and Chardonnay were selected.

Since Khoury’s vineyards will take three years to mature, she has rented an established vineyard in the south in the meantime. In addition to these grapes, she has entered into a damanet, a contractual agreement under which she guarnatees she will purchase all the grapes produced from that plot of land for a set period of time. Under the conditions of the damanet, she will be cultivating  grapes from Vigna Verde’s vineyards in Barqa, Baalbek in order to produce the first varieties of Vin Du Marje. Khoury believes this move will help her start promoting the label, while she waits for her grapes to mature. The exact same grape varieties and blends will be used when she is finally able to make wine from her own vineyards.

In the second phase of Vin Du Marje, Khoury plans to increase her land dimensions in Marjeyoun and thus raise production. She is currently producing 5,000 bottles and has a target of 20,000 bottles. 

To cut down on costs, she is currently using Château Barka’s facilities (as part of her contract with Vigna Verde), but she plans to launch a small winery complete with a bistro restaurant on her land in Marjeyoun as the final phase of Vin Du Marje, in three to five years’ time.

Khoury plans to manage her own distribution, counting on the support of Marjeyounis both locally and abroad. “All Marjeyounis I know are excited about this project: People who live in Canada, USA, Brazil, and many other countries are asking me when the wine will be out. I am counting on their passion for Marjeyoun and the land to make the wine successful, especially because there is nothing similar to it in the area,” says Khoury.

Vin Du Marje will enter the local market first in December 2018. Khoury projects that 50 percent of the production will be exported at a later stage. Vin Du Marje be available in restaurants and supermarkets in Marjeyoun, as as well as in delicatessens and select restaurants in Beirut.

Reserve Ammiq

Reserve Ammiq wine was created from the Skaff family’s love of the land in Ammiq, West Bekaa, and its significance as a winemaking area. “Reserve Ammiq’s logo is the elm tree, which represents the region of Ammiq, not only the wine,” says Aida Skaff, marketing director of Reserve Ammiq. “Also, we insisted on having the name of the terroir as part of the brand name because it’s not only the vineyard that we want to highlight, but the area itself.” Skaff says that their goal is to revive Ammiq and highlight its role in Lebanon’s winemaking industry (read more on that in Executive’s December issue).

Aida and Peter Skaff, the current winemaker at Reserve Ammiq, are the third generation of the Skaff family business, which deals with agriculture, through both olive tree cultivation, and viticulture, through the growing and selling of wine grapes to nearby wineries. The family business dedicates 90 hectares of land in Ammiq to wine grapes.

For almost 60 years, the Skaff family had an exclusive contract with Château Musar for their grapes. When that contract ended in 2008, it was not renewed, as Château Musar had by that time become self-sufficient and planted its own vineyards. This is when Naji Skaff, the father of Peter and Aida, seized the opportunity to indulge his passion for winemaking by using 1 to 2 percent of the family’s 90 hectares of vines to develop his own wine label as a hobby, for limited distribution among friends and family, the rest of the grapes were sold to wineries in the region.

Peter Skaff, who was still a university student at that time, in 2008, accompanied his father to Ammiq on a wine-related visit and quickly fell in love with the beauty of the nature there, having rarely visited while growing up. “I was amazed by what I saw that day, and felt that I belonged here in Ammiq more than I do in Beirut, as I’m more of a nature person,” Peter tells Executive. “I decided to travel to France, which is the basis of all winemaking, to study oenology and viticulture.” After completing his studies, he travelled to New Zealand and the USA for internships and wine consultancy work. During that time, Naji Skaff continued to produce small quantities of wine as a hobby. When Peter was in Lebanon, he would share his newly acquired knowledge with his father on an informal basis.

In mid 2016, Peter returned to Lebanon to gradually take over the production of Reserve Ammiq. Aida also returned from London, where she had been working in luxury marketing, to aid her brother in the marketing of Reserve Ammiq. Together, the siblings intend to make a productive commercial enterprise out of the label.

Peter recounts that his father had been producing roughly 5,000 bottles in a rented portion of an already established winery in Mount Lebanon. “It was not a business for him and he was not making money out of it,” he says. “Since it was a hobby, he didn’t want to invest in a winery before he tested the product and the market.”

Peter and Aida, however, are planning to establish a boutique winery on their land in Ammiq within the next three years. Right now, explains Peter, they are in the transition phase of turning a hobby into a business, so they want to wait a little to solidify the brand and make some profit before they build the winery, which they both see as important. “The good thing about having a winery is that people can see where the wine is coming from, which makes them want to try it more,” Peter says. “I get calls asking if we have a winery in Ammiq or not, so there is demand for that.”

Describing what the winery would look like, Aida says, “It will reflect our image and will be cozy with nice architecture, which will be done by our architect brother. It will be small and will have a view of the vineyard. It will of course be open to the public to provide people with the wine experience and will have a small restaurant on its roof.” She explains that when people visit the winery, they will be able to enjoy activities on the land as well, such as biking and hiking, so they could easily spend the day there.

The 2017 vintage of Reserve Ammiq is the first “purely Peter” production, says the young winemaker. They are currently producing 7,000 bottles and aim to produce not more than 60,000 at peak production, in order to remain a boutique winery—although Peter says they have the capacity to produce a million bottles, if they so choose. For now, they have kept their fathers’ labels on all bottles, and also his price range—ranging from $7 for the cuvee to $20 for the chateau. However, as his father’s vintages are phased out, Peter says he is planning to increase the price “in a realistic manner” for his vintages, to suit Reserve Ammiq’s new positioning as medium to high-end wine.

So far, the Skaffs’ investment in Reserve Ammiq is minimal, Peter says. “The advantage we have in this business is that we own our vineyards—we already have the grapes, which is the heaviest investment for any winery. The main investment right now is in renting the winery. We also invested in the bottles and materials, and later on we will invest in building the winery in Ammiq.” The money for all of this comes from family funds, he notes.

Aida explains that she will be responsible for distribution and, in terms of the local market, is targeting high end delicatessens and exclusive supermarkets where there is a focus on the wine selection. Reserve Ammiq is also available on 209 Lebanese Wine’s platform. For now, Reserve Ammiq is only available locally, but Peter plans to export as soon as they hit 50,000 bottles. “I will export 60 percent of my production, which is the standard if you want your business to work, since in Lebanon the market is very small, and there is a lot of competition,” he explains.

Terre Joie

Joe Saade hails from a communications and marketing background and was the cofounder of advertising agency Grey Middle East (GME). He had always enjoyed wine but developed a deeper appreciation for it in the 1990s, when GME was operating out of London. The company was handling the communications of the state of Kuwait during and following its invasion in 1990, and there was a wine bar beneath its office building. “We were there every day drinking wine, and this is when I started buying books about wine, reading more, becoming more critical about the wines I drink and trying to understand more,” recalls Saade.

In 2002, Saade sold his shares of GME, which was then operating out of Dubai, and continued working in the UAE independently for a while. In Dubai, Saade was neighbors with George Naim, now the owner and founder of Château Qanafar, with whom he would go on daily walks. It was during one of those walks, in 2007, that Naim told Saade about a couple of vineyards he had in Qanafar, which he was using to produce small amounts of wine as hobby. Both being fond of wine, the two men would discuss this project at length, and whenever Saade was in Lebanon, he would taste Naim’s wines.

Not too long afterwards, the two men discussed the possibility of starting a winery project together in Lebanon. Ultimately, however, they decided to work closely together but produce two separate labels, using separate vineyards in Qanafar, so as to be able to leave the business to their families in a smooth manner. Naim, who already had his vineyards, started immediately producing Château Qanafar. Saade, however, still had to buy and plant the land.

In 2008, Saade brought his first piece of virgin land in Qanafar and planted it; he continued to choose only virgin lands for his vineyards (with one exception). “If you want to have a high-quality product, you have to control the main ingredient, which are the grapes in this case,” Saade says, to explain this choice.

Saade decided to call his wine Terre Joie, or TJ, for several reasons, the first being that the name would be a tribute to his son, Tarek Joe (whom they always called TJ), who passed away in a diving accident before his father’s project was realized. Saade feels that Lebanon is a land of joy (the english translation of terre joie) so the name works that way as well, and, finally, the arak Saade produces (but has not yet sold, prefering to age it further) is called Ard el-Saade—which is Arabic for terre joie and includes the family name.

Saade had to wait three years for his grapes to mature before he could start production, so he produced his first noncommercial red wine in 2011. In the beginning, both Naim and Saade were producing their wines from a garage in a building that Naim owned in Qanafar. Shortly afterwards, Naim decided to build a 3,000 meter squared winery, stretching over three floors and with a wide terrace. Naim convinced Saade to rent a section of that winery instead of building his own, and Saade agreed. Rather than investing in his own winery, Saade built a Terre Joie tasting room and gathering space on his land in Qanafar instead.

After producing his first vintage, Saadeh decided he wanted formal training in wine, so that he would not have to rely completely on the advice of others in his production. While completing a residential course on wine at the University of California-Davis, he met members of the International Organization of Vine and Wine, who told him about their masters program in wine management. He signed up to start the next semester. “I wanted to do [wine] on the basis of knowledge and not just hearsay,” Saade says. He works with a French winemaker, David Siry, who visits Terre Joie five times a year and accommodates Saade’s style in winemaking, which is a more elegant and less classical wine than the typical Lebanese style.

Experimental vintages were also produced in 2011 and 2012,  in small quantities, Saade says, making the 2013 red his first commercial quantity wine. The 2013 vintage entered the market in late 2017, after aging in bottles for four and a half years, to a positive response. The 2014 red vintage was introduced at this year’s Vinifest, in October, and the 2015, 2016, and 2017 vintages of red are still being aged.

Saade also recently began producing a Cinsault wine, the 2016 vintage of which was released at this year’s Vinifest as well. “The Cinsault is the oldest imported grape of Lebanon and is the one the Jesuits filled the country with in the 19th century, before most of it got uprooted and replaced with other grape varieties,” Saade says. Having found a 30-year-old Cinsault vineyard at an altitude of 1,400 meters, he says, he rented it for 18 years—the only vineyard he rented instead of cultivating himself.

Saade also produces a rosé that is made of 100 percent Grenache grapes, and has planted grapes at an altitude of 1,400 meters in order to produce white wine in the hopes of launching it in 2021. Saade believes that, taking into consideration Lebanon’s hot climate, it is best to plant wine grapes at an altitude of at least 1,000 meters. With the exception of the first plot of land he bought, all of his vineyards are above this threshold.

Saade’s vineyards today stretch over 100,000 meters squared—75,000 of which are cultivated—and he currently produces 15,000 bottles. By 2021, he aims to increase that number to 25,000. “There is the possibility of renting land where I can control the planting, if I want to expand [further],” Saade says. “I have a land in Keserwan which I can also use, so I have no problem expanding.”

Benefiting from his extensive experience in marketing, Saade is handling his own distribution and his wine is currently available in seven local boutique restaurants and shops, on 209 Lebanese Wine’s online platform, and—unusual for a new winery—in Beirut’s international airport’s Duty Free area. “It took hard work and big sacrifices because they take big margins. But the exposure I get being in such a prestigious location is cheaper than if I am to buy advertising space,” explains Saade.

He is also in negotiations with Spinneys and Carrefour, and says that once he is available in these two supermarket chains, he will not stress over other off-trade points of sale in Lebanon, since these are the two main locations his potential customers shop in.

Saade has so far invested $1.8 million in Terre Joie, between the purchasing of the land, the renting of the winery and the buying of the equipment—all of which came from his personal funds. Saade says he will continue to invest for another year, but expects his investment to reach $2 million before the venture starts generating revenue or at least covering its own cost, although he says he isn’t worried about the return. “I don’t care about the return simply because the land I bought has gained value, and if I sell it today I can double or triple what I put into it,” he says. “I’m not doing it for the cash right now but for the long term, because my real estate investment will cover more than my cost. And at the same time, I want to make the best wine possible, sell it in the best way possible, because I want to build brand equity, because whoever will take the business after me will benefit from a well-established brand.”

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Industry & AgricultureOverviewWine Industry

Lebanese wineries in 2018

by Nabila Rahhal
written by Nabila Rahhal

The Lebanese wine industry seems to be flourishing, despite the floundering economy, and has enjoyed a year full of celebrations and achievements—with more yet to come. In the last week of October, as Executive went to print, representatives of Lebanon’s wineries were returning from a series of celebratory events in London that were hosted by the Lebanese Embassy. Zafer Chaoui, the chairman of Château Ksara and the president of Union Vinicole du Liban (UVL), tells Executive: “We had three events over two days organized by Ambassador Rami Mortada, who has been a huge supporter of our sector: a tasting at the houses of Parliament on day one; and a trade tasting at the Lebanese Embassy, followed by a party for friends of the ambassador on the evening of the second day. It was a wonderful opportunity to fly the flag, and once again show the UK trade [community] and consumers the quality of our wines.” Such events help spread a positive image of Lebanese wines abroad, and help support the opening up of new markets for the country’s wineries.

Of awards and anniversaries

Winning international awards is another way Lebanese wineries are making a name for themselves—and for Lebanon—abroad. Faouzi Issa, winemaker and co-owner of Domaines Des Tourelles, says 2018 was a great year for his winery: “Our 2014 red won the Great Value Champion award in the International Wine Challenge. This is a big deal for us, and for Lebanon. And as such, the UVL honored us with this first award for Lebanon.” He adds, “Winning this award opened four new markets for us: Norway, Finland, Malta, and Hong Kong.”

Other local milestones were celebrated this year, with Château St. Thomas marking its 20th anniversary, Ixsir its 10th, and Domaine Des Tourelles its 150th. In celebration, the family-run winery Château St. Thomas hosted a big gathering for friends and family in October, which was attended by a representative of President Michel Aoun, and during which the winery’s founder, Said Touma, was also honored for his contribution to the Lebanese beverage sector, specifically for arak production. A special edition bottle of wine was produced to commemorate the occasion. Meanwhile, Domaines Des Tourelles screened a video detailing their brand’s rich history in a special ceremony held during Vinifest, Beirut’s annual wine festival, in early October. Invitees were also able to visit the stand and meet the owners and distributors of the label.

Not only do these awards and celebrations benefit the reputation of Lebanese wine abroad, they also paint the sector in a more positive light among local consumers. This is important, given that some Lebanese still prefer international wine over homegrown labels.

Edouard Kosremelli of Château Kefraya says that, based on his experience, wine consumption per capita among Lebanese consumers has increased. This increase could be attributed to Lebanese wineries’ efforts to organize events that serve to familiarize the local public with the winemaking process and terroir in a fun way. Kosremelli says their annual wine harvest events are growing bigger and more successful with each year. “It is key to have consumers become familiar with, and to enjoy the vineyards and harvesting. Winemaking is all about terroir,” he says.

The more the merrier

The Lebanese wine industry differs from most of the country’s other industries, in that its key players have learned to work together to achieve common goals. Through their cooperation, and by producing a high-quality product, they are managing to build a name for Lebanese wine, both locally and abroad.

While there is a lot left to do, these efforts have created a flourishing wine sector in a challenging economic situation. “The industry is booming, and lots of new wineries are entering the market on an annual basis, although many are boutique sized,” young winemaker Peter Skaff says. “People are investing money and time into this, although it is a long-term return on investment—but the good thing is that wine is not a trend and will not lose its popularity. It’s timeless.”

Local and proud

The use of indigenous grapes continues to be a trend in winemaking, both locally and abroad. Joe Assad Touma says he annually increases the production of his Obeidy white wine, a local varietal, and it continues to sell out rapidly after its release. Touma was the first Lebanese winemaker to launch a 100 percent Obeidy grape wine, back in 2015. “Wine connoisseurs are beginning to talk about Obeidy as the local variety of Lebanon, and I am very proud of that,” he says. “Also, the idea of using indigenous grapes is spreading locally and is gaining support internationally from wine critics and connoisseurs.”

Other wineries have been encouraged to experiment with local grape varieties, with both Château Kefraya and Château Ksara releasing a Merwah vintage within the last two years. “It received extensive press coverage, especially in the UK, where we have practically sold out,” says George Khalil Sara, coowner at Château Ksara. “It was voted by The Independent newspaper as a Best Buy, and rated one of the best 12 wines under £20 ($25.50).”

Innovation continues in Lebanese wineries. Château Kefraya is preparing the first wine in Lebanon that is vinified and aged in amphorae jugs, as was done in ancient times. Other wineries are successfully experimenting with imported grapes, such as Cinsault, which have become a part of Lebanon’s heritage. Issa says Domaine Des Tourelles’ Cinsault vieille vigne (old grapes) was selected among the 14 best Cinsault in the world by Decanter Magazine.

There is a lot to be proud of when it comes to Lebanese wine, and as new wineries continue to enter the market, and existing wineries experiment with old and new winemaking techniques, it seems we will always have reasons to toast.

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CommentEconomics & Policy

The case to end sexual orientation change efforts in Lebanon

by Omar Fattal & Suha Ballout
written by Omar Fattal & Suha Ballout

Homosexuality is part of the natural spectrum of human identity and is not a disease, a disorder, or an illness to be treated or “fixed.” However, there is a plethora of evidence documenting the challenges that lesbian, gay, bisexual, and transgender (LGBT) people experience daily as a result of discrimination, rejection, and stigma.

Sexual orientation change efforts (SOCE) are increasingly regarded as harmful. These practices attempt to change a person’s sexual orientation through counseling, psychotherapy, or other means. Historically, SOCE have included some extreme measures, such as forced institutionalization, forced medication, and electroconvulsive shock therapy. These efforts are the product of a lack of respect for normal human differences and have been proven ineffective. Most importantly, these practices have harmful effects on the mental and physical health of the individuals being pressured into them.

In the United States, it was estimated in a 2010 study that approximately 20,000 youths between the ages of 13 to 17 who do not identify as heterosexual or straight would be exposed to SOCE by the age of 18.

In Lebanon, people who belong to sexual and gender minorities lack protection and support from societal and family-based discrimination. Policies to protect LGBT people in schools, universities, and workplaces do not exist. Also, misconceptions about sexual rights, sexual orientation, and gender identity are widespread. A national study in 2015 showed that 79 percent of respondents thought homosexuality was a hormonal sickness and 72 percent viewed it as a mental disorder. Around 80 percent of the respondents agreed that homosexual people should be taken in for psychological or hormonal treatment.

In 2018, the Lebanese Medical Association for Sexual Health (LebMASH), of which we are both board members, collaborated with Helem, an LGBT rights organization, to conduct a pilot study in order to better understand SOCE in Lebanon. The study involved interviews with gay and lesbian people who were subjected to SOCE, mental health providers whose patients have discussed being subjected to SOCE, and providers who practice SOCE. The team also reviewed television interviews that aired from 2010-2016 with healthcare professionals that dealt with SOCE.

This pilot study revealed that in Lebanon, SOCE is most commonly initiated by parents, who take their gay or lesbian children for a consultation, typically at the suggestion of a school nurse or teacher. Health providers, urologists, and clerics are all represented in the SOCE industry. SOCE appear to be fueled by religious beliefs and cultural values, but more importantly, demand for it is based on defunct theories about homosexuality—with some believing that such sexual orientations are the result of trauma, the absence of a father figure, or other factors related to upbringing. It is important to note that attempts to conform to heteronormative expectations also affect bisexual and transgender people, but our study was solely focused on gay and lesbian people.

Our findings showed that most SOCE practices include psychological pressure and suggestive counseling, involving shaming or pushing the person to behave in a way that contradicts how they would act if left to their own volition. Examples of this pressure under the guise of encouraging “normal behavior” would be to suggest to a homosexual man that he should force himself to have sex with a woman. Other practices included prescribing hormones or medications typically used for erectile dysfunction, without a clinical indication for their use. One provider talked about performing electroshock “therapy” on patients as they watched gay pornography, though the study team was unable to find any individuals who had been subjected to this. Individuals who were subjected to various kinds of SOCE reported increased feelings of shame, depression, anxiety, and even suicidal thoughts.

Legal and medical perspectives are changing

Due to SOCE’s harmful effects, leading medical and mental health organizations in the US, such as the American Psychiatric Association and the American Psychological Association, have condemned SOCE. The Pan American Health Organization (PAHO), which is the WHO’s regional body in the Americas, has strongly condemned SOCE. Furthermore, in the US, as of July 2018, 14 states have laws banning SOCE for minors, and 21 other states have pending bills addressing the same issue. In 2016, Malta was the first country in Europe to ban SOCE, with a law against trying to change, repress, or eliminate a person’s sexual orientation. The European Parliament also condemned SOCE earlier this year and encouraged its member states to issue bans on SOCE. The United Kingdom is currently considering a bill in parliament that would ban SOCE, after Prime Minister Theresa May vowed to do so earlier this year. In Lebanon, the Lebanese Psychiatric Society (LPS) and the Lebanese Psychological Association (LPA) each issued strong statements in 2013 affirming that homosexuality was not a disease and condemning SOCE.

As healthcare professionals, we have two fundamental beliefs: Everyone has an equal right to the highest quality of care regardless of their personal attributes—such as age, sex, socioeconomic status, religion, sexual orientation, or gender identity—and that healthcare professionals are bound by a duty to do no harm. Therefore, to eliminate SOCE practices we strongly advocate to first raise awareness that:

(1) Homosexuality is not a choice. Whether homosexual, bisexual, or heterosexual, individuals are not able to choose their sexual orientation.

(2) Homosexuality is not a disease. Homosexuality is a normal variation of human sexuality. Homosexual people are equal to heterosexual people in their ability to achieve normal psychological, social, and professional functioning. Homosexuality is not related to a hormonal imbalance.

(3) Homosexuality is not related to certain factors during upbringing and cannot be explained by other similar theories. These theories are defunct and have no scientific backing.

We, secondly, call for all practitioners in the field of sexual counseling, and all mental health providers, to receive further training on working with sexual minorities and emphasize that those who practice SOCE are not following the appropriate guidelines or current standards of care.

As members of LebMASH, we further recommend that all people involved in sexual orientation and gender identity discussions with family, friends, and school personnel consult with competent healthcare providers, such as those listed under LebGUIDE—our list of providers that have been screened for their attitudes and behaviors toward LGBT people through a self-reported survey and interviews, and that have met our criteria for inclusion. We, finally, call on the Lebanese government to institute a ban on SOCE, especially its application on minors.

Allowing healthcare providers to engage in harmful SOCE punishes LGBT people simply for being who they are. SOCE do not have scientific validity, are ineffective in their stated goal, and come with great risks. Exposure to SOCE puts LGBT people, particularly LGBT youths, at a greater risk of mental health problems such as anxiety, depression, and even suicide. SOCE must be banned.

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CommentEconomics & Policy

Financial barriers stand in the way of breast cancer screening

by Grace Azar
written by Grace Azar

“If I am diagnosed with breast cancer, my husband would need to sell our house to pay the medical expenses,” says Hanaa, a 52-year-old woman from Abba, south Lebanon.

Hanaa worries about not being able to afford the cost of breast cancer-related tests and treatment. Likewise, Zeina, a 45-year-old from Mina, north Lebanon, says, “We barely make it until the end of the month with the money that we get. We know that we have to do a mammogram, but we cannot afford it.” Many women, from regions across Lebanon, feel that they are struggling economically. A household income below minimum wage barely covers their essential needs, let alone pays for medical services.

Hanaa and Zenia’s views, along with the other findings of this article, are based on research for my PhD thesis into the barriers to and facilitators of Lebanese women’s participation in breast cancer screening services. This research included a survey administered to 231 Lebanese women, as well as 17 focus group discussions with 163 woman over the age of 40 living across all eight governorates in Lebanon.

My research found that affordability, as well as availability, were important factors that influence a woman’s decision to seek medical care and breast cancer screening. During the past few years, many awareness campaigns have been launched in Asian and Middle Eastern countries that share similar cultural and religious characteristics, but the majority of women with breast cancer in developing countries are still being diagnosed in late stages. This is reflected in the overall five-year survival rate ranging between 10 to 40 percent in developing countries compared to 80 percent in developed ones.   

In 2002, the Lebanese Ministry of Public Health (MoPH) launched an annual breast cancer awareness campaign that ran throughout October. The ministry specifies 40 as the recommended starting age for screening, advising women who have reached or surpassed that age to undertake annual mammograms. Most western countries recommend screening from age 50, but in Lebanon breast cancer is regularly diagnosed among a slightly younger demographic.

For the past two years, this awareness campaign has been extended by three months. During this period, mammograms are offered for free at governmental hospitals and for the reduced price of up to LL40,000 ($26.66) at private ones. An ultrasound is also offered at the reduced price of LL30,000 ($20) at governmental hospitals and LL40,000 ($26.66) at private ones.

An evaluation of the first three years of this program found that women are less likely to go in for repeated mammograms year after year than they are to go in for an initial screening. By 2013, the proportion of women who had had a mammogram at least once was 43 percent, while the proportion of women who had had a recent mammogram was just 20 percent.

Financial barriers to treatment

Financial concerns may influence whether a woman chooses to get a mammogram on a yearly basis, or when required by her doctor. In Lebanon, where 51.7 percent of the population does not have medical coverage, access to such services is already limited. Even if the mammogram or the screening tests are covered by the MoPH, additional perceived costs—future follow-ups or additional tests—may discourage many women from seeking one in the first place.

Sometimes physicians ask patients to undergo multiple mammograms within a single year. In the absence of social security or any other type of medical coverage, a woman might choose to skip or postpone the initial mammogram for fear of being asked to pay for multiple tests. Even in public hospitals, where the majority of women choose to go due to cheap or even free appointments, some of the tests required after the first visit could be costly. Many women go for a free mammogram without having the funds on hand for any additional tests, such as an ultrasound, which costs a further LL30,000 ($20). Even if a woman is covered under the NSSF, they still might not be able to afford the outstanding 15 percent of the medical expense, or the cost of further required tests or medical procedures.

Outside of the awareness-raising months, these services are offered at full prices. At private medical centers and hospitals, a mammogram and an ultrasound each cost LL60,000 ($40). In public hospitals, a mammogram costs LL50,000 ($33) and an ultrasound LL60,000 ($40). For those earning Lebanon’s minimum wage of just LL675,000 ($450), these tests would consume 16 or 18 percent of a monthly salary at public or private hospitals respectively.

Women are also concerned about the affordability of breast cancer treatment, if they happen to receive a positive diagnosis. They worry that they would not be able to afford the costs of drugs, chemotherapy, radiotherapy, or medical procedures that were not covered by the MoPH. The economic burden on breast cancer patients is real. Many patients even stop their treatment once they can no longer afford the price of chemotherapy.

Currently, the ministry does not cover outpatient services, doctors’ fees, or other diagnostic tests for breast cancer. It is extremely difficult to change this, since such an alteration would require a legal modification, as well as resources that the MoPH does not have. Between 2014-2016, the MoPH spent around $140 million dispensing free cancer drugs. Complete coverage remains a challenge; the average cost of drugs per patient per year—measured across all cancer types—increased from $7,000 in 2014 to $8,400 in 2016, according to a study on oncology costs in Lebanon.

The cost of transportation from home to hospitals or medical centers also acts as a barrier to women’s participation in breast cancer screening activities. There are women residing in rural areas who struggle to afford the cost of a taxi to reach the closest hospital.

When economic resources are limited, many women prefer to go without medical screening in favor of spending what little money there is on their families. They prioritize their family’s needs and household expenses over their own health and access to medical services.

How can we change this?

There are several avenues to increase the take up of breast cancer screening among Lebanese women. These include:

Tailoring awareness campaigns: National and other campaigns around breast cancer screening seek to increase awareness and target women from various backgrounds. It is important to tailor awareness-raising campaigns and messages to the women that the campaign needs to reach (taking into account, for example, their location, age, socioeconomic status, and religion).

Placing more attention on women in rural areas: Women residing in rural areas face greater barriers to medical screening than their peers in urban areas. This is not only due to the limited availability of services, but also to the level of trust in service providers, and cultural as well as financial barriers. Increasing participation in screening activities in Lebanon’s rural areas would require a structural approach that addresses the different barriers identified. 

Increasing personalized communication with women: The current campaigns adopt a mass population approach and place less attention on direct communication and cues to action. Direct targeting is more likely to prompt women to take positive actions toward screening. Women could start getting direct phone calls, emails, or messages from their hospitals or doctors reminding them of follow-up visits and mammograms, as well as counselling if diagnosed.

Such a program could also include a free, designated hotline run by the MoPH, in collaboration with the Ministry of Telecommunications, for women to call with any question on breast cancer. Peer to peer education built around positive word-of-mouth communication, could be promoted through household visits, which are widely acceptable according to Lebanese cultural norms and traditions.     

Increasing the engagement of community-based organizations: The engagement and support of local community-based organizations, especially in rural areas, can address different barriers to screening. Entities such as municipalities and NGOs can spread awareness on breast cancer as well as access to healthcare institutions by providing transportation.

Religious representatives can provide support by tackling beliefs and misconceptions perceived to be founded in religion. This can also help to emphasize the role of religion as a facilitator rather than a barrier.    

Working on prevention in addition to early detection: Framing awareness raising campaigns and efforts to increase screening for breast cancer could be included in a more comprehensive initiative toward the prevention, not only detection, of the disease. Women need to know more about preventative measures and changes required. The latter would include more attention to risk factors, environmental determinants, and healthier lifestyle choices.

Encouraging breast self-examination: The level of information and attention given to self-examination of breasts should be increased via doctors or national campaigns, as this is an easy, affordable, and acceptable method of primary screening for all women, regardless of their socioeconomic backgrounds and health coverage.

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Blood transfusion servicesEconomics & Policy

Blood donation in Lebanon

by Executive Editors
written by Executive Editors

Anyone active in the Lebanese social media bubble will have seen the all too frequent posts, shared on behalf of family or friends, urgently calling for volunteers to donate a specific blood type at a specific hospital. What people may not realize is that the blood they are being desperately asked to donate might not actually go to the patient who is asking for it. Lebanon’s blood transfusion system runs on what is called family/replacement donation—hospitals give the needed blood units, if they have them, to the patient, provided that these are replaced by the patient’s network of family and friends. If a patient needs six units of A+ blood, then they will be responsible for replacing these six units in the hospital’s blood bank.

Replacement donation is not unique to Lebanon; 71 countries are still dependent on replacement or paid donors for over 50 percent of their blood supply, according to the World Health Organization (WHO). Since 2010, the WHO has had a global framework for action to help countries achieve 100 percent voluntary non-remunerated donors (VNRDs) by 2020, with this deadline since extended to 2025 for countries in the Eastern Mediterranean. But even with the extra five years, Lebanon still lags far behind. Replacement donors account for around 80 percent of all blood donations in Lebanon, and without a national impetus to encourage voluntary donation, and a shift in public mentality, this is unlikely to change anytime soon.

Voluntary, not replacement

What reliance on replacement donation means in practice is that while the blood transfusion system in Lebanon is arguably effective, each actor on the supply side (including patients, their relatives, and hospital staff) is placed under pressure to procure blood when needed—rather than being able to rely on a national blood bank. Hospitals, keen to keep an emergency stock of blood, are unwilling to use their own supply unless it is guaranteed to be replaced. And while those who do donate are of course doing so voluntarily and without pay (it is illegal to pay donors in Lebanon), they still fall under the banner of replacement donors because they are making this donation on behalf of a specific patient.

What makes replacement donation problematic is that statistically these kinds of donors are not the safest to work with. Knowing the person involved and being under pressure to donate from friends and family can make it more likely that these donors will not be entirely honest in the screening process—increasing the risk for the blood’s recipient. All blood products in the country are legally obligated to be screened for HIV, Hepatitus B, Hepatitus C, Syphilis, and irregular antibodies, but certain diseases, such as HIV, have a window period in which an affected donor could transmit the disease without any detectable antibodies during the screening process. This is why the national questionnaire—prepared by a committee of experts to check the eligibility of donors and available, along with other information for prospective blood donors, on the Ministry of Public Health (MoPH) website since 2015—is a vital part of the process to ensure the safety of patients.

To add more stress to an already stressful situation, there have been recent reports in local media, as well as personal accounts shared with Executive, of potential donors being turned away for reasons that, when posed to specialists in blood transfusion, do not stand up to scrutiny. These include female donors being rejected on the basis of their gender and potential donors being turned away for having engaged in safe sex. The national questionnaire does ask donors several questions on sexual activity to screen for those at a higher risk of having contracted a sexually transmitted disease, and women are asked specific questions related to pregnancy, and whether they have had sexual contact with a man who has had sexual contact with another man. But to be turned away for having had protected sex in general, or simply for being a woman, has no scientific basis. The only real difference between men and women when it comes to blood donation is that men can donate six times a year compared to four times for women, due to the latter’s slightly lower levels of haemoglobin. Asked why hospitals might turn away potential donors on criteria not addressed in the national questionnaire, the specialists Executive spoke with cited a lack of training as a possible reason.

Procuring the necessary blood units is also complicated by hospitals’ differing standards. Some, for example, will accept donations of blood units, while others require these donations to be made in person at the hospital. Abdo Saad, head of communications at Donner Sang Compter, an NGO set up in 2009 to help connect patients with willing donors, argues that hospitals are the most difficult part of the supply chain. He cites different standards and criteria between hospitals as leading to a lack of trust that makes hospitals insist that people donate in person.

This desire of hospitals to receive donations on site also comes with several drawbacks. In an article titled “Can a decentralized blood supply system reach 100% voluntary non-remunerated donation?” published in the International Journal of Health Planning and Management (IJHPM) earlier this year, the authors noted that most hospital blood banks in Lebanon are clustered in overcrowded urban areas, making them hard to access, given the lack of parking and traffic congestion. Most also stop accepting donors after 5 p.m., except in emergency cases, meaning that potential donors often must take  time off work to donate, thus incurring discouraging out-of-pocket expenses.

The pressure to secure donors can also take a heavy toll on patients and their families. Executive spoke with a woman whose father had recently needed regular donations of blood while being treated for leukemia over a seven-month period. The responsibility to find donors was immense. “It’s one of the unforgettable periods in my life. It was super, super exhausting; it really sucks energy and life out of you … and you sometimes feel you really need to beg people [to donate],” the woman, who prefers to remain anonymous, tells Executive.

The Lebanese system

For Saad, blood donation in Lebanon is so fragmented due to a lack of involvement at the governmental level. “Here we have each hospital relying on itself, or on the Lebanese Red Cross (LRC). So [it is a] decentralized system which jeopardizes everything, and there is no one to control it,” he says.

Blood transfusion services in Lebanon are indeed highly decentralized, in line with the healthcare system overall. The IJHPM article says that healthcare facilities carry out 85 percent of national transfusion activities, while the remaining 15 percent is carried out by the LRC. Law 766 (2006) states that authorization to operate a blood transfusion center must come from the MoPH, and the center must be run by a physician who, among other requirements, has a degree specialization in hematology. In reality, however, the situation is more complex. The article estimated that of Lebanon’s healthcare facilities less than half are licensed by the MoPH to practice transfusion services, with the remainder running unlicensed blood bank activities. Dr. Rita Feghali, who coordinates the Lebanese National Committee of Blood Transfusion (LNCBT), an advisory body to the MoPH, says, “All hospitals can transfuse. So if you have a patient needing a blood unit, you will have to transfuse them even if you don’t have a license for a blood transfusion center, which is the case for more than half of the hospitals in Lebanon.”

Since 2010, the MoPH has made efforts to improve the quality and standardization of blood transfusion services, starting with an advisory relationship between the ministry and Établissement Français du Sang (ESF), the national blood bank of France. In 2011, the LNCBT was formed, composed of eight members all working in the field of blood transfusion at Lebanese hospitals. This committee was tasked with advising the ministry on the organization of blood policy, the promotion of VNRD, and the improvement and sharing of blood transfusion practices, among other goals.

In the past seven years, the committee has authored guidelines on good transfusion practice (released in 2012), and developed a hemovigilance program (in 2015) that included the national blood donor questionnaire. They are now in the process of producing an all-encompassing national strategy for blood transfusion in Lebanon. However, enforcement of these guidelines remains an issue. Feghali explains: “It should be mandatory because this is our national questionnaire, and in the new accreditation standards put [in place] by the MoPH there is a grade for using the national questionnaire—because you know in Lebanon we cannot always do these things by force—but there is a grade, so for the hospitals, it is one of the standards the hospitals should be using.”

To improve enforcement, the committee will be recruiting and training auditors to undertake a national audit of all blood transfusion services in the country, part of an accreditation process specific to these services. This process is set to begin in 2019, with all blood banks scheduled to be audited over a two-year period. The ministry has yet to take a decision on what will be the punitive consequences for hospitals found to not be adhering to these standards.

Quality, but also quantity

There is a dual challenge for blood transfusion services: ensuring both the quality and quantity of their supply. While there has been a lot of progress at the ministry-level in terms of standardizing practices to improve quality, ensuring a sufficient supply of voluntary donations is very much a work in progress.

In 2016, the MoPH launched Lebanon’s first national blood donor public awareness campaign to encourage VNRDs with radio ads, leaflets, and a hotline to inform donors of their nearest blood banks. This, while successful, did not have the full impact the ministry was hoping for, according to Feghali. Raising greater awareness of the need to donate blood altruistically and regularly, rather than for a specific person, was raised as one of the most—if not the most—important way to move Lebanon toward the WHO goal of 100 percent VNRDs.

Lack of voluntarily blood donations is not the only roadblock. According to the IJHPM article, other challenges that need to be overcome include: shifting from the mentality of replacement donations, misconceptions within the Lebanese community over the safety of blood donation, the out-of-pocket costs incurred by donors, and a lack of respect toward donors, who often have to contend with long waiting times and poorly trained staff.  Even if all these issues can be addressed, the authors of the piece—which include Dr. Antoine Haddad, head of Department of Clinical Pathology and Blood Bank at Sacre Coeur Hospital, and one of the members of the LNCBT—estimate that Lebanon is still a decade away from 100 percent VNRD.

According to Haddad, who spoke in person to Executive, another significant barrier to realizing an all-volunteer blood donor system is the lack of sufficient funds and manpower allocated to blood transfusion services. Haddad, while praising the work the committee has achieved so far, says that the only way to truly move the country toward voluntary donation is to legally designate blood transfusion as a public health issue under the purview of the MoPH. He points to the fact that Lebanon, unlike most countries in the region, does not have a national institute for blood transfusion. This means the country lacks the staff, resources, and funding of a fully empowered national institute, which would be able, among other things, to run a national media campaigns encouraging voluntary donation.

But he also cautions against trying to impose a centralized system that, while perhaps successful in other countries, may not be the best fit for Lebanon. During the 2006 War, for example, the decentralized nature of the system was actually an asset. When roads and infrastructure were bombed, Lebanese people across the country still had access to blood. According to Haddad, Lebanon needs a national solution for blood transfusion that specifically caters to the country’s needs.

Changing mentalities

In the absence of a national blood bank or institute for blood transfusion, the role played by organizations such as DSC and the LRC remains vital. Following the MoPH’s lead, since 2014 the LRC has been focused on quality control. According to Feghali, who is also head of the LRC’s blood transfusion services, the organization’s 13 centers across Lebanon have been improved and rehabilitated to international standards, with several sites inspected by international auditors. Now, the LRC is shifting its focus to increasing voluntary donations. Currently, the LRC supplies around 15-20 percent of the national demand for blood units, but more than 90-95 percent of this total is still via replacement donors, Feghali says. Next year, the LRC is launching a new communication project for all its services, including social media campaigns and a new website. Raising awareness about voluntary blood donation, along with organizing more blood drives, form integral components of this initiative.

A secondary target for the LRC is to improve the transport of blood units around Lebanon, which currently relies on patients’ families to move blood from their centers to hospitals. “We are trying at the LRC to put in place a transportation system that will assure transportation of blood directly to the hospital, totally monitored: From the time it leaves the Red Cross to the time it reaches the hospital, the temperature and the conditions [will be] completely monitored,” Feghali says.

Donner Sang Compter, meanwhile, helps patients directly through its call center database, which has grown to include the details of around 20,000 potential donors. Saad estimates that they link patients to around 50-60 donors per day—and while there are no official figures, research estimates that Lebanon needs around 150,000 blood units per year, or just over 400 units per day.

DSC is also making efforts to raise awareness around and increase voluntary blood donation in Lebanon. The organization indirectly helps patients by organizing around 160 blood drives per year, in partnership with hospital blood banks, to increase their stocks—through these, Saad estimates that around 6,000 blood units are collected annually. DSC’s greatest success in terms of encouraging VNRDs, he says, is through their affiliated clubs at Lebanese universities, which organize blood drives and awareness sessions on campus. “This has been the most efficient way to raise awareness because we get to meet people one-on-one and correct some misconceptions about blood donation, and we have been targeting the most enthusiastic target audience, university students, which helps build awareness for the future generations,” Saad explains.

The success of blood drives organized by DSC and the LRC, as well as people’s response after mass casualty events, shows that the Lebanese are willing to donate blood. What is required is a cultural shift, from seeing blood donation as an obligation in a specific time of need to something that is always necessary to save people’s lives. As it stands, the blood transfusion system in Lebanon, despite the stress it causes for all the actors involved, does work, and efforts are being made to improve it. But blood transfusion services follow a familiar pattern in Lebanon—one where an imperfect system lingers and gaps are, by necessity, plugged by non-governmental actors.

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Economics & Policy

Lebanon, lend us your ears

by Dara Mouracade
written by Dara Mouracade

The exciting world of audio storytelling remains relatively unexplored in the Middle East today, despite the region’s reputation for masterful storytellers. While podcasting as a medium is rapidly growing in the US and Europe, many radio stations in Lebanon and across the Arab world have yet to join this trend and produce innovative content.

Two problems exist: Firstly, there is a dearth of high-quality podcasts produced in Lebanon, and secondly, for those that do exist, it is hard for the podcast and the audience to find each other. Reaching a critical mass is incredibly difficult.

The podcasting industry as we know it began in the mid-2000s, but it was not until Serial—a US long-form investigative journalism podcast hosted by Sarah Koenig—struck gold in 2015 that podcasts became prominent in the media landscape. In 2017, the US podcast market was valued at around $313.9 million, a rise of 86 percent from $169 million in 2016 according to a study by the Interactive Advertising Bureau. In the Middle East, storytellers who began their careers on the blogosphere in the mid-2000s have begun to trade the written for the spoken word. There have been signs that podcasting is starting to pick up in MENA, but, as with any form of storytelling, production matters. Creating a successful podcast requires dedication, passion, time, talent, and resources.

Podcasting in MENA

In a recent article in Arab News, British-Lebanese journalist Nasri Atallah wrote about notable podcasts in the region, including Jordan-based Sowt, one of the biggest Arabic-language podcasts at 10,000-20,000 downloads per episode, as well as Dubai-based Kerning Cultures, another narrative-driven podcast, in English, which averages 5,000 downloads per episode, and Saudi Arabia’s Mstdfr network, which has around 20,000 listeners per month. Executive spoke to Atallah in Beirut, where he explained that Jordan, the UAE, and Saudi Arabia have more established markets, due to the use of brand partnerships to monetise podcast production. The Lebanese market is too small to be sustainable, he says, advising aspiring Lebanese podcasters to get a bigger audience by targeting the wider Levant and the English-speaking Arab world.

“Podcasting is a powerful medium, but you have to work on changing consumers’ habits from radio consumption to podcast consumption,” Atallah says. Even if you can find the audience, keeping them requires high production value. “Audio is notoriously difficult to produce, as you need to have a good, clean sound, proper tech equipment and efficient distribution,” he says, adding that podcast enthusiasts in Lebanon may have high expectations after consuming European and US podcasts.  “The key to success is to start small, be regular, iterate and look outward in distribution and promotion, as audience data is what matters most.”

Lebanese podcasters

Despite the small market size, there are Lebanese podcasts out there. Leyla Nahas has been presenting the podcast Beirut Bright Side Stories (BSS Stories), an offshoot of a blog of the same name, since February 2017. She tells Executive that the podcast—which has produced six episodes so far and is composed of narratives and interviews—was a natural evolution of her and Rami Obeid’s blog, which aims to share positive stories from Beirut. “It is challenging to produce exciting content with this format because sound design and production are expensive,” Nahas says, explaining that the podcast is a self-funded passion project, for now. Nahas and Obeid are also considering producing audio documentaries about Beirut, funded through sponsorships and subscriptions.

Queer Narratives Beirut, a podcast launched in June 2018, with 16 episodes in its first series, explored gender and sexual diversity, including transgender identities and the social and legal limitations on gender and sexuality in Lebanon. The podcast was initiated by UK PhD researcher Joy Stacey, who hopes to find funding for a further series in the future.

There are also several Lebanese podcasts scheduled to launch in the next few months, including: Who Run the World, a talk show with female entrepreneurs; The Huddle, a sports talk show; Movie Court, a film review show; The Pitch, a talking shop with entrepreneurs; and A Better Beirut, a talk show on positive stories from the capital that will be launched early November.

Despite these offerings, too few Lebanese are listening to podcasts produced in the local market. BBS Stories averages 360 listens per episode without any promotion, while Queer Narratives Beirut, which received a lot of press attention, averages 2000 listens per episodes. Mobile data in the country is notoriously expensive—perhaps a reason why podcasts are not taking off in Lebanon, where consumers will likely wait for a stable WiFi connection to stream or download a podcast.

Podcasts that have proved popular in the region are those that cover topics with enough regional or global appeal for their producers to be able to gain audiences large enough to sustain themselves via podcasting. At the moment, it simply does not make sense to produce a podcast purely for the Lebanese market, as the audience numbers are just not there.

Boudy Boustany, host of a popular show on Virgin Radio Lebanon that regularly draws in 30,000 listeners, believes that Lebanese consumers are not used to podcasts, with only a specific demographic listening to podcasts or watching vlog media on a regular basis. In the US and Europe, even a niche topic will appeal to a large enough audience and make it easier to sustain with ad money, which is not the case in the case in the smaller Lebanese market, he says, arguing it is too small to sustain podcasters. Like Atallah, Boustany believes that only through targeting a larger Arab consumer base could local podcasters make enough money to sustain a living.

Boustany has toyed with the idea of going into podcasting or video blogging himself, but believes that these could only be passion projects, with radio remaining the dominant medium. “You get more value from every dollar spent on the radio than almost any form of media in Lebanon because radio is a fairly targeted form of mass media,” he says.

Show me the money

So how do podcasts make money? Revenue streams for podcasts typically include advertising or another form of investments such as corporate social responsibility initiatives or grants. However, given there is little data on the popularity of podcasts in the Arab world, it is hard for aspiring podcasters to cold pitch their idea to investors—they would first have to build up an audience through word-of-mouth in order to demonstrate that listeners exist for their content.

While the ROI for podcasts in the Arab world is not clear, podcasts typically can open up various licensing and monetisation avenues. Podcasts can be adapted into TV series, books, live-recording events—there are many possibles, and each is a whole new potential revenue stream. Each successful adaptation allows for audience development and creates a marketing vessel for the original podcast as a standalone product. Being able to offer the same level of content on various platforms allows podcasts to be more engaging and impactful. It is a low-cost introduction strategy to a higher value production of the same content down the line.

Podcasts offer exciting opportunities to more than just their producers. Stefano Fallaha, just 20 years old, is the founder of Fallound, which began in 2016 as a social network and is now a mobile app and a piece of software for cars. The latter connects to car navigation systems and finds its user a perfectly timed audio podcast based on their commute length and interests. Currently in Beta stage, Fallound, which has secured the necessary seed funding, is going to be made publicly available this year.

“We want to fill people’s time with exciting and educational content when they are on the go,” Fallaha says. “People complain they don’t have time to read or watch a video, so their only getaway would be audio,” he says. “We’re disrupting the radio industry, and broadcasting networks are now stepping up their game and getting into personalisation to stay relevant. The mindset shift will come to Lebanon eventually, but it needs a lot more time.”

Rami Zeidan, VP of Partnerships at Anghami, a Lebanon-based music platform for the Arab world, says that while there is an existing regional audience for podcasting, it is hard to find regional offerings. To help rectify this, Anghami has launched a dedicated Middle East Forum for podcasting and hosted the first ever Middle East Podcast Forum Conference, held in September in Dubai. Anghami plans to curate content and evaluate audience readiness before creating original content. They aim to expand according to demand and to use this initial period to learn more about consumer profiles in order to inform a future monetisation strategy.

  Globally, the podcast scene is becoming more fluid. Apple is starting to be challenged by Spotify and Google Play Music, as the latter two start producing original content, and by Audible and Stitcher, who have both released some podcasts from their paywalls. These developments make the ecosystem less exclusive and more accessible. The podcast industry is thriving and growing more complex, opening up more opportunities for potential producers, even if it is still in its infancy, compared to other traditional and digital media. 

Storytellers in the Levent should not shy away from producing audio. The podcasting scene may be small, but it is also not oversaturated. Those who break into the industry now have a significant opportunity to develop an audience and gain quick recognition with little competition and few barriers to entry. In the Arab world, radio remains one of the most powerful media of communication, particularly given the levels of poverty and illiteracy. Podcasts and radio can have a symbiotic relationship: It is easy to develop podcast content into radio shows for local stations to replay.   

The content we want to consume is already out there, and while the local market may be small, Lebanese still have the potential to be a part of this podcast boom. We have the stories, and we have the passion, we just need content producers in this country to grab a mic and go for it—and we need people to listen.

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CommentEconomics & Policy

The impetus for change

by Nicole Purin
written by Nicole Purin

Shareholder activism has experienced a revival and is now growing in influence globally as an effective tool to transform companies by unlocking share price value and improving their strategic vision and governance tactics.

The phenomenon of shareholder activism is not new. When it started back in the 1980s, it sparked numerous controversies due to the aggressive tactics employed by a number of activists—referred to as corporate raiders—to change a company’s capital, managerial, and operational structures.

In comparison to the early days of shareholder activism, it has now become more common to view the practice as a catalyst for positive change that aligns the interests of a company’s board, management, and shareholders. Moreover, shareholder activism forces companies to review their focus and strategies.

From its initial prevalence in the United States, shareholder activism has, in the last few decades, expanded to new frontiers in Europe and other markets. In the countries of the Gulf Cooperation Council (GCC), where corporate governance, the performance of securities markets, and the public listings of large companies have, in recent years, been matters of increasing interest, several market players hold the view that GCC countries would benefit greatly from shareholder activism.

Proponents of governance and shareholder activism across the Middle East and North Africa (MENA) region argue that this part of the world is becoming increasingly transparent from a regulatory perspective. Also, as more companies are listed publicly, these advocates see the need for the region’s economies to shift toward increased institutional ownership and improved economic health.

The region today has more fertile ground for shareholder activism than it did in the early 2000s—when several securities markets in the GCC were in the early years of operations and had nascent professional investor cultures. However, any discussion of shareholder activism in MENA should take the complexities of such a development into account. The US or European models might need to be adapted to suit this geographical territory and legal and cultural environment. In short, one would need to create a Middle Eastern way of doing shareholder activism.

Activist history and models

In the context of securities markets, activism represents a strategy or a range of activities by one or more shareholders of a publicly traded company to drive some change within the company, with the ultimate goal of unlocking some form of shares’ value.

Depending on the changes sought, the activities and the level of engagement may differ. On one side, there is activism practiced by hedge funds seeking substantial company changes at the strategic level, within the board management structure and financial structure. This form of activism is interventionist as a fulcrum of change. Historically, these activists have been classified as “corporate raiders,” as they sought to dismantle a company they regarded as “inefficient” by taking full control of the company’s shares, often using their own capital and engaging in all sort of proxy tactics to gain control of the board.

Arguably, the first shareholder activist was US-based economist and investor Benjamin Graham, who, in 1927, pushed Northern Pipeline Company to distribute its excess cash to shareholders. The company was not willing to agree, so Graham ran a PR campaign to get himself appointed to the board of directors. At the time, such behavior was unheard of—a fund manager trying to influence the governance of a publicly-traded company.

Since the 1980s, asset managers like Carl Icahn and Nelson Peltz have built their fortunes by staging very aggressive raiding campaigns. In the 1990s, hedge fund managers such as Bill Ackman and Dan Loeb entered the game. Meanwhile, activist shareholders and hedge fund icons such as Robert Monks and John Paulson began softening some of the corporate raiders’ techniques, raising money from other investors and aiming not for full board control, but for minority board representation.

The focus of recent shareholder activism is, thus, not always the breaking up of a company, but the installation of positive changes via a new management structure, the restructuring of finances, and operational efficiencies. This new, softer side to activism can be classified as constructive activism, involving one-on-one engagements between shareholders and companies, and legalized in the new “say on pay” provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which grants a firm’s shareholders to have a right to vote on the remuneration of executives.

In the last 10 years, shareholder activism has grown exponentially, possibly due to the broadening of activists’ tactics. Over the years, many activist funds have been established, and Hedge Fund Research estimates that in 2017 activist strategies represented 15.1 percent of assets within the event driven category; total assets were $125.6 billion. Further illustrations of sector growth are set out below:

Evolution of shareholder activism tactics

More and more hedge funds have been adopting a capital allocation strategy, which is the process of allocating financial resources to different sources in order to increase profits. A target company may attract the attention of activists if a board is perceived as being ineffective, if it has a low market value relative to its book value, or if it is looking for a new CEO. Once a target is identified, the activist tactics are considered and selected. Numerous market sources, including the 2018 review by Lazard Bank on shareholder activism, seem to suggest that the market has evolved from corporate raider campaigns to consensus-based campaigns developed via dialogue and negotiations.

Several of the most versatile strategies are:

Divisive strategy

This strategy involves dividing board management via opposition campaigns, involving the solicitation of shareholders to withhold votes (no campaigns)—proxy contests designed to destabilize the board. This aggressive tactic is not always successful, especially in the ousting of a director, as it requires majority shareholders’ support.

Shareholder proposal strategy

Dialogue-based proposals are designed to effect changes in governance and risk management processes, as well to encourage the company to act in a more accountable way from an environmental perspective.

“Say on pay” corporate strategy

“Say on pay” is a legal measure first introduced in European jurisdictions that mandates an advisory shareholder vote on executive remuneration as proposed by the board of directors. It encourages hedge funds to rely on moderate tactics, such as shareholder engagement. Many applications of “say on pay” by hedge funds are designed to make changes to the compensation plan for executives.

A GCC perspective

Critics of shareholder activism argue that activist investors are interested in quick returns and short-term investments as opposed to fostering a long-term vision. But those in favor of activism argue that activist campaigns improve a company’s valuation in the long term, even after an activist has cashed out on a company. In reality, activism is seldom carried out over a short period of time. It usually requires months, if not years, to implement and measure, in addition to lengthy collaboration between institutional investors and the activist investor.

Most of the listed companies in the GCC are nano (EUR <50m) and micro cap (EUR 50-300m). Before an initial public offering (IPO), a company is usually backed by a private equity fund. Management is thus challenged to generate more cash flow in order to repay the debt, and  is under pressure to deliver a robust business plan.

When the company becomes public, most private equity funds exit and realize their financial gains. During the IPO process, asset managers can buy a stake in the company, but they are passive investors and are not represented on the board—and hence cannot change the vision, business, or value of a company.

Most companies in this space start with a great product and up to a certain point the demand for the product continues to grow, but then growth stifles. It is at this point that the company needs a solid transition to build on its success, adding products or services to sustain the corporate development through merger and acquisition operations. When an organization faces major change—disruptive innovation, taking drastic adjustments to transform an enterprise—managers can destroy a lot of value. Activist investing is a natural revolution to help listed companies become more efficient.

Activism in the GCC can be developed as follows: Nano and micro cap are a niche company market and there is an opportunity for an activist to add value in a legitimate way. As GCC companies are less well researched by analysts and less likely to follow corporate governance best practices, the potential for unlocking big share price gains may be greater than with larger groups of more established companies. Also, smaller companies do not always have the resources to fend off an activist campaign.

In the GCC, it is crucial for companies to become more transparent. In most instances, companies employ an auditor to analyze their financial statements, but sometimes those charged with scrutinizing the corporate books are too close to management. This hinders objectivity and can result in failure to detect malpractice. If an activist provides more due diligence, they can discover any financial shenanigans and poor management decisions that were made to sustain the value for the shareholders. They could then challenge the board and the management to bring more transparency.

Shareholder activism has evolved significantly since the 1980s and its reputation as a destructive force is no longer applicable, given the emergence of increasingly constructive campaigns. The GCC would indeed benefit from a form of shareholder activism that is constructive and proactive with extensive management dialogue, which could help companies become more transparent and operate in a more cost efficient way. Bringing greater transparency to publicly-listed companies in the GCC would arguably encourage greater investment from Europe and the US, and this would benefit the economy as a whole.

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Economics & PolicyQ&A

Lebanon’s housing authority to restart subsidization scheme

by Jeremy Arbid
written by Jeremy Arbid

How far will LL100 billion go? That was the main question Executive posed to Rony Lahoud, head of Lebanon’s public housing authority, the Public Corporation for Housing (PCH). While there are still variables to be calculated, at the time of this interview in late October, Lahoud suggested that almost two thirds of the demand for subsidized loans via the PCH would go unsatisfied next year.

For nearly two decades, until the end of 2017, Banque du Liban (BDL), Lebanon’s central bank, had offered cheap credit to commercial banks with the understanding that savings would be passed on to home loan borrowers (see October cover story). This year, BDL still offered cheap credit worth $500 million to the banks to finance home loans as part of its stimulus package, but that money was quickly used up. By July, the PCH had to stop accepting loan applications, creating a housing loan crisis that is now close to being solved, thanks to the LL100 billion ($66 million) allocated for this purpose in a swiftly passed law.

Given Lebanon’s current interest rate environment, it is not yet clear how many loans the PCH can offer with the allocated amount. Lahoud tells Executive that the housing authority is hoping to conclude negotiations—which include discussion of a new PCH loan product—with commercial banks by early November. Then, Lahoud says, he’ll know how much the subsidy will cost the PCH and the borrower, and how many loans the housing authority can support.

E   How were subsidized home loans financed before?

This new law is specific to the PCH—all other agencies or banks that offered subsidized loans [have stopped doing so]. Since 1999, [BDL] allowed every commercial bank to access up to 15 percent of their capital reserves held at the central bank to give home loans via the PCH and other institutions. And from 2013, there was the stimulus package, where the central bank offered a loan at 1 percent interest to commercial banks to use for home loans. At the end of 2017, the central bank stopped the first one [meaning banks could no longer access their capital reserves to finance mortgages], but it offered an additional $500 million in 2018 as part of its stimulus package.

E   This is the $500 million that was quickly exhausted during the first quarter of 2018?

This was the amount that [BDL said] could be used for home loans, across all subsidy schemes via PCH, the Lebanese Armed Forces, Banque de l’habitat, and directly from the banks. The banks could borrow this money from the central bank at 1 percent interest and were offering around 4 percent on mortgages. This $500 million could not satisfy demand.

E   Mortgages across all subsidized schemes is nearly $2 billion per year, so the central bank’s offering of $500 million for 2018 is only around 25 percent of demand by total value. Of that $2 billion, the PCH offers almost $700 million per year by total value.

For the PCH it is 5,000 loans per year with an average of $126,000 per loan. The average loan amount [multiplied by] 5,000 is $643 million per year.

E   The money for subsidized loans dried up quite quickly this year, and in September you told Executive that PCH approved 1,800 loans in 2018 before the money ran out.

It’s two thousand files this year, in the 10 months from the beginning of the year until now. This is $244 million disbursed by total value. The $500 million was divided by a quota between the banks and they let us know they had no more money to finance subsidized loans. We took the decision to stop receiving new files because we could not take in new applications while there were still some on hold at the banks. At the same time, people were presenting files to the PCH, hoping their application would be approved soon, but in reality we could not approve any new loans. So we preferred to stop receiving files until a financing solution could be found, because most probably a new solution would be more expensive than it was before and [potential borrowers] might decide not to take a home loan at 7 or 8 percent interest.

E   What was the official date that PCH closed its doors to new mortgage applications?

It was the beginning of July when we stopped accepting.

E   Now that Parliament has passed a law to finance PCH loans are you accepting applications?

No, not yet. The new law is already in force and we’ve started negotiations with the banks and the Association of Banks to see what can be done, and how we can start again giving loans, at what interest rates, whether we’ll need to change any criteria, and we are trying to create a new product. Before, our product was somewhat complicated: Over the first half of the loan, the borrower was paying just the principal, while the PCH paid the interest; the second half, the borrower paid back the PCH. So it was somewhat complicated and needed a lot of tracking from our end.

E   The PCH Facebook page recently posted that you were beginning to negotiate with the banks in relation to this law and to restart the subsidy scheme. What is being negotiated?

Before we paid the interest on the first period [the first 15 years of a 30 year PCH mortgage, when borrowers were paying the principal], and now PCH is going to subsidize the loans on the whole period. But now we’re talking about an environment where the interest rate is 10 or 12 percent and PCH is to subsidize that for the borrower, which is impossible for the PCH to pay the whole interest. So PCH is building a new product more similar to those offered at banks, where the citizen pays toward the principal and interest for the whole period.

[With the new product] the period can no longer be 15 years—it should become 25 years, and the loans should be offered in Lebanese lira. These two criteria were accepted by the banks. But what about the interest rate environment? We suggested that the subsidized interest be paid upfront. We’ll discount all of the interest subsidy and pay the net present value from the PCH. The whole amount of the interest that PCH is to subsidize will be paid at the beginning of the loan. The borrower pays the second part of the interest, paying toward the principal and interest over 25 years. This way the interest rate will be much less for the borrower than the market interest rate.

E   So because of the interest rate environment, the PCH might not subsidize 5,000 loans, as it had been doing before this year?

We project demand from all potential low-income and medium-income borrowers via the PCH to reach 8,000 applications. For sure we cannot service 8,000 files with the LL100 billion, so what we are going to do is accept many fewer applications, maybe meeting 30 percent of demand. We haven’t finalized our estimations yet because we are still negotiating with the banks on the interest rate for the mortgage and on the interest that the PCH will cover. If we are going to pay 5 percent from the PCH and 5 percent from the borrower, maybe it will be ok, but until now we haven’t reached a final decision with the banks. Once we calculate these two variables we will better know how many loans the PCH can subsidize in 2019.

E   This law is applicable from January 1, 2019 to December 31, 2019?

It is on the state budget of 2018, and we’ll figure out how to use it for 2019 as well.

E   What comes next after 2019, or if this money is used up earlier?

We’ll discuss that next, but now we’re focusing more on the new product with the banks, and once we have that, we’ll know how much it will cost the borrower and the PCH.

E   Is it possible that the PCH may be able to increase its annual budget as part of its request to the next state budget, and this LL100 billion would be the requested amount?

Yes, hopefully. Once we have this product and determine the two variables—interest for the borrower and what the PCH will subsidize—with the average disbursement amount of $126,000, we’ll know how many files [the LL100 billion] can subsidize via the PCH. Once we have all these numbers we’ll discuss with the Ministry of Finance to know where we are and what we can do.

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CommentEconomics & Policy

A long time in the making

by Ahmad El-Khatib
written by Ahmad El-Khatib

The PPP law, formally known as Law 48 Regulating Public Private Partnerships, was first proposed as a draft by Cabinet in 2007. It was not until September 2017 that it was passed by Parliament and published in the Official Gazette. In other words, it took lawmakers ten years to pass the PPP law.

Back in 2007, Lebanon’s public debt was circa $42 billion. Today, it has reached approximately $83 billion. While this massive jump in public debt was not caused by the absence of the PPP law, it is certainly arguable that a significant portion could had been saved, had the law been passed in 2007 and implemented in the intervening years.

There are numerous benefits to public-private partnerships. As well allocating the risks between the public and private partner, the benefits of PPP that are most relevant in the Lebanese context are the following:

It minimizes the financial risk to the government, given that PPPs are regarded as an alternative to public funds for financing new development or upgrading of infrastructure, both of which are capital intensive. With PPP, the costs will be covered by the private partner rather than eating into the government’s budget.

It increases the efficiency of the project—if applied to the right project under the correct procurement process—and increases effectiveness, by achieving the desired outcome in a time- and cost-effective way.

It helps foster transparency and limits corruption, which is a major current impediment to economic growth and sustainable development in Lebanon.

Several factors at play

These benefits, however, are dependent on several factors: whether the proposed PPP project addresses a public need and is suitable for a PPP, well prepared, commercially feasible, properly structured and tendered, and proactively managed through the life of the partnership agreement.

The importance of the PPP law lies in the fact that it ensures that different projects are consistently structured, tendered, and managed. This consistency lowers costs for the private sector and builds confidence in the market—in the absence of such a robust framework, different ministries may act with frustrating inconsistencies and, in doing so, put off potential bidders.

Meanwhile, the principal benefit of the PPP law is that it codifies the pre-procurement and procurement processes, meaning that any actors—the state, public institutions, municipalities or federation of municipalities—must follow the required steps in order to procure a PPP project. According to article 4 of the PPP law, PPP projects can be proposed by the president of the High Council for Privatisation and PPP (HCP), the “concerned” minister, the president of a municipal council, or the president of a federation of municipalities, with respect to projects under their purview.

In this regard, it is important to stress the need to create a pipeline of projects that increase the attractiveness to sponsors while, at the same time, focusing on the sectors contributing the most to the growth of our public debt. By doing so, the same types of sponsors will be more willing to incur bid costs in the knowledge that, if they are unsuccessful, they can simply roll-over their resources into the next project in the pipeline.

Now that there finally is a PPP law, the challenge is not only to attract private partners, but to attract the right ones. When investing in a foreign country, private firms assess certain risks, such as foreign exchange, economic viability (including GDP and inflation), regulatory risks, and political risks, such as government instability.

Unfortunately, Lebanon is known for its frequent political instability and deadlock. At the time of writing, the country was still waiting for Prime Minister-designate Saad Hariri to form the next cabinet, after over five months of political wrangling and stalemate. The Council of Ministers, in accordance with the PPP law, plays a major role in the procurement process of any PPP project undertaken by the state, public institutions, or any moral person of public law. In our opinion, this constitutes a major problem: Without a cabinet, PPP projects cannot move forward.

The Council of Ministers is a key decision maker at several points in the process: It must approve the project and the final tender document; on the suggestion of the concerned minister, it has the authority to appoint a member onto the board of the project company if a public entity has contributed to the share capital of the project company; the concerned minister must sign the partnership agreement on behalf of the state; and if the PPP project requires the expropriation of private properties, then there must be a decree declaring public benefit, which would need to be issued by cabinet.

No cabinet, no PPP

The approvals, appointments, and issuance of decrees mentioned above, cannot be carried out by a caretaker government, nor can a caretaker minister sign a partnership agreement. This means, in the likely scenario that Lebanon continues to have long-standing caretaker governments, the procurement process of PPP projects will become another casualty of the lack of functioning institutions.

There could be cases in which the HCP has prepared and approved a PPP project but there is no cabinet to give final approval, and so the project committee would be unable to launch the process to select the private partner. Or worse, the tender document may be approved by the HCP but not the government, or the private partner could be selected—after a long and thorough tender process—but the partnership agreement would go unsigned, because a caretaker minister has no authority to give it their signature.

If this happens, will the private partner wait? What message will we be sending to international investors in this scenario? Was this reputational risk taken into consideration when the PPP law was drafted?

It would have been preferable to keep the Council of Ministers out of the procurement process as much as possible, and, at the very least, to bestow the aforementioned responsibilities (with the exception of expropriation) on the HCP, for PPP projects of a certain size (for example, up to $50 million).

For PPP projects of a municipal nature, the process and implementation are much easier. Municipalities are more stable and the powers mentioned above are granted to the municipal council president or the president of a federation of municipalities, as the case may be. Given this, municipalities and federations of municipalities are urged to undertake as many PPP projects as possible.

Aside for the setback with the Council of Ministers, the PPP law is also silent on conflicts of interest that the public side (the HCP’s employees, project committee members, work team members, concerned ministers, ministers in general, the president of a municipal council, municipal council members, the president of a federation of municipalities, and/or their relatives) may have with the project company, the sponsors, or the contractors. This is a very crucial issue in order to fight corruption, and should be addressed in the implementing decrees of the PPP law.

Ultimately, it has been one year since the PPP law was passed and no PPP project has seen light yet. One can only hope that, despite all the challenges mentioned above, there will be a PPP project in Lebanon in less time than it took the authorities to pass the PPP law.

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