EditorialOpinion

From Pax Ottomana to Pax Persica, and everything bloody in between

by Yasser Akkaoui
written by Yasser Akkaoui

While 2017 began with promises that Lebanon was entering a new era, the year ended with proof that our political culture has not advanced a millimeter in hundreds of years. This land is still ruled through entitlements. Wannabe regional  supreme leaders choose our politicians, and in return, they demand veneration and tribute from appointees. We’re still ruled by entitled princes who care only about protecting their own power and wealth, while they extort citizens to the bone.

No wonder Jerusalem was recognized as the capital of Israel by US President Trump. Arab leaders did not want it enough, they only politicized the Palestinian cause to keep their citizens quiet without making any attempts to defend the holy city. Who can blame them? They are all manipulated and appointed themselves. Certain leaders love putting on a show of dedication, when behind the curtains lurks the truth of their hidden agendas. Jerusalem can only be claimed by those who are willing to truly want it. For now, it’s the Palestinians, Iranians, and the Israelis.

The resignation of Prime Minister Saad Hariri followed by the speeches of Hassan Nasrallah demonstrated how hard it is to hope for change, despite a new election law and promises of long-overdue parliamentary elections. The law was written in a way to protect those in power. Reformists and idealists stand little chance of taking over Parliament and changing the county’s direction. Sectarian rhetoric and dirty tricks will dominate in the first quarter of 2018. The establishment will do all it can to bury the opposition, which, because it is still divided, is unable to voice a clear and consistent message.

Since the beginning of the Syrian crisis in 2011, our end-of-year issue has been increasingly difficult to produce. There’s very little good economic news coming out of Lebanon, and plenty of uncertainty coming from external forces, be it US pressure on Lebanese banks, or a regional power struggle that impacts people’s daily lives. From bankers to hoteliers to industrialists, all are helpless in front of geopolitical developments, worried about Lebanon’s economic future.

What we need, and what 2018 can help lay the foundations for, is the collective will to be a nation and build a nation. Our princes will lead us to ruin. They’ll keep us divided to enrich themselves, each community subservient to entitled crooks. We can’t move forward as a country until we all see ourselves as citizens of one country, instead of as communities competing for foreign entitlements that come with licenses to steal the spoils of a failed state.

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Economics & PolicyOil and gas

Lebanon’s oil & gas sector

by Mona Sukkarieh
written by Mona Sukkarieh

 

Lebanon is finally stepping into the exploration phase. The Council of Ministers approved the awarding of exploration and productions licenses mid-December to a consortium made of France’s Total, Italy’s Eni and Russia’s Novatek. Contracts are expected to be signed in January 2018.

Given the context that surrounded the organization of Lebanon’s first offshore licensing round, the result can be considered a success. A lot of hard work was needed to overcome the numerous obstacles that stood in the way since 2013. On the other hand, expectations were so poorly managed during the previous years that many in Lebanon are not aware that the country was only at the pre-licensing phase. A more measured and realistic approach is advisable for the next phase.

What can Lebanon expect in 2018

Local legislation requires companies to establish a legal presence in Lebanon that is appropriately staffed and authorized to carry out rights and obligations arising from their exploration and production license. Also within a period of 30 days of approving the exploration and production agreement (EPA), the companies are expected to establish a management committee to supervise petroleum activities, composed of at least one representative for each company. The State retains the right to appoint representatives to attend, as observers, the committee’s and any subcommittee’s meetings. However, companies may organize working groups among themselves without the presence of a State representative, though they are subject to decisions made at the level of the management committee and the State retains the right to review reports submitted by these working groups to the management committee.

Companies are expected to submit an exploration plan for the first period of exploration within two months of approving the EPA. They have committed to drill two wells in 2019, during the first period of exploration, one in each block. And, although the Lebanese offshore is extensively covered with seismic surveys, more surveys will be conducted prior to any drilling.

In addition, local legislation includes a number of local content clauses to encourage the local economy, including a clause requiring 80% of employees to be Lebanese nationals. An ambitious target that will be hard to reach at the beginning of activities. That is why companies will be asked to present a detailed recruitment and training program within six months after approving the EPA, to be updated on a yearly basis, and are expected to assign a budget for training public sector personnel working on the oil and gas sector.

Strategic environmental assessment

Prior to carrying out petroleum activities, Lebanon will update its Strategic Environmental Assessment (SEA) to ensure that the impact of such activities will be minimal. A first SEA was prepared in 2012 by an international consultant but was later deemed unsuitable. The good news is that an update to the 2012 study is currently being prepared and is expected to be completed in the first months of 2018.

Legal and institutional framework

In parallel to these preparatory activities, work on the legal and institutional framework governing the sector is expected to continue. An onshore petroleum resources law is expected to be discussed by the Parliament in the coming months, because the 2010 petroleum law is restricted to offshore activity and authorities would like to pave the way for future petroleum activity onshore as well.

Two other draft laws are on the agenda of parliamentary committees and are expected to draw intense debates among the various political factions: a bill to establish a sovereign wealth fund and a more controversial bill to establish a national oil company (NOC), prior to any commercial discovery. Before a commercial discovery is made, it may be premature to establish a NOC at this stage.

LNG imports

Also in 2018, the government is expected to launch a tender to acquire up to three floating storage and regasification units (FSRUs) to be located in Tripoli, Zahrani and Salaata, and a tender to import LNG. A project that has been repeatedly revised and pushed back since 2013. In 2017, it was featured once again in the Ministry of Energy and Water’s plan for the electricity sector.

Maritime border dispute

On another front, the issue of the maritime border dispute between Lebanon and Israel will certainly resurface in the coming year, especially with the awarding of an exploration and production license in Block 9, which includes an area that is disputed by Israel. Are companies going to operate in this area? Previous Energy Ministers tried to contain tension when blocks on the border were put up for bidding by saying that putting these blocks on offer is a way to ensure sovereignty over the area, but companies would not necessarily conduct activities within the disputed zone.

The uncertainty and the tendency for tensions in this part of the world to quickly escalate will hopefully underscore the need to resume the currently neglected mediation.

Lebanon is finally stepping into the exploration phase. This is a time to look ahead. It’s also a time to reflect on the previous phase and evaluate how it was managed in a bid to draw the right lessons from our mistakes.

Correction: December 20, 2017 

An earlier version of this story incorrectly stated Lebanon would conduct a new strategic environmental assessment ahead of offshore petroleum exploration. The 2012 strategic environmental assessment will be updated using data collected during the period since.

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Industry & Agriculture

From the olive to the oil

by Nabila Rahhal
written by Nabila Rahhal

Olive trees are arguably as entrenched in Lebanon’s identity as its cedars. The country is home to 16 olive trees known as the Sisters, or the Olive Trees of Noah, which are among the oldest olive trees in the world. Located in Bcheale, in northern Lebanon, these olive trees are said to be 6,000 years old, according to local folklore.

Historically, Lebanese growers have cherished their olive trees and counted olive oil among their most prized possessions, taking quantities of it with them when forced to leave their homes during the war. This esteem has not faded over time. To date, the olive-picking season is much anticipated, with many families gathering annually for olive harvesting.

Rooted in the long tradition of olive farming in Lebanon, the modern olive oil industry is thriving—but it is not without its complexities and challenges.

The facts, please

According to the Ministry of Agriculture, Lebanon has a total planted area of 270,000 hectares; olive trees constitute 20 percent of that area, or around 54,000 hectares.

There are over 100,000 commercial olive tree growers in Lebanon, according to Mariam Eid, who is responsible for overseeing the olive oil division at the Ministry of Agriculture’s agro-industries department.

According to Roland Andary, value chain manager at USAID’s Lebanon Industry Value Chain Development (LIVCD) project, more than 80 percent of olives grown in Lebanon are used for the production of olive oil, with the rest consumed as table olives.

As such, it is no surprise that the olive oil industry is considered among the most significant agro-industries in Lebanon. “You cannot talk about agro-industry in Lebanon without talking about olive oil, especially since it covers this much space, employs a big number of people, and has so many challenges,” says Andary.

The olive growers 

According to those interviewed, the majority of olive plots in Lebanon are owned by small-scale farmers with around two to three hectares of trees. While many of these farmers contract their land to traders who handle the olive harvest and process the oil, there are others who still work their own land.

Working on such a small scale drives up the cost of production, which in turn increases the price of Lebanese olive oil, explains Eid, adding that other expenses such as electricity and labor also impact production costs. This makes Lebanese olive oil expensive when compared to olive oil production elsewhere, for example, a 20-liter container of olive oil costs an average of $150 when bought directly from the grower.

“The price of Lebanese olive oil is high, which makes it hard to sell. But this is because the cost of production is high, starting with the price of the land to the salary of the farmer. So we are working to reduce the price through the olive picking machines we distribute, or the benefits we are offering cooperatives,” explains Andary.

Eid says the Ministry of Agriculture encouraged growers to come together to form cooperatives or unions of cooperatives, so that they can divide expenses among themselves and also be able to pool their olives together and supply large quantities when asked.

Oléa, the growers’ cooperative of Lebaa and its neighboring villages in south Lebanon, has benefited from both these initiatives, receiving assistance from the ministry and the LIVCD program as well. “As a collective, USAID provided us with automatic harvest equipment—they paid for 70 percent of it and we paid the rest—and they give us technical support. In turn, I rent out the equipment to growers for a reasonable fee of $20 per day. This helps reduce the cost of olive oil production, since labor is expensive in Lebanon,” says Denise Tegho, president of the cooperative, explaining that three people working the machine can harvest a field that would take 20 people twice as much time if harvesting by hand. Tegho also explains that as a cooperative combining their small quantities of olives together, they were able to develop their own brand of olive oil and sell in bulk when needed.

The holy grail of olive oil

Because Lebanon is small, its olive oil production is relatively low compared to other countries. Lebanon cannot hope to compete with mass producers such as Italy, Spain, Tunisia, or Greece. Instead, those interviewed for this article said that Lebanon should focus on producing high-value products like extra-virgin olive oil (a classification of olive oil which has less than 0.8 percent of fatty acid in it) or premium extra-virgin olive oil (which must contain less than 0.3 percent fatty acid).

However, according to Eid, extra-virgin olive oil accounts for less than a quarter of Lebanon’s production. “The grower and the mills don’t know any better, and we’re trying to develop training programs for that. The challenge is to get the grower to change his traditional ways,” says Eid.

Improving the quality of olive oil starts with the growers, and therefore, many programs, including the LIVCD program, offer training for growers on how to take care of their trees to improve yield. The program also provides training on post-harvesting techniques. These include processing olives on the day they were harvested because olives start to deteriorate the moment they are picked.

The quality of mills for extracting olive oil is another area that can negatively impact quality. Traditional presses, which use grindstones in an open tub to mill olives, are still common in Lebanon. However, it is almost impossible to produce a high-quality oil with such presses, because the tubs do not have covers, which exposes the oil to oxidation.

Also, in traditional mills, the discs used to press the olives are made from hemp—as opposed to synthetic fibers in modern mills—which is difficult to clean. If the mills are not cleaned well between each press, the olive residue from the previous press begins to ferment and leaves a bad flavor.

Eid explains that the Ministry of Agriculture has no control over the quality of olive oil produced, because its jurisdiction is over food safety only. The ministry regulates the hygiene of the olive mills, setting guidelines for cleaning the presses between each extraction and general cleanliness.

Gradually, more mills have become aware of the limitations on quality imposed by traditional methods, and are embracing modern equipment. NGOs have donated or contributed to the purchase of up-to-date equipment, and mill operators have noted the difference.

Tegho explains that her family’s olive mill benefitted from the modern equipment provided by LIVCD. Her family was finally able to enter the export markets by producing extra-virgin olive oil, which had been impossible using a traditional mill.

Brands such as Zejd or the recently launched Adon & Myrrh are leading by example in their usage of modern mills and branding techniques to produce high-quality olive oil. These two brands also purchase olives from growers under strict quality-assurance guidelines, which incentiviz growers to follow best practices.

(Click on image to enlarge)

Developing a taste

However, it may be the Lebanese consumer that is affecting the quality of olive oil present in the market, having gotten used to oil pressed the traditional way. “Lebanese don’t yet have the culture of appreciating olive oil like they do with wine, which is more developed. This is why we have a challenge in convincing the customer to appreciate a good-quality extra-virgin olive oil, which is rather bitter. They want the sweet flavor of oxidized olive oil, but this does not have the health benefits associated with olive oil,” says Abed El Karim Al Rifai, head of the business development department at Litat Group, which owns Adon & Myrrh.

Youssef Fares, general manager of Olive Trade, which owns Zejd, believes consumer education is key. “We should have national campaigns to raise consumer awareness on what good-quality olive oil is. Otherwise, they are not reaping health benefits, and we are not helping the farmer improve the quality of their olives, nor the mills their methods of extraction,” he says, explaining that activities such as olive picking and visits to the mill—which he organizes—go a long way in developing a more modern olive oil culture in Lebanon.   

A large percentage of Lebanese consumers, especially the older generation, buy their olive oil in 20-liter tanke from villagers based on personal relationships or referrals. But the younger generation, according to Fares, is more aware of the varieties of olive oil (like flavored olive oil) and their different qualities. They therefore tend to buy from specialty stores or ask more questions when buying from the source.

Growers themselves are now aware of the importance of marketing, and have become more aggressive in promoting their olive oil by participating in festivals and events where they can interact directly with the consumers, according to Oléa’s Tegho. Growers have been developing their own brands and labels, explains LIVCD’s Andary, hoping to sell a larger percentage of their production independently to get the best rates—otherwise, they would be forced to sell their olive oil to traders who buy at low rates.

Through these small but steady steps, Lebanon’s olive oil industry, which has been slow to modernize, is slowly transforming into a competitive industry that the Sisters would be proud of.

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Agriculture

The thyme trailblazers

by Nabila Rahhal
written by Nabila Rahhal

A heavenly aroma greets you when passing by a bakery; tangy flavors linger on your taste buds long after you have swallowed that last bite. Yes, we are talking about zaatar—the faithful companion of the man’ousheh, a Lebanese breakfast favorite.

Jordan, Syria, and Lebanon each have their own versions of zaatar, mixing different herbs and seeds with dried thyme leaves. The Lebanese zaatar mix typically includes dried Lebanese thyme (scientific name Origanum syriacum), sumac, toasted sesame seeds, and salt.

This simple staple has been the object of innovation in Lebanon, through the cultivation of the thyme itself or, more recently, through twists to the original recipe.

Wild thymes

Lebanese thyme is a wild herb found in almost all of the country’s mountainous areas. It is plentiful, as it needs very little water to survive. It is collected mainly by rural families, who dry it and mix it with the other zaatar ingredients. It is then either sold it to commercial distributors and resellers, or to friends and family.

However, careless harvesting—ranging from pulling the plant from the roots to cutting the leaves before they have fully matured—is harmful to the herb and risks depleting Lebanon’s resource of wild thyme.

To reduce over-harvesting and protect Lebanon’s thyme, Law 179 was published in 2012 in coordination with a project funded by the UNDP. Under this law, those who want to collect thyme have to abide by several regulations, including obtaining a license, which indicates the area they want to harvest in, and harvesting only once a year, between June and October.

The power of planting

While measures were put in place to monitor those harvesting wild thyme, international NGOs also encouraged farmers to grow thyme themselves.

After the Israeli withdrawal in 2000, these organizations worked on projects that would provide families in rural areas of south Lebanon with a source of livelihood. It was then that the idea of cultivating thyme took root—although many farmers resisted, believing that cultivated thyme would be of a lower quality than the wild variety.

Cultivating thyme ensures a steady supply of the zaatar mix, which, due to its high demand in the local market, makes it a viable source of income.

Although some are still reluctant to plant thyme, Mohamad Nehme, a construction worker turned thyme farmer, is a firm believer in the practice. He was one of the first farmers to fully embrace thyme cultivation back in 2000, and he says he began to plant thyme even before it was encouraged by international NGOs.

A brave new world

As Nehme recounts, he and his family, who are from the village of Zawtar in south Lebanon, collected modest quantities of thyme every year. They would then turn it into zataar and sell it as a supplement to the family income.

This activity was not without risks, according to Nehme, as they were on the frontlines with Israel and were subjected to sniper attacks or risked setting off cluster munitions whenever they would collect thyme from certain fields. It was then that Nehme thought of finding a way to grow thyme in a safe place, instead of risking his family’s lives by collecting wild thyme in these dangerous areas.

Nehme says it took a lot of trial and error—especially at first, since he was working alone with no support—to be able to plant thyme that survived the season.

When the UNDP took an active interest in thyme cultivation in 2006, after the July war, it found Nehme and helped him develop his planting techniques to increase his yield. In turn, Nehme helped UNDP promote thyme cultivation among Lebanese growers, using his own success story as an example. 

Nehme slowly began to develop his business, renting more land on a long-term basis to plant thyme on whenever his profits allowed. Today, together with a partner, he has planted 120,000 square meters of land with thyme. The land is divided between a small plot in his hometown of Zawtar and a bigger plot in Baalbek, where, as he explains it, land is cheaper and more likely to be available.

Nehme produces 10 tons of cultivated thyme per year, which translates into 50 tons of zaatar that he sells for $13 a kilogram. Ninety percent of his production is sold in Lebanon to restaurants, high-end bakeries—because his zaatar is more expensive than what bakeries that sell mana’ish (plural for man’oushe) for half a dollar can afford, and small-scale traders. He exports the remaining 10 percent to the USA.

Nehme also sells distilled pure thyme that can be used for medicinal purposes, and whole thyme plants, offering free consultations and advice with each plant sold.

Where it all started

Innovations in thyme do not stop at the farm—the traditional recipe for zaatar was recently given a modern interpretation by Fady Aziz, a branding specialist and designer.

Aziz had always loved being in nature—he was a scout as a child and in various hiking and eco clubs in his youth—and so after 15 years of working a desk job, he decided to find a career that allowed him to be in nature. Aziz also wanted his children to spend more time outdoors, especially in his hometown of Kfar Houneh, in South Lebanon.

There was a piece of land next to to a monastery in Kfar Houneh with abandoned centenarian terraces that Aziz says he had always loved, and so he considered renting it as the base for his undecided project.

Aziz says that when he approached the monastery’s father for the land, the priest was surprised as Aziz had no background in agriculture. He asked Aziz to produce  business plan, upon which he would lease him the land.

[pullquote]Innovations in thyme did not stop at the farm—the traditional recipe for zaatar was recently given a modern interpretation[/pullquote]

It was then that Aziz started seriously studying potential uses for the plot. His ideas ranged from starting a snail farm to planting chestnuts or organic fruits and vegetables, but nothing captured his interest—until the idea to plant thyme suddenly struck him, when he thought of how much zaatar is a part of his daily breakfast routine with his children.

With his plan in place, Aziz rented the land from the monastery on a long-term basis in 2016. He then began meeting with zaatar producers, thyme growers, and agriculture experts to familiarize himself with the industry. It was Nehme who sold Aziz his first thyme shrubs and taught him some of the practicalities of planting it.

After cultivating the thyme, Aziz began thinking of where to go with his venture, and turned his marketing and creative experience inwards to his own brand.

Because his research had exposed him to the challenges in the local zaatar industry, Aziz had already decided to develop a creative zaatar brand that, as he puts it, Lebanese could be proud of. “Because there is no quality control or regulations in the zaatar market, it is chaotic. Also, most Lebanese take zaatar for their relatives when they travel, as do most tourists, so I thought, why not have a well-presented and well-branded zaatar to go out of Lebanon?” asks Aziz.

Thyme twists

Aziz wanted to take his project further than the typical zaatar mix and. “I wanted to create a new concept from the zaatar that we know, especially now that everything fusion is trendy,” he says.

The Good Thymes, officially launched in September 2017 during Beirut Design Fair (BDF). Aziz has developed 38 zaatar mixes, eight of which have already been introduced to the market and include hot zaatar, zaatar with nuts, and zaatar with fruits. Whenever possible, he gets the ingredients for the mixes from rural families in his village and surrounding areas, to support the local community. His workshop is also in Kfar Houneh, where he employs local youths to help him with the preparations and packaging.

The Good Thymes is primarily available for purchase through the company’s website. A bag of zaatar ranges from $10 to $20, depending on the mix, and LibanPost delivers orders over $20 for free across Lebanon.

You can also find the zaatar in Sandwiched, Salt and Butter, Voltfit, and J Grove for now—but Aziz says he has received interest from delicatessens and high-end retail stores. Aziz is also in the process of completing the paperwork to begin exporting The Good Thymes.

Building Success

Since BDF, Aziz has participated in several festivals and exhibitions across Lebanon, and says the response has exceeded his expectations. These festivals served as a platform to introduce The Good Thymes to the market, and since then opportunities have been pouring in.

[pullquote]Aziz says he aims to elevate the status of zaatar production in Lebanon to that of wine production[/pullquote]

So far, Aziz produces a total of 4,500 bags of zaatar per month. “Once you dry the herb, the zaatar can stay for two years, maximum, and I can have a steady supply all year long. This is why I am expanding my land to have a bigger stock to work with in the winter when harvest is over,” he says.

In addition to the initial 8,000 square meter plot in Kfar Houneh, Aziz has rented 7,000 square meters in Karkha (also in southern Lebanon), and is in the process of acquiring additional land. Aziz also plans to works with thyme farmers, guaranteeing he will buy all their crop if they abide by the quality-control standards which he sets: no usage of pesticides, specific time and method of harvest, etc.

Initially, Aziz invested  $100,000 of his and his wife’s savings into the land, the equipment, and the branding and marketing (which Aziz says has been the biggest investment). He hopes to continue working alone for as long as possible, but says that he would consider taking on a like-minded investor if needed.

Aziz says he aims to elevate the status of zaatar production in Lebanon to that of wine production. “I want to create the fame that Lebanese wine is gaining locally and abroad, but with zaatar cultivation.  And we can do it: The infrastructure and land is there,” says Aziz, who has already begun working toward that goal by welcoming many friends to his farm in Kfar Houneh, and planning a thyme harvest day where visitors can experience zaatar-making first-hand.

By taking a  second look at agrifood products—whether it is zaatar or wine or any other Lebanese production—Lebanese entrepreneurs are breathe new life into them.

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EntrepreneurshipEntrepreneurship in LebanonSpecial Report

Don’t miss out on innovation

by Sofia Koller & Dirk Kunze
written by Sofia Koller & Dirk Kunze

Instead of finishing his degree in IT engineering at Damascus University, 25-year-old Ayham* fled Syria with his family to Lebanon in 2012. At first, he worked on a banana plantation, then as a graphic designer. With the help of a scholarship that covered half his tuition, he finally finished a degree in computer science at the Lebanese International University. But rather than pay for a printed diploma, Ayham is using his income as a software developer to launch an artificial-intelligence coding platform.

Examples like Ayham’s are rarely discussed in Lebanon, where Syrian refugees are often depicted as a burden on the country’s infrastructure and labor market. But the reality is more complex. High unemployment rates had been a feature of labor markets in the region even before the start of the Syrian Civil War, and recent data suggests that the resulting refugee crisis has had a positive impact on job creation. An IRC report laid out the complexity of the economic situation: While data shows that the influx of refugees has increased competition for jobs and lowered wages, Syrian refugees have also stimulated host economies by providing new sources of labor and buying power. The potential upsides could outweigh the drawbacks in the long term, especially in some key sectors.

An opportunity for Lebanon

Some studies suggest that with the right support, refugees can become successful entrepreneurs, earning a sustainable income rather than relying on humanitarian assistance and social services. Refugees also attract investment: In Turkey, companies established by Syrians in the past few years saw an investment of $220 million in 2015 alone. Since more than half of Syrian refugees are younger than 24, making use of the next generation’s innovative potential would be an investment in Lebanon’s future, especially if focused on microenterprises and the ICT sector, which the UN Development Programme described in a 2016 report as a “promising industry.” Lebanon is already positioning itself as an innovation hub: In 2013, Banque du Liban, Lebanon’s central bank, launched a nearly $650 million package to encourage investments in startups to boost the entrepreneurial ecosystem. Yet high-quality startups and tech companies worth investing in are still lacking. People like Ayham show the entrepreneurial potential of Syrian refugees—but they face many obstacles in Lebanon.

Challenges for Syrian entrepreneurs

Syrian refugees’ access to the Lebanese labor market is limited. Those registered with UNHCR are not allowed to work, and those not registered can only work in the agricultural, construction, and environmental sectors—if sponsored by a Lebanese kafeel. As a result, most Syrians work in the informal sector. In 2015, only 1,045 new work permits were issued, and 801 permits renewed for the over 1 million Syrian refugees registered at UNHCR Lebanon, according to the country’s Central Administration of Statistics. A report from the International Labor Organization says that “there is a great deal of confusion surrounding the implementation of the laws and regulations … in relation to their entry, stay, employment, [and] property ownership.” Other difficulties include a lack of access to funding, information, and banking.

In addition, traumatic memories of the Syrian presence in Lebanon are still fresh. Samer, another Syrian who fled to Lebanon, is working as a software developer in Beirut and developing a smart-device startup. Samer says that when he tells Lebanese that he is from Syria, their attitude toward him cools. Ayham feels comfortable working in Lebanon, but he has also experienced harassment. “Lebanese have suffered, and I can understand their pain, but I wish we could put behind the past and look forward together,” he says. Samer also says he finds it difficult to integrate in the startup scene. Syrians often have limited English skills, while in Lebanon many of the the meet-ups are in English, he says.

Supporting entrepreneurship

Few organizations are supporting promising Syrian startups with training and funding. One of them is Jusoor, which was founded by Syrian expats. According to Ahmad Sufian Bayram, Jusoor’s entrepreneurship program advisor, “Lebanon is losing a lot of opportunities” because it lacks qualified software developers, while many qualified Syrians cannot work legally. Another example is the Friedrich Naumann Foundation, which organizes hackathons on social entrepreneurship and game jams­—where the games produced promote social causes—among other projects, to bring together Lebanese and Syrians interested in entrepreneurship and technology while connecting them with the startup ecosystem in the region and internationally.

Several steps could be taken to support Syrian refugee entrepreneurs in Lebanon, such as issuing special work permits for well-educated Syrians with sought-after skills like expertise in technology. More research on entrepreneurship could help policymakers identify parts of the Lebanese economy that would benefit from admitting Syrian refugees in the long term. Since 2013, the ILO has recommended that Lebanon develop a wage policy, formalizing the informal economy and providing more statistical information. In addition, microenterprises could be promoted through small loans and grants, accessible to anyone living in Lebanon.

If Lebanon wants to become a hub for innovation and technology, it cannot afford to miss out on the potential and motivation among Syrian refugee entrepreneurs. Investing in them is investing in the future of both Lebanon and Syria.

*The Syrian refugees in this piece preferred to be identified by first name only.

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EntrepreneurshipEntrepreneurship in LebanonSpecial Report

Innovation economy needs investment

by Matt Nash
written by Matt Nash

Lebanon being Lebanon, there are no statistics. But by the accounts of stakeholders throughout the country’s entrepreneurship ecosystem, one big gap is not being filled: strong financial support from the state for research and development (R&D).

Many governments make R&D investments, and the Lebanese government does fund the National Center for Scientific Research—which has four centers for study around the country and gives out research grants on a bi-annual basis. Additionally, a small amount ($3.2 million) of the $650-or-so million in funds aimed at growing the entrepreneurial ecosystem and guaranteed at 75 percent by Banque du Liban (BDL), Lebanon’s central bank, is now being directed toward R&D investments. Word of slightly more of this money possibly being diverted toward R&D in the future is currently echoing in the jungle.

Calculating the return

In technical terms, the branch of scientific inquiry most likely to breed commercial success is called applied research (as opposed to basic research, which seeks merely to gain knowledge for the sake of doing so). Applied research is about solutions, and even if companies do not approach it with scientific rigor, they regularly invest in it. An online survey seeking to make a website more user friendly is R&D—but so is the possibly years-long process of a diaper manufacturer running lab tests and experimenting with various materials to create a new product that can pack in just a little more poop. The latter is obviously more capital- and labor intensive.

Innovation is impossible without R&D, but cost is often a barrier.

[pullquote]Applied research is about solutions, and even if companies do not approach it with scientific rigor, they regularly invest in it[/pullquote]

In many countries, governments make strategic R&D investment decisions to help push innovation forward. Additionally, available evidence suggests that state R&D spending in a given area spurs more private R&D in the same area.

The exact return on state R&D spending, however, is difficult to quantify. A 2015 paper written for the European Commission sought to calculate a state’s return on R&D investment, based on a review of previous studies on the topic. The caveat in the paper’s findings is that because investigations into R&D investment returns have largely only been conducted in advanced economies (meaning the US and a few European countries), the results are by no means true globally nor easy to quantify (there is a lot of messy spillover involved—knowledge included).  That said, the paper found that available evidence suggests governments make a 20 percent return on R&D spending, and boosts private R&D investments by 7 percent.

In fact, state funding for R&D has probably changed the world as we know it. A component of the Silicon Valley story that often gets neglected is the role the US Department of Defense (DoD) played in ushering in the digital age. DoD was an early funder and adopter of microelectronic technology, nurturing it toward mass commercialization, which lead to the development of everything from desktop computers to smartphones and wearables.

Not a priority

While both the World Bank and the United Nations Educational, Scientific and Cultural Organization (UNESCO) collect statistics on state R&D spending as a percentage of GDP, neither has any data for Lebanon. Elise Noujeim, director of the grant research program with Lebanon’s National Council for Scientific Research (known by its French acronym, CNRS), says that state spending via CNRS is minimal, but that it increased slightly in 2017-18. CNRS gives out two-year research grants ranging in value from $20,000 to $40,000, up from approximately $13,333 to $26,666 in previous years.

She says that research money can be hard to find for local academics, but opines that “if a researcher has a good proposal, they will find the money.” She notes that CNRS helps link local researchers to international universities and research institutions, and can often fund travel and living expenses for local academics who can find research budgets abroad.

CNRS, Noujeim says, is also making headway in partnering with more of the country’s universities. In 2017, CNRS signed memorandums of understanding with eight of the 19 universities and hopes these agreements will lead to more coordination and cooperation in research activities in the country.

Working together

On the level of existing cooperation and coordination among universities, Dany Obeid, an assistant professor in the Faculty of Agriculture at the Lebanese University, and Sophia Ghanimeh, an assistant professor in the faculty of engineering at Notre Dame University, tell Executive that Lebanon has a “do-it-yourself” kind of research environment. Funding is scarce, and inter-university coordination is personal rather than institutional,  meaning academics have to leverage a network of personal contacts to make things happen as opposed to relying on formal cooperation mechanisms among different institutions of higher learning. Zaher Dawy, an assistant provost at the American University of Beirut, agrees that coordination could be better and admits that research spending in Lebanon is relatively low (although he says one gets more from each dollar invested, as salaries and tuitions are lower in Lebanon than elsewhere, so more of the investment goes to the actual research).

[pullquote] In 2017, CNRS signed memorandums of understanding with eight of the 19 universities and hopes these agreements will lead to more coordination and cooperation in research activities in the country[/pullquote]

Ghanimeh singled out research that requires expensive equipment as particularly difficult to conduct in Lebanon, as research funding is often only in the tens of thousands of dollars. “Grant money can’t buy equipment,” she laments. Dawy agrees that state-of-the-art research needs state-of-the-art equipment and laboratories. And while he praised—but did not quantify—AUB’s investments into medical equipment that researchers and practitioners can use, he noted that few of the university labs around the country are state-of-the-art. Dawy also says the university is in talks with BDL to steer money the bank is guaranteeing to 75 percent for investment into the “knowledge economy” via 2013’s Circular 331 toward R&D at AUB. He refuses to go into details as discussions are underway, but says this is part of the university’s plan to better incorporate entrepreneurship in a multi-disciplinary way.

Wouldn’t be the first time

Elie Akhrass, director of the UK-Lebanon Tech Hub’s International Research Center (IRC), tells Executive that 331 money is being used to match $3.2 million in funding from the UK government for the initiative, launched in late 2016. Akhrass says the IRC is funding applied research into, for example, a wearable, non-invasive glucose monitoring device. The for-profit initiative is not time-bound beyond the ability to raise and deploy capital.

The Tech Hub itself was initially launched as an accelerator financed by an investment backed 100 percent by BDL, without the UK’s participation. Launching the IRC has been part of the Tech Hub’s monetization strategy for at least the past 18 months. Akhrass says IRC will monetize by sharing royalties with intellectual property right-holders as a start, but address the question on a deal-by-deal basis.

Stakeholders Executive queried over four months for this piece agreed that more R&D spending in Lebanon—whether by the state or others—would benefit the ecosystem, as the link between R&D and innovation is so clear. Calculating exact economic returns are difficult, but as Akhrass puts it, “If you want a knowledge economy and an innovation economy, you need R&D.”

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Last wordOpinion

Lebanon needs to clean up its act

by Bassam Khawaja
written by Bassam Khawaja

Lebanon is once again staring down a waste management crisis, with news that the Costa Brava and Bourj Hammoud landfills will reach capacity in 2018—two years before the government’s initial estimate of 2020. In response, the cabinet is reportedly considering a proposal to reopen the infamous Naameh landfill, whose closure in 2015 sparked a crisis that left garbage piling up in the streets of Beirut.

The government adopted a temporary fix to the crisis in March 2016, when it began dumping waste from Beirut and Mount Lebanon into the two new coastal landfills. Now that these landfills are filling up faster than expected, the government is discussing yet another emergency solution.

The waste management problem was never actually solved—the government just pushed the garbage out of sight. The 2016 “fix” was just another short-term emergency measure, the latest in a string of emergency plans adopted after the end of the civil war in 1990.

The new landfills have been plagued by controversy and lawsuits since their inception. The Ministry of Environment says that neither landfill had an environmental impact assessment, so it remains unclear what effect they will have on people living nearby. Garbage at the Costa Brava site, which is located near the airport, attracts birds that have become a threat to planes, and therefore, public safety. At the Bourj Hammoud landfill, videos show trucks dumping garbage into the sea, and local fishermen have protested the amount of garbage they are now catching in their nets.

Meanwhile, outside of Beirut and Mount Lebanon, the situation is even worse, but gets far less attention. Lebanon’s garbage crisis didn’t really start in 2015—that’s just the year it reached Beirut and Mount Lebanon; the wealthier parts of the country.

Lebanon has never had a comprehensive waste management system that covers the entire country. The central government contracted two companies, Sukleen and Sukomi, to manage solid waste for most of Beirut and Mount Lebanon under a 1997 emergency plan, but municipalities in the rest of the country have been left largely to their own devices, without the resources or expertise to adequately manage their waste.

A burning problem

A forthcoming report from Human Rights Watch outlines the health implications of openly burning waste. Over the course of my research for the report, I’ve spoken with families who live close to open dumps that have burned continuously for years. Many have told me they have respiratory illnesses, that the smoke has at times driven them from their homes, and that they live in constant fear of a long-term health impact on them and their children. Doctors treating these residents say they believe burning trash was the cause of their respiratory illnesses, and that it could take years for its long-term effects to become clear—including, for example, on the incidence of cancer. And researchers at the American University of Beirut found that burning waste during the 2015 crisis released dangerous particles in Beirut and Mount Lebanon, with potentially severe health effects.

Waste-burning and the garbage crisis are symptoms of a larger problem in Lebanon: a decades-old failure to develop and carry out a long-term national waste management plan that is based on public-health principles and is environmentally sound.

Fortunately, unlike some of the other challenges facing Lebanon, there are clear solutions to waste management: About 90 percent of Lebanon’s solid waste is made up of materials that could be composted or recycled. However, at the moment only 8 percent is being recycled and 15 percent composted. The rest is being landfilled, dumped, or burned; the government has not even taken the basic step of providing a convenient recycling option in Beirut.

Researchers have already put together proposals for a sustainable solid-waste management plan, informed by public-health principles. And environmental organizations such as Cedar Environmental and Terre Liban have already shown that it is possible to apply sustainable waste management practices in Lebanon.

With yet another crisis looming, the government urgently needs to end its reliance on short-term emergency plans. It should finally adopt a sustainable solution that respects the health and environmental rights of its citizens.

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Art & Culture

A time for love

by Zeina el-Khalil
written by Zeina el-Khalil

“I was born in 1976, that means I died in 1976. In Beirut, red shoes, white blouse, blue skirt fell to the street.”

This is the first memory I have of my very last memory. How is it that I know this? It is not something I remember. Of course not. How does one really remember their own death? But it is something I know deep in my gut. This present, physical body of mine was never shot, but could I perhaps have inherited this memory from somewhere? More and more research today, by way of epigenetics, shows that trauma can be passed down genetically. Could this memory have come through by way of the collective memory?

Over 20 years ago, ceasefire was called and general amnesty declared. We picked up the ragged pieces of what was left of our lives and moved on after our civil war ended. A collective amnesia, supported by both the government and the people took ahold, and we all agreed to forget … as quickly as possible.

The city I have inherited is one that lacks a coherent history. The bullet riddled walls tell a story, while the skyscrapers tell another. Porsches and Range Rovers parked side-by-side in front of champagne nightclubs give a hint of celebration and success, while behind the tinted windows, we see wounds that have never healed, trauma that has been disguised, and pain manifesting itself through physical and mental diseases. How is it that we never ask why there is so much cancer in our community? How is it that our children so young have been attacked by the most unfair and vicious of diseases.

I believe that the lack of reconciliation after our civil war created the distinction of dysfunction in the city we live in today. Our lack of apology to one another, apologies for what we did to each other, contributed to the lack of respect we have toward one another, a lack of unity, and even, a lack of love. Lack of love toward community and often also toward oneself.

“Love that is the essence of what we are, the subatomic texture of the universe, the dark matter that connects everything.”

In 1994 Beirut summoned me, and I decided to move here. I was 18 years old and the war had just ended. I remember walking through the old airport, my eyes picking up the details of peeling paint and mold bursting through the cracks. Today, I miss that fabulous zodiac mural that greeted us upon arrival, or was it departure … During the rebirth of our city, we traded in our luminous dreams and Milky Way skies for greige, glass, and dust.

Enter the clubbing scene. Dancing may have been the closest thing we had to release and reconciliation, as we swayed and swooned side-by-side in nightclubs like the former Monkey Rose, Crazy, and original BO18, we wondered why we had thought each other to be so different before. In these dark spaces, as our bodies collided and caressed, we unconsciously became one. But this oneness was temporary; the duration it took to down a bottle of whisky and dance until the sun came up.

Perhaps at the time, this was the only way to move forward. The only way to numb the pain of the loss of family, friends, and country. To become so emotionally and physically numb that even lying to someone’s face has become a norm.

Twenty years later, we have yet to apologize to each other for the atrocities committed. We have yet to have a real reconciliation process. We have yet to talk about our pain that was shoved down so deep that it has turned us hard and brittle. Because we did not apologize, we failed to come together as a community, we failed to develop respect toward one another. And this lack of respect, coupled with decades of suppressed pain, is very much present in our society today. It is even passed down to our children, either through genetic inheritance, or through our parenting.

“Cosmic memory. Transference across generations,and in my heart, cosmic collisions. One after the other until I collapse into a single point of you and me.”

Maybe it was always like this. Maybe since time began. We are all born with a tendency toward violence. We were biologically created this way, which sealed the deal on our dominance as a species. But today, we are no longer in need of this tendency, nor are we ignorant. Perhaps, it is time for a collective evolution in which we can all agree to move forward by way of compassion and love, rather than oblivion. It is time to heal. To heal this small beauty in a most violent part of the world. Pain is the greatest teacher for compassion. It is time to apologize. It is time to acknowledge our pain in public. It is time to share and connect. It is time for love. Here, there is only love. Time to consciously step into the future that is ours to create. Time to come together, as we no longer wish to carry the burden of humiliation.

“Transmuting pain to love, the evolution of consciousness, gathering momentum. The continual state of love, present.”

Where to start? Often it is much easier than we think. There is a prayer from the island of Hawaii. It is called the Ho’oponopono, and it goes like this:

“I’m sorry.  Please forgive me. Thank you. I love you.” – Poem excerpts taken from Zeina’s poem titled:
96% Love 4% Beirut: Zero: Śunya

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Industry & AgricultureWine Industry

Raise a glass to something new

by Nabila Rahhal
written by Nabila Rahhal

Lebanon’s wine landscape has evolved continuously since the end of the civil war in 1990. There were only about five operational wineries at the time; today, Lebanon has 45 wineries, according to the latest count by the Union Vinicole du Liban, Lebanon’s official association of wineries—and some in the field place the figure as high as 50.

This increase has opened investors’ and wine enthusiasts’ eyes to the potential that lies within a glass of Lebanese vino, and as a result, even more wineries are set to enter the market.

Executive took a look at three wineries that launched their first vintage within the past few years to find out what motivated their owners to enter this business, and what they bring to this dynamic industry.

Latourba

Nestled deep in Saghbine, west Bekaa, with a view of Lake Qaraoun, lies Latourba winery. Latourba is the brainchild of Elie Chehwan, an engineer and former head of municipality of Saghbine, who envisioned a social-development angle for the winery. It also includes an animal farm and an ecotourism project.

Chehwan wanted a sustainable project that would support Saghbine and allow locals to work within the area rather than have to travel into cities for work. He already owned some land in the village, and rented additional land from a nearby monastery on a long-term contract.

Since the land he owned was known for its rich layers of soil—hence the brand name Latourba, which translates to “the soil” in Arabic—Chehwan considered crops that would benefit from this richness. “We thought of wine because, since the time of the Romans, the land here used to be planted with grapes known for their superior quality,” says Chehwan, explaining that he did not want to stop at planting table grapes since he believes agro-foods—processed foods from the land—have a larger and more stable market, both locally and abroad, compared to fresh produce. 

Starting in 2006, Chehwan began working with Sofoklis Petropoulos, a Greek winemaker who has a PhD in winemaking from Australia and five years of experience making wine there, to plant his 65 hectares with a variety of grapes.   

[pullquote]Latourba released its first vintage in 2014. Today, the winery produces 12 vintages, making 4,000 to 5,000 bottles of each. Latourba also wants to be the first winery in Lebanon to produce a sparkling wine[/pullquote]

Chehwan only uses his grapes for wine and sells the surplus to other wineries. Latourba produces only monovarietal wine and does not have blended vintages. “Every parcel has a different grape variety, and the same parcel makes the same vintage every year, so it’s interesting to compare year after year,” says Chehwan, explaining that as a new winery, producing monovarietal for a couple of years helps him understand how each grape variety is maturing and responding to the soil, in case he wants to produce blended wine in the future.

Latourba released its first vintage in 2014. Today, the winery produces 12 vintages, making 4,000 to 5,000 bottles of each. Latourba also wants to be the first winery in Lebanon to produce a sparkling wine. Chehwan says he has been working with an expert consultant from Champagne, France, on this pet project for five years now: “It takes time, because you can experiment only once each season, so you have to wait until the next year to modify the recipe and test it,” he explains.

Latourba wine is currently available for purchase online on the 209 Lebanese Wine website, in high-end restaurants, and in boutique wine sellers. Chehwan says he is planning on opening a boutique store in Beirut where Latourba wines will be sold among international wines, and where charcuterie, cheese, and wine nights will be held with visiting sommeliers.

The Latourba winery itself was only the beginning of the vision Chehwan had in mind for his property. In 2015, he built an animal farm with cows, goats, sheep, and chickens adjacent to the vineyards. He uses these animals to produce eggs, labneh, and a variety of cheeses, including goat cheese.

While these products do not have a brand name yet and are not available in the retail market, customers can buy them from Latourba. Visitors will also be able enjoy them in the restaurant Chehwan is developing on the property, which will be open by summer 2018.

The restaurant will be a part of a 15 kilometer space for a tennis court and children’s activities, a small guesthouse, the winery and cellar, and the animal farm. The project will also include a shop that will sell Latourba wine, the food products produced on the property, and traditional mooneh—food such as pickled vegetables or mollasses made by villagers to be stored in the pantry—prepared by local villagers. Chehwan hopes to employ more than 10 families through this project, in addition to the families making part of their livelihood through selling their items in the shop.

Chehwan thought of this project as way to profit from the serene and beautiful setting of his property in a way that city-dwellers would appreciate. “I felt that luxury tourism is no longer in demand, and people are looking for authentic ecotourism. They want to be in nature [at least] once a year. It’s also good for children to experience farm life and nature,” he says, recalling how one of his children’s friends was surprised to see that chickens have feathers, having only seen them on supermarket shelves.

Chehwan will not disclose how much he invested in the project, claiming he was focusing on the social impact of his venture and did not have a feasibility study in mind. Today, however, Chehwan sees promise in his project beyond the social value. “I felt that this project has a lot of potential, whether it’s the wine or the food products—it has the potential to [meet] some of the local demand for quality food items and decrease the rate of importing,” he says. He also took a subsidized loan from Banque du Liban, Lebanon’s central bank, when he set up the farm, and another one for constructing the winery. He says he will take a third when he wants to expand his wine production.

Sept

Maher Harb was satisfied with his life in Paris—he had a promising career in business-intelligence consulting and had lived there since 2001 when he left Lebanon for his university education—but he always felt there was something missing.

The only place he would feel truly at peace, he decided, was in the home his father built in their village of Nahla, Batroun, a year before he passed away.

In 2009, when the economic crisis was just starting in Europe, Harb was denied a project he had really wanted within his company, and began to question his life choices. “I realized that I feel at peace in nature, and when I would go visit the villages around France, I would feel almost the same kind of peace I would feel on my visits to Nahla. I realized that maybe the life I was living is not the one for me,” explains Harb.

After months of introspection, Harb decided to become a winemaker and plant the small plot next to his family’s home with winemaking grapes. Thus began a year of research during which Harb read as many books as he could about winemaking, visited many wineries across France, and even made wine in his apartment.

Harb returned to Lebanon in 2010 and, using the $35,000 he had saved in Paris, he transformed the woodland in Nahla into a plot of land ready for planting. But this depleted his funds, and he was left with no resources with which to move forward.

For the next two years, Harb worked within his original field in Lebanon to make the needed amount to plant the land with grapes—which he did in February 2012. But he was once again at a financial roadblock, so he returned to work in business-data analysis, this time in Riyadh. “I stayed there for two years and a half, struggling with wanting to come back to the vineyard and staying in Riyadh to make a living in a domain which was helping me make a life,” recalls Harb.

In the end, the vineyard won out, and Harb submitted his resignation in Riyadh. In mid 2014, he applied for a Master of Science in Wine Management at the International Organization of Vine and Wine. Using $50,000 from the money he had earned in Riyadh, he spent the next year and a half immersed in learning about wine, touring 25 wine-producing countries, and meeting influential figures in winemaking. “This was the most beautiful experience of my life. I came back to Lebanon [at the] end of 2015 physically exhausted and broke, but full of energy and determination to start my own winery,” says Harb.

For the next two year, he made money by working at wine retail shops and wineries, and by giving wine appreciation lessons. At the same time, he was working on launching his own winery and promoting it on social media.

He registered the company in 2016 and chose the brand name Sept (“seven” in French), as that is his and his father’s life number in numerology. “This project is really an homage to my father, so our common life number was the perfect name,” explains Harb.

He took his first personal loan the same year to buy winemaking equipment in order to produce the 2016 vintages. He also applied for an $80,000 Kafalat-sponsored loan, which was approved two months ago, and which will allow him to work toward the 2017 vintages.

Harb follows the natural method of winemaking, meaning he works with natural yeast and uses no additives in his wine except sulfur, of which he uses less than the minimum recommended amount. Since he produces vin du lieu (wine that represents the soil and area it is produced in), he uses each grape variety separately and clearly states the region of origin on every bottle. In addition to the grapes from his vineyard in Nahla, Harb buys grapes from Zahle, Deir El Ahmar, and Riyaq from farmers whom he works with to establish quality control.

Harb launched his first vintages in October 2017 during Vinifest, the annual Lebanese wine festival, and says the positive response he received from fellow winemakers felt like validation for his difficult journey. He has produced 6,000 bottles of the 2016 vintage, and will produce 7,000 for the 2017 vintage. He expects to produce up to 12,000 bottles annually for the three years after that.

[pullquote]I know that the concept, and the way I do my wine, will appeal to the international niche markets that I know of[/pullquote]

Sept wine can currently be brought from 209 Lebanese Wine’s online platform and enjoyed in several niche restaurants, such as Bar Du Port in Saifi. Harb is working with Tire Bouchon, an importer, on a distribution strategy that includes training hospitality staff in wine appreciation so that they may in turn knowledgeably help customers make wine choices. 

Harb is keen to distribute internationally, taking advantage of the strong network he developed from his master’s program days. “I know that the concept, and the way I do my wine, will appeal to the international niche markets that I know of. This will give great credibility for my project,” he says.

Vertical 33

The name Vertical 33 stands for a latitude with rich soil ideal for red wine production. Eid Azar, one of the winery’s founding partners, chose the name to highlight the importance of terroir, which is the type of soil used for his wines. “It’s the geographic location that makes all the difference in wine; everything else is details,” he says.

Azar is a medical doctor at Saint George Hospital. He did his medical training in New York, where he learned to enjoy drinking and began collecting fine wines.

In 2011, during a hike in Bouarij—a village on the outskirts of the Bekaa, which lies between the eastern slope of Mount Kneisseh and Kefraya village—he came upon an old village called Remtanieh, which had been abandoned for nearly 50 years.

It was clear from the ruins, which included broken-down farmhouses and farming terraces, that the area had been agriculturally rich. “During the 1930s and 1940s, before the state of Lebanon came to be, this area was all planted,” explains Azar. “The village was left to decay because it didn’t make sense to have a cultivated area here when the Bekaa valley had opened up as a plantation; it was very difficult to compete with that economically in terms of scale. It’s also difficult to plant here because no big tractors can come in due to the narrowness of the roads. The area’s gradual revival began in 2005,” Azar said, when a few farmers started apple plantations.

While taking in the beauty of the land, Azar saw some live vines, which dated back to the pre-independence era. It was then that he thought of reviving the location as a vineyard. So he and two of his friends pooled their personal funds and brought nine hectares of land to set up a vineyard and winery.

In 2012, Azar and his partners met Yves Confuron, a well-known winemaker from Burgundy. They invited him to their property to study its potential, and he joined the project as their partner. After rebuilding the terraces and preparing the land, they began planting in 2014.

Azar says the idea behind the winery is to make the most of the area’s microclimates. “Our approach to winemaking is terroir-based, which means that you don’t drink grapes, you drink where the grapes are coming from. If you put the exact same grape in a different soil, it’s going to behave differently,” explains Azar.

As such, he planted each variety of grape in the climate where he thought it will grow best. For example, Azar planted the Pinot Noir in the land adjacent to the winery because of its high altitude (1,600 to 1,400 meters), which the Pinot needs, while they planted the Cinsault in Kefraya, since it is hotter in the valley, and that grape responds well to heat.

In addition to the vineyard around the winery, Azar and his partners bought additional land in Zahle (planted with Cabernet Sauvignon), Umol (planted with Obeidy), and Kefraya (two separate plots—one in the valley, and one on the slopes above it).

Vertical 33 released its first labels in 2017. Azar says he plans to have nine labels and will produce between 2,000 to 4,000 bottles of each depending on the yield. All the company’s wines are monovarietal, and the grape variety along with its area of origin is clearly labeled on the bottle.

Azar plans to distribute Vertical 33 in niche markets. Confuron, a distributor that is already present in 80 markets worldwide, will be facilitating the international distribution of Vertical 33.

Azar says they are planning to open their own wine shop and bar in Gemmayze before the end of 2017. The purpose of this venture, according to Azar, is to market Vertical 33 “one-on-one,” since, as a small winery is it easier for him and his partners to do their own marketing.

Vertical 33’s local distribution will be through two friends, one of whom works with Found’d Group, a holding company of several restaurants in Lebanon. Vertical 33 will be present in The Gathering and Kaléo, two restaurants managed by Found’d, as well as in high-end restaurants such as Liza, where customers appreciate good wine, Azar said. “My wine is $35 per bottle, so I’m not interesting for most restaurants because other wineries offer them a bottle for free for every two bottles they sell,” he says.

The wine will not be available in supermarkets, as Azar explains there is too much competition. “I’ll be smashed among titans, and I’ll have to compromise on quality, which I don’t want,” explains Azar.

Those interested in buying Vertical 33 can do so in the upcoming Gemmayze outlet, and at the winery itself. Azar and his partners are working on a restaurant and guesthouse project on the property, the construction of which is almost done. Azar says they are respecting the nature of the property and only using the stones and materials which are already on the land itself.

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BusinessHome Loans

A good time to borrow

by Hani Bathish
written by Hani Bathish

Home loans account for more than a quarter of local banks’ private sector lending. This is in large part thanks to subsidized loans from Banque du Liban (BDL), Lebanon’s central bank,  and loans from the Public Corporation for Housing (PCH), which are offered through local banks to lower-middle and low-income home buyers.

A surge in home loans in recent years has prompted banks to explore untapped areas in the home buyers’ market, offering loans in US dollars with attractive terms to those buying second or third homes, luxurious and expensive units, seaside or mountain chalets, and even land to build on or property abroad—none of which are covered by BDL subsidized loans or PCH loans.

Through billboard, radio, and TV ads, banks try to make a case for their home loan products, touting better terms than their competitors, including longer repayment periods, a longer grace period, more competitive interest rates, and even 0 percent interest. All banks offer nearly identical products when it comes to BDL subsidized loans or PCH loans, and their proprietary home loans are crafted within very strict guidelines from the central bank that leave them with little wiggle room to differentiate their product from their competitors. Nonetheless, banks have cleverly used that wiggle room to grow their portfolios of home loans. Home buyers would do well to educate themselves about banks’ bag of tricks and shop around for the product that best fits their needs.

A surge in home loans and incentives

In today’s property market, developers are increasingly eager to make sales, offering sizable discounts on units that dip to 20 or even 30 percent below asking price. “The volume of home loans in the market has gone up by 20 percent per annum over the past 10 years,” says Marwan S. Barakat, head of research at Bank Audi. “Today, there are $12.2 billion in housing loans in Lebanon, compared to just $4.5 billion in 2010.”

By comparison, total private-sector loans in the market today stand at $53 billion. According to 2016 figures from Bankdata, the three Lebanese banks with the largest home-loans portfolios were BLOM Bank at $1.84 billion, accounting for 16 percent of the market, Bank of Beirut at $1.52 billion, accounting for 13 percent of the market, and Bank Audi at $1.45 billion, accounting for 12 percent of the market. And it is not only Alpha banks that are looking to capture a sizable share of this lucrative market: BSL Bank, a midsize Beta bank, launched its Home Initiative Loan in February with the tagline, “Repay what you borrow and not a penny more.” The loan has an annual percentage rate (APR) of 0.65 percent—nearly zero.

“We got a call from consumer protection at BDL,” said Charbel Watfa, CFO of BSL Bank.  “We were happy we got that call—it meant they were doing their job. They were curious to know how we could offer such an attractive rate. I sent them my calculations, and they were satisfied and wished us luck.” At the end of 2016, BSL’s total home loans stood at $41 million; in the seven months since the bank’s initiative was launched, their home loans portfolio has increased by $21 million.

“The home loans sector benefited a lot from the stimulus packages of the central bank, although over the last two years there has been a slight slowdown in growth in the housing loans sector,” Barakat says. To counter this dip, the central bank has raised the ceiling on the amount home buyers can borrow to purchase a property under its subsidized loans program, from LL800 million ($533,333) to LL1.2 million ($800,000), a significant hike. Nassib Ghobril, head of economic research and analysis at Byblos Bank, says that BDL is set to announce new incentives to help increase demand for home loans from expatriate Lebanese, which he notes have dropped significantly. “The incentive is said to include a 30-year mortgage at 2 percent interest and a four-year grace period,” Ghobril says. “The intention to buy property may have increased, but that has not yet translated into actual transactions—for that, you need incentives.”

The 0 percent myth 

BSL Bank is technically correct when it says its loan is offered at 0 percent interest, not including fees—however, this is not to say that the bank doesn’t profit from the deal. The bank requires customers who qualify for the home loan to give it 20 percent of the value of the property being purchased, on top of the 25 percent down payment the customer already paid the seller, totalling 45 percent cash upfront. The 20 percent is returned to the customer in monthly payments over the duration of the 30-year loan period, minus the interest that the bank earns on the money from investing it. The bank could potentially lend the money out several times over that 30-year period at a much higher interest rate to recoup its costs and net a handsome profit.

But Watfa insists that what BSL Bank earns on its home loan product is barely enough to cover its costs. “In our situation, we needed to grow our market share, so we offered this loan. To be eligible for the loan, you have to put money in the bank, have an account, credit cards—in short, be a loyal BSL customer, and not just passing through,” says Watfa. He adds that BSL benefits from this home loan by building their customer base and cross-selling various other bank products.

[pullquote]Property prices went up so high that monthly payments couldn’t increase in the same way and still be affordable to salaried employees of limited financial means[/pullquote]

Banque Misr Liban (BML) offers a similar facility to buyers through its Prepaid Interest Housing Loan, which requires clients to pay the interest on their loan up front in cash, instead of over the 25-year loan period as part of the client’s monthly payments. Roger Zovighian, assistant general manager and head of branches and retail at BML, says this is advantageous for the client. “The amount paid in interest is less if paid up front than if you pay it in installments over the whole period of the loan,” he says. For example, the interest paid up front on an apartment worth LL300 million would come to around 20 percent of the apartment’s value, whereas if the interest were paid over the whole period of the loan, it would come out to around 40 percent of the apartment’s value. “We also invest the prepaid amount to earn interest and pay part of that interest back to the client,” Zovighian says.

Since introducing its prepaid interest loan a year ago, BML’s total portfolio of home loans has grown to $87 million, up from $74 million last year. Both BML and BSL home loans appeal to wealthier homebuyers who are able to pay 45 percent of the total value of a property in cash; it is an opportunity for them to leverage the purchase of a larger property and save on interest.

Buyers’ market intensifies competition 

Developers have had to adjust their expectations and offerings over the past few years. Since Gulf Arabs pulled out from the market, the luxury segment of the property market has seen almost no activity. “Competition is high between developers on quality of finishing, number of parking spaces assigned per unit, size and location of storage room for each unit, the quality of the material used. Developers are also providing financing facilities through tie-ins with banks and trying to make it easier for buyers to bear the costs of buying a home,” says Marwan Mikhael, head of research at BLOMINVEST Bank. “Before 2007, we didn’t have 30-year home loans; today you can get up to a 40-year loan. Property prices went up so high that monthly payments couldn’t increase in the same way and still be affordable to salaried employees of limited financial means, so we followed the US and Western countries in giving long-term loans.”

Demand today is for small units, according to Mikhael: Units measuring 70 square meters to 130 square meters sell best. The shift from luxury to utilitarian, from a supply-oriented market to a demand-driven one, began in 2011 with the start of unrest in Syria and its impact on Lebanon. Prices had been rising steadily from 2006 until 2010 by about 35 percent annually. “Real estate in 2006 was undervalued when compared to the region and other emerging markets at the time,” said Mikhael. “This was a boom time—9 percent [GDP] growth per annum—[and] the housing sector benefited because it was undervalued.”

The boom years are over now, but prices remain relatively high. “The cumulative decrease in real estate prices over five years, since 2011, has been just 20 percent,” says Bank Audi’s Barakat, adding that list or asking prices rarely go down in Lebanon. “Low leverage in the market means developers don’t rely on debt to finance their projects, but instead,count on their own financial means and are not under pressure to sell at any price. In addition, the type of demand in Lebanon is end-user demand; speculation only accounts for 20 percent of the market,” he adds. With Gulf investors out of the market, and Lebanese abroad investing less, Barakat says resident Lebanese demand is keeping the market together.

[pullquote]With Gulf investors out of the market, and Lebanese abroad investing less, Barakat says resident Lebanese demand is keeping the market together [/pullquote]

Bankers’ bag of tricks

BDL protects consumers’ rights by requiring banks to disclose their APR, including all fees and insurance costs, to any potential home loan customer. But sometimes, highly suggestive and emotive language used to promote a loan in advertising campaigns can mislead. Grace periods, in particular, are a misnomer. “A grace period as advertised by banks is not really a grace period,” says Mikhael. “While you only start to pay the principal amount after the end of the grace period, you actually do make monthly payments during the grace period, but only interest payments on the principal.”

In fact, the much-touted grace period, be it for one, two, three, or four years, is a little more than a poison chalice. “People are happy when a bank gives them a grace period, but in fact, this is to the bank’s advantage, not the customer’s, since it’s a period of time during which your principal has not decreased at all, but [instead] accumulated interest that you eventually will have to pay,” says BSL’s Watfa.

The way the monthly payments are structured also has an impact on how much a customer pays each month. BDL rules require that monthly loan repayments not exceed one third of a borrower’s total income. Some banks allow customers to make a one-time balloon payment at the end of the year to lower the outstanding loan amount and further reduce the interest. “Customers should ask about the monthly payments more than the interest. The monthly payment is divided between interest payment and principal payment. If a bank overloads the monthly payments with interest, the principal remains high, and a customer ends up paying more in interest over the whole repayment period,” says Mikhael.

Two different banks could have the same interest rate for the same loan amount, and the same repayment period, but their monthly payments would still differ markedly. “If a customer asks how the monthly payment is structured, a bank is obliged to tell them,” says Byblos Bank’s Ghobril. Mikhael says that banks generally do not tell customers how their monthly payment is structured, how much of it is interest, and how much is principal, if they do not ask. “It’s up to individual banks to decide how they structure their loans—BDL doesn’t insist banks tell customers how much of their monthly payment comprises interest and how much is principal,” Mikhael says.

Selling the loan

A loan is still a product that comes with a price tag and the unassailable consumer right to ask questions. Advertising is designed to make any product attractive and compelling, and home loans are no exception. “While advertising may get customers through the door, once they’re in, BDL imposes strict guidelines on banks that require them to disclose how interest rates are calculated to their clients. Banks have to be very transparent,” says Ghobril.

Local banks are intensively marketing their products to both resident and expatriate Lebanese, especially banks that are looking to expand their market share. “We do a lot of marketing for our products. We had a huge campaign for expatriate housing loans, and it has been a great success,” says Georgina Dinar, head of group consumer loans at Byblos Bank. “The idea is to assure the Lebanese living abroad [so that they] come home and invest in their country. Our team in Abu Dhabi and Dubai held a seminar for expatriates to promote our loan products.” The bank also adds a few sweeteners to reel in potential customers, including a special account for expatriates, cash transfers at low rates, and a pre-approved credit card with a $5,000 limit and no basic annual fee for the first year.

[pullquote]Interest in the land loan has been very good. It’s very important for the Lebanese abroad to buy a home or buy land on which to build a home in their native villages[/pullquote]

Three years ago, Byblos Bank also introduced the Expatriate Land Loan as part of its expatriate package. “Interest in the land loan has been very good. It’s very important for the Lebanese abroad to buy a home or buy land on which to build a home in their native villages,” Dinar says. To sweeten the deal further, for the first two years of the loan period, Byblos’ rate is cost of funds plus 2.8 percent instead of the standard 3 percent.

Bank Audi runs two or three promotional campaigns for their home loan products each year, according to Grace Eid, head of retail banking Lebanon at Bank Audi. “Over seven years, we have had road shows aimed at expatriate Lebanese. We have gone to Latin America and sent people to the Gulf. Most Lebanese in the Gulf would love to own a home in Lebanon. We see less interest from the US, but we do see interest from Latin America and from Africa—the Lebanese there have a nostalgic longing for owning a home in Lebanon,” Eid says.

Audi offers 0 percent interest credit cards, special accounts, low cash-transfer rates, and a free robot vacuum cleaner to each home loan customer. In addition, the bank also tries to build a strong bond of trust with consumers through what are framed as public-service TV ads that inform the public of their rights when dealing with banks. “As the consumer is not an expert, three years ago we introduced “Banking Tips,” a video series on TV, which includes advice on real-estate expert fees, home insurance, and bank-file fees,” Eid says. The series was a clever way to promote a feeling of trust between consumers and the bank. It has since been replicated by at least one other local bank.

Not all banks, however, promote their housing loans intensively. BML’s Zovighian says, “We don’t advertise our housing loan products; we only promote it through our brochures that we have at our branches. We haven’t found a way to market it properly to a wider audience yet, but we can’t market the [prepaid interest housing] loan as a ‘0 percent’ interest loan because it is not.”

Types of loans

The market has many options for first time home buyers: For lower-income homebuyers, there are loans from the Public Corporation for Housing (PCH); at the middle to lower-middle end, there is the BDL subsidized loan and Habitat Bank loan; and then there are the banks’ own custom home loans that meet the needs of second home buyers.

The Banque de L’Habitat, or Habitat Bank, offers home loans at attractive rates, and its customers are exempt from stamp duty and mortgage fees, but the loan amount is limited to LL800 million ($533,333). The bank currently has a 6 percent market share in the home loans market, according to Bankdata. “BDL owns 20 percent of the Habitat Bank, while commercial banks own 80 percent. BDL asked the Habitat Bank to lower its rate to 3 percent with the stimulus package, [and] this took clients away from commercial banks,” says Ghobril.

The PCH offers home loans that can finance 100 percent of the value of the purchased home with no down payment required, but the value of the loan is limited to just LL270 million ($180,000). The applicant’s monthly salary also determines the size of apartment one can purchase under this loan. “The PCH is the most advantageous: The loan period can extend for up to 30 years, but in the first 15 years you only pay off the principal, [and] the PCH pays the interest for you. After 15 years, your home is fully paid for. Over the following 15 years, you start paying back the interest the PCH paid on your behalf to the bank,” Mikhael says.

For higher-income people looking to borrow larger amounts to finance a property purchase, banks offer custom loans. Byblos Bank, for example, offers a US dollar loan with no upper limit on the amount borrowed, at rates that top 9.5 percent for a 10-year loan to finance the purchase of a piece of land. “Our product allows us to address the needs of niche customers, those who wish to buy a second home or a chalet—even those who wish to buy a piece of land, we cater to them,” Dinar says. “It’s not a highly profitable loan product, but our aim is to serve our customers and to grow our customer base.” She adds that if a customer wishes to build on the land, the bank can extend a second loan to cover construction costs with the land mortgaged to the bank as collateral.

Structuring the loan and transparency 

Each bank structures monthly loan repayments differently, through its own internal financial engineering. BDL leaves such decisions up to local banks to determine. “The monthly payment is reviewed each year based on the new interest [rate],” says Dinar. “From a transparency perspective, we provide our customers with a key-facts statement from the start that lists all the fees and costs of the loan and interest payments distributed throughout the year. The structure of monthly payments—[the] percentage of the payment that is interest and [the] percentage that is payment of principal—is standard for all banks in Lebanon,” Dinar says.

[pullquote]Two different banks could have the same interest rate for the same loan amount and the same repayment period, but their monthly payments would still differ markedly[/pullquote]

Bank Audi’s Eid says that banks have to tell clients about their APR, as well as life-insurance fees. “Banking services are standard. We differentiate ourselves from other banks by putting the customer at the center of our offering. People have different needs, and we have to provide financial solutions for our customers. We are not driven by volumes alone, but rather offer the right product for the right customer,” Eid says. Personal bankers learn about applicants, so they know to point them to the product that best suits their needs, she says, examining their repayment capacity and total income. Eid adds that the market has become more regulated over the past three years.

While banks continue to promote their home loan products as the best deal for the consumer, they will be held to a high standard of transparency and fair dealing by the central bank. This, however, does not replace the consumer’s responsibility to ask questions and to shop around for the home loan that best fits their needs and their financial means.

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