lebanon - The Business Year

DIPLOMACY | ECONOMY | FINANCE | ENERGY | INDUSTRY | TELECOMS & IT | TRANSPORT |
REAL ESTATE & CONSTRUCTION | AGRICULTURE | HEALTH & EDUCATION | TOURISM & RETAIL
LEBANON
2014
In This Issue
DIPLOMACY
INTERVIEW
POSITIVE STEPS IN
DIFFICULT TIMES
HE Tammam Salam,
Prime Minister of Lebanon,
on consensus building
14
FINANCE
REVIEW
BANKING
TICK THE BOX
The Association of Banks
in Lebanon outlines the
sector’s ongoing success
37
IT & TELECOMS
INTERVIEW
TOUGH CALLS
HE Boutros
Harb, Minister of
Telecommunications, on
improving IT connectivity
85
REAL ESTATE &
CONSTRUCTION
FOCUS
BEITMISK PROJECT
ROOM WITH A VIEW
This residential
development is a sign of
things to come
107
œ1/vù3/v+-*v=>H+.*v;O>+-1vMA>+0,
We deal with electronics and appliances, but that’s not
the only power we supply our customers with.
Quality service before and after sales delivered by the best professionals
in the field, and the widest selection of brands and technologies
have allowed us to become a leading retailer. And after 16 years
and 10 branches across the country, it was only natural that we would
expand regionally. After all, when you’re doing something right,
you would want to share it with as many people as possible.
+961 1 244200 – ext: 238
[email protected]
THEBUSINESSYEAR
5
Contents LEBANON 2014
8 Resilient, as always ‡ YEAR IN
REVIEW
11 DIPLOMACY
21 ECONOMY
37 FINANCE
11 One step forward ‡ REVIEW
21 Balancing act ‡ REVIEW
37 Tick the box ‡ REVIEW: BANKING
14 HE Tammam Salam, Prime
Minister of Lebanon ‡ INTERVIEW
22 Ziad Sayegh, CEO, Civic Influence
Hub (CIH) ‡ COLUMN
16 Gebran Bassil, Minister of Foreign
Affairs & Emigrants ‡ INTERVIEW
23 Nassib Ghobril, Chief Economist
& Head of the Economic Research &
Analysis Department, Byblos Bank ‡
COLUMN
38 Abdel Hafiz Mansour, Secretary,
Special Investigation Commission
(SIC) ‡ COLUMN
17 Bilal S. Hamad, President of
the Municipal Council of Beirut ‡
INTERVIEW
18 Kinetic defense ‡ FOCUS:
MILITARY AID
19 John Kerry, Secretary of State of
the United States of America ‡ GUEST
SPEAKER
20 Morgens Jensen, Minister for
Trade & Development Cooperation of
Denmark ‡ GUEST SPEAKER
24 Alain Hakim, Minister of Economy
& Trade ‡ INTERVIEW
25 Michel Pharaon, Minister of
Tourism ‡ INTERVIEW
26 Plugging away ‡ FOCUS: FDI
26 Nabil A. Itani, Chairman, the
Investment Development Authority of
Lebanon (IDAL) ‡COLUMN
27 Ziad Hayek, Secretary General of
the Higher Council for Privatization ‡
INTERVIEW
28 Ferid Belhaj, Director for the
MENA Region of the World Bank ‡
INTERVIEW
29 Salim Zeenni, President of the
American Lebanese Chamber of
Commerce (AmCham Lebanon) ‡
INTERVIEW
30 Faysal Abou Zaki, Deputy CEO
of Al-Iktissad Wal-Aamal Group ‡
INTERVIEW
31 C.R.E.A.M, Cream get the money...
‡ FOCUS: BDL SUPPORT
32 Eddy Cherfan, CEO of AC Holding ‡
INTERVIEW
34 Spread around ‡ B2B: HOLDING &
DIVERSITY
35 Talent pool ‡ FORUM: WHY
LEBANON?
42 Dr. Makram Sader, Secretary
General of the Association of Banks in
Lebanon (ABL) ‡ INTERVIEW
43 Dr. Freddie C. Baz, Group CFO
& Strategy Director of Bank Audi ‡
INTERVIEW
45 Saad Azhari, Chairman &
General Manager of BLOM BANK ‡
INTERVIEW
47 Money talk ‡ B2B: BANKING
OUTLOOK
48 A fragile coexistence ‡ FOCUS:
FATCA & BANKING SECRECY
50 Tarek J. Khalife, Chairman of the
Board of Creditbank ‡ INTERVIEW
51 Farid Chedid, Founder Chairman &
CEO of Chedid Re ‡ INTERVIEW
53 Shake ‘n bake ‡ B2B: PRIVATE
RESTRUCTURING
54 Cautiously optimistic ‡ REVIEW:
CAPITAL MARKETS
55 Dr. Ghaleb Mahmassani, VicePresident of the Beirut Stock
Exchange (BSE) ‡ INTERVIEW
56 Beating the odds ‡ REVIEW:
INSURANCE
58 Lutfi F. El Zein, Executive
President & Managing Director of
Medgulf ‡ INTERVIEW
59 Hala Haidar, General Manager of
AIG Lebanon ‡ INTERVIEW
60 Back up is here ‡ VOX POPULI:
INSURANCE ANGLES
6
THEBUSINESSYEAR
LEBANON 2014
63 ENERGY
63 Fill her up ‡ REVIEW
64 Salah Khayat, CEO, Petroleb ‡
COLUMN
66 Arthur Nazarian, Minister of
Energy & Water ‡ INTERVIEW
67 Nasser Hoteit, Board Member
& Head of Technical & Engineering
of the Lebanese Petroleum
Administration (LPA) ‡ INTERVIEW
68 Jacques Souplet, Managing
Director of Total Liban & Total
Group Representative in Lebanon ‡
INTERVIEW
69 River of the sun ‡ FOCUS : BEIRUT
RIVER SOLAR SNAKE PROJECT
81 TELECOMS
103 REAL ESTATE
81 Connect me ‡ REVIEW
103 The boundaries of urbanism
‡ REVIEW: REAL ESTATE
107 Room with a view ‡ FOCUS:
BEITMISK PROJECT
104 Michel Georr, CEO, CGI-Saradar
Group ‡ COLUMN
108 Up & outward ‡ VOX POPULI:
DEVELOPMENT OUTLOOK
105 Joseph Hayek, CEO & General
Manager, Hayek Construction
Company (HCC) ‡ COLUMN
110 Build with me ‡ REVIEW:
CONSTRUCTION
& IT
70 The right gear ‡ B2B:
RENEWABLES
82 Abdallah Bsaibes, Chairman &
General Manager, GeoSpatialMinds
‡ COLUMN
71 INDUSTRY
85 Boutros Harb, Minister of
Telecommunications ‡ INTERVIEW
&MINING
71 Tools on the table ‡ REVIEW
86 Time for change ‡ FOCUS: IT
PRICE REFORMS
72 Asaad Saccal, Managing Director,
SACCAL Industries ‡ COLUMN
88 Claude J. Bahsali, Chairman &
CEO of Information Technology
Group (ITG) Holding ‡ INTERVIEW
73 Ziad Bekdache, General Manager,
Oriental Paper Products (OPP)
‡ COLUMN
90 Mazen Moussallem, Chairman of
Level 5 Holding ‡ INTERVIEW
74 Fady Gemayel, President
of the Association of Lebanese
Industrialists (ALI) ‡ INTERVIEW
91 TRANSPORT
75 Maysarah Khalil Sukkar, Chairman
of averda ‡ INTERVIEW
94 Mourad Aoun, CEO of Net Holding
‡ INTERVIEW
76 Flying off the shelf ‡ B2B: FMCGS
96 Whatever your medium ‡ B2B:
LOGISTICS SOLUTIONS
77 Get on up get into it! ‡ FOCUS:
NEW USE OF TEUS
77 Marwan Dalal, Managing Director/
Owner, Dalal Steel Industries
‡ COLUMN
91 The port of call ‡ REVIEW
97 Life is a highway ‡ FOCUS: ROAD
TRANSPORT
98 Smooth sailing ‡ VOX POPULI:
MARITIME
78 How to optimize ‡ VOX POPULI:
INDUSTRIAL OUTLOOK
100 Alain Maaraoui, President of Sea
Pros ‡ INTERVIEW
80 Changing Lanes ‡FORUM:
AUTOMOTIVE
102 Sheets to the wind ‡ B2B:
YACHTS
& CONSTRUCTION
106 Georges Zard Abou Jaoude, CEO
& Owner of GZA Group ‡ INTERVIEW
112 Rafik El-Khoury, Chairman &
CEO of Rafik El-Khoury & Partners
‡ INTERVIEW
THEBUSINESSYEAR
Managing Editor
Leland Rice
Country Managers
Anna Matskevits, Corina Denov
Country Editor
Richard Kent
Project Assistant
Aela Khani
Managing Director
$\ÞH+D]ÏU9DOHQWLQ
Editorial Director
Jason J. Nash
Commercial Director
Laila Bastati
Senior Editor
Mark A. Szawlowski
Web Editor
Peter Howson
Sub-‐Editors
Terry Whitlam, Aidan McMahon,
Michael Gibson, Lewis King,
Susan Barrett
Editorial Assistant
Asiye Duman
Art Director
Berin Cansu Zafer
Jr Art Director
Bahar Kara
113 AGRICULTURE
113 Right at home ‡ REVIEW
114 Elie F. Issa, CEO, Domaine Des
Tourelles ‡ COLUMN
116 Akram Chehayeb, Minister of
Agriculture ‡ INTERVIEW
117 HEALTH
& EDUCATION
117 Duty bound ‡ REVIEW: HEALTH
120 Antoine Keirouz, CEO, Fitness
Zone ‡ COLUMN
122 The doctor is in ‡ B2B: PHARMA
123 Dr. Adnan Tahir, Hospital Director
& Chief Medical Officer at the
American University of Beirut Medical
Center (AUBMC) ‡ INTERVIEW
Graphic Designers
Ceren Bettemir, Genee Presta,
Didem Toprak
124 Keen to learn ‡ REVIEW:
EDUCATION
Jr Graphic Designer
Mine Sinal
126 Set up campus ‡ FORUM:
HIGHER EDUCATION
Cover Illustration
.UÞDWhQVDO
127 TOURISM
& RETAIL
127 Live, love, Lebanon ‡ REVIEW
128 Walid M. Kanaan, Director,
Operations, Le Yacht Club ‡ COLUMN
130 Nizar Alouf, General Manager of
the Riviera Hotel ‡ INTERVIEW
132 Anna-Maria Keyrouz, Deputy
General Manager of Etoile Suites
Hotel ‡ INTERVIEW
134 Ali Saleh, General Manager of
:++RWHO&RIRXQGHURIhEHUKDXV
‡ INTERVIEW
135 Time capsule ‡ PHOTO ESSAY:
BYBLOS
136 Selim Ramia, CEO of Selim
Ramia & Co Grand Cinemas
‡ INTERVIEW
138 A silver lining? ‡ REVIEW:
RETAIL
141 Romen Mathieu, Chairman of
Khoury Home ‡ INTERVIEW
PR Manager
Shweta Mulani
142 Said G. Daher, CEO of Azadea
Group ‡ INTERVIEW
HR Executive
Ines Delgado
143 Off the hanger ‡ B2B: FASHION
Operations Manager
6HPLKD(ONÏUDQ
144 Enjoy life ‡ LIFE & LEISURE
Financial Operations Manager
6HUSLO<DOWDOÏHU
Operations Executive
g]QXU<ÏOGÏ]
Operations Assistant
Gamze Zorlu
Finance Executive
1DPÏN$NPDQ
Circulation & Marketing Director
Amy Burtin
147 EXECUTIVE
GUIDE
147 Laying the foundations
‡ REVIEW: SETTING UP A
BUSINESS IN LEBANON
Publisher
Peggy Rosiak
151 Carlos Abou Jaoude, Founder &
Managing Partner of Abou Jaoude &
Associates Law Firm ‡ INTERVIEW
Printing: Apa Uniprint
152 When in Lebanon...
The Business Year
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[email protected]
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The Business Year is a registered trademark
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Year International Inc. has made every effort
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Year International Inc. makes no warranty,
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for the accuracy, completeness, or usefulness of
any information contained in this publication.
ISBN 978-1-908180-36-0
7
8
LEBANON 2014
THEBUSINESSYEAR
YEAR IN REVIEW
RESILIENT,
AS ALWAYS
Lebanon has succeeded in finding opportunities
in a region in strife, with hope that the new
government will inject fresh confidence into the
market and investors.
Akkar
MEDITERRANEAN SEA
C Tripoli
LEBANON
C Byblos
Baalbek
I C
Beirut
Zahle
Bekaa
Nabatiyeh
Tyre
SYRIA
THEBUSINESSYEAR
Length of Land Borders
454 kilometers
Area
10,452 km2
Total Population
4.5 million
Life Expectancy m/f (WHO/2011)
71.8/75.7
GDP Current Prices (World Bank/2013)
$44.35 billion
ChØ[ncihL[n_"CG@),*+-#
6.659%
=oll_hn;]]iohn>_×]cn",*+-#
16.18% of GDP
Unemployment Rate (IDAL/March 2014)
13%
Political Structure
Parliamentary Republic
HEAD OF STATE
Acting President Tammam Salam
HEAD OF GOVERNMENT
Prime Minister Tammam Salam
C Commercial Port
I International Airport
9
NO STRANGER
to challenges, Lebanon has remained
relatively unscathed as a result of the crisis that erupted in
neighboring Syria in 2011. In
addition to having lost a prime
export route, the economy has
been burdened by the arrival
of 1 million refugees, though is
looking to its international partners for assistance to soften any
effects on the economy. Growth
was sluggish in 2014, with the
World Bank predicting that GDP
will have expanded just 1.5% by
year end, compared to a previous 2.5%. The Banque du Liban
(BDL), Lebanon’s central bank,
estimated that GDP growth
came in at 1% in 2013 and 1.5%
in 2012. The downward numbers were affected by a 35.1%
drop in exports in 1Q2014 according to a Bank Audi report,
widening the trade deficit by
7.1% to $4.6 billion over 1Q2013.
Despite the challenges, however, investor interest remains
resolute in the country. In 2013,
Lebanon hauled in $2.83 billion
in FDI, down 26.6% YoY. The
drop is likely on account of a fall
away in interest from Gulf investors in Lebanese real estate.
That said, Lebanon remains one
of the top recipients of FDI as a
percentage of GDP in the MENA
region at 6.3%, with FDI stock
worth 126% of total GDP, one of
the highest ratios in the world.
Elsewhere, it was a good year
for remittances, with Lebanon’s
large diaspora again helping
to shore up the banking sector
through liquidity transfers into
the country. According to the
World Bank, $7.6 billion in remittances were recorded in 2013,
up 4.4% on the previous year.
On the political front, which,
in Lebanon, has long suffered
from political inaction, February 2014 marked the end of a
10-month deadlock as Prime
Minister
Tammam
Salam
formed a new cabinet. And with
stagnation a key concern for
many sectors of the economy, it
is hoped that new government
initiatives can get the ball rolling once again. Despite some
concerns, however, the Lebanese economy certainly knows
how to just get on with the job,
with some sectors showing remarkable strength. One such
sector is maritime transport,
with port trade activity up 8.2%
in 1Q2014 to 182,188 TEUs as
exporters continued to favor
the sea as a means to get goods
abroad, with the land crossing
through Syria still a dangerous
affair. At the Port of Beirut, income reached $68.1 million in
the first four months of 2014,
with activity up 6.1% YoY. But
it hasn’t been rosy for everyone,
with the Port of Tripoli reporting
a 20.7% decrease in aggregate
weight handled in the first four
months of the year compared
to the same period in 2013.
Still, for the goods that do
make it abroad, however, the
reviews are in and they’re
good. Agro-industry, for one,
represented $453 million of total industrial exports of $3.08
billion in 2013, with wine also
making a splash abroad. Lebanon produces 8 million bottles every year, with one-third
destined for foreign markets.
Other major agricultural exports over 2013 included olive oil, exports of which grew
70% YoY to reach 7,085 tons.
Moving from goods to people,
remittances aren’t all that land
on Lebanese shores; the country
remains popular with tourists,
despite a drop in the number
of arrivals for the third year
running. In 2013, 1.27 million
10
THEBUSINESSYEAR
LEBANON 2014
YEAR IN REVIEW
GDP Growth
(in USD billions)
Source: IMF
50
40
30
20
10
2014e
2013e
2012
2011
2010
2009
2008
2007
2006
Age Pyramid 2014
(in Millions According to Age Group)
Source: US Census Bureau
LEBANON 2014
MALE
FEMALE
100+
95-99
90-94
85-89
80-84
75-79
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
190 152
114
76
38
0
0
POPULATION (IN THOUSANDS)
38
76
114
152 190
POPULATION (IN THOUSANDS)
AGE GROUP
Exchange Rate USD vs. LBP
Source: Oanda
1,505
1,495
TBY Average 1,500
1,485
1,475
09.23.14
06.23.14
03.23.14
12.23.14
09.23.14
06.23.14
03.23.14
1.465
12.23.13
cantly boost domestic activity
and help bolster the country’s
investment profile. When all
is said and done, the steady
stream of remittances and its
solid banking sector will continue to be the backbone of the
Lebanese economy. In addition, many investors are now
looking toward a post-conflict
Syria, and the inevitable wave
of investment this will bring to
Lebanon as it plays its part in the
rebuilding process. When combined with the potential of its
natural gas fields, the Lebanese
economy could well surprise. 2005
2004
0
09.23.12
visitors clocked in, down 6.69%
from 1.37 million in 2012 and
1.66 million in 2011. In 1Q2014,
there was also a 16.5% YoY drop
in arrivals. According to a Bank
Audi report, there has been a cumulative drop in arrivals of 60%
since the crisis in Syria began,
with average hotel occupancy
rates falling to 51% in 2013. Investors have also stayed away
from the sector, with FDI down
24% over the same period and
domestic investment also having dropped, this time by 15%.
On the domestic investment
front, however, there could be
light at the end of the tunnel.
The recent discovery of significant hydrocarbon reserves (up
to 96 trillion cubic feet of natural gas and 850 million barrels of
oil) off the coast of the country
has provided hope to the population for an end to rolling power cuts, while also raising hopes
among officials of a swollen
treasury and an answer to the
country’s fast rising public debt.
Lebanon’s exporters will continue to seek alternative routes
into foreign markets, while a
wave of much-waited reforms
to the economy could signifi-
Lebanon’s exporters will
continue to seek alternative
routes into foreign markets,
while a wave of much-awaited
reforms to the economy could
significantly boost domestic
activity and help bolster the
country’s investment profile.
THEBUSINESSYEAR
14
17
19
The Prime Minister of Lebanon
on political consensus building
and coping with the Syrian
humanitarian crisis.
President of the Municipal
Council of Beirut on the need for
public-‐private cooperation in
municipal development projects.
Secretary of State of the United
States of America on what the
US is doing to assist Lebanon
during strife in the region.
11
Diplomacy
REVIEW
With a new prime minister designated after months of deadlock, Lebanon
must now deal with a number of regional and domestic problems that
have been mounting.
ONE STEP FORWARD
O
n February 15,
2014, the 10 month
long political deadlock was broken
with Prime Minister designate
Tammam Salam’s formation
of the “cabinet of national interest” after his predecessor
Najib Mikati’s government
was dissolved following the
former Prime Minister’s resignation in April 2013. The
main priorities and tenets of
the Lebanese cabinet of national interest, as stated by
Prime Minister Salam in February 2014, were to deal with
the crucial economic and social pressures and issues arising from the sheer number of
Syrian refugees, passing the
necessary decrees to ensure
that the country’s economy
keeps moving, and fighting
mounting security problems
mostly linked to the Syrian
crisis and spillover of armed
militias, as well as forming a
unified front against the escalation of violence in Tripoli’s
neglected suburbs and sporadic outbreaks of terrorism
throughout the country, from
the Northern Bekaa to Beirut’s southern suburbs.
Lebanon has relatively successfully
shielded itself from regional instability,
and with the implementation of a new
government it will hopefully put some of
its previous challenges behind it.
The government has been
commendably successful at
delivering on the security
front. By July, the crisis had
abated in Tripoli, after the
Lebanese armed forces and
Hezbollah’s “state within a
state” formed an agreement
permitting the army to enter
the suburbs and disarm the
feuding militias. Despite the
ongoing presidential vacuum
from May until September,
the improvement in the security situation looked promising in terms of investment
picking up; “all the observers
agree that now there is something new happening in Lebanon on the level of security
and the coordination in the
forces… also with external
countries to stabilize security,” as Minister of Tourism
Michel Pharaoun told TBY
during an interview.
Indeed,
the
improvement in security sent positive signals both at home
and abroad. However, unfortunately for Lebanon, a
short-term improvement in
security conditions does not
necessarily translate into a
greater humanitarian aid
12
THEBUSINESSYEAR
LEBANON 2014
commitment from the international community to address the immense pressure that has
been placed on Lebanese communities and
the economy. Over the last three years Lebanon has borne the brunt of the Syrian crisis,
which by most indicators is now considered to
be among the worst refugee and humanitarian crises in history, having put an enormous
strain on Lebanon’s resources and infrastructure. In an exclusive interview with TBY, foreign Minister Gebran Bassil lamented how the
international community was suffering from
donor fatigue, despite the Lebanese state being confronted by what increasingly appears
to be an existential threat. When asked if he
feels the support to Lebanon to respond to the
crisis the response is blunt. “Not at all. We are
thankful for any and all assistance; however,
no matter how much assistance is given or
how much is spent, it will never be sufficient.
You can’t subsidize the lives of millions of people indefinitely without encouraging them to
return to their country.” This response embodies another political dimension for which
only the Lebanese can determine their own
destiny; the prospect of direct negotiations
on the return of refugees to Syria. Such direct
negotiations are, however, prohibited by the
Baabda declaration, an agreement ratified in
2012 affirming Lebanon’s disassociation from
regional events.
At the time of going to print the Prime Minister and Foreign Minister were at odds over
direct communication with the Syrian regime.
“There is no way we would accept the legitimi-
zation of the Syrian camps in Lebanon. We are
seeing more and more “donors’ fatigue,” especially considering that there are now many
refugee crises in the region, not just Syria but
also Iraq and Gaza,” said Basil.
Upon the reformation of the cabinet the
emphasis on the need for immediate humanitarian aid shifted to include the need for emergency military aid. In February, Saudi Arabia
and France pledged $3 billion in military aid
to support the Lebanese Armed Forces in upgrading its weaponry to more effectively combat terrorist threats. By August, this pledge
had not translated into any significant material investment in the armed forces. After some
months of relative calm, July and August saw
renewed violence from the Nusra Front and
Islamic State groups in the Lebanese-Syrian
border town of Arsal, a town that has been the
harbor of various takfiri and jihadi splinter
groups taking refuge in Lebanon, frequently
clashing with the Lebanese Armed Forces and
Hezbollah. The head of the Lebanese Armed
Forces Jean Kahwagi urged France to speed up
the delivery of weapons under the $3 billion
deal. The clashes left 19 Lebanese soldiers, 15
civilians, and 60 militants dead. Shortly after
the clashes, which caused the greatest loss of
life among the Lebanese Armed Forces during
the three years since the Syrian civil war began, Saudi Arabia delivered an emergency $1
billion aid package, while both the US and the
UK renewed military aid pledges, the US Ambassador claiming that the US has now made
over $1 billion in aid to the Lebanese govern-
Diplomacy
ment since 2006. This aid was welcomed by all
political parties in Lebanon, including Hezbollah, which in the past has been skeptical about
Western political motives.
Following the Islamic State’s aggressive expansion, Hezbollah’s Secretary General Hasan
Sayyed Nasrallah gave a rare interview published in the Lebanese daily Al-‐Akhbar in August. Concerning Hezbollah’s ongoing military
support of the Syrian regime, Nasrallah said
that “the sense of danger is growing, and the
popular sentiment is more accepting of our
fight against takfiri [militants].” At both a domestic and international level, he may well be
right. The speculation of US-Iranian military
cooperation upon the Islamic State's occupation of Mosul in July was ground breaking in
its show of just how much regional dynamics
and the lineation of alliances to fight common
enemies are changing.
Nasrallah criticized regional actors for their
indirect support of Islamic State and other takfiri groups, “There is a support for ISIS wherever there is a following of takfiri thinking, and
this applies to Jordan, Saudi Arabia, and the
Gulf states.” Further afield than bloc division
along Sunni-Shia lines, the need for enhanced
diplomacy and observation by countries all
over the Western world is increasingly apparent. Today, Lebanon and Syria serve are the
THEBUSINESSYEAR
13
In February, Saudi Arabia and France pledged $3 billion
in military aid to support the Lebanese Armed Forces
in upgrading its weaponry to more effectively combat
terrorist threats.
front line against a threat that has roots growing all over Western Europe.
The increased instability coming during a
time of a presidential vacuum makes it all the
more dangerous, whether the timing of this
has been intentional on part of the terrorist
groups operating throughout Lebanon is uncertain.
Lebanon’s parliament has failed on eight
consecutive occasions to reach a consensus
over a new president, neither the March 14
nor March 8 alliances has enough Parliamentary seats to elect their own candidate as head
of state, and a quorum has consistently failed
with numerous politicians casting blank votes.
In August, speculation was rife about whether
to extend Parliament’s mandate and postpone
elections scheduled for November, in light of
the presidential vacuum. Beirut Stock Exchange
Over the last few years the Beirut Stock Exchange (BSE) has dedicated
itself to providing its customers with high-quality financial services.
In serving this purpose, the BSE has moved from fixing to continuous trading system by implementing the NSCUNIX system used and developed by NYSE-EURONEXT. Lately, the BSE has adopted an electronic online trading
system and developed an up-to-date website that provides an easy-to-use interface for investors searching for
market data and information on listed companies. Having come so far, the Beirut Stock Exchange looks forward to
the implementation of the recently approved Financial Market Law that will give a boost to trading activity on the
stock exchange and rebuild Lebanon’s reputation as a financial services hub within the region.
The Beirut Stock Exchange
Established in 1920
www.bse.com.lb
14
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
POSITIVE STEPS
in difficult times
TBY talks to HE Tammam Salam,
Prime Minister of Lebanon, on
political consensus building,
the importance of private sector
involvement in developing
infrastructure, and coping with the
Syrian humanitarian crisis.
How successful has your cabinet been in addressing these priorities and building consensus?
Success is measured by results, and our government has achieved a lot in a short space of
time, especially when such achievements are
measured in a relative perspective. By way of
illustration, we have implemented an exhaustive security plan that has made a fundamental contribution to overall stability. Another
practical example is that we have proceeded
with over 40 nominations in key positions in
various administrations, a process that had
been paralyzed for many years. In addition,
we have passed several important decrees that
were not only indispensable for the resumption of smooth operational procedures and the
elimination of bottlenecks, but also vital for the
support of private sector initiatives and investments. We remain, however, constrained from
going radically forward because of the vacancy
in the Presidency of the Republic and delays in
legislative action.
When you accepted the post of Prime Minister for
Lebanon’s cabinet of national unity in February
2014, what were your priorities for consensus
building and structural reform of the Lebanese
economy?
History has shown that Lebanon can only be
governed by consensus. We are at our best
when all parties rally around a cause or jointly
agree on how to address a particular issue or
a set of issues. Accordingly, given the divisiveness that characterized the political environment at the time, it seemed imperative to seek
a common platform to which all parties could
be drawn, which took time. During that period, economic difficulties were becoming more
acute, and the impact of the Syrian crisis and
regional disturbances were weighing heavier
on Lebanon. First and foremost, as is typically
the case in Lebanon, it is essential to establish
a minimum level of security accompanied by
political stability if business activity is to regain
momentum, and we have been successful at
that despite what took place recently between
the Lebanese Armed Forces and terrorists that
infiltrated from Syria. Simultaneously, we are
trying to trigger growth through a set of policy
proposals relating to infrastructure and services. This Cabinet may not have the time to
complete major reforms, but it will pave the
way and point the decision-making process in
the right direction.
How important is the continued formation of Lebanon’s cabinet for attracting FDI and for the proper
functioning of the private sector in Lebanon?
BIO
Tammam Salam has been
Prime Minister of Lebanon
since February 2014. Prior
to that he served in the
government as Minister of
Culture during 2008 and
2009. His Excellency is a
graduate of the Haigazian
University in Beirut and
also holds an Economics
and Management Degree
from the UK. He began his
career as a businessman
before entering the political
arena at the beginning of
the 1970s.
It is a known fact that investment flows are almost perfectly correlated with political stability
and economic visibility. What is remarkable is
that we have been able to maintain the macro-economic reality and the level of activity we
have despite all the unsettling events that surround us. This demonstrates that market confidence in the resilience of Lebanon remains
high, and that, as in the past, growth will not fail
to bounce back as soon as the political uncertainties start to dissipate.
How is Lebanon strengthening its international
and regional trade links and working to improve its
competitiveness in core sectors of the economy?
Much remains to be done in this area. We have
left unaddressed for many years major issues
relating to helping our main productive sectors become more cost-effective, competitive,
and productive while safeguarding our environment. On the trade front, there is need to
Diplomacy
reinforce the implementation of existing agreements and to conclude many new ones with
countries and groups of countries that offer
appealing opportunities for our products. What
is sure is that we are not sufficiently capitalizing
on the Lebanese abroad. The substantial potential they represent constitutes a great asset
in enhancing the probability of success for all
economic initiatives.
What will be the next steps in introducing independent power producer (IPP) schemes in the electricity, telecommunications, and water sectors?
How strong are the investment prospects that will
be presented by such partnerships?
IPP solutions are already available in Lebanon.
A national plan organizing the energy sector
was approved by the government three years
ago, and is gradually being implemented. Other opportunities exist in the water sector, and
in tourism infrastructure and facilities, for example. We also expect demand to be boosted
when oil and gas companies start to set up their
business operating platforms in view of their
offshore exploration and production activities.
Finally, we expect a lot from revived capital
markets that will help in financing domestic
companies.
Qbc]bmnlo]nol[f^_×]c_h]c_mchF_\[h_m_jifcnc]m
and the economy have been exacerbated most by
the Syrian refugee crisis?
Politically, from the onset of the crisis, there
has been a polarization around regional issues that have caused a divide. I feel, however,
that this is behind us now because of the immediate domestic concerns the government
and the body politic is immersed in, and also
because of the multiplicity and complexity of
the regional events and their consequences on
Lebanon. As for the economy, Lebanon has always managed to correct imbalances through a
vibrant private sector. In addition, at the public sector level, there is now a high level of consciousness regarding the need for greater fiscal
discipline and an amicable framework for foreign investments.
15
IPP solutions are already available in Lebanon. A national plan
organizing the energy sector was approved by the government three
years ago, and is gradually being implemented.
In what ways have your attempts to moderate the
country politically precluded the strengthening of
core sectors of the economy, and particularly the
×_f^mi`n_f_]iggohc][ncihm&_h_las&[h^q[n_l9
It is true that ensuring political cohesion consumes a lot of energy. Nonetheless, we are examining adequate reform proposals in all the
fields you have mentioned. One such solution
is public-private partnerships (PPPs), which
will allow us to share risks and enhance service
quality by bringing in the private sector to do
what it does best.
THEBUSINESSYEAR
How effective has international assistance and
aid been in offsetting the negative affects the inØor i` Mslc[h l_`oa__m b[m ][om_^ ni nb_ F_\[nese economy?
We do not characterize the Syrians who escaped the fighting in their country by coming
to Lebanon as “refugees.” They are temporarily displaced people that we have welcomed
for humanitarian reasons. Having said that,
it is obvious that no country can absorb a
third of its population in less than 18 months
without major economic and social trauma.
The needs to keep afloat the Lebanese economy as a result of this influx are massive and
have been estimated by the World Bank at $7
billion. No aid package of this magnitude can
be put together in months, especially in the
difficult times traditional donor countries are
living through nowadays. Consequently, an
imaginative approach is needed based on the
following paradigms: one, this is not a traditional crisis. It is expected to be a protracted
affair that will take many shapes and, hence, is
going to require adapted, evolving responses.
Two, humanitarian aid alone cannot possibly
be the answer. What is needed is support for a
structural development policy that will inject
aid into vital sectors.
In a time of great change political and social upheaval in the region, what kind of geopolitical role
do you want Lebanon to play?
We believe that Lebanon should always remain, no matter the cost, a haven for all those
who cherish freedom and those who seek refuge from oppression. It should also continue
to be an example of liberalism, and of an open
economy. Those elements combined make it
truly unique. It is this uniqueness that will allow Lebanon to play a much larger geopolitical role than its size and means may suggest
it could. 16
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
no
EASY JOB
TBY talks to HE Gebran Bassil, Minister of
Foreign Affairs and Emigrants, on economic
diplomacy, regional stability, and international
cooperation.
During your recent trip to Brazil
you were focusing on efforts to
establish a preferential trade
agreement between Lebanon
and the Mercosur countries.
How hopeful are you that this
can be accomplished?
You are a proponent of economic diplomacy. Could you tell us
what this entails for Lebanon?
BIO
Gebran Bassil was appointed Minister of Foreign
Affairs and Emigrants of
the Republic of Lebanon on
@_\lo[ls+/&,*+.(Bcmi`×cial tenure of an executive
i`×]_mn[ln_^ch,**2&[m
Minister of Telecommunications, where he served
for one year. He then led
the Ministry of Energy and
Water between 2009 and
2014. He began his political
career as an activist in the
Free Patriotic Movement
(FPM) before heading the
political relations committee of the FPM. Bassil was
educated at Saint-Coeurs
College and at the American University of Beirut
(AUB), where he studied
Civil Engineering.
We are not reinventing the
wheel. Economic diplomacy is a well-known concept;
however, it was never before present in Lebanon. The
country’s largest asset, which
provides the greatest added
value to Lebanon, is the Lebanese diaspora, and yet we are
not really benefiting from this
asset as much as it is needed. Economic diplomacy will
enable us to reach out to this
diaspora, in order to deliver Lebanese products to our
immigrants, and, thereby, increase Lebanese exports. Also,
we want the Lebanese diaspora to become more involved
in the Lebanese economy
and to invest in their motherland. However, large and
influential Lebanese communities in many major economies around the world can
help Lebanon and Lebanese
producers, exporters, and
businessmen gain more of a
foothold in those countries,
opening up chances for more
opportunities, thanks to the
large networks of Lebanese
immigrants, who are successful industrialists, politicians,
and businessmen in the countries where they live.
I am positive because we got
the strong approval from
Brazil, confirmed by the
vice-president and the foreign minister. We have a large
lobby there, and we also got
approval from other embassies here from Mercosur. We
are now looking forward to
start negotiations. There are
10 million Lebanese living in
those five Mercosur countries, which is three times the
population of Lebanon itself.
We raise this issue on every
official visit to any country
with a Lebanese diaspora. Referring to these visits, I don’t
just meet with foreign ministers, but also other ministers
in specific fields such as agriculture, industry, energy, and
trade, and others.
What measures is Lebanon taking to maintain the sovereignty
of its borders, and to what extent is it working with the international community?
We have effective coordination with foreign intelligence
agencies, especially in terms
of finding and preventing terrorist acts. We have patriotic
and skilled armed forces with
the necessary tools to face the
threat of terrorism. Anything
we stop here is stopped from
reaching Europe, because the
forces we need to be vigilant
about are not only local but
also international organizations. Hence, we need assistance, and we need international cooperation. Terrorism
knows no borders, and the
meltdown in Syria and Iraq is
particularly worrisome. There
are over 84 nationalities now
in Syria. If we don’t deal with
the situation properly, those
people will go back and create
problems in 84 countries.
Given the social and political
changes throughout the region,
what kind of role do you think
Lebanon can and should play?
Lebanon has a major message
simply by virtue of its existence, which is the variety of
people from different races,
faiths, social habits, and cultures can coexist. Lebanon
proves this kind of coexistence is possible and that
dialogue is the way to deal
with difference, not conflict.
Lebanon can become the
launching pad for this kind
of approach in the region. If
Lebanon fails, then there will
be a divisive and volatile process that won’t just be contained to this region, because
Europe will definitely be the
second phase of the regional
conflict. Once certain forces
get a foothold here, they will
expand into Europe. We have
to stop those movements here
while we can; we have to extirpate these terrorist groups
here in the Middle East. Lebanon should be encouraged
as a haven of stability where
there is a great potential for
business, such as the oil and
gas reserves we have, which
could spread stability in Lebanon, not to mention the involved, dynamic population
that we have. However, if we
don’t realize these opportunities and instead head toward
a conflict of civilizations, then
this will not only threaten
the opportunities and investments in Lebanon, but also
the whole region. Diplomacy
THEBUSINESSYEAR
17
INTERVIEW
REFINING the cityscape
TBY talks to Bilal S. Hamad, President of the
Municipal Council of Beirut, on beautifying
the city, overcoming traffic and public transport
dilemmas, and the need for public-private
cooperation in municipal development projects.
How much is the total investment in the project and what is
the timeframe for its execution?
What are the municipality’s
gimn mcahc×][hn ihaicha ch`l[structure projects?
I am happy that we have finished the René Mouawad
Sanayeh Garden. We wanted
to create a new concept for a
garden that all the generations
could come and enjoy, and we
also included a new amphitheater. We have approved a
new master plan for the Horsh
area of over 300,000 sqm. We
are currently preparing a tender document so we can have
a private company provide us
with maintenance, security,
and administration. I believe
in public-private partnerships
(PPPs) in respect to the city’s
projects.
Are there any concrete plans for
other forms of public transport
or cycle routes?
In respect to transport, the
Council has commissioned
the consultancy firm TEAM to
do a study. One major objective is to get the stakeholders
in Beirut to believe in public
transport, and this needs media exposure, town meetings,
and more. TEAM will identify
short-term actions, consider
the prerequisites for starting
organized public transport in
the city, and propose detailed
plans and designs. We will
need to consider issues such
as separate bus lanes, which
highways to use for ground
transportation, the possibility
of a tramway, and whether we
need an above-ground transit
system. We are considering
monorail transport—it is effi-
cient and people are asking for
that. Overall, traffic and public
transport issues are at the top
of our list of priorities.
What is the current status of the
Fouad Boutros Boulevard?
The Bechara El-Khoury tunnel, under one of the busiest
intersections in Beirut, will be
completed in 2014. The Fouad
Boutros Boulevard is an old
project that goes back to the
1970s. The owners of the lots
along the alignment received
their compensation in the
1970s and 1980s. All the subsequent building construction
that took place from the 1980s
through to the present day
is based on that alignment;
however, we are still trying to
execute it today. Our administration needs more efficiency;
this project has taken 40 years
to date, and the problems are
accumulating. We also have a
significant problem with traffic, parking, and green spaces
in Achrafieh. This project will
partially solve the problem for
all the traffic coming from the
mountain area crossing the
narrow streets of Achrafieh
and going to the Charles Helou
highway along the coast.
BIO
Bilal S. Hamad has been
the Mayor of Beirut since
June 2010, and is a Professor in the Department
of Civil and Environmental Engineering at the
American University in
Beirut (AUB). He is also a
Consultant in the areas of
design and construction
of reinforced concrete and
steel structures, earthquake engineering, and the
repair and strengthening of
existing buildings. Professor Hamad received a BE
in Civil Engineering from
AUB with distinction, and
an MS and PhD from the
University of Texas at Austin with distinction. Hamad
b[mqihm_p_l[fm]c_hnc×]
awards, and in May 2011
was elected into the
Academy of Distinguished
Alumni of the University of
Texas at Austin.
The Council has put on hold
around $75 million to execute Fouad Boutros Boulevard, which includes a small
bridge over the Charles Malek
highway, and then a tunnel
under the residential area so
we can keep all the streets intact at ground level without
destroying anything. Second,
we will have almost 1,000 underground parking spaces at
three different locations along
the alignment to provide
room for cars that are causing
a negative environmental impact in Beirut in the Achrafieh
area. Then, above the tunnel,
in the residential area, we will
have a beautifully landscaped
area. At present, we are awaiting an environmental impact
assessment study executed
by a private firm along with a
new traffic model.
How are you working with the
ministries to improve wastewater treatment facilities around
Beirut?
At the moment, we are coordinating with the Ministry of
Power and other ministries
on the wastewater treatment
plant. This is a high-priority
project that has been neglected for a long time because any
wastewater treatment plant
for the northern part of Beirut
also has to serve Bourj Hammoud and part of the Metn
area. This meant the plans
were put on hold for decades;
however, since we started our
term, we have been lobbying
to start this project. Now, we
have a protocol of cooperation between the Council for
Development and Reconstruction (CDR), the Ministry, the Municipality of Bourj
Hammoud, and the Municipality of Beirut. 18
THEBUSINESSYEAR
LEBANON 2014
FOCUS MILITARY AID
KINETIC DEFENSE
Lebanon is increasingly concerned by sectarian conflicts and extremist
militants on its borders, and strengthening the Lebanese Armed Forces is a
popular priority both domestically and internationally.
CONSIDERED A FIRM PILLAR of the democratic state in Lebanon, the Lebanese Armed
Forces (LAF) finds itself today in a very challenging position. It must maintain stability and national confidence within the context of continuing suicide attacks and inter-sectarian clashes,
and it must do so without being drawn into the
Syrian civil war, while watching out for the militants of the self-declared Islamic State (IS) on
its borders. Importantly, it also needs to avoid
taking sides with any of Lebanon’s confessional
groups to ensure neutrality. Its crucial role in the
region is becoming more obvious, and this has
been noted abroad as well.
The US Secretary of State, John Kerry, in June
2014 made a strong statement in support of the
Lebanese state and the LAF, saying that the US
and the international community were committed to defending stability and democratic allies
in the region. He maintained that, “The US will
remain a strong and reliable partner, and we
will continue to support Lebanon and its institutions. That includes support that is aimed at
building the capacity of the Lebanese armed
forces and the internal security forces in order to
help them be able to secure Lebanon’s borders,
to be able to handle the refugee flows, and to be
able to calm the tensions and combat terrorism.”
Since 2006, the US has given Lebanon more than
$1 billion in military assistance. The US has also
committed $290 million in humanitarian assistance to Lebanon in 2014 for people affected and
displaced by the regional conflicts. The US has
given a total of $2 billion to support refugees and
the countries that are hosting them.
In 2014, the US delivered its first in a new $19
million shipment of weapons to Lebanon to
help bolster its military, as they face a growing
threat from militants and the fallout from Syria’s civil war. The shipment included anti-tank
weapons, mortars, and assault rifles, as well
as ammunition and support gear. In summer
2014, US Ambassador David Hale announced
the arms deliveries and said they were in response to a request from the LAF for assistance
after Islamic militants overran a Lebanese town
near the Syrian border in August, killing and
kidnapping LAF soldiers and Lebanese police.
Dozens of military men and militants were
killed in the battles, and at least 29 soldiers and
policemen were taken hostage.
Moreover, Saudi Arabia has given Lebanon’s
military a $1 billion donation to help in its fight
against militants spilling over from the Syrian
border. The Saudi contribution came as LAF
commanders urged France to speed up another
promised weapons delivery. Saudi Arabia is also
financing a $3 billion package of French military
equipment and weapons. Details of exactly what
arms will be provided by the French have not yet
been released, but it is reported the package will
include HOT air-to-surface missiles. And in June
2014, at a conference in Rome, the international
community pledged it’s backing for the LAF. Italy for example has a strong contingent of almost
1,500 troops serving with the UN Interim Force
in Lebanon (UNIFL) in the south of the country. According to the Institute for Near East and
Gulf Military Analysis, in 2011 Italy donated 16
Fiat CM-90 trucks, and in 2010 about 63 IVECO
utility vehicles and 24 ambulances. The Italian
government has also donated support equipment such as night-vision goggles and riot gear,
and plans to supply Puma 4x4 armored vehicles.
Other European countries that provide military
assistance to Lebanon include the UK, France,
Poland, and Germany. Also some of the Arab
Gulf States provide military aid, particularly Saudi Arabia and the UAE.
However, the international community is
traditionally hesitant in providing the LAF with
effective offensive weapons. Most donations
from the Western countries are in the form of
vehicles and support equipment. The US Congress, for example, has often made it difficult
for the American government to provide the
LAF with lethal weapons, fearing that these
weapons could fall into the hands of Hezbollah
or other extremist groups. However, with the
region heating up, the Americans are overcoming their worries and bolstering the groups they
see as key guarantors of stability. Diplomacy
THEBUSINESSYEAR
19
GUEST SPEAKER
John Kerry, Secretary of State of the United States of America, on what
the US is doing to assist Lebanon during strife in the region, and the need
for a fully formed government.
shoulder to
SHOULDER
LEBANON is obviously
much more than a beautiful
country, which it is. It is a very
important country, and it is
very important to the security
of the region and beyond. And
I think everybody knows that
the United States of America
is deeply committed to Lebanon’s security, to its stability,
to its sovereignty, and to supporting the Lebanese people
during this difficult period.
We all know that the consequences of the civil war in
Syria reach well beyond Syria’s borders, and Lebanon is
feeling those consequences
as much as any other country
or community. Nowhere, in
fact, has the international impact of what is happening in
Syria been felt more in many
ways than what is happening
here. And that particularly includes the 1,600 cities, towns,
and villages across Lebanon
that are now hosting refugees
of all ages.
I have personally had the
opportunity to meet with
some of those refugees, the
Syrian refugees, who are now
in Jordanian camps. And
when I was there, it was impossible for me not to feel
the incredible frustration and
anger and loss that those refugees felt. If it isn’t enough that
they don’t see their life situation changing, what they also
don’t see is they don’t see the
war ending, and so for them
life is difficult, and it is bleak
every day.
With the newest contribution the US has now committed more than $2 billion to
support refugees and the nations that have opened their
doors to them.
The devastating events in
Syria have obviously gone
on for far too long, and I am
proud that we have stood by
the people of Lebanon from
day one. We will continue to support the people of
Lebanon. I made it clear to
BIO
John Kerry was sworn in as
the 68th Secretary of State
of the US on February 1,
,*+-&\_]igchanb_×lmn
sitting Senate Foreign
Relations Committee
Chairman to become
Secretary in over a century.
He graduated from Yale
University and enlisted in
the United States Navy,
serving two tours of duty.
He later obtained a Law degree from Boston College
Law School and worked as
a prosecutor in Middlesex
County. He was elected
Lieutenant-Governor of
Massachusetts in 1982,
and two years later he was
elected to the US Senate,
where he served for 28
years. In 2009, Secretary
Kerry became Chairman of
the Senate Foreign Relations Committee.
Prime Minister Salam that
President Obama is deeply committed to supporting
Lebanon, supporting the security initiatives, and we will
continue to remain engaged
in our efforts to try to find a
way to move forward.
Lebanon’s security for
years has been of paramount
concern to the US. And that is
why I have to say that the current political stalemate here
in Lebanon is deeply troubling. It is unfortunate that
the parliament did not elect
a president on schedule, as
the Lebanese constitution requires. And now it is far more
important for the vacancy to
be filled so that the people of
Lebanon can reap the benefits of a fully constituted, fully empowered government.
That is important for Lebanon, it is also important for
the region, and it is important
for those who support Lebanon. And we need a government that is free from foreign
influence, with a fully empowered president, and with
the president and the parliament responding directly to
the people and to the needs
of the people of Lebanon.
I reiterated my support to
Prime Minister Salam at a
meeting we recently had, and
I reiterated President Obama’s
support for the stewardship
of the Lebanese government
by Prime Minister Salam and
his cabinet. And I thanked
the Prime Minister for the
principles that we share and
for his commitment to those
principles. This is not a time
for business as usual. The
challenges are just too significant, and the challenges are
all interconnected. Lebanon
needs and Lebanon deserves
to have a fully empowered,
fully functioning, complete
government. And we hope the
Lebanese parliament will select a president quickly.
In the meantime, I did assure the Prime Minister that
the US will remain a strong
and reliable partner, and
we will continue to support
Lebanon and its institutions.
That includes support that is
aimed at building the capacity of the Lebanese armed
forces and the internal security forces in order to help
them be able to secure Lebanon’s borders, to be able to
handle the refugee flows, and
to be able to calm the tensions
and combat terrorism. In fact,
we are seeking, right now,
to increase our assistance to
those institutions.
Therefore, the bottom line
is this; a secure and stable
Lebanon is a prerequisite for
a secure and stable region,
and the US will continue to
work closely with our partners in Lebanon in order to
protect against any of those
who seek a different goal. 20
THEBUSINESSYEAR
LEBANON 2014
GUEST SPEAKER
building BRIDGES
Denmark has a long history
trading with Lebanon. What
are the pillars of this bilateral
trade?
Over the years, trade between
our countries has grown dramatically. In 2013, Danish
exports to Lebanon reached
a value of almost $150 million. Pharmaceuticals and sea
transport services account
for 40% of Danish exports to
Lebanon. Looking ahead, I see
huge potential in the energy
market—both
conventional and renewable. Lebanon
needs to invest in its energy
infrastructure and to utilize its
conventional as well as renewable energy resources. Denmark has a global brand and
cutting-edge technology in
this field. A Danish engineering company, BWSC, recently
entered the Lebanese market
and boosted Danish-Lebanese business cooperation by
building two new major power plants worth $350 million.
A world-leading Danish windmill producer is now looking
to enter the market.
What are the key trade trends
and potential areas of investment for Danish companies in
Lebanon?
There are, of course, many
interesting investment opportunities in Lebanon. It has an
excellent, educated, skilled,
and dynamic work force, as
well as a good business environment—and the country
has consumers interested in
the solutions Danish companies can provide. Lebanon
also serves as a bridge to the
region. Investment in Lebanon is challenging, however,
because of the political uncertainty. Still, even now in these
uncertain times, investors are
entering the market. As indicated by the equity market,
there is growing confidence
among Lebanese companies
about the prospects for consumer demand. Also, the Lebanese economy has previously demonstrated the capacity
Denmark is the per capita highest aid donor in the world. How
has this aid been distributed in
the case of Lebanon and supporting it against the spillover
_``_]nmi`nb_Mslc[h]ihØc]n9
TBY talks to HE
Morgens Jensen,
Minister for Trade
and Development
Cooperation of
Denmark, on DanishLebanese trade
and humanitarian
assistance.
to bounce back quickly after
poor years. Still, Danish companies are looking for more
improvements in terms of a
more transparent and safe
environment for their investments and business contracts.
Following Vestas being award_^ nb_ ×lmn ]ihnl[]n ni chmn[ff
turbines in Jordan, will it look to
execute similar renewable energy projects in Lebanon?
I believe Lebanon has a great
potential in renewable energy projects. Measurements
by Vestas as well as the Wind
Atlas of Lebanon from 2011
financed by the UN Development Group and UNDP
clearly show this. Vestas has
been through the technical
prequalification process in
Lebanon, and is committed,
together with Lebanese stakeholders to develop a wind
farm project in the country
within a range of 60 MW connected to an existing grid in
the Akkar area.
The Danish government is
deeply concerned about the
refugee crisis and its impact
on neighboring countries, in
particular Lebanon. We are
aware of the heavy burden
the Lebanese people and host
communities are shouldering
and remain committed to offer our support in the short as
well the long term. The Danish government is one of the
largest donors providing substantial funding to humanitarian appeals and international
humanitarian agencies such
as the UNHCR, UNICEF, and
UNRWA in Lebanon. To date
we have committed more
than $119 million in humanitarian assistance to help the
victims of the Syrian crisis.
How you do you intend to facilitate greater cooperation at the
SME level between Lebanese
and Danish companies?
We need to support SMEs
in developing in the right
direction and equipping
them with tools that enable
them to become export-oriented. This is so crucial because SMEs are the soul of
our economies. A great deal
of effort has been allocated
by the Danish Trade Council to support Danish SMEs
and explore foreign markets,
including Lebanon. In the
framework of Denmark’s
broader engagement with
the regional “The Danish-Arab Partnership Program,”
we have initiated a project
allocating substantial funds
to support SMEs in the Arab
countries. Lebanon is a key
partner in this framework. Exports to
Lebanon (2013)
$150 million
Main export
sectors
Pharmaceuticals
& maritime
services
BIO
Morgens Jensen has
represented the Social
Democratic Party in the
Danish Parliament since
2007. During his tenure
in Parliament, Jensen has
held numerous positions,
serving as the Vice-Chairman of the Social Democratic Party since 2012,
Government Auditor in
2013, and Chairman for the
Social Democratic Party
parliamentary group from
2011 to 2013. He has also
served as spokesperson for
culture and media, and held
membership in the Cultural
Affairs Committee, the
Foreign Policy Committee,
the Foreign Affairs Committee, the Legal Affairs
Committee, the Greenland
Committee, and the Faroe
Islands Committee. Jensen
also served as Chairman
for the Danish Delegation to
the Parliamentary Assembly of the Council of Europe.
In addition, Jensen has
worked as a consultant for
the Danish Confederation of
Trade Unions, the Workers
Education Association, and
served as Secretary of Education for the Danish Social
Democratic Youth.
THEBUSINESSYEAR
21
24
26
35
The Minister of Economy and
Trade, on keeping the economy
growing despite challenges in
the region.
Regional strife has impacted
the business environment,
but investors certainly haven’t
turned away.
From healthcare to finance, many
foreign companies have set up in
Lebanon and continue to believe
in the country.
Economy
REVIEW
Lebanon’s premier FDI-to-GDP ratio and an impressive surplus in the
balance of payments in 2014 are good medicine to dispel fears of fiscal
instability and public debt crises looming on the horizon.
BALANCING ACT
A
fter a positive
first six months of
2014, by July Lebanon’s
prudent
GDP growth targets of 2.5%
announced by Banque du
Liban's (BDL) Governor at
the BDL Regional Outlook
conference in June, as high as
some estimates of 4%, looked
highly unlikely to be met.
Following 1% GDP growth
in 2013, down 1.5% on 2012
and 2% on 2011, Bank Med’s
Lebanon Economic Outlook
report published in line with
the IMF’s forecasting projected that growth would continue at a flat 1%. The World
Bank report released in June
forecast 1.5%, the lowest in
the MENA region.
According to Bank Audi’s
1Q2014 report, Lebanon was
shaken by a dramatic 35.1%
drop in exports following the
previous year’s astronomical increase. This, combined
with a 2.1% increase in imports, resulted in a cumulative increase in the trade
deficit by 7.1% on the same
period in 2013, up to a total
of $4.6 billion. Such a sharp
decline in exports is ex-
The economy has performed well over
the first half of 2014 under the
circumstances, and investors and the
government will look to build upon this
success as the country moves forward.
plained by heightened levels
of anxiousness and insurance
premiums to traverse Syria.
Whether by land or sea, overall exports to Syria fell by 15%,
with a likely continued fall in
exports at the time of TBY going to print, given the Syrian
conflict permeating other regions on its periphery, notably Iraq, following the escalation of violence in the second
half of 2014.
Such a trade balance left
Lebanon’s aggregate balance
of payments (BOP) standing at
a $301 million surplus by April
2014, compared to a deficit of
$62 million during the same
period of time in 2013. By May
2014, this figure was standing
at an impressive $776 million.
On the current account side,
the BOP is weighed down with
a raising trade deficit, slowing tourism, and the gradually
worsening indications in Byblos Bank’s Consumer Confidence Index, whereas on the
capital account side Lebanon’s
lifeline continues to come
through significant financial
inflows, of which in the first
quarter there was a 15.8% rise
on the same period in 2013.
22
THEBUSINESSYEAR
LEBANON 2014
With Lebanon marginally meeting the
BDL-imposed growth targets set in
2013, it miraculously pulled through
thanks to the exceptionally skilled
navigation on the part of the BDL.
Figures released by the Institute of International Finance show that FDI decreased to $2.8
billion in 2013, down 22.4% from the $3.8 billion recorded at the end of 2012, accounting
for 7.5% of aggregate flows to MENA countries
recorded in 2013. The FDI flows into Lebanon
were equivalent to 6.4% of GDP in 2013, the
highest among the 30 emerging markets, in
comparison with an aggregate of 2.1%.
The real sector changes displayed a balance
of positive and negative indicators, following
a general increase and more favorable macroeconomic conditions following the election of
a new cabinet. Lebanon’s traditional industries
look strong, the country is enjoying a significant surplus in capital inflows, port activity,
and volumes are up. Retail and wholesaling are
still relatively low and bearing the brunt of high
inflation and the cost of living being squeezed.
Financing for SMEs operating in the industrial sector through Kafalat guaranteed loans
registered an increase of 17.2%, a sure fire indication that Lebanon’s industrial sector has
no shortage of labor and innovation, even if
they are struggling to reach high-value export
markets. Cumulatively, Kafalat loan guarantees
were up by 6% in the first five months of 2014
to $45 million.
With Lebanon marginally meeting the
BDL-imposed growth targets set in 2013, it miraculously pulled through thanks to exceptionally skilled navigation by the BDL. The central
bank’s stimulus plan, or support package as
Governor Riad Salameh refers to it, has had a
significant effect on the economy’s growth over
the last year.
In 2013, BDL’s $1.4 billion support package
of low interest loans to Lebanon’s banks facilitated credit packages for low-cost housing,
renewable energy schemes, and industry, and
this had a significant knock-on effect on nationwide employment. Speaking at the BDL
biannual regional outlook conference in June
2014, the Governor of the central bank, Riad
Salameh, said “this package provided 50% of
the growth that we saw in 2013, which in total
was about 2.5%; we did the same for 2014 and
we are pleased to see that the credit enhance-
ment we did was successful and the funds have
been used almost completely, which is why we
are looking at increasing that package.”
Although the injection targeted several sectors, it was mainly used to prop up the real estate sector. “We have low rates if you benchmark
them with the region and our surroundings.
Lebanon offers a great return on investment at
that level,” says Minister of Economy and Trade
Alain Hakim, which is partly the reason why the
vast majority of Lebanon’s FDI inflows go into
real estate and construction projects.
Indeed there are other priorities for the central bank’s stimulus package, Salameh added
that “The BDL with its strong balance sheet also
has a role to play in employment, so investing
in start-ups in the knowledge economy will
provide a sector in Lebanon that will encourage competitiveness.” Such initiatives on the
part of the central bank only complement the
strategy shared by the Ministry of Economy and
Trade of supporting SMEs. “I imagine the main
subject of this foreign investment on that level
[SMEs] is not just about what the EU is doing,
because we also have many funds helping on
that level. The Ministry is preparing a national
charter for SMEs to achieve this goal,” said Minister Hakim.
A general view of the expansion in the real
economy is best comprehended by the BDL’s
cross sector coincident indicator, which represents a weighted average number of indices,
reaching 27.4 in the first couple of months of
2014, growing by 3.4% relative to the same
period of time in 2013. This index was recently developed under the BDL in an attempt to
better measure productivity in a country where
important statistics are unavailable, and, thus,
effective policy decisions cannot be made.
However, negative indicators are still a concern. The $65 billion in public debt stock is still
growing, and the economy is as vulnerable as
ever to shocks. Historically, Lebanon’s public
debt level declined from 180% of GDP in 2006
to 134% of GDP in 2011, but then started to
increase again in 2012, and is now expected
to reach 145% of GDP at the end of 2014, according to studies undertaken by Byblos Bank
Research.
The servicing costs to this debt are, of
course, increasing and marginalizing room for
local infrastructural spending on health and
other social services. Indeed, yearly servicing
payments on the debt are around $4 billion,
and rapidly increasing. The Association of
Banks in Lebanon (ABL) were less concerned
about the prospect of sudden international
interest rate increases, likely imposed by the
US Federal Reserve in the months to follow its
quantitative easing program, which by August
appeared a question of “when, not if.”
A commentary from the ABL maintained
that the banks are currently in a safe position.
“We are doing the necessary stress tests to as-
ZIAD SAYEGH
CEO, Civic
Influence Hub
(CIH)
How are you actively lobbying
for the public-private partnership (PPP) draft law No. 431?
We work with civil society,
the parliamentarians, and the
government. One of CIH’s goals
is to place civil society with the
decision-makers and the private
sector in order to build policies
together. After this, civil society
can be a watchdog, a model that
originated in the UK. Another
goal is to deal with the media
[\ionhin\_chachØo_h]_^\s
politicians, but to be a public
ijchcihg[e_l[h^chØo_h]er. There needs to be more
unbiased reporting of causes in
Lebanon. Recently, we launched
iol×lmn×p_'s_[ljf[h`ilq[n_l
sector management—Blue Gold.
How is the fundraising going
for the $5 billion target of Blue
Gold?
We prepared the Blue Gold
Plan through a participatory
approach. We focused on water
×lmn&\_][om_cncmhin[]igmodity; it is a national wealth
and a collective and individual
right. CIH works through 35
companies with more than 40
experts from the public and
private sectors, as well as
academia. The result of this plan
q[m]f_[l5q_h__^[×p_'s_[l
plan from 2015–2020, and we
need $5 billion to come from the
private sector, without privatization. This sector has the money;
however, they need to invest
wisely to create job opportunities and to move out from the
nl[^cncih[f\_h_×nm(
Economy
sess possible implications. I believe the interest rate risk [and associated maturity risk] is
low and manageable as interest rates applied
on loans to the private sector are periodically
reviewed in line to a large extent with the period of revision of interest rates on deposits,”
Secretary General of the ABL, Makram Sader,
explained to TBY.
In the meantime, it would seem the reduction of Lebanese public debt ought to be a
greater priority by remedying the structural
deficiencies in the Lebanese economy that will
enable the state to close the gap. According to
Byblos Bank’s Chief Economist Nassib Ghobril,
“The reversal of the debt dynamics was caused
by the increase in government spending in
conjunction with the slowdown in economic
growth and the stagnation in revenues, which
has widened the fiscal deficit from 6% of GDP in
2011 to an expected 11% of GDP in 2014.” Ghobril also acknowledges how measures to reduce
the fiscal deficit must occur on the expenditure
and on the revenue sides.
For a long time, it has been down to the effective leakages on the expenditures side, top
priorities include: restructuring the electricity
sector, reforming the social security and pension system, reducing wasteful spending in
government, and addressing overstaffing and
nepotism in the public administration. “On the
revenues side, the reforms consist of fighting
tax evasion, improving tax and fee collection,
involving the private sector in the financing and
management of public projects, privatization,
THEBUSINESSYEAR
23
A general view of the expansion in the real economy is best
comprehended by the BDL’s cross sector coincident indicator, which
represents a weighted average number of indices, reaching 27.4 in
nb_×lmn]iojf_i`gihnbmi`,*+.&aliqcha\s-(.l_f[ncp_ninb_
same period of time in 2013.
in addition to reducing the operating costs of
the private sector so that companies operating
in the informal sector have an incentive to join
the formal sector and start paying taxes,” Ghobril explained.
Such high operating costs were sustainable during periods of high economic growth,
but now they are effectively barriers to entry. Ghobril adds “one of the most important
measures to improve public revenues would
be to stimulate growth through improving
the investment climate and the business environment, which would raise the economy’s
competitiveness and allow it to grow even
in periods of political uncertainties. In turn,
increased economic activity would result in
higher tax receipts.” NASSIB GHOBRIL
Chief Economist & Head of the Economic Research & Analysis
Department, Byblos Bank
Do you believe that Lebanon took advantage of
cnml_f[ncp_l_mcfc_h]_ninb_chn_lh[ncih[f×h[h]c[f]lcmcmnil_g_^scnmmnlo]nol[f^_×]c_h]c_m9
Nb_afi\[f×h[h]c[f]lcmcmjlipc^_^[al_[n_r[gjf_
of the resilience of the Lebanese banking sector
due to the sound management of the banks and
the proper supervision by regulatory authorities.
;m[l_mofn&nb_ip_l[ff_]ihigs\_h_×n_^`lig
^_jimcnchØiqm[h^ohjl_]_^_hn_^]l_^cnaliqnb(
But we, in Lebanon, did not take advantage of these
afi\[f[h^fi][f×h[h]c[f^_p_fijg_hnmnil_^o]_
ioljo\fc]×h[h]_pofh_l[\cfcnc_m(Cncmnlo_nb[nq_
b[p_\_h_×n_^`lignb_afi\[f×h[h]c[f]lcmcmch
certain aspects. However, we did not really take advantage of the circumstances to reduce our public
×h[h]c[fpofh_l[\cfcnc_m&acp_hnb_l_]il^fiqafi\[f
interest rates on the US dollar, the availability of
fckoc^cns[h^nb_][jcn[fchØiqm&[h^nb_bcab_]inomic growth rates from 2008 to 2010, as well as
the fact that at one point, we had domestic political
stability and security conditions.
How useful do you think the Byblos Bank/AUB
=ihmog_l=ih×^_h]_Ch^_rb[m\__h`ilnb_
Lebanese economy?
The idea to develop this index came from Byblos
<[he\_][om_×lmni`[ff&cnqiof^b_fjl[cm_nb_
transparency of the Lebanese economy and
secondly, 79% of the GDP activity on the expenditures side is driven by private consumption. If you
can measure the trend in private consumption,
especially household consumption, it could give
you an idea about growth trends. This gives you a
forward-looking perspective about the coming six
months, and it tells you how the period you were
g_[molchaq[m(Q_][f]of[n_nb_]ihmog_l]ih×dence index monthly, which means that you have
gihnbfs×aol_mihnb_g[dilch^_r&nqimo\'ch^cces, and 26 sub-categories. We calculate the index
by region, income level, profession, and religious
[`×fc[ncih(Siob[p_[ffnb_m_mo\'][n_ailc_mnb[n
give you an unparalleled picture about which direction consumer sentiment is heading in.
24
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
at EVERY level
TBY talks to HE Alain Hakim,
Minister of Economy and Trade,
on keeping the economy growing
despite challenges in the region.
IN NUMBERS
Ministry of
Economy & Trade
Estimated stimulus
package for 2014
How effective has the Banque
du Liban (BDL) stimulus plan,
introduced in November 2013,
been in creating growth?
BIO
With a PhD in Business
Management, Alain Hakim
is currently the Minister
of Economy and Trade in
Lebanon. Having a career
chnb_×h[h]c[fm_]nil&b_
is currently serving as
Deputy General Manager at
Credit Libanais Group and
is also the CEO of Hermes
T&T company (part of the
Credit Libanais Group), as
well as a board member in
several group subsidiaries.
This comes in addition to
several other positions he
previously held in the banking sector. Alain Hakim has
kept a close relationship
with the academic world,
where he is chairperson at
the Business Administration Faculty of Saint Joseph
University as well as lecturer at the Institut Supérieur
d’Etudes Bancaires. He
participates in several academic research studies in
the business management
×_f^(;f[chB[ecg\_fc_p_m
that the role of the econogscmni\_h_×nnb_q_f`[l_
of its citizens and not the
opposite. His actions under
his mandate as Minister of
Economy and Trade revolve
around this idea, where he
encourages reforms that
aim to increase competition
in the market, protect consumers’ rights, and create
job opportunities for youth.
In 2013, approximately $1.5
billion was injected into the
Lebanese economy by BDL,
our central bank. This had,
of course, a great impact and
allowed growth to reach between 1% and 1.5%, despite
all various internal and external complications. It is worth
mentioning that this $1.5 billion targeted several sectors;
however, it was mainly used
to prop up the real estate industry. The real estate sector
has great potential for the future. We have low rates if you
benchmark them with the
region and our surroundings.
Lebanon offers a great return
on investment at that level.
My disappointment was in
regard to renewables, where,
if I recall, 2.6% of the funds
available were invested in the
sector, while the rest went
into real estate. It was not a
problem, but a disappointment because I am a strong
believer in renewable energy.
In 2014, we will inject a further
$800 million. Expectations are
good, despite everything. We
should reach 2.74% growth
if everything is positive until
the end of 2014. They expect
that, with political stability,
Lebanon could achieve 4.5%
growth over 2014.
What do you feel the priorities
should be in the Lebanese econigsnil_^o]_nb_^_×]cn9
There are three main priorities
today. First of all, we have the
Syrian refugees in Lebanon,
which is like an open wound
in the country, costing us directly almost $1.7 billion per
year. The second big wound
we have is at the energy level,
especially electricity, because
when I talk energy, I like to talk
about electricity, renewables,
and water (ERW), but I will
strictly talk about electricity.
The cost of electricity per year
to Lebanon is $2 billion. If you
put together the cost of electricity and the cost of the Syrian crisis, they are draining $3
billion plus from the economy
annually. The third problem is
waste and corruption. Waste
is about how we are losing
money for nothing. If we just
manage these three points, we
can manage the entire Lebanese economy in just one
year’s time. However, we need
support on all three levels. On
the first level, we have some
commitment from the international stage, and we should
have a clear plan for the Syrian
refugees. On the second point,
we should have a clear plan
on how to exit from the electricity problem that we have,
especially by implementing
the public-private partnership
(PPP) approach. On the third
point, the Lebanese government should do something
specifically about the ports
and airports, so as to end the
waste of money on customs.
In essence, we need better
customs management. The
third one is the easiest, and we
should achieve it in a matter of
weeks. On the second point,
in July 2014 we had a meeting
with the privatization council
that is tackling the problem
of PPPs. We reached several main decisions to achieve
better management over this
area. This includes electricity,
telecommunications, and water, but the main focus would
800
Million USD
Money granted by the
European Investment
Bank for local banks
and SMEs in 2014
164
Million euros
be electricity as the first step.
If you can arrange this sector,
you can use the funds we are
losing for investments, for example on railroads.
What would you like to see as
the next concrete step in the
electricity and telecommunication sectors?
The next step would be to
tackle the legal aspect, because we don’t have anything
on that level. If we can tackle
the legal aspect first, we can
achieve almost 50% of the
road map to reach this, mainly on the electricity front. For
telecommunications, we still
have a sort of duopoly in Lebanon. Also during the council of ministers meeting, we
were discussing how to open
this sector up to a third-party
operator owned by the government, Liban Telecom,
and how to implement this
to achieve better services and
prices, and to reduce the monopoly element in the sector.
This is how we can liberate
both electricity and telecoms
through PPPs. It should be a
similar process for both. Economy
THEBUSINESSYEAR
25
INTERVIEW
The Ministry
of Tourism
launched its Live,
Love, Lebanon
campaign in April
2014
What kind of a year has 2014
been for Lebanese tourism?
In 2010, we had roughly 2.3
million visitors, and in 2013
there were 1.3 million visitors.
There was a sharp decline
during this government and
at the beginning of the crisis
in Syria. The country arrived
at the end of 2013 in a very
uncertain state. Now, in 2014,
there are many things happening. The most important
is that there is now a political
will, though not an agreement,
on security. At the same time,
there was a regional and international consensus to protect
the stability of Lebanon. It was
not a political agreement, but
it was a truce. The results were
amazing, security-wise, and
consequently we are seeing
potential visitors expressing
an interest in coming to Lebanon again.
How did you reach out to the
Gulf states?
We went to the Gulf states
and asked them to look at
what we were doing, after that
the relationship with these
countries improved, and the
tourists started coming back.
The government was formed
at the end of February 2014.
The tourism figures in January, February, and March
2014 were not good, but since
April, they have been rising.
In Beirut before Ramadan, the
occupancy rate at our major
hotels was between 90% and
100%. The Phoenician was
at 103%. Before the terrorist
THINKING
outside the box
TBY talks to HE Michel
Pharaon, Minister of Tourism,
on encouraging the resurgence
of inbound tourism, the
development of niche and
alternative tourism in Lebanon,
and the work still to be done.
attack, June 2014 was a good
month. The month of Ramadan is never strong in terms
of occupancy, so we were expecting about 50% capacity.
Reservations after the month
of Ramadan were around 15%
higher than in 2013. Planes
were so fully booked that
Middle East Airlines (MEA)
put 40 extra flights on to Riyadh for the season. In addition, the Ministry of Tourism launched a new website
in April 2014. We put 60-70
packages on offer because for
the previous two years, travel
agencies had been exporting tourists. Now, we have
some new packages for under $1,000 for one week, with
some help from Middle East
Airlines (MEA) on better tariffs. Lebanon has some assets
that are unique. We go in and
create packages for religious
tourism, for example. We also
have themed travel packages
relating to wine, honey, apples, and even silk; alternative
tourism is part of our national
strategy for 2014. We strive to
be modern and dynamic and
express the feeling that something new is happening for
tourism in Lebanon. This is
what we have managed to do,
through the website, through
our campaign, and with these
new packages. We are also
trying to energize tourism
outside Beirut, even though
the tourism infrastructure
and assets in Beirut are excellent. Currently we have 60-80
small hotels available, but we
think we can bring this up to
200 in the villages.
What kind of a role do you feel
the Ministry of Tourism has to
play in what some commentators have called economic
diplomacy, with the Lebanese
diaspora and the rest of the
world?
I think the Tourism Ministry
has a role in highlighting our
potential. The private sector
in Lebanon is dynamic; it sees
potential and it acts. Lebanon
has to promote itself, which
requires both an overarching
strategy, and also small strategies for, say, medical tourism and green/ecotourism.
Furthermore, other parts of
the Middle East don’t have
the different regions that we
can offer in Lebanon. And
regional tourism development brings in revenue for
the municipalities and regional administrations. You
also have clients who are expatriates and it is important
to create micro strategies for
these segments of the market.
For instance, you have a lot
of people coming from, say,
Tunisia for the nightlife here.
We also need to develop a micro strategy for the casinos of
Lebanon. BIO
Michel Pharaon was born
in Beirut. He received an
Economics Degree from St
Joseph University in 1980,
followed by an MBA from
the University of Paris in
1981. As well as being a
Member of Parliament and
the Minister of Tourism, he
heads the Board of Directors for Mednet Insurance
Company and Commerce
du Levant magazine. He
is Deputy President of the
companies Ruphayil Pharaon & Sons, and Pharaon
Holding.
26
THEBUSINESSYEAR
LEBANON 2014
FOCUS FDI
PLUGGING AWAY
Regional strife has impacted the business environment in
Lebanon, but investor interest in the country remains robust.
@>CChØiqm
(In USD Billion)
Source: UNCTAD
6
5
4
3
2
1
2012
2013
2011
2010
2009
2007
2008
2006
0
FDI Stock Comparison
as a % of GDP in 2013 (00s)
Source: UNCTAD
3
2
1
Belgium
Singapore
Lebanon
UK
Bahrain
France
Canada
US
Saudi Arabia
0
UAE
still put in a good show all things considered,
proving its status as a popular regional investment destination.
FDI was down 26.6% YoY in 2013, at $2.83 billion, according to UNCTAD. ICT and agrifood
proved to be significant pulls over a year when
GDP growth posted in at 1.5%. The drop, meanwhile, can be attributed to a lack of flows from
the Gulf region into real estate. The 26.6% drop
follows an increase in 2012 over 2011, from $3.5
billion to $3.78 billion, indicative of the deteriorating security situation in neighboring Syria.
That said, and according to UNCTAD data, Lebanon was still the seventh top receiver of FDI
in the MENA region following the UAE ($10.5
billion), Saudi Arabia ($9.3 billion), Egypt ($5.5
billion), Morocco ($3.4 billion), Sudan ($3.1 billion), and Iraq ($2.8 billion). That made it one of
the top non-oil recipients of FDI in the MENA
region, and the largest recipient in relative GDP
terms at 6.3%, followed by Jordan (5.3%), Sudan
(4.4%), Morocco (3.2%), and Bahrain (3.1%).
FDI stock, meanwhile, is worth 126% of GDP,
putting Lebanon third in the world following
Singapore (283%) and Belgium (182%), and
ahead of the UK (63%).
Lebanon’s drop in FDI, however, was far
ahead of the West Asia regional decline of 9%
overall. Of the $2.83 billion that flowed into the
country, only $104 million was categorized as
Germany
WHILE FDI WAS DOWN in 2013, Lebanon
greenfield, putting Lebanon fourth in that respect in the region, according to Byblos Bank
data. Greenfield FDI was down 48% YoY in
2013, and accounted for just 0.2% of GDP.
Leading the charge to draw in FDI is the Investment Development Authority of Lebanon
(IDAL). And despite regional troubles, Nabil A.
Itani, Chairman of IDAL, has a clear grasp on
why investors haven’t abandoned the country.
“Most investments in Lebanon in 2013 [came]
from Lebanese business people working in partnership with foreign investors,” he commented,
adding that, “we are now encouraging big industry and ICT firms to outsource to Lebanese IT
companies, particularly in software engineering
and customer support services, such as call centers.” Also according to Itani, 60 European companies took the plunge and opened branches in
Lebanon over 2013, while “the bulk of the FDI
comes from Arab countries, mainly from Saudi
Arabia and Kuwait. The rest is spread between
Europe and the US,” concluded Itani.
Remittances are also worthy of a mention,
with Lebanon’s vast diaspora a constant source
of capital for the economy. According to the
World Bank, $7.6 billion in remittances was recorded in 2013, up 4.4% on the previous year.
That makes the country the 18th largest receiver of remittances globally and the 12th largest
among developing economies.
With all said and done, Lebanon can be
thankful for its FDI haul in 2013, far from the
disaster some could have predicted. Centered
in the eye of a storm, the country has done remarkably well to maintain its investment appeal and looks set to continue being a solid base
of operations for foreign companies that are
ready for the challenge. NABIL A. ITANI
Chairman, Investment Development Authority of Lebanon (IDAL)
What sectors are showing the greatest potential
in Lebanon?
Several competitive sectors in Lebanon are showing great potential and excellent business opportunities, as well as readiness to grow depending on
Lebanon’s free economy and competitive advantages. Those sectors are mainly healthcare tourism,
(spas, rehabilitation centers, specialized treatment
centers), media and digital media (production and
post-production facilities, online advertising, online
gaming, specialized 3D animation, development
of Arabic content), ICT (software development,
e-commerce, e-marketing, e-music, IT security,
n_f_'b_[fnbm_lpc]_m#&[h^[alc]ofnol_"×mb`[lgm&
traditional farms, and packaging centers).
How successful has Investment Development
Authority of Lebanon (IDAL) been in encouraging foreign investments and helping establish
joint ventures?
Our main mandate is to encourage capital to invest
in Lebanon. In previous years, what has been happening in the area has been affecting us. Although
a foreign investor can set up a business here, with
no restrictions, most investments in Lebanon
in 2013 come from Lebanese business people
working in partnership with foreign investors. We
[l_hiq_h]iol[acha\cach^omnls[h^C=N×lgmni
outsource to Lebanese IT companies, particularly
in software engineering and customer support
services, such as call centers.
What do you forecast for foreign investment in
Lebanon over the 2015?
With the expected political hinges (presidential
elections and parliament elections by the end
of 2014) we hope that things go smoothly; once
achieved, this will result in a boom in 2015 and
aliqnbgcabn\_go]bgil_mcahc×][hn^_j_h^cha
on Lebanon's resilient economy. This has happened
before, where Lebanon achieved an 8% growth rate
in the years following presidential elections.
Economy
THEBUSINESSYEAR
27
INTERVIEW
PERFECTING
the partnership
TBY talks to Ziad Hayek, Secretary General of
the Higher Council for Privatization, on the
benefits of PPPs in infrastructure development,
privatizing telecommunications, and what the
government still needs to do to give greater
confidence to large potential investors.
Telecoms are a major source
of revenue for the government.
How will this be affected?
You have been the architect
of public-private partnerships
(PPPs) in Lebanon, and you
have been working hard to
achieve a political consensus.
Where does that process stand?
We are still trying to get legislation passed. In Lebanon,
there is nothing that prohibits the government or private
sector from engaging in PPP
projects; however, we have a
history of less than satisfactory
projects on both sides, mainly
for three reasons. One is that
these projects have typically
not involved all the stakeholders in the design, tendering,
and contracting process. The
second is that there has not
been enough transparency.
And the third is that the people
negotiating the PPP contracts,
especially on the government
side, have no real experience
in PPPs. What we are trying to
do in the proposed legislation
is address these three issues:
ensure all the stakeholders are
involved, make sure there is
a transparent tendering process, and create a PPP Unit
within the Higher Council
for Privatization (HCP) to become the government arm for
designing, negotiating, and
tendering PPP projects. The
delay in establishing this legislation has two main causes.
The first one is that we have
had governments that have
only lasted in office for a year
and a half on average, and
their priorities have not been
on PPPs. The second reason
has been that some ministers
have fought PPP in the format
that we are presenting it because they prefer the old way
where the minister decides
who they give the PPP contract to. I think this is unacceptable and will only lead to
more problems with the private sector.
As an advocate of all-out privatization for telecommunications,
what is your vision for the liberalization of that sector?
The 2002 legislation that we
have in place is good. Unfortunately, it has not been applied.
Firstly, it calls for the creation
of a regulatory authority and
the merging of the three directorates that belong to the
Electric Board and to the
Ministry of Telecommunications into one incumbent operator fixed-line and mobile
telephone company, Liban
Telecom, which would then
be privatized at some point;
in part by selling a minority
stake to a strategic partner,
and by floating the rest on the
Beirut Stock Exchange. Two is
creating Liban Telecom, and
three is privatizing the mobile
networks. Throughout this
process, we can open up more
to competition, for example in
the fixed-line market.
BIO
Ziad Hayek was appointed
Secretary General of Lebanon's Higher Council for Privatization by the Council of
Ministers in June 2006. Prior to that, Hayek was Chief
Executive of Lonbridge
Associates Ltd. (London),
a telecoms and technology
chp_mng_hn\[hecha×lg(
Other positions he has held
include: Senior Managing
Director of Bear Stearns &
Co., President of Indosuez
Mexico, S.A., Vice-President
of Salomon Brothers, and
Vice-President of Citibank
in New York. Hayek has
an MA in International
Management from the
University of Texas at
Dallas and has studied
business administration at
the Instituto Tecnológico
y de Estudios Superiores
de Monterrey in Mexico. He
has served on a number of
corporate boards in the US,
Mexico, Switzerland, and
Lebanon. Hayek speaks 11
languages.
It is fake revenue; we tax
telecoms beyond reason.
Instead of having cheap telecommunications that will
encourage investment in the
ICT sector and in the knowledge economy, we are taxing
that infrastructure, which is
needed more by our young
people for developing their
potential so that we can collect enough money to pay for
the deficit in the electricity
sector, where we have a very
inefficient form of subsidy.
We subsidize consumption
in Lebanon, instead of subsidizing people in need or underprivileged parts of society
like in other countries.
How credible is the Blue Gold
water project in your view?
In terms of funding, I believe
the amounts that are being
talked about are right. It is
not rocket science; water
infrastructure is something
basic. Does it cost a lot of
money? Yes. Does the government have the money to
fund it? No, it does not. Can
the private sector play a role?
Of course it can. There can be
many PPP projects in water
management. Can it be done
today? The answer is no, because the Ministry of Energy
and Water does not have the
expertise to handle PPP projects. It does not have plans
for specific projects that are
in the form of information
memoranda that can be circulated to investors. There is
much preparatory work that
needs to take place, and because these are large projects
it means de facto that large
investors will be needed and
large investors are not going
to want to play ball unless
there is transparency. 28
LEBANON 2014
THEBUSINESSYEAR
INTERVIEW
banking on
A BETTER FUTURE
TBY talks to Ferid Belhaj, Director for the
MENA Region of the World Bank on the Bank’s
structural reform package to better serve the
needs of its partners, its energy and water
projects in Lebanon, and the value of strong
public-private partnerships in the country.
tricity sector. This is a long
overdue reform that would
help provide less costly and
more secure energy to households and businesses, thus
encouraging investment in
the country, and giving a welcome boost to the economy.
Do you do anything to nurture
the development of public-private partnership (PPP) schemes
in Lebanon or is that out of your
realm?
You currently have 21 active
projects in energy, water, and
sanitation. How are these progressing?
Biq mcahc×][hn qcff nb_ ]ihm_quences of the World Bank’s
restructuring be on the Lebanon
operation?
The World Bank’s engagement in Lebanon is strong,
deeply rooted in history, and
multifaceted. We have channeled our assistance programs
over the past years to help this
country weather the immediate and constraining difficulties that burden its economic
and social wellbeing, notably
the impact of the Syrian crisis and the influx of refugees.
However, we are also looking
long term and working with
the Lebanese government
and people to build the pillars for structured and more
sustainable economic development. The World Bank has
put together a broad reform
package to bring the best services to its member countries,
clients, and partners. We have
developed a new structure to
help bridge some of the gaps
we had in channeling the right
and most relevant solutions
to our partners. In the case of
Lebanon, that new structure
will help us deliver the services in real time. The changes
will also allow us, as staff and
management, to draw from
all the Bank’s resources, experience, and knowledge to
provide a wide array of proven solutions to our Lebanese
counterparts in all relevant
sectors of their economy.
These ongoing projects in various areas and sectors are in
response to particular needs
at a particular juncture in Lebanon’s relationship with the
Bank. The needs have evolved
and changed somewhat over
the past couple of years. The
Syrian crisis and ensuing refugee influx has had a dramatic
impact on the country, exacerbating already delicate economic and social conditions.
We are working hard to bring
about solutions that will help
Lebanon manage this present
crisis whilst working on ambitious, structurally transformational projects which will
help solve some of Lebanon’s
long lasting problems. Water
is one sector that requires immediate attention, and needs
a sustained effort. For example, we will be engaging in
an ambitious water project in
Lebanon, which will possibly
be the largest project we have
ever financed in the country.
It involves water augmentation, mainly targeting the Beirut and Mt. Lebanon regions,
where most of the population
lives. It will bring water from
the Awali River to the Bisri
Dam. We are building a dam
and a conveyor to bring potable water to Beirut. This project will secure fresh water for
the majority of the Lebanese
people. We would also like to
be engaged in modernizing
the management of the elec-
BIO
Prior to assuming his
current post in late 2012,
Ferid Belhaj served as
World Bank Director for
nb_J[]c×]L_acih",**3'
2012), Country Manager
for Morocco (2002-2007),
and as the World Bank’s
Special Representative to
the UN, New York. When
<_fb[d×lmndich_^nb_
Bank in 1996, he worked
for four years as Senior
Legal Counsel, as well as
serving as Bank lawyer for
various countries. Prior to
joining the Bank, Belhaj was
Deputy Chief of Mission at
the Tunisian Embassy in
the US. He holds a Master’s
Degree in Constitutional
Law and Political Science,
and a Master’s Degree in
International Law, both
from the Faculté de Droit
de Paris II. He authored
a third Master’s thesis on
Arab-African development
cooperation, and is a graduate of the Harvard Business
School New Leadership
Management Program.
Engaging the private sector
in vital sectors of Lebanon’s
economy is not just a matter
for the World Bank or for international donors. The government itself feels that there
is a crucial need for building
stronger partnerships between the public and the private sectors through building
the right legal framework. We
are working with the Lebanese
government on a number of
projects that could trigger
PPPs. For example, we are
looking at a partial risk guarantee for electricity that is basically going to open the door
for private sector engagement.
How successful do you feel
you have been in your goal to
mnl_hanb_h ×m][f [h^ jo\fc]
management in Lebanon?
This is a country that hasn’t
had an approved budget since
2005. This year, a special effort
is being made by the Minister
of Finance to move beyond
the difficulty of approving a
formal budget, and we are encouraged by that. It is with the
perspective of having a finance
law adopted that we have been
working over the last few years
on strengthening the financial
management capacity of the
Ministry of Finance and its
capacity to execute its budget
and to rationalize its ways of
financing government expenditures in a strategic and structurally sound manner. Economy
THEBUSINESSYEAR
29
INTERVIEW
STATE
links
TBY talks to Salim Zeenni, President of the
American Lebanese Chamber of Commerce
(AmCham Lebanon), on establishing trade
links, active committees, and strategic areas for
investment.
What role have you played at
AmCham to ensure that such
trade links and business relations have been developed and
come to fruition?
BIO
Salim Zeenni is an
economist by education.
He graduated from Saint
Joseph University in Beirut.
An industrialist by profession, he runs two plants in
the North of Lebanon—one
for the manufacturing,
packaging, and distribution
of consumer care, and the
other food industry products to the Middle East,
Europe, and North America.
He is also involved in Solar
Energy and IT. He is a
well-know businessman
in Lebanon and the Middle
East and has served and
presided over several business associations including:
Former Chairman of the
Children’s Cancer Center
chF_\[hih";`×fc[n_^qcnb
St Jude Hospital - Memphis, Tennessee), former
President of the Federation
of Businessmen Association, former President of
the Economic Assembly
and former President of
the Lebanese American
Businessmen Association.
He is currently President
of the American Lebanese
Chamber of Commerce
(AmCham Lebanon).
We played a major role with
the help of the US Embassy
here in Beirut and the Lebanese Embassy in Washington, DC. There was a push to
improve this relationship and
trade between the two countries. Historically, the number one trade partner with
Lebanon was always either
France or Italy. Why? This is a
trend. Nowadays, most of the
time you cannot ask why you
are consuming McDonalds,
for example, and not buying
from Paul. It is a trend in the
market, especially with the
youngsters. There is an image
of the American way of life. It
is a whole cultural movement
that is happening. Do not forget the education side of it,
such as the American University of Beirut (AUB) and other
US schools and universities.
There are plenty of forces that
are channeling people toward
consuming American goods
that built up over the years. It
took years, and we definitely
went through ups and downs,
especially during the war with
Iraq and the problem with Kuwait. But after that it picked
up like crazy. In French they
call it “boule de neige”—it
means there is a snowball effect. Once it begins growing, it
grows faster and faster.
Lebanon
žcgjiln_^
$2.2 billion worth
of goods and
services from the
US in 2013
ž_rjiln_^
$100 million
worth of goods
and services to
the US in 2013
What would you say are the
most active committees today
at AmCham?
We have several, but mainly
the most active are the banking and finance committee,
and the events committee,
which is planning different
activities that we do in Lebanon and the US, including
our lobbying mission. We do
one every year and actually at
the moment we are preparing for our “Lebanon Day in
the USA,” which will be held
in New York in November, to
which we will bring the flagships of Lebanese industry
and exports, including the
successful wineries, jewelers,
fashion designers, the IT sector, as well as the food and
beverage sectors including
ethnic foods, which are well
developed in the US. Lebanon
Day aims to promote all of
these sectors in the US market
by highlighting the most successful products and companies from Lebanon. It will be
a major event with a conference, sector specific roundtables, business luncheon, and a
spectacular gala dinner.
How is AmCham working to
b[lh_mmnb_×h[h]c[fm_]nil[h^
maximize its appeal to US and
foreign investors?
The banking and finance
committee does not focus
only on direct investment. In
Lebanon, you cannot tell people how to spend. It is not really chaos, but a kind of positive
chaos. People really pick up
on different sectors and know
where to invest. It is a question of the period in time, and
how the market is fluctuating
at that point. You cannot really direct them. You can only
give them the incentive and
the guidance when they are
going to invest in Lebanon.
In this committee, we play a
certain role in promoting external investment in Lebanon.
What other strategic areas for
investment in Lebanon are you
promoting?
Lebanon is known for several sectors, but one of the
major areas is in services.
That is the major part of the
economic picture. The investment in start-ups has
also grown very quickly, and
the ICT sector is amazing.
You do not see it or feel it but
when you know about it, it
is quite something. IT is creating plenty of new jobs. In
real estate, there was a small
slow down, but the majority
of consumers are now in a
better mood than they were
a year ago. And there is the
industrial sector. This is a
sector that exports nearly $5
billion a year. For a country
like Lebanon, if you want to
compare that figure to other
countries, then we are very
well positioned. 30
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
TBY talks to Faysal
Abou Zaki, Deputy
CEO of Al-‐Iktissad
Wal-‐Aamal Group,
on designing
conferences,
promoting investment
interest in the region,
and the latest trends
in event topics.
How has Al-Iktissad WalAamal made the transition from
solely being a business magazine to becoming a business
intelligence brand?
I think there are two things.
First, we were among the pioneers in business publishing
as Al-‐Iktissad Wal-‐Aamal began 35 years ago as a regional
business magazine. As a result
of this, we were able to establish a regional network across
all the Arab countries in the
Gulf, the Near East, and North
Africa. Then, we expanded
into the conference business.
Now, we are the leader in
conferences because we conduct them in practically all
the countries in the region. In
the last 25 years, we have held
more than 300 events, which
are all major conferences. We
are not an events management company, we are more
of a conference-making company. We develop the concept, content, and agenda. We
do the marketing and we bring
in participants, sponsors, and
engaging speakers. Then, we
do the logistics and manage
the whole thing. Alongside
this business we also do some
consultancy work.
How do you decide on the content of the conferences?
Sometimes we are approached
by governments, chambers of
commerce, and large companies that want to hold conferences. Other times we propose
the idea, and it could be for
governments, government institutions or ministries, or private sector partnerships. For
example, we organized a conference for Qatar Rail in conjunction with the Ministry of
Business and Trade. Then, we
have the marketing side of our
business where we leverage
ENROLL here
IN NUMBERS
Al-‐Iktissad
Wal-‐Aamal
Years in the
publishing industry
35
BIO
Faysal Abou Zaki has over
25 years of experience in
the Al-Iktissad Wal-Aamal
Group, where his innovative
approach was a major drive
`ilnb_AliojÎm^cp_lmc×cation. His main focus has
been to help the Group
develop into a leading force
in conferences and business
events in the region. He also
contributes to regional policy
forums and is a frequent
commentator on regional
and global events. Abou Zaki
also serves as the Deputy
Editor in Chief for Al-Iktissad Wal-Aamal magazine
and is a Board Member in
Al-Iktissad Wal-Aamal Co.
our network and our ability to
put a project together, which
we can do in any country. In
Turkey, for example, we did
the Turkish Arab Economic
Forum with the Turkish Ministry of Finance and the Ministry
of Foreign Affairs. Then, we
ran another event for the Turkish Arab Capital Markets Forum. We have also done some
events in Africa.
Biq mcahc×][hn cm siol ]ihnlcbution to business tourism in
Lebanon?
Al-‐Iktissad Wal-‐Aamal is incorporated in Lebanon and
has its head office here; however, we are a regional player,
with 80% to 90% of our business being outside of Lebanon.
We did the first Arab Economic Forum Conference here,
and that has continued for the
last 22 years. That conference
helped to bring back investors to Lebanon after the war,
which was a challenge. When
we started the conference the
concepts of economic forums
and privatization were strong.
Subsequently, I think the issues became broader and we
felt we had to address policy
issues at the conferences, too.
During its peak years the Arab
Economic Forum was attended by between 800 and 1,000
plus people.
What
investment
trends
would you say the conferences
have
encouraged
over the last three years?
Before the Syrian crisis, residential, retail, and commercial real estate were all prime
investment areas. The growth
sectors are predominantly the
knowledge-based
industry,
the fashion and jewelry industry, and ICT. Lebanon is an exporter in these sectors. Business is more challenging at
the moment than it has been
in the past five years. Conferences usually help because
they help spread optimism
and confidence, especially if
you have a conference with
regional participation from
high-level government and
business interests.
What themes are you focusing
on at the moment and where are
you focusing your international
expansion?
We are, of course, doing
events in Lebanon; we have
three events coming up in
2014 that have to do with
SMEs, e-banking, and female
entrepreneurs. We are focusing on a number of countries
in Africa and Central Asia
where we do conferences
relevant to the economic relationship between the region and the Turkish Arab
Economic Forum. We are
also focusing on re-launching
in countries that have seen
changes such as Egypt and
Tunisia, because we used to
do events in these countries.
Now investors want to re-explore these countries in light
of the changes. In the region
we also focus on specific topics, for example we are doing
a number of events on entrepreneurs and SMEs in Saudi
Arabia, Oman, and Qatar. Economy
THEBUSINESSYEAR
31
BDL SUPPORT FOCUS
C.R.E.A.M
The central bank stimulus policy is sparking growth in some
sectors like real estate and high-tech, but it remains to be
seen if other sectors will benefit as well.
cream get the money...
IN SEPTEMBER 2014, Lebanese Speaker
of Parliament Nabih Berri strongly rejected any
further extensions of Parliament’s mandate.
Speaker Berri’s stance further underscored the
threat of administrative shut down in a country that has been without a president since
May 2014. With Parliamentary elections set for
November 2014, time is running out to reach a
quick settlement. It is under these circumstances that the Banque du Liban (BDL), Lebanon’s
central bank, is struggling to preserve the economy, while striking state employees, water and
electricity shortages, regional instability, and
a massive influx of Syrian refugees all threaten to derail economic progress. In early 2013,
BDL deployed a stimulus package that was
structured to boost economic growth through
incentives supporting housing development,
education, renewable energy projects, innovative projects, R&D ventures, entrepreneurship,
and other productive sectors of the economy.
The majority of the funds were directed toward
stimulating the housing sector, which received
56% of the $1.47 billion package. Meanwhile,
environmentally friendly projects received
20%, and the productive sectors received 14%.
An additional stimulus package of $800 million was added in late 2013 by the BDL to help
carry the stimulus program into 2014. Assessing
the success of the stimulus requires weighing
Lebanon’s modest overall gains against geopolitical factors and the costs of hosting a refugee
population one-fourth the size of the Lebanese
population. And while the economy grew by
1.5% in 2013, with similar rates expected for
2014, pinning down how much growth was
driven by the stimulus is complicated.
As intended, the focus on housing has paid
off, with 96,000 home loans supported by the
package. Developments in the housing sector are good news to realtors in Lebanon, who
watched as foreign ownership declined by 8.9%
in 2012, and 8.6% in the first half of 2013. The
stimulus package offered low interest rate loans
to buyers of homes valued under $533,000, triggering a rise in demand from younger first-time
homebuyers. Construction permits also rose
during the first four months of 2013, rising 0.8%
compared with the same period a year earlier.
In 2014, property sales rose 6.6% YoY, which
moved the value of property sales transactions
up by 17.7%. Meanwhile, construction permits
issued also rose by 14.5% during the first five
months of 2014.
In late 2013, the BDL issued a circular allowing other banks to invest in venture capital projects and other tech-related developers.
The mandate provides interest free credit for
up to seven years and guarantees 75% of banks
investments. In addition to benefitting established Lebanese venture capital firms like
Berytech and Middle East Venture Partners
(MEVP), new firms are emerging to take advantage of available tech funding. Leap Ventures
(Comgest) announced a $50 million-$100 million fund to be invested in 10 companies, and
aimed at acquiring companies already developed at rates of up to $10 million per company.
Analysts considered Lebanon’s start-up environment to be conservative, which translates
into higher success rates. For VC firms, the tech
market might be one of the soundest local investments. In addition, major firms like Berytech and MEVP will both be investing in a community-wide incubator/accelerator, for which
$5 million has already been raised.
Perhaps the most immediate measure of the
stimulus program is its affect on the banking
sector. Here, the outlook is stable, with modest
growth over 1H2014. Measured by total domestic assets operating in the country, the sector
grew by 3.4%, to $170.5 billion by the end of
June 2014. Between December 2013 and June
2014, deposits increased by $4.1 billion, which
was less than the increases of the previous period. In contrast, bank lending grew in vigor, with
YoY loans increasing by 5.7% in the first half of
2014. This number was almost twice that of the
previous year, indicating that on the banking
side, the stimulus was in full effect. If the banks
are able to leverage their solid financial foundations through this period of economic duress,
they may well come out as the saviors of Lebanon’s economy. 32
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
A BROAD
brush
TBY talks to Eddy Cherfan, CEO of AC Holding,
on teaming up with Samsung, diversification
into real estate and HR training, and getting
involved in the growth of renewable energy
projects in Lebanon.
IN NUMBERS
AC Holding
Total subsidiaries
24
How did AC Holding become a
key part of Samsung’s entry into
the Lebanese market?
When CTC was founded in
1979, we used to act as an appliance business and agent for
some European brands. A few
years later, we acquired the
Samsung distribution rights
at a time when Samsung
was an unknown brand, and
founded Samsung Cherfane
Tawil & Co. (Samsung CTC).
From there, we have evolved
throughout the years.
How have your product and service lines evolved?
After washing machines, Samsung started with microwaves
and color televisions. From
there, it started expanding
into air conditioning units,
and then automatic washers
and refrigerators. By 2000, we
had begun to diversify a little
into real estate, and we also
had the distribution rights
for a few other small brands.
From 2002 onward, we focused on diversification and,
in the past 10 years, we have
evolved drastically. We are
now a highly diversified, international group with operations in Lebanon, Syria, Jordan, the UAE, and Ghana.
How have your distribution networks expanded geographically?
How did you diversify into real
estate?
The consumer electronics
business in Lebanon has
changed drastically. Previously, it was focused on small
players scattered throughout
the country, rather than on
a few big players with a large
chunk of the market. The real
maturity in the distribution
network happened in the early 2000s. At the time, we had
one sales manager handling
the majority of consumer
electronics products, whereas
today we operate under specialized business units.
It happened by chance. Some
of our clients had financial issues, so they offered us some
real estate instead of closing
on their dues. We formed a
company in 1988, called Hadath Real Estate, and managed to grow from there.
BIO
After gaining experience
in channel and product
management, Eddy Cherfan
took the management reins
of Cherfane, Tawil & Co.
(CTC), Samsung Electronics’ distributor in Lebanon,
in 2006, at the age of 25,
and was appointed CEO.
Eddy’s daily involvement
in all of AC Holding’s
operations (as the parent
company of CTC) kept
him close to his products
and markets, and allowed
him to anticipate future
key expansion areas into
renewable energies and
_h_las_`×]c_h]s&qbc]b[l_
at the heart of the group’s
development strategies.
What were the main reasons
behind the development of your
training and consultancy wing?
The move into training and
consultancy under PROSEED
was one of our recent expansions, and was aimed at
better coordinating the synergies between our different
companies, as well as offering
these services to other holding companies.
Qb[n [l_ siol ^cp_lmc×][ncih
jf[hm ih nb_ _h_las _`×]c_h]s
front?
We are focusing a lot on renewable energy. We have a
sister company called Solec
that focuses on that segment, so we have a lot of
projects going on and we are
working with governments
and NGOs. We are working
with wind energy, solar energy, and even energy saving
through LED lighting.
To what extent do you see this
market developing in the coming years?
In a country like Lebanon, it
should develop. We have a
serious electricity problem,
plus we are a country that gets
close to 300 days of sun every
year. Although we lost the Beirut River Solar Snake project
tender, there are many other
projects coming up. Some of
our regions like Akkar have
good zoning for wind energy. Plus, with the help of the
EU and some NGOs, we are
seeing a big push by the government and are supported
by the banking sector to progress with renewable energy
projects. Solec does not only
handle government, tender,
or corporate business, it also
handles the consumer side of
the renewables business.
What other innovative projects
are you developing?
We are also present in the
mobile applications market.
We have a sister company
called CodeFish App, which
is developing and pushing
apps. We developed an app
for ANB Mazda, and the company is now looking to replicate it for its various distributors around the world. We are
also in the TV app business,
and have developed local TV
apps for MTV, Flair, Beiruting, and more.
How do you plan to expand your
product lines and operations
over the next year?
We want to diversify our businesses further, and already
own several outdoor LED networks. We do kitchen fittings,
mostly from Italy with a company called Cesar, which is
also under AC Holding. With
Samsung, we are focusing on
the solutions business and
other products, particularly
B2B. We want to provide security solutions through Samsung, while also continuing
to develop renewable energy
with Samsung SDI. BLANK PAGE
34
THEBUSINESSYEAR
LEBANON 2014
B2B HOLDING & DIVERSITY
SPREAD around
Many old family companies in Lebanon have
branched out from their original plans to
incorporate many aspects of business, products,
and services.
What were the incentives for
Debbane Saikali to form a separate corporate organization from
the Debbane Group?
NADIM B. SAIKALI
Founding Board
Member, Debbane
Saikali Group
ELIAS PH.
ASSOUAD
Chairman, Assouad
Group
What were the main stages of
^cp_lmc×][ncihchnb_]igj[hs9
NADIM B. SAIKALI There are
many companies that are part of
the foundation. Pesco International is the international arm of
Debbane Saikali, which handles
relations and contracts with
foreign companies. After that,
we specialize in niche markets
like energy, energy control and
saving, as well as construction
materials. Exotica is our horticultural landscaping company,
while Enoteca and Wines of
Lebanon are for wine distribution, production, and marketing. We also have non-agricultural groups such as Pesco
Telecommunications and Pesco
Energy, the latter of which was
just started a few months ago to
handle renewable energy and its
control and development. This
company aims to optimize the
use of energy in commercial and
industrial installations. One of
the most important companies
we have in the energy sector is
the Insulco Group. The company is about 40 years old, and
mostly deals with hot and cold
insulation in the Gulf, as well
as fire protection for industrial
buildings, which is a niche market. We are one of only three or
four companies in the Middle
East that do this, and we are active in the region.
ELIAS PH. ASSOUAD From
1973, we started manufacturing
machines for different industries, but we were always thinking about renewable energy.
We started in 1976 with solar
heating, but it was not feasible
at that time because oil was so
cheap that to amortize such an
installation would require at
least 25 years. Energy recovery,
which is the process of recovering heat from the burning of
fuels, was something we started
at the end of the 1990s. We are
the only company manufacturing and installing energy recovery systems, at least in Lebanon,
because it requires a lot of engineering, know-how, and expertise. We are installing a system
at the Grand Hills Hotel that will
recover heat from its generators
to heat the swimming pool and
other areas. We are also carrying
out a recovery project for Sidem,
an aluminum factory. We are
going to provide it with 4.2
tons of steam that we get from
the exhausts of its generators,
which will equate to a reduction
of around $250 an hour in costs.
We are also carrying out a recovery process for Pepsi Cola, the
second stage of which is already
complete. We are also finalizing
a water chiller system with City
Mall. This will chill water with
an absorption system from its
generator, which is equivalent
to 1,000 tons of refrigeration.
Besides this, we are the first
people to work on virtual power plants. In 2015, we will have
four virtual power plants, and
we are in the process of assembling those now. In Lebanon, we
will also boast the first series of
solid oxide fuel cells, which have
almost zero CO2 waste.
NBS When I joined the Debbane
Group in 1980 as a Managing
Partner, the intention was to
bring two vectors of strategic
growth to the group. One was
regional, whereby I would take
the know-how and competence
of the group outside of Lebanon
and try to utilize that competence, for example agriculture
in Saudi Arabia, Kuwait, or other
countries. After this, our aim was
to develop the group’s potential,
importance, and good reputation to do other activities, mainly
in the fields of building materials, construction chemicals, insulation energy and gas projects,
and telecommunications both in
and outside of Lebanon.
How has the Assouad Group developed since it was founded in
1865?
EPA We are an innovative company. Our family started in business in 1865 in Egypt making
cigarettes at a tobacco factory.
In 1890, Egypt decided to nationalize the tobacco industry
and took over the manufacturing
of cigarettes. The only business
left in the family was civil contracting run by my grandfather.
He was a skilled contractor and
became with years one of the
greatest contractors in Egypt.
Philippe, my father, graduated as
a civil engineer from ETP Paris in
1923 and was convinced by the
French mandatory government
of Lebanon and Syria to work for
the Syrian government. He was
in charge of the development of
the urbanism of the city of Damascus. In 1961, he left Damascus and came back here and created Tecmo. When I graduated,
in 1971, I was ready to take over,
and did so in 1973. Economy
TALENT
POOL
From healthcare to finance, many foreign companies
have set up in Lebanon and continue to believe in the
country.
KAMIL KURAN
General Manager,
Landmark Group
Lebanon
Managing Director,
Leo Burnett Lebanon
W
W
35
WHY LEBANON? FORUM
JEETHENDRA BABU
hen we started, the
market was excellent
because it was just
recovering from the war. It was
positive, very upbeat and encouraging. We started our operations in October 2010 with our
flagship store, Centrepoint, in
City Mall; from there, the success story started. Today, four
years later, we are operating nine
stores and employing more than
400+ persons, amongst whom
90% are Lebanese. In spite of the
turbulence and many challenges in the market, the months
of April to July 2014 have been
great for us; we are positive that
going forward the business will
be fabulous. We have grown
consistently in Lebanon and
our performance is stable. Our
strengths lie in the two pillars of
efficient operations and logistics; we are cost-effective, proficient in supply chain management, and we use our resources
optimally. The Lebanese market
is a little more mature than the
Gulf market. Customers are very
knowledgeable,
demanding,
and fashion conscious. There is
cutthroat competition, but still
the value segment is one where
we can stand out, especially
when providing excellent customer service.
THEBUSINESSYEAR
hen there has been
hardship or strife
in Lebanon, it has
brought out our passion, not
slowed it down. The company
is insistent on staying in Lebanon and turning negatives into
positives. The company believes
in this country no matter what.
The best way to fight extremist ideas is by becoming more
prosperous. The most prominent trend is the shift toward
digital, which poses a challenge
as one has to respond and adapt
quickly. People are anticipating and embracing everything
digital, but the local infrastructure is not up to international
standards yet; however, once in
place, the shift will be an overnight revolution. We have seen
this already with smartphones.
This is an indication that people
are ready to “jump on the digital bandwagon.” As such, digital
is no longer a separate department in an agency; rather, every
department needs to be digitally switched on. I do not mean
everyone needs to be a programming expert, but everyone
needs to be well versed in all the
latest digital trends and developments. Leo Burnett is making
sure its people are prepared in
this respect.
MOHAMAD
RAMMAL
ELISSAR FARAH
ANTONIOS
Head of Levant
Countries, Novartis
CEO & Managing
Director, Citibank
Lebanon
N
ovartis was brought
to life on a global level
in 1996 with a merger
between two companies, Ciba-Geigy and Sandoz Laboratories. These two companies had
been deeply rooted in Lebanon
for 50 years serving the medical community in the country.
Though separate entities, they
had excellent portfolios, which
also partook in manufacturing
activities. In 1996, following the
merger on a global level, Novartis was formed, and since then it
has been a leader in Lebanon as
well as in the region. Until a few
years back, the Lebanon office
was a country-based operation
that reported back to a Middle
East cluster. About two-and-ahalf years ago, we formed the
Levant sub-cluster, where Lebanon is currently the regional
hub for Lebanon, Syria, Iraq,
and Iran. At the time, Levant
was formed, the Lebanon representative office had about 20
to 25 associates, and now there
are more than 100. For me, Lebanon is a laboratory where we
create innovation. This country
is driven by innovation and embraces it too. Human talent here
is unique and not too costly.
O
ne of the selling points
for Citi is its globalism.
Our footprint spans
over 100 countries, including
Lebanon. Historically, prior to
the civil war, Lebanon used to
be the financial center for the
region. Beirut played an important role, and Citi has been
present here since the early
1950s. Even though we closed
in 1988 because of the civil war,
we reestablished our presence
and commitment to Lebanon
in 1995. For Citi, Lebanon is an
important center despite shifting dynamics, and not only for
Citi but for other multinationals, which saw the rise of other
centers such as Dubai. Lebanon
still represents a significant part
of our operations for a number
of reasons, one of which is that
we view Lebanon as an excellent talent pool. We are a global
bank; we need to cater to clients
from diverse cultures, in a number of regions that speak other
languages. Hence, in Lebanon
it is easier to find talent that is
open, trilingual, and has a good
educational background. This
is one of the major reasons that
we value the franchise. The second factor is our history in the
country and the role we played
throughout the civil war era.
Steady steps, clear vision
unwavering confidence.
The world is in constant progress, and so are we. With
steady steps we embrace every change to provide you
with best in class services. With clear vision and
unwavering confidence we stand beside you in facing
every challenge to realize your achievements. By banking
on us, you are relying on a team of professionals, people
who believe that you can achieve.
www.creditbank.com
THEBUSINESSYEAR
37
42
53
54
Dr. Makram Sader, Secretary
General of the Association of
Bank in Lebanon (ABL), on
regulations and conditions.
The Lebanese banking and
investment sector is becoming
increasingly attractive.
The bourse is looking to improve
on poor performance in 2013
by making the most of domestic
political stability.
Finance
REVIEW BANKING
Lebanese banks have been performing well as most pass Basel III
requirements. The Association of Banks in Lebanon outlines the plan to
continue on a steady route of growth and expansion in this article.
T
he banks operating
in Lebanon continued in 2013 to
play a vital role in
reviving the domestic economy through the provisioning
of a major part of the financial
needs necessary for stimulating growth. Banks lent the
private and public sectors
with needed and sufficient
amounts of money and provided the government with an
important part of its revenue
by paying their due taxes. They
also created job opportunities
for the Lebanese youth and
continued to raise the standards of banking performance
by improving the capabilities
and skills of human resources.
It is also necessary to mention
that university graduates represent, at this stage, over 73%
of the sector’s labor force.
As far as banking structure
is concerned, the number
of banks operating in Lebanon reached 73 at the end of
2013, distributed among 56
commercial banks and 17 investment banks. Lebanon has
a high bancarization rate, as
there is one bank branch for
every 5,000 people.
TICK THE BOX
Lebanese banks have been preparing
for the Basel III protocol, which most
have already passed. Now, expansion is
the plan as some of the major banks are
looking to cater to the diaspora.
In the framework of historical openness to the world,
there are 14 branches for
Arab and foreign commercial
banks operating in Lebanon.
In addition, there are 11 foreign banks operating in Lebanon owning major shares in
large and deep-rooted Lebanese banks with Lebanese
management, along with 10
representative offices of foreign banks. Banks operating
in Lebanon also deal with
more than 228 correspondent banks spread in 88 cities around the world to facilitate international financial
transactions.
The Lebanese banks developed a wide external expansion network relative to their
activities and in the form of
various legal entities from
representative offices and
wholly owned branches, to
associate, subsidiary, and
sister banks. Thus, according
to the latest available data,
there are 17 Lebanese banks
representing around 86% of
the sector spread worldwide
in 31 countries covering important Arab markets such as
Syria, Jordan, Iraq, Egypt, Su-
38
THEBUSINESSYEAR
LEBANON 2014
dan, Algeria, Saudi Arabia, the UAE, Bahrain,
Qatar, Oman, and other important regional
economic markets such as Turkey. Additionally, Lebanese banks have expanded in the
European continent starting with Switzerland, France, the UK, Germany, Luxembourg,
Monaco, and passing through Romania, Belarus, Armenia, Belgium, and Cyprus. Lebanese banks have also expanded toward the
American continent (Canada), and also Africa
(Ivory Coast, Nigeria, Congo, Senegal), and
finally Australia.
Banks continued coordination with the
concerned monetary and governmental authorities in 2013 to develop systems and legislation capable of improving the banking
profession and to present their views on proposals and laws related to financial and banking matters. Given that banks are involved
in global matters and concerned about safeguarding the reputation of the banking sector, they are committed to the application of
international standards, including those on
combating money laundering and terrorist
financing. The Banque du Liban (BDL) and
banks operating in Lebanon continue the
efforts they started years ago to fight money laundering and terrorist financing and to
help align Lebanon with international standards. During the last few years, these efforts
increased, particularly with the strict application of sanctions imposed by the US and the
EU on Syria and Iran.
Bank management is seriously emphasizing the attendance of its employees, on a permanent and intensive basis, to training seminars organized by the BDL, the Association
of Banks in Lebanon, and the banks themselves covering laws, systems, and also the
standards and international developments
concerning the subject of combatting mon-
F_\[h_m_\[hem_hdis[mnliha×r_^^_jimcn\[m_nb[nl_jl_m_hnm
the main source of funds to commercial banks operating in
Lebanon. Total deposits represented 84.5% of the total assets
by the end of 2013, making the banks part of what is known as
Deposit-Rich-Banks.
ey laundering and countering the financing
of terrorism to reach higher levels of culture,
technical know-how, and professionalism in
the banking profession.
At the end of 2013, the total assets of commercial banks operating in Lebanon reached
around $164.8 billion in comparison to $151.9
billion in 2012. Hence, total assets rose by a
significant amount of 8.5% in 2013 compared
to an increase of 8% in 2012.
Lebanese banks enjoy a strong fixed deposit base that represents the main source
of funds to commercial banks operating in
Lebanon. Total deposits represented 84.5%
of the total assets by the end of 2013, making
the banks part of what is known as Deposit-Rich-Banks, or banks that rely to a great
extent on deposits to finance placements. At
the end of 2013, the total value of deposits,
which includes the deposits of the resident
and non-resident private sectors and deposits of the public sector, reached more than
$139.2 billion. This reflects an increase of 9%
in 2013, slightly exceeding its rate of increase
of 8.5% in 2012. The share of the resident private sector reached 77.4% of the total value of
deposits, while the share of the non-resident
private sector represented 20.5%, and that of
the public sector 2.1% in 2013.
ABDEL HAFIZ MANSOUR
Secretary, Special Investigation Commission (SIC)
How has the challenge of money laundering
changed in the past few years in Lebanon?
The standards on money laundering are set by
the Financial Action Task Force (FATF), which is
]ihmc^_l_^ni\_nb_afi\[fmn[h^[l^`il×abncha
gih_sf[oh^_lcha&nb_×h[h]chai`n_llilcmg&[h^
nb_×h[h]chai`q_[jihmi`g[mm^_mnlo]ncih(
FATF standards are expected to be translated and
interpreted into local legislation. The standards
are pretty broad and it is left for every country to
l_Ø_]nnbim_mn[h^[l^mchninb_clfi][ff_acmf[ncih(
ChF_\[hih&q_b[p_[f[q&Hi(-+2&ni×abngih_s
laundering, which was issued more than 10 years
ago. When we issued the law, we were one of the
pioneers in the area. That was done because Lebanon has a very vibrant and active banking sector,
and we need to keep this sector compliant with
chn_lh[ncih[f×h[h]c[fmn[h^[l^m(Nb_f[mnp_lmcih
of the international standards was endorsed by
FATF in 2012 and now we are in the process of
introducing changes to our laws and regulations
to be compliant with the 2012 version of the FATF
standards.
How have major international money laundering
scandals affected the investment climate?
The list of sanctioned banks is growing by the
day. There is a tendency now toward penalizing
individuals in management who are responsible
for non-compliance. This is a trend in the making
in the US and the UK and other jurisdictions. It’s
not even one individual that will be implicated; it
is the senior group. This is really sending a strong
message. Money laundering is a crime emanating
from predicate offenses, which in turn encompass
the most serious crimes.
40
THEBUSINESSYEAR
LEBANON 2014
In 2013, bank loans to the resident and
non-resident private sectors continued to increase, reaching an average of $47.4 billion at
the end of the year, against $43.5 billion at the
end of 2012. The increase that happened at a
slower pace of 9% in 2013 in comparison to
10.4% in 2012 remains good and acceptable
due to the low rate of economic growth in the
country. Furthermore, loans granted to the
non-resident private sector, of which a large
part is related to the financing of projects
for Lebanese businesses abroad, particularly
in Arab and African countries, represented
12.4% of the total of loans granted to the private sector at the end of 2013. Loans granted to the resident and non-resident private
sectors represented the equivalent of 105%
of GDP (according to estimations) at the
end of 2013; hence, a considerably high ratio
compared to many emerging countries. This
relatively high ratio in Lebanon resulted, on
the one hand, from the enormity of private
demand, a large part of which is financed by
loans to individuals and corporations, for investments and particularly consumption. On
the other hand, it resulted from the low capital of the corporate sector, its weak capacity
for self-financing, and its excessive reliability
on banks’ financing, in the absence of stocks
and bonds markets in Lebanon.
The Lebanese banking sector’s high liquidity, whether in LBP or foreign currencies, keeps the liquidity risk under control.
Maintaining a minimum level of liquidity in
LBP and particularly in foreign currencies
has been a strategy adopted by banks for
many years, in order to boost and safeguard
confidence in the banking sector, on the one
hand, and to deal with the adverse changes
that may suddenly occur, on the other. This
strategy has proven its efficiency in overcoming many crises, strengthening confidence in
the sector and in contributing to monetary
stability. At the end of 2013, the ratio of overall liquidity in LBP and foreign currencies, i.e.
reserves and portfolio of Treasury bills in LBP
and foreign currencies of less than one-year
maturity and foreign assets, excluding claims
on the non-resident private sector, reached
over 56% of total deposits and other liabilities, which is the highest in the region, against
over 58% at the end of 2012. Moreover, the ratio of primary liquidity in foreign currencies
(deposits at BDL and banks abroad) reached
around 44% of total deposits and other liabilities in these currencies, knowing that such
a level is necessary for good management of
deposits in foreign currencies, in the absence
of lender of last resort.
The banking sector is characterized by a
high solvency ratio, in compliance with Basel
standards, and conformity with the best practices and criteria adopted in the banking industry worldwide. According to the monetary
and supervisory authorities’ latest available
JOHN DAGHER
CEO & Managing Director Senior
Advisor, Julius Baer (Lebanon)
Because of Lebanon’s rules and regulations, it is really an open
×h[h]c[f]_hn_lqb_l_siob[p_q_ffm_n×h[h]c[flof_m[h^
regulations and a strong banking system. As you can see from
the numbers, the Lebanese banking system is quite cash-rich
and the Lebanese, whether in Lebanon or the diaspora, are quite
successful business people who are ideal investors for us. In the
Lebanese banking system, you have in excess of $100 billion in
assets and deposits.
statistics, the solvency ratio of total capital/
risk weighted assets was around 12.2% at the
end of 2013, well above the required minimum level of 10.5% based on Basel III. The
leverage ratio (Tier I to non-risk adjusted assets) reached 7%, which is considered good
compared to a suggested minimum of 3% in
Basel III. The regulatory authorities in Lebanon are following banks to enhance their capitalization by imposing minimum levels for
capital ratios exceeding the ones imposed by
Basel III and there is a time frame to comply
with the new capital ratios. This means reaching 8% at the end of 2015 for common shares,
10.5 % for Tier I capital, and 12% for total capital. Furthermore, the banking sector worked
in tandem with international measures and
procedures that were recently raised to boost
the level of quality and transparency in the
capital base and enhance the level of risk coverage and controlling the excess borrowing,
or the ratio of debt to bank capital.
According to the monetary authorities, the
Lebanese banking sector would not face difficulties related to the implementation of Basel
III. The BDL issued intermediary circular No.
282, where it requested that banks reach a ratio of 12% of total core capital/total assets at
the end of 2015, knowing that the deadline set
by Basel III to reach a ratio of 10.5% is the year
2019. The monetary authorities believe that
these ratios will be reached through retaining
part of the profits in capital and through the
issuance of shares leading to the strengthening of core capital, as was the case recently. TBY would like to thank
the Association of Banks
in Lebanon for compiling
this analysis.
THE SECRET
TO OUR SUCCESS
IS NO SECRET.
When Chedid Re started out 15 years ago, we were considered the new kids on the block.
Not many really believed we could make an impact, but we believed in our industry and we
believed in ourselves. Today, when asked about our thriving and sustainable growth, we are more
than happy to share the values that got us there, and that we believe will take us even further.
PAS SION | AMBITI ON | C O MPETENCE | E THICS
BEIRUT | DUBAI | LIMASSOL | RIYADH
www.chedidre.com | [email protected]
42
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
more than
HEALTHY
IN NUMBERS
Association of
Banks in Lebanon
(ABL)
Total members
72
Founded in
1959
Biq cm nb_ ]ihncho_^ ^_×]cn ch
the balance of payments and
`[ffcha ][jcn[f chØiqm [``_]ncha
nb_jli×n[\cfcns[h^h_nl_nolhm
of the Lebanese banking sector?
Though we had a deficit in
the balance of payments for
the last three consecutive
years—2011, 2012, and 2013—
and in the amounts of $2
billion, $1.5 billion, and $1.1
billion, respectively, we believe that this shrinking deficit
trend is likely to be discontinued over 2014. In fact, we had
a surplus in the balance of
payments in 1Q2014 of $301
million. In any case, the shift
from a $3.3 billion surplus in
the balance of payments in
2010 to a deficit of $2 billion
in 2011 was associated with a
drop in the profits of banks by
3.4%, then the profits slightly
declined by 0.6% in the following year to increase by
4% in 2013 to the equivalent
of $1.6 billion. It would seem,
therefore, that the banks were
able to adjust quickly to the
new environment and minimize the adverse effects.
How exposed do you perceive
Lebanon’s top banks to be to the
country’s public debt risk?
The total claims of commercial banks on the public sector
stabilized recently at 22.8% of
total assets, while the share
of foreign currency denomi-
BIO
Makram Sader has been
the Secretary General of
the Association of Banks
in Lebanon (ABL) since
1991, where he is actively
involved in the reorganization of the banking industry,
with an emphasis on regulations, along with highly
recognized standards. He
also acts as Chairman
of Lebanon’s Banking
Commission (ICC), a Board
Member of the Caisse
Nationale de la Sécurité
Sociale (CNSS) in Lebanon,
and an effective member of
the Lebanese Economic and
Social Council. He graduated from the University of
Grenoble in France in 1979
with a PhD in Economics, and began his career
teaching International
Economics at the Lebanese
University, carrying out at
the same time several studies as a full time researcher
at CERMOC. Between 1985
and 1991, he was nominated as the Director of
Research & Studies at the
Union of Arab Banks (UAB)
and played a key role in
inter-Arab cooperation on
banking issues. Over 1998+333&b_]ihnlc\on_^mcahc×cantly to the elaboration of
the Lebanese government’s
×p_'s_[l@ch[h]c[fL_`ilg
Program and headed up
the Banking Commission
within the Syro-Lebanese
Businessmen Council.
TBY talks to Dr.
Makram Sader,
Secretary General of
the Association of
Banks in Lebanon
(ABL), on the health
of the local banking
industry and the
efforts made to
comply with global
banking standards.
nated claims is at 10.5%. We
believe that this level of exposure is manageable, with the
weighted life on government
debt securities denominated
in LBP close to 3.4 years, and
that on securities denominated in foreign currencies
around 5.5 years. Nevertheless, the banks are continuously pressing the government to speed up the needed
reforms to keep on financing
part of the government deficit;
otherwise, they will only roll
over existing debt.
In what ways is the Association of Bankers in Lebanon
(ABL) working to combat money laundering in the local banking sector?
Combating organized crime
and money laundering were
high on the agenda of talks
between the ABL Board of
Directors and Interpol on
January 28, 2014. ABL’s Board
reviewed these issues with the
Secretary General of Interpol
Ronald Noble and his accompanying delegation, and both
sides agreed to strengthen
areas of cooperation to better combat financial crimes,
such as money laundering
and terrorist financing. Such
talks follow similar regular
discussions with the US Treasury and some US congressmen to assure compliance
with the latest international
regulations on Anti-Money
Laundering/Combating the
Financing (AML/CFT). Lebanon is not and has never been
a part of the Financial Action
Task Force (FATF) list of jurisdictions that are either subject
to counter measures by the international regulatory bodies,
or ones that have made sufficient progress in addressing
the deficiencies in AML/CFT,
or ones that have only recently provided a high level of political commitment to address
deficiencies.
Lebanon is ahead of many countries in the region in meeting
US Foreign Account Tax Compliance Act (FATCA) conditions
and requirements. What conditions and requirements have
been met and are still to be met?
The ABL developed early on
a manual of policies and procedures for compliance with
the US FATCA regulation
with the valuable assistance
of Deloitte for the banking
sector. It covered many key
points, which include the
qualifications or competencies of the responsible officer, and a checklist for all
pre-requisite actions for a
bank to become compliant.
Banks are constantly raising
awareness of the issue to employees and customers. The
IT departments are effecting
the necessary cost changes
and modifications, and many
banks have started to register
with the IRS. A questionnaire
for FATCA compliance readiness was developed and circulated by the ABL recently.
The responses were positive
in terms of the appointment
of a project sponsor and a
responsible officer. A FATCA steering committee is
also in place as well as the
procedures for opening new
accounts incorporating FATCA requirements. Overall,
most banks are ready and will
hopefully comply fully by the
due date. Finance
THEBUSINESSYEAR
43
INTERVIEW
TBY talks to Dr. Freddie C. Baz, Group CFO
and Strategy Director of Bank Audi, on solid
financial growth, consolidation in light of the
Arab Spring, and shifting market focuses.
MOVING
with the times
Biqqiof^sio[mm_mmnb_f[mn×h[h]c[fs_[l`il
Bank Audi?
Last year was a good financial year for Bank
Audi. Within a challenging operating environment, consolidated assets reached $36.2
billion at end-December 2013, registering a
growth of 15.6% relative to 2012. As a result,
Bank Audi continues to have an undisputed
leadership position in the Lebanese banking
sector in terms of all business criteria and to
reinforce its position among the top 20 Arab
banks, whereby it reported the third highest
activity growth rate among top Arab banks in
2013. The growth in the bank’s activity was
not realized at the detriment of its financial
standing. Primary liquidity placed with central banks and foreign banks reached $12.6
billion, representing 40.4% of customers’ deposits, an elevated level when compared to regional and global averages. At the loan quality
level, gross doubtful loans accounted for only
2.8% of gross loans, with the coverage of those
loans by specific and collective loan loss provisions reaching 95% at end-December 2013.
In parallel, the Bank’s Basel III capital adequacy ratio stood at 12.1% at end-2013, against a
10.5% minimum regulatory requirement. At
the profitability level, Bank Audi’s net earnings reached $305 million in 2013. The Bank’s
recent results reflect the strategic orientations
set by management so that the group remains
ready to seize opportunities for the development of activities and expansion in better
rated new countries, ensuring added value
to all stakeholders within its customers’ and
shareholders’ base. On the back of the bank’s
recent financial and business achievements,
Bank Audi looks at the future optimistically.
The Bank is steadily growing toward its objective to become one of the most diversified
regional banks by both business lines and
countries of presence in a regional landscape
that still lacks full-fledged, well-diversified regional banks at large.
What do you think the ratio of activity abroad to total activity change says about the dynamics of the
F_\[h_m_[h^l_acih[f×h[h]_m_]nil9
You can see in 2014 that 55% of our assets are
in Lebanon, down from 71% in 2010 and 88% in
2005, which highlights the success of our cross
border expansion strategy despite the overall
tough regional operating conditions of the past
few years. This means we have 45% of our assets abroad, of which half are tied to our operations in Turkey. Those ratios are much lower
in terms of loans, whereby we have 40% of our
consolidated loan portfolio only in Lebanon,
and the remaining 60% abroad. We would have
over 40% of our profits coming outside Lebanon
when we normalize the contribution from Turkey from a current negative contribution tied to
the acceptable time lag between operating expenses and expected revenues in greenfield operations. As such, the first results of our strategy
were quite enticing and encouraging despite
the adverse environment of the past three years.
We have been able, in less than three years of
average activity, to build close to $6.3 billion of
regional assets that almost stabilized during the
Arab Spring years. Despite the tough conditions
that some countries are currently witnessing,
the Bank remains dedicated to its regional expansion policy, which is anchored on continuing to grow the customer and account franchise
in new markets with potential for high growth
in financial services over the medium term. We
also entered Turkey at the right time. It was triggered by our view that a presence in Turkey is
complementary to our regional presence. The
license was provided after the outbreak of the
Arab Spring, so it came at an excellent time to
compensate for any delay in the revamped business plan. Due to the size of the Turkish market
and the fact that our operating model in Turkey
is proving to be successful, we will be more than
offsetting the relative delay, the end result being
considerable to the Group’s advantage in terms
of assets and earnings growth.
BIO
Freddie C. Baz is a board
member of Bank Audi, as
well as the Group CFO, and
Strategy Director. He joined
the bank in 1991. He is
also the Chairman of Bank
Audi France, and a board
member of several other
[`×fc[n_m(B_cmnb_[onbil
of several publications and
articles, and lectures at international conferences. He
holds a PhD in Economics
from the Sorbonne.
44
THEBUSINESSYEAR
LEBANON 2014
Bank Audi's branches are
some of the most modern and
customer friendly in Lebanon
What ongoing steps are you taking to build up and
maintain your captive market share, and how does
this strategy differ between markets?
Turkey, Egypt, and Lebanon will represent
90% of the forecasted growth for the group for
the coming three years. In parallel, we have a
high-quality operation in Jordan. We would be
interested to do commercial banking in Saudi
Arabia; however, it has not opened up to players from outside of the GCC, meaning the market would have to free up competition. We have
a bank in Qatar that is regulated by the Qatar
Financial Centre and not by the Qatar Central
Bank. Currently, there are talks that they might
merge shortly, which will mean greater flexibility for us. With the outbreak of the Arab Spring,
there was a major re-adjustment to our strategy;
before the Arab Spring, our aim was to expand
in the region to become one of the main regional players—I defined it at the time as cross-selling markets and business lines to capture the
market share—but this was before 2011. Up till
2011, we had achieved probably 50% of the set
targets; we were halfway to becoming a regional player. We had succeeded in Egypt, Jordan,
and Syria. But then there was the Arab Spring,
which affected the whole Middle East. To adjust our strategy, we completely deleveraged in
Syria, whereby our assets there today represent
less than 1% of our consolidated assets reaching
$350 million, reduced from $2 billion in 2010.
We have adopted a consolidation mode in Jordan. We have also revisited our business plan in
Egypt to adjust to the current political environment. Therefore, you cannot consider that the
IN NUMBERS
Bank Audi
Cross-selling ratio of
4.5
Products per client
Percentage of total
assets in Lebanon
55%
Retail accounts
portfolio
500k
Arab Spring had a zero impact on our previously announced regional expansion strategy.
Today, we have shifted toward a much more
southeast Mediterranean profile rather than
being a deep Middle Eastern bank, focusing
on our three main regional pillars: our home
market, Lebanon, Egypt, and Turkey, with
a fourth pillar which is our private banking
business. As such, Bank Audi’s development
over the coming years hinges on the following
drivers: first, consolidating and strengthening
its leadership in Lebanon with a particular focus on pursuing asset utilization optimization
while reinforcing operational efficiency to
enhance a greater generation of productivity
gains. The second driver is strengthening our
market background and positioning in Egypt,
which, despite the persisting uncertainties, remains a core growth market by virtue of scale
and abundant resources triggering self-sustained economic and financial growth prospects. And thirdly, we need to secure over the
medium term an established position in the
Turkish market, which still enjoys a large size
and high levels of growth in spite of short-term
volatility, building a franchise ranking second to Lebanon in term of size and earnings.
Fourth, leveraging cooperation and synergies
across the private banking entities in Europe,
the Levant, and the GCC, while transforming
the wealth management operating model,
enlarging its geographical footprint, and reinforcing the range of products and services to
shore up private banking development at large
is important. Finance
THEBUSINESSYEAR
45
INTERVIEW
SEEK
the highs
TBY talks to Saad Azhari, Chairman & General Manager of BLOM BANK,
on the effects of the Syrian conflict, the bank’s position in the market, and
investment banking.
BIO
Saad Azhari has been the
Chairman of BLOM BANK
since 2008, prior to which
he was Vice-Chairman
and General Manager. He
also has several functions
on the Board of Directors
of BLOM Bank Group’s
entities. In addition, he has
been the Vice-President of
the Association of Banks
in Lebanon since 2001.
B_×lmndich_^<FIG
BANK in Switzerland in
1991 and was appointed
as its General Manager in
1997 and its Chairman in
2001. Between 1986 and
1991 he worked at PBZ
Jlcp[n\[he&[h[`×fc[n_i`
UBS Group, in Zurich. He
has a Master’s degree in
Computer Engineering and
an MBA from the University
of Michigan-Ann Arbor in
the US.
Has BLOM BANK been affected by the regional turmoil over the past year?
What is BLOM’s overall market share in terms of
the Lebanese banking sector?
Relatively speaking, 2013 was a good year for
BLOM. We registered growth on the balance
sheet, and in loans and deposits, and posted
growth in profits of around 5%. BLOM is a very
consistent bank, and we continue to be prudent
with gradual growth, and have never seen a year
of decline. Three years ago Syria was the second
most important market for us after Lebanon. Yet
today it is one of the smaller ones—there has
been a major drop in deposits and loans. Therefore, the war in Syria has not really affected our
bottom line by much in 2013 as the country is a
proportionately smaller operation. We were affected more by Syria in 2011 and 2012 because
of the big drop in our operations during those
two years. There is another dimension to this,
however, in so much as both in addition to our
operations in Syria, Lebanon is also feeling the
pinch in terms of lower economic growth due to
the security situation in the region and the arrival of refugees. Ultimately, the performance of the
economy affects that of the bank, too.
In terms of customer deposits in Lebanese
pounds, we are number one, at around 13%. In
terms of overall deposits, we hold 13.4% of the
market. As for lending, we are number one in
retail banking in all product categories (housing loans, car loans, personal loans, and credit
card receivables). We are also the number one
lender for loans made to entities operating in
Lebanon. BLOM BANK has also been voted
unanimously as the best bank in Lebanon by
many major international institutions.
But if we talk about the year to date, have overall
deposits grown on last year?
We are still growing continuously, as we have
recently published our 1Q2014 results showing growth in deposits and loans. The bank’s
strategy errs on the side of caution and looks for
gradual growth, and while we are modern with
a liberal outlook in general terms, we opt for a
conservative stance in business.
>i_m <FIG <;HE b[p_ [hs chn_hncihm ni mcahc×cantly expand its foreign market size in terms of
loans and deposits similar to Bank Audi?
While we are present in 13 countries, for us the
bottom line is more important than scale. Our
shareholders are more concerned about return
on equity (ROE) and profitability than about
the size of the balance sheet. This is where our
culture is different, because we are very careful
in terms of keeping our costs low and our ROE
high—we have the highest ROE and the lowest
cost-to-income readings in the sector. And today, we even have the highest level of profits
even though we do not have the highest equity, so our profitability is the highest in relative
and absolute terms. At BLOM BANK, we have
more than sufficient equity from our internally
generated profits, which makes for a relatively
strong equity base, meaning there is no need to
raise additional equity.
46
THEBUSINESSYEAR
LEBANON 2014
How well do you feel Lebanon’s banking sector is
progressing to be able to meet Basel III requirements?
The sector is in good shape. First of all, Lebanon
is going to be compliant with the ratios required
by Basel III by the end of 2014. The central bank
has actually asked the banks to be compliant by
the end of 2014, stipulating a 12% capital adequacy ratio (CAR). Basel III stipulates full compliance by January 2019, and therefore we are
set to be at least three years ahead of the rest
of the world. Already, the average CAR of the
banks in Lebanon is close to 12%.
How is your investment banking arm developing in
Lebanon and the region?
There is little investment banking activity in
Lebanon. We do have our own investment arm,
BLOMINVEST BANK, which deals with most of
our investment banking activity, but Lebanon
is a very limited market and we have seen only
two deals in the government debt market of
late. There is more of a focus on our investment
banking activities in Saudi Arabia, where the
market is bigger and the prospects are better.
Our investment company there, Blominvest
Saudi Arabia, is currently very active, especially
in the area of real estate funds.
What could you tell us about the BLOM Development Bank, which is specialized in Islamic banking?
It is doing well, and experiencing growth, although Islamic banking in Lebanon represents
a minuscule market when compared to the total size of the commercial banks. There is no
real tradition of Islamic instruments in Lebanon—they are much more established in the
Gulf. In Lebanon, people prefer commercial
banks. Islamic banks still account for less than
1% of the banking universe locally.
In 2013, growth in lending was
mostly in housing loans in light of
the central bank’s incentives. Asset
management and fund management
have also grown amid greater public
interest.
IN NUMBERS
BLOM BANK
Retail banking rank
1
st
Do you have a technology budget?
Whenever we see an opportunity to invest in
an innovation that has the potential to bring us
benefits, we don’t hold back.
In what region will you be expanding your operations the most over the next year?
The growth of our operations is mostly observed in those countries that we have recently
entered. Our investment banking arm in Saudi
Arabia is growing rapidly. Meanwhile, our corporate and commercial banking operations in
Qatar are also expanding swiftly. Overall, our
Gulf operations, namely in the UAE, Qatar, and
Saudi Arabia, are in general doing well. Our operation in Egypt performed strongly in 2013,
and we expect 2014 to be extremely good as
well. I would, in fact, say that the Gulf and Egypt
are posting the best growth performance. Operations in
13
Countries
Operating through 15
subsidiaries and
212
Banking and
×h[h]c[fohcnm
What areas is BLOM BANK investing in the most?
As a universal bank, we undertake all activities. In 2013, growth in lending was mostly
in housing loans in light of the central bank’s
incentives. Asset management and fund management have also grown amid greater public
interest. We have also paid attention to the
SME sector, and hence these three areas have
seen the highest levels of growth, in that order. And then, of course, technology is crucial
in our business, and we always try to lead the
field in this area. We have also pioneered several products, with one being a credit card, the
Touch pre-paid VISA Credit Card, which loads
units onto your mobile phone as you spend,
instead of receiving points. This card proved
highly popular with the public. In fact, it was so
successful it received VISA’s “Best Acquisition
Campaign” award for Lebanon in 2013.
BLOM BANK's branches and
i`×]_m[l_mig_i`nb_gimn
inspiring designs around
Finance
THEBUSINESSYEAR
47
BANKING OUTLOOK B2B
HADI NAFFI
Executive General
Manager, Bank
MisrLiban (BML) Bank
MAURICE
SEHNAOUI
Chairman & General
Manager, BLC Bank
money TALK
Two industry executives discuss
dynamics in the banking sector.
To what extent has BML been
affected by the regional conØc]nchMslc[[h^?asjn9
HADI NAFFI Lebanon is naturally affected by regional
turmoil. The conflict in Syria
has had a particularly significant impact on the Lebanese
economy generally and on
Lebanese banks, which have
seen their business in Syria
contract, and this makes risk
management a more challenging task and BML was no exception in this respect.
To what extent has the international strategy changed since
you became Chairman?
MAURICE SEHNAOUI It was
difficult to think directly on
an international presence.
First of all, we had to establish
the bank on a solid footing in
Lebanon, and then expand
internationally or regionally.
Two years later, we decided to
move into Cyprus with nearly
a 100% shareholding in USB
Bank PLC, as part of our international expansion strategy.
Cyprus has all the potential
to become a regional banking
center in addition to being in
the EU and a gateway to Russia. Despite the recession and
unemployment in Cyprus fol-
lowing the bailout agreement
in 2013, the overall macroeconomic performance has been
better than initially anticipated as the economy proved to
be more resilient and significantly more flexible. As a second step, in 2012, we established our representative office
in Abu Dhabi claiming as such
our direct and expandable
presence in the Arab MENA region. This move stemmed from
the bank’s conviction of the
UAE’s advanced regional status, having achieved consecutive quality leaps, which made
it an attractive hub for both
Arab and foreign financial and
investment institutions.
What growth metrics have you
enjoyed recently?
HN Despite the problems arising from the regional situation,
Lebanon’s banking sector continues to grow and BML with it.
In 2013, we increased our total
deposits by 18%, such that they
now exceed the billion-dollar
mark. In parallel to that, loans
to the private sector increased
by 19%. We have achieved further significant growth in lend-
ing to the private sector during
1Q2014, though deposits have
remained quite stable. For the
year as a whole, we are forecasting a 10% increase in our
deposit base and a more than
20% growth in loans to the private sector.
MS BLC is growing as a universal bank in the main fields of
corporate and retail; however,
we completed our service offering by including the private
and investment banking arms.
Through its affiliate BLC Invest, BLC Bank proved that it
is a serious player in the development of private equity
in Lebanon, as it achieved the
largest ever asset-backed issuance in the local capital markets. The bank, in partnership
with BEMO Securitization, led
and arranged a $185 million
securitization transaction for
Solidere SAL. Likewise, in the
asset management field, we
closed $35 million of our Tier
1, non-cumulative, perpetual,
redeemable, series C preferred
shares. This is the third issuance of preferred shares since
2010, leading to a capital increase of $135 million. 48
THEBUSINESSYEAR
LEBANON 2014
FOCUS FATCA & BANKING SECRECY
a fragile
COEXISTENCE
BANKING SECRECY
Banking secrecy in Lebanon, a principle inherent to the country’s history, is at the core
of the banking system. Banking secrecy was
established as a regulated institution in Lebanon by virtue of the law dated September 3,
1956 (the “Banking Secrecy Law”). The Banking
Secrecy Law binds all financial entities regulated by the Banque du Liban (BDL) to absolute
secrecy with respect to their clients’ personal
and account-related information and provides that banking secrecy may only be lifted
(i) upon written authorization by the client or
his/her heirs, (ii) upon the request of a judicial authority in connection with cases of illicit enrichment, (iii) in case of bankruptcy, and
(iv) in case of litigation between the bank and
the client. The Banking Secrecy Law, among
other factors, afforded Lebanon a privileged
status as a unique model of banking services
provider amongst its neighboring countries
and worldwide and encouraged the flow of
foreign remittances into the country’s banking
sector. However, since the enactment of the
Banking Secrecy Law, cross-border currency
movements have substantially evolved, and a
new era of global monitoring and supervision
emerged to fight the criminal and unlawful use
of the global banking network. The BDL, the
watchdog of the Lebanese banking sector, responded to the increased pressure and auditing
of the international community by championing the enactment of laws and issuing several
regulations aimed at abiding by strict international measures to combat money laundering
and robustly applying the recommendations of
the Financial Action Task Force.
INCREASING AML REGULATIONS
In 2001, the Lebanese legislature enacted a
comprehensive Anti-Money Laundering Law
318 (the “AML Law”) in an effort to comply with
international AML standards while reconciling
with the principle of banking secrecy. The AML
Law provides for increased reporting obligations, and established the Special Investigation
Commission (SIC), an independent legal entity
whose mandate includes monitoring compliance with the rules and procedures of the AML
Law, investigating alleged money-laundering
offenses, and deciding to lift the banking secrecy on accounts seriously suspected of being used for money laundering purposes. The
AML Law defines money laundering as any act
committed with the purpose of concealing,
transferring, substituting, acquiring, or holding
illicit funds, and stipulates that illicit funds are
Souraya Machnouk,
Partner at Abou
Jaoude & Associates
Law Firm, explains
the recent regulatory
evolution in the local
banking system that is
targeting the concept
of banking secrecy.
any assets resulting from the commission of a
number of offenses listed restrictively under
the AML Law (e.g. drug trafficking, organized
crime). In application of the AML Law, any request aiming at obtaining information by lifting
the banking secrecy must be based on an allegation of money laundering resulting from one
of such offenses.
Since the enactment of the AML Law, the BDL
has issued several decisions imposing AML-related obligations on banks and other financial
entities regulated by it. Following its Decision
7818 of 2001 setting out the implementation
procedures of the AML Law, BDL Decision
10622 of 30 December 2010 explicitly adds “terrorism financing” to the list of offenses constituting money laundering. BDL Decision 10725
of May 21, 2011 imposes “caution” measures
on banks in their operations with money dealers. In the same context, the BDL issued a set of
decisions in May 2011 instating stringent new
requirements on money dealers in Lebanon in
order to deter their usage for money laundering
and terrorism financing. BDL Decision 10965 of
April 5, 2012 introduces certain obligations on
banks and financial institutions related to AML
and terrorism financing with a view to “prevent
reputational risk” and “protect the utmost national interest.” These obligations comprise (i)
adopting a risk-based approach and vesting
the identity of customers and economic right
owners, (ii) updating the corresponding AML
and terrorism financing databases, and (iii)
notifying the SIC of any suspicious operation.
BDL’s recent Decision 128 of January 12, 2013
requires all banks operating in Lebanon to set
up an in-house compliance department, including a unit for complying with anti-money
laundering and countering financing of terrorism (AML/CFT) measures.
The BDL prohibited banks and financial institutions from outsourcing this operation to
conformity inspection firms. The compliance
department shall be autonomous from other
departments, and its basic function shall be to
ensure compliance with the anti-money laundering law and related BDL regulations. The
BDL also presented a proposal for the amendment of the AML Law to include tax evasion
as part of money laundering offenses allowing
the lifting of banking secrecy. The amendment
was approved by the Lebanese Council of Ministers and is awaiting parliamentary approval.
More recently, the BDL’s governor urged the
Lebanese parliament to enact two draft laws on
cross-border money flows and the exchange of
tax information, in compliance with mandatory
standards set by the OECD.
Finance
FATCA
In 2010, a new challenge emerged. Much
more than the implementation of the 2001
US Patriot Act for the interception and obstruction of terrorism, a main question surrounding the enactment in 2010 of the US
Foreign Account Tax Compliance Act (FATCA) was that it seemed to outline the roadmap to end banking secrecy. FATCA is an endeavor to combat perceived tax abuse by US
citizens through the use of offshore accounts.
At its heart, FATCA is about disclosure: Foreign financial institutions (FFIs) worldwide
are required to provide the Internal Revenue
Service (IRS) with information on certain
US persons invested in accounts outside of
the US. FFIs that refuse to follow disclosure
rules will be subject to a burdensome 30%
withholding tax on US-sourced income, and
arguably risk seeing their US-sourced transactions intercepted, essentially being cut off
from the US financial system.
The BDL stated that compliance with FATCA would protect the Lebanese financial
sector from reputational risks, and seemed
inclined to adopt a constructive approach
toward a well-orchestrated implementation
of FATCA in accordance with Lebanese law,
without compromising on banking secrecy.
In November 2013, the BDL officially announced that the Lebanese government and
the BDL will not join the Inter-governmental Agreement (IGA) on the compliance with
FATCA, and instead each Lebanese bank
would have to join the IGA on an individual
basis. The SIC will assist banks to overcome
potential disclosure problems related to FATCA in the absence of a taxation treaty with the
US, which is currently still subject of a draft
law being discussed in parliament.
On July 1, 2014, FATCA entered into effect. According to the US Department of the
Treasury, 122 commercial banks, investment
banks, insurance companies, and financial
institutions operating in Lebanon have registered with the IRS. The implementation of
FATCA required Lebanese FFIs to set-up new
screening and compliance processes in order
to identify and report information about their
US clients to the IRS. In order to avoid breaching the Banking Secrecy Law, Lebanese banks
are requesting their clients affected by FATCA
sign special waivers allowing the bank to report on their accounts to the IRS. If a client is
not cooperative, the bank will alert the IRS of
such a refusal and decide whether to close an
account or withhold 30% of interest returns
in tax, as stipulated by FATCA.
THEBUSINESSYEAR
49
On July 1, 2014, FATCA entered into effect. According to the US
Department of the Treasury, 122 commercial banks, investment
\[hem&chmol[h]_]igj[hc_m&[h^×h[h]c[fchmncnoncihmij_l[nchach
Lebanon have registered with the IRS.
RECENT SIC CASES
The SIC continues to allay fears by examining
all complaints about suspicious banking activities and lifting the veil on banking secrecy
whenever illegal operations are suspected.
The number of cases referred to and handled
by the SIC is constantly increasing, demonstrating the inherent principle of transparency
followed by the BDL as a condition sine qua
non to control and monitor the Lebanese banking sector, amid serious pressure exercised by
the international financial regulators, and numerous governments, to rein in the flux of illicit terrorism financing. The SIC declared in a
recent report that it has received 301 suspected
cases in 2013, compared with 284 cases in 2012.
Out of 301 suspected cases, a total of 189 cases
(53.8%) were referred from local sources and
112 cases (30.9%) were referred from abroad.
The SIC referred to judicial authorities a total of
137 suspected cases of money laundering compared with 116 in 2012, out of which 46 cases
are still pending, while the remaining did not
fall within the framework of the AML Law. As
a result, authorities lifted the banking secrecy
provision in 17 cases, down from 24 in 2012.
Forgery accounted for 14.5% of reported cases, followed by the embezzlement of private
funds with 7.9%, then by terrorism with 6.2%,
embezzlement of public funds with 5%, organized crimes with 2.5%, and trade of narcotics
with 2.1%. The other grounds, which did not fit
in any of the aforementioned categories, represented in total 61.8% of the reported cases.
Europe was the main source of requests to Lebanese authorities, with a total of 70 requests,
equivalent to 53.8% of the total. Europe was followed by North America with 13.8% of the total.
The SIC also examined a number of institutions
to ensure compliance with the AML Law, covering banks, auditors and money remitters.
Will banking secrecy remain the “sacred
cow” of Lebanon’s financial system and continue to play a key role in attracting funds to
the country despite increasing international
and domestic regulations aimed at combating
money laundering, and FATCA’s entry into effect? Only time will tell.
50
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
BANKING
inside out
TBY talks to Tarek J. Khalife, Chairman of the
Board of Creditbank, on providing a broad
range of banking services, and the benefits of
transparency.
Founded in 1981, Creditbank
today ranks among Lebanon’s
f[la_mn\[hem(=iof^sio\lc_Øs
give us an idea about the bank’s
rapid growth?
nian market has a significant
potential in terms of human
capital with a high education
level and sound work ethic. I
believe Armenia can serve as
a services hub for the region.
When I first joined the bank in
1992, Creditbank was one of
the Lebanon’s smallest banks.
It had a total balance sheet of
some $50 million, four domestic branches, and a $500,000
bottom line. Today, we have
over $2.5 billion on the balance sheet, 22 branches, and a
$25 million bottom line.
What was Creditbank’s increase
in deposits YoY in 2013?
In 2013, we witnessed a 20%
increase in deposits. Over
the last eight years, this key
growth indicator has consistently hovered between 20%
and 25%, which is significantly higher than the sector’s
benchmark average of between 7% and 10%.
What have been the main reasons for this increase?
The main reason is that, from
the outset, Creditbank has
embraced a business strategy
that caters to the private sector. In fact, we have the highest loans-to-deposits ratio in
the country, which currently
stands at over 56%.
Do you have any idea how much
of your deposits come from the
Lebanese diaspora?
It is close to 20% to 25%.
There are many ethnic Lebanese living all over the world
and to cater to their needs
we need to establish a presence outside Lebanon. Our
next challenge is to set up
a network of representative
offices and branches outside
the country to further attract
members of the diaspora.
Are you planning to further expand the number of branches
domestically?
In 2013, you completed your
expansion into Armenia and
Russia. What was the strategy
behind this?
We started investing in Armenia in 2008. Now, we have
acquired full ownership of
Armenian Anelik Bank and
its subsidiary bank in Moscow, Anelik RU. Anelik has
a network of 15 branches in
Armenia and a full banking
license already operational in
Russia. In addition, the Arme-
We plan to open a couple of
branches per year. I would
estimate that our domestic market share requires a
maximum of 35 branches to
cover the whole country. I
believe we will achieve this
in the next four to five years.
However, in the near future
internet and mobile banking
will carve out a larger market
share and naturally this will
shift management attention
away from the further expansion of branches.
How do you diversify your range
of products and services?
BIO
Tarek J. Khalife joined
Creditbank as an Executive Managing Director in
1992, before becoming
CEO in 2003 and Chairman
ch,**3(?p_lmch]_×lmn
joining, he has actively
contributed to the bank’s
aliqnb`lig[×p_'\l[h]b
network with $60 million
turnover in 1992, to a
22-branch network with (a
balance sheet of) over $2.5
billion by the end of 2013.
We believe the market is too
small to solely operate as a
niche bank. Basically, in Lebanon, you have to serve everyone and, therefore, you
have to offer a wide range of
products. Corporate clients
normally need credit cards
and retail loans. SMEs need,
among other things, advisory
services. I think Creditbank
more significantly invests in
new technologies than the
sector as a whole. For example, we have recently introduced a mobile solution, MasterCard’s PayPass technology,
which allows you to pay with
your mobile phone at any
point of sale.
IN NUMBERS
Creditbank
Branches
22
What are the main indicators
of transparency at Creditbank,
and in what ways do you try
to maintain high transparency
standards?
Our key structures are completely transparent. For example, we are transparent on
fees. We do not have hidden
charges. We are also transparent in our policies and
ways of processing. Clients
know exactly what parameters we use to grant a loan.
And if we decline they know
for what reason. Our employees understand the rules of
engagement and are able to
give clear, direct answers. This
basic principle simplifies the
chain of command internally
and offers the client a direct
and efficient interaction.
Finally, what are the main areas
for future growth?
What we need to further develop is private banking, in the
broadest sense of the word, as
in asset management. Our
other main challenge is to set
up a network of representative offices and branches outside the country to cater to the
Lebanese diaspora. Finance
THEBUSINESSYEAR
51
INTERVIEW
insuring
SUCCESS
TBY talks to Farid Chedid, Founder Chairman &
CEO of Chedid Re, on the reinsurance industry, the
need for statutory reforms, and the value of tailoring
risk management.
Qb[nb[p_\__hnb_gimnmcahc×][hn`[]nilm`il
the company over the last 15 years?
The first company was launched in September 1998, meaning we have been in the reinsurance business as brokers for over 15 years.
We had a defining moment when we relocated our head office from Cyprus to Beirut. By
moving and setting up in Beirut, we have recruited highly qualified, experienced individuals with international exposure and knowhow. Since 2004, we have also been recruiting
fresh college graduates through an apprenticeship program so that they can gain experience and meet international standards. The
team is our strength. In the financial services
industry, we also need the vision and ambition to do something meaningful and make
an impact. In 10 years, we became one of the
major players in the region, and since 2008
we have been ranked among the top three
and since 2012 the largest in Saudi Arabia.
Is that thanks to the EuroMena Fund Investment?
The investment from EuroMena has a different perspective. Since 2008 it has helped us
institutionalize our shareholding structure,
as well as help us with corporate governance
and the expansion of the group in its relations
with investors from outside Lebanon. Therefore, its support has helped us grow.
Qb[n [l_ nb_ gimn mcahc×][hn q[sm ch qbc]b
Chedid Re’s corporate governance has changed
during this time?
BIO
Farid Chedid is Founder,
Chairman, and CEO of the
Chedid Capital SAL (Holding) group of companies. He
led the growth of Chedid
Capital and set up companies in Cyprus, Lebanon,
the UAE, Greece, Saudi Arabia, the UK, and Qatar. The
×lmnalioj]igj[hsq[m
Chedid Re, established in
1998. Today, Chedid is the
leading SEIB Insurance
Company in Qatar focusing
on corporate and complex
risks. Farid Chedid has been
listed among the Power 50
gimnchØo_hnc[fch^cpc^o[fm
in the insurance industry in
the Middle East and North
Africa for six years in a row.
He is a Fellow of the Chartered Insurance Institute,
holds a Master’s degree in
Management and Finance,
a Bachelor’s degree in
Economics, and a Graduate
Diploma in Maritime Law.
Year after year we have enhanced our structure, processes, planning, internal control
and risk management all under the supervision of the board. The direction and strategy
is set by the board. The ambition to expand
is continuously monitored and challenged by
very experienced directors. Every step is well
studied and prepared in relation to value creation. We always look for sustainable growth
with the long-term well-being of the group in
mind. Our board comprises Charles El Hage
as Vice-Chairman, Charles was the Managing
Partner and Senior Vice-President of Booz
Allen Hamilton in the Middle East, Romen
Mathieu, who is the Managing Director of the
Euromena Funds, and Sami Chedid, who has
over 30 years of insurance experience. Our
Advisors to the board are HE Ziyad Baroud,
former minister and a very active lawyer, as
well as Aldo Cardoso, the former President of
Anderson France and Anderson worldwide,
who is a current board member of a number
of French-listed companies.
What are the main trends in the Lebanese insurance sector at the moment that you are trying to
accommodate?
Lebanon is one of the most profitable markets
in the region. The market is much smaller, but
net profit in the insurance industry is doing
well. The shareholding structure of the companies in Lebanon makes them different. The
reinsurance market is attractive in Lebanon,
whether it is treaty or facultative. The insurance industry in Lebanon needs government
52
THEBUSINESSYEAR
LEBANON 2014
support, because the rules and regulations
are outdated. We have an insurance commission trying to do the best it can to improve the
industry, but it needs a new comprehensive
law. The minimum capital requirement is
$2 million, but if you compare that to other
countries in the region, the minimum base
capital is around $20 million in most countries. To be in line with the 21st century, there
needs to be reform in the sector.
You service over 270 companies in Lebanon and
the region. How are you expanding your portfolio, and what is special about the services Chedid Re offers?
Our offices in Beirut, Riyadh, Dubai, and Limassol service over 270 companies in the
Middle East, Africa, and Europe. Today, all insurance companies in the region know us and
the solutions we provide. We have a specialized team that understands the requirements
of the companies in the region. We have the
trust and support of insurers and reinsurers
throughout the world. We have been a Lloyd’s
cover-holder since April 1999, which means
that we have underwriting authority on behalf of Syndicates there. We also underwrite
on behalf of other global players, with Partner Re being the latest company that signed
an agreement with us for financial lines. The
range of support from European, US, Asian,
and Middle Eastern reinsurers is impressive,
and they are keen to support us because of
our expertise, integrity, and ethics.
You have a strong focus on product innovation
and providing risk management solutions. In
which areas have you innovated?
We have been able to provide solutions to insurance companies through the structuring
of innovative programs. If you provide a plain
vanilla solution, anyone can do that; however, we have been different, which is why we
have grown. In terms of risk management,
if you look at the construction industry for
example, we have a team of engineers that
understand the risks involved with the construction industry, and have been involved in
providing risk control solutions to our clients.
We are one of the largest reinsurance brokers
handling financial institutions. Our market
share across the region is substantial. In Lebanon, if you take bankers blanket bond coverage for financial institutions, we have a 60%
market share.
How much value-added does Chedid Re’s regional presence bring to your clients?
It is all connected; you must have the people and the talent, and they must provide
solutions that add value or you do not get
the business. A few decades ago, business
was about friendships and relationships, but
now 90% of the business is done because you
produce valuable solutions. Reinsurance is a
business where you protect the balance sheet
and reduce the volatility in the results. Reinsurance is also an alternative to capital by
providing capacity through a combination
of risk transfer mechanisms. This business
is complex, and you need to understand the
requirements to service your clients. We have
engineers, lawyers, and actuaries involved in
our team. I cannot think of any other broker
in the region, even internationally, that has
a team of 140 people between all our offices that can offer the same level of localized
knowledge and expertise.
What was the strategy behind the founding of
SEIB Insurance company?
That was an opportunity that came up due
to the growth expectations we had in Qatar
and the vision and ambition of our partners.
We realized we can service and add value to
Qatari companies and its economy. Qatar
is a market for large and complex risks that
require major support from the reinsurance
market, which is our core strength.
Do you plan to start any more companies under
Chedid Capital Holding?
As an insurance company, no; however, we
do have plans to open new offices for Chedid
& Associates, which is our insurance broker
brand name. Chedid & Associates is an insurance broker located in Saudi Arabia, Qatar,
and the UAE and we are planning to expand.
As for Chedid Re we have new offices coming
up soon. IN NUMBERS
Chedid Re
Market share for
bankers blanket bond
coverage in Lebanon
60%
Employees at Chedid
Holding
250
Finance
THEBUSINESSYEAR
53
PRIVATE RESTRUCTURING B2B
SALAH OSSEIRAN
President & CEO, BPC
(Business Projects
Company)
FOUAD RAHME
General Manager, BLC
Invest
What’s your assessment of the
F_\[h_m_×h[h]c[fm_]nil9
SALAH N. OSSEIRAN In Lebanon, the banking and real
estate sectors look promising
for the time being, and most
likely for some time to come
as well. It is possible that Lebanon could be the next hot hub
for software if there are adequate reforms in the law and
regulations; however, we are
not there yet. There are many
laws we are lobbying the government and parliament for
in regard to the telecommunications industry, because the
sector relies on infrastructure
availability. If you do not have
constant and cheap telecoms
and power, even if you have the
best software developers in the
world, it cannot really take off.
shake ‘n bake
The banking and investment sector
has a strong presence in Lebanon,
with investor interest now piqued.
FOUAD RAHME The Lebanese
banking sector is now the reference point for Europe. A system
has been established with high
levels of cooperation between
the regulator and the operator,
and this is why, despite whatever happens, we will have a solid and sound banking system.
The government has no resources to manage the deficit,
debt, or our float of cash and
liquidity. This is why when the
crisis came in 2008, when Lehman Brothers went bankrupt,
restrictions were in place that
prevented us from failing; we
hadn’t been allowed to invest
outside the country. The Banque du Liban (BDL) has a role
to ensure that depositors’ cash
is safe and to provide liquidity
for the government.
What projects do you currently
have underway?
SNO I think food is a long-term
winner in the Middle East because of the demographic explosion that is happening in
our part of the world. Fortunately, or unfortunately, with
the demographic explosion,
you need to create jobs. However, I do not think job creation is happening in line with
the demographic explosion,
which is an upside problem
compared to what is happening in Europe. There, you have
a demographic implosion,
meaning the population is decreasing. We are in the food
business in at least five countries in the Middle East, and
food, or anything food-related,
will have a market for some
time to come, regardless of its
categorization—whether it is
the upper, the middle, or even
the lower end of the market.
FR At BLC Invest we are
working on two big direct investment deals, one for $5.5
million for Cinemoz, a video-on-demand platform dedicated to the Arab world and
focused on the region, and one
for $14 million called Tourist
Tube, a social network dedicated to improving tourism
and trip planning. We are
working with the BDL to create camps for start-ups. We
are also helping the start-ups
become visible. We’re also
trying to create a kind of seed
capital fund, which is beyond
the understanding of bankers.
The eco-system is being established and the real trigger now
will be the first success story.
And it’s a question of when,
not if. There is no other example in the world where a central bank is prepared to play
the role of a venture capitalist
like in Lebanon at the moment; we have the talent, innovation, money, will, and, most
importantly, the support of the
BDL. I want all the children of
Lebanon to come back. In Lebanon, we have all the positive
ingredients for a good cake, so
let’s bake the cake! 54
THEBUSINESSYEAR
LEBANON 2014
The Beirut bourse has taken advantage of improved government
stability to rally up from the lows recorded in late September 2013.
Review
C A P I TA L M A R K E T S
CAUTIOUSLY OPTIMISTIC
BSE Equity Market
Capitalization (In USD
Billions)
Source: BDL
12.4
11.8
11.4
11
Market Cap by Sectors of
Activity (End-2013)
Source: BSE
Banking
Development
& Construction
79.20%
Industrial
3.17%
Trading
0.36%
17.27%
20.05.2014
20.03.2014
20.11.2013
20.01.2014
20.07.2013
20.09.2013
20.05.2013
10.6
20.01.2013
(BSE) has seen a definite improvement over
the past 12 months, with the installation of
a new cabinet under the leadership of Prime
Minister Tammam Salam in February 2014
proving to be just the tonic the market needed.
However, the main market still lacks the spark
it needs to become a bigger player in the local
economy, with the GDP to market cap ratio at
end-2013 coming in at just 23.78%. The limited number of listings on the market, at just
10, the limited number of approved brokerage
houses, at 17, and the dominance of the banking sector in the equity market also means that
the bourse still does not have enough strategic
penetration within the national economy.
However, considering the events of the recent past, the BSE has proven resilient. Established back in 1920, the BSE is the second oldest stock exchange in the MENA region. While it
had its glory days back in the 1950s and 1960s,
the bourse has struggled to gain significant
traction since it reopened for business following the end of the civil war in the early 1990s. It
reopened for trading in 1996, after a hiatus of
some 13 years. The creation of the Capital Markets Authority (CMA) in 2012 has seen a new
level of regulation and transparency come to
the market. And none too soon, as should some
level of normality be returned to its neighbor
Syria, then the good times at the Beirut bourse
may be just around the corner. Still, how to encourage family companies in Lebanon to take
the plunge and launch an IPO locally is a moot
point, especially as so much local liquidity is
tied up in the banks and bond market.
The overall market cap for the BSE ended
2013 at $10.545 billion, while it managed to
stage something of a rally over 1H2014 and
ended at $11.20 billion, according to data
from the Banque du Liban (BDL), Lebanon’s
20.03.2013
TRADING on the Beirut Stock Exchange
central bank. A useful index used for the BSE,
the BLOMStock Index (BSI) saw the BSE reach
a low of 1,124.74 in late September 2013, and
then rose to a high point of 1,234.30 in June
2014, making for a 9.74% gain between the
two periods. However, in YoY terms, the market cap of the BSE rose from $10.22 billion in
1H2013 to $11.2 billion at the end of 1H2014,
making for a 9.5% increase over the period,
according to Fransabank. More surprising
was the massive difference total trading volumes, with aggregate turnover for the market
up 47.2% in YoY terms, while the average daily
value of shares traded rose by 45.9%. As well,
market liquidity has seen positive growth,
from 1.5% in 1H2013 to 2% in 1H2014. This is
well off a more recent high of 8.90% recorded
over 1H2011. Still, the 2% figure for 1H2014
only represented an average daily liquidity of
$1.9 million, which is small beer in anyone’s
language.
With only 10 shares listed on the bourse,
the market cap has been slanted in favor of
one dominant sector, finance. At end-2013,
the six listed finance stocks—Banque Audi,
Bank BEMO, Bank of Beirut, BLC Bank, BLOM
Bank, and Byblos Bank—represented 79.20%
of the bourse’s market cap. The next largest,
at 17.27% of market cap, was the development
and construction sector. It was represented by
a single stock, Solidere, the main developer
of the Downtown Beirut area. The industrial
category, at 3.17% of market cap, features two
listed companies, both of which are involved
in the cement sector: Holcim Liban and Ciments Blancs. Finally, bringing up the rear was
the trading segment, at 0.36% of market cap on
the BSE. It was represented by the last of the 10
issuers on the market, Rasamny Younis Motor
Company (RYMCO), which is a major vehicle
importer and distributor. Finance
ALL under control
THEBUSINESSYEAR
INTERVIEW
TBY talks to Dr. Ghaleb Mahmassani, VicePresident of the Beirut Stock Exchange (BSE),
on milestones of development and getting
the right regulatory framework in place to
encourage investors.
How successful has the CMA
been since its inception in August 2011?
What have been the milestones
for the Beirut Stock Exchange
(BSE) since its founding?
The BSE is actually the second-oldest stock market in
the region, first established in
1920. In the 1950s and 1960s,
there was a lot of activity on the
BSE. Then, the civil war erupted in 1975 and the BSE closed
in 1983 until it was reopened
in 1996. Lately, the Lebanese
parliament endorsed a new
Financial Markets Law that
resulted in the creation of
the Capital Markets Authority
(CMA), which aims to regulate
and supervise the activities of
the capital markets in Lebanon and create an adequate
legal framework conducive
to the development of the
Lebanese financial markets.
This new law previews the
establishment of a Financial
Market Court to adjudicate
financial matters, and the restructuring of the BSE with a
view to transfer its ownership
to the private sector. Recently,
in March 2014, the BSE signed
an agreement with Euronext,
a wholly owned subsidiary of
Intercontinental
Exchange
Group (NYSE: ICE), for the implementation of a new trading
application platform that supports the expected growth in
equity listings and the entry
into new asset classes in the
Lebanese markets.
After the complete formation
of its board of directors in July
2012, the CMA issued a series
of circulars and resolutions
aimed at regulating the disclosure policy of joint-stock
companies and mutual funds
that have their shares or units
traded on the BSE or on the
over-the-counter (OTC) market, as well as of the firms’ obligations in terms of disclosing
information to shareholders
and unit holders. Likewise,
the CMA also issued resolutions relating to the committees, units, and departments
that must be met by these
companies. These circulars
specify that, by September
2014, joint-stock companies
and mutual funds that have
their shares or units traded on
the stock exchange or the OTC
market, or that have more
than 20 shareholders or unit
holders, are required to have
a compliance department and
an internal audit department
that shall be autonomous
from other departments. The
basic functions of the compliance department shall be to
ensure the obedience of these
companies and mutual funds
with anti-money laundering
laws and related Lebanese
laws and regulations, while
the internal audit department
shall evaluate and improve
the effectiveness of risk management, control, and governance processes. The CMA
also issued circulars related to
crowd-funding activities and
to the requirements to practice specific functions in the
financial sector in Lebanon.
Besides establishing the necessary laws, do you think there is
anything else the government
can do to attract more institutional investors to the BSE?
Globally, institutional investors have come to play a key
role in the development of the
capital markets. Recent studies show that most institutional investors share a preference
for large, liquid, and widely
held stocks, with high disclosure standards. Likewise, institutional investors are biased
for stocks that are members
of a regional or international
index. We believe that, in addition to political and security
stability, the intelligent levels
of corporate governance of
listed companies is pivotal in
attracting institutional investors to the Lebanese market
as institutional investors rely
on proper governance to enhance long-term investment
returns and diminish risks. We
are confident that the creation
of the new financial market
authority and the series of
circulars that have been published and will be published
in the future will give national
and foreign investors a clear
message that Lebanon now
has the proper legislation to
control and regulate its financial markets, which will help in
attracting more foreign institutional investors.
In an ideal world, where would
you like to see the BSE in a year?
From the standpoint of foreigners, we need to become
a real offshore financial center with real facilities for foreign companies. That is very
ambitious, but if the political and economic situation
would allow for it, Beirut
could perhaps regain its position as a financial center
for the Middle East. 55
IN NUMBERS
Beirut Stock
Exchange
Number of listed
companies
10
Year of establishment
1920
BIO
Ghaleb Mahmassani obtained a Bachelor’s degree
in Political Science from the
American University in Beirut in 1962, and licenses in
French and Lebanese law in
the same year. He received
a PhD in Law from Lyon
University in 1966. He has
been an Attorney at Law
since 1962, and has been
active both academically
and professionally at the
international level. Mahmassani also served as a
Member of the International Court of Arbitration of
the International Chamber
of Commerce (ICC) in Paris
from 2000-2005.
56
THEBUSINESSYEAR
LEBANON 2014
As Lebanon’s economy struggles with political and economic instability,
the country’s insurance industry is bucking the trend and registering the
highest insurance penetration in the MENA region. Yet if this trend is to
continue, regulatory reform and consolidation will need to take place.
Review
INSURANCE
BEATING THE ODDS
UNLIKE WOODY ALLEN, who was noto-
riously wary of insurance salesmen, Lebanese
consumers are enthusiastically patronizing
insurance firms as the industry defies grim
market conditions to post steady growth
throughout 2013 and 1H2014. However
these high growth rates must not overshadow structural weaknesses that the industry
must deal with in the long term. At the end
of 1Q2014, total insurance premiums logged
an increase of 2% rising to $393 million when
compared to the previous year. By the end of
2014, premiums are expected to increase by
7%. According to Swiss Re’s annual survey,
Lebanon ranked fifth in the region and 46th
globally in terms of premiums generated,
with a haul of around $1.4 billion in 2013. Of
this total, 29.2% was in the life segment, and
the other 70.8%, or $983 million, was in nonlife. This constituted an increase of 5.9%, up
from $928.6 million in 2012. That said, the
overall growth of premiums was lower than
the 6.8% rate in 2012, and 7.5% in 2011. In the
non-life sector, medical insurance made up
the largest share with 29% of total premiums.
The other major non-life contributor was motor insurance on 23.9%.
Data published by Swiss Re at the close of
1H2014 showed that Lebanon ranked first in
the MENA region in terms of insurance penetration in 2013 with a rate of 3.2% of GDP. The
percentage was also a significant increase
over 2012’s 2.85%. The penetration rate broke
down to 2.2% in non-life business and 1% in
life. This announcement marked Lebanon’s
reclamation of first place from Morocco, as it
moved up two places on the global insurance
indices. Overall, Lebanon’s insurance penetration was twice the regional average of only
1.6%, which is well below the 2.7% average of
emerging markets. In terms of insurance density, the total for 2013 was $341, well up from
$302 in the previous year. These numbers put
Lebanon in fourth place regionally, and 50th
globally in terms of insurance density.
By the end of 2014,
premiums are
expected to increase
by 7%.
Medgulf held onto its market lead with
$115.8 million in non-life premiums for
2013, translating into a growth of 14.8% YoY.
Speaking to TBY, Lutfi F. El Zein, Chairman
of Medgulf, accredited the company’s market
position to rising demand for medical and
auto insurance in Lebanon. In second place,
AXA M.E. registered an impressive year-onyear increase of 24.4% to $94.8 million. A
broader view of the industry showed that the
top 10 companies in Lebanon accounted for
66.4% of total non-life insurance premiums
in 2013, whereas the joint share of the top 20
companies reached 85%. The remaining 30
plus companies held a market share of only
15%. Of the total insurance companies, only
five are dedicated life insurers.
Total Premiums Paid
(As a Percentage)
Motor Insurance 2013
(In US Dollars)
Source: ACAL
Source: ACAL
Life Insurance
29.2%
Compulsory 55,973,839
Medical Insurance
29%
Others
Motor Insurance
29.9%
Fire Insurance
7.2%
Workman Insurance 2.8%
Cargo Insurance
2.5%
282,692,150
Finance
These statistics must be considered in
conjunction with the overall makeup of the
regional insurance market. Compared to other countries, the Lebanese insurance market is small, accounting for only 5.3% of the
MENA region in 2012. For comparison, the
UAE accounted for 29.5%, and Saudi Arabia
accounted for another 19.9%. While market
dominance by major firms is the norm in the
global insurance business, a high prevalence
of smaller players in Lebanon is more common. In the case of Lebanon, local banks own
many of the large firms. The proliferation of
small firms is the result of low minimum capital requirements mandated by the insurance
law of 1999. And while $1.4 billion is substantial for a population of around 4 million, the
presence of over 50 insurance firms suggest
market saturation, which is prompting calls
for consolidation and the raising of the minimum capital requirements from $1.5 million.
According to the World Bank, the current
law has no sound basis for proportionate approaches to regulation, solvency and capital
regulation is outdated, and powers of intervention are insufficient.
The Lebanese insurance market and its
customers benefit from rigorous competition. While some companies are working to
attract customers through aggressive pricing
strategies, others are honing their customer
service skills and offerings, lowering interest
rates, and offering loyalty programs. Several major Lebanese insurance companies are
bank owned, allowing them to offer bancassurance, by using their branches as points of
sale. Bancassurance products allow customers to integrate their insurance coverage into
their overall financial management, while
banks cut out intermediary insurance salesmen. Competition is also expected to breed
mergers and acquisitions in the near future,
as Hala Haidar of AIG told TBY, “It is obvious
that the major companies are getting a larger
slice of the pie every year, meaning we need
to see more mergers and collaboration.”
Current implementation of reforms is also
sluggish. Implementation of the 2012 Traffic
Law that extends third-party liability to also
cover material damage, which, while enacted
into law, has yet to be fully put into practice.
In theory, the law is a boon for insurers. At
4Q2013, turnover for motor insurance was
$338.7 million, with compulsory insurance
contributing only $56 million to the total,
which is equivalent to 16.5%, according to the
Association des Companies d’Assurances au
Liban (ACAL). The 2012 law has the potential
to significantly grow compulsory insurance,
however these gains are not yet realized. After a clumsy roll out of the preceding 2003 law
for motor insurance, where weak regulatory
control and cash underwriting deficits led to
bankruptcy, the relevant bodies are circumspect. The National Bureau for Compulsory
Insurance (NBCI) is currently working with
the World Bank to set the optimal policy
pricing, coverage, and conditions, in order to
avoid the debacle of the previous decade.
Low barriers to entry and overcrowding
are also hurting the long-term prospects of
the Lebanese insurance industry. An updated insurance law that moves the industry
towards a more risk-based approach and
provides a more structured regulatory power
would bring the industry in line with international norms and practices. World Bank officials have proposed a series of steps toward
these ends starting with the development of
appropriate fiscal regimes consistent with
a competitive environment for savings and
development products, as well as those related to retirement savings. The same report
recommended new regulations that empower the Insurance Control Commission (ICC)
to develop and enforce proportionate rules
and supervisory practices that differentiate
between large and small insurers. This will
allow insurers that operate on the current
basic model to continue doing so if they desire, while recognizing those insurers wishing
to peruse more complex risks and business
opportunities. Of course, regulatory reform is
not a substitute for a stable business climate,
which hinges on factors beyond the control
of Lebanon’s industry and politicians, but for
now, insurers in Lebanon are cautiously optimistic. THEBUSINESSYEAR
57
The Lebanese
insurance market
and its customers
\_h_×n`liglcailiom
competition.
58
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
HUMBLE
SUCCESS
TBY talks to Lutfi F. El Zein, Executive President
& Managing Director of Medgulf, on the size
of the company across MENA, becoming a
benchmark, and training staff.
What is the overall regional size
of Medgulf in the MENA region?
Medgulf is one of the largest privately-held insurance
groups in the region. We
compete with other privately
owned firms, as well as publicly held firms. Over the last
few years, we have been constantly ranked among the top
three companies in the region. We are humbled by this
as we continue to diligently
grow our business platforms
across the entire region. Two
years ago, we broke the billion-dollar mark in gross written premium (GWP) terms.
Our strategic plan calls for targeted growth over the next few
years. This is a reflection of
our hard work and on market
recognition of the importance
of the insurance segment in
the development of the regional economy.
What have been your YoY
aliqnb×aol_m`il,*+-9
Our Group compound annual growth rate (CAGR) over
the last three years reached
16.5%. Our YoY growth has
varied from 13% to over 25%.
We expect that we will experience growth figures of around
15% over 2014.
BIO
Fon×@(?fT_chq[m\ilh
in 1943 and has a degree
in Economics from Saint
Joseph University in Beirut.
He is the Chairman of the
Board of Directors of the
Mediterranean & Gulf
Insurance and Reinsurance Company-Lebanon
and Bahrain. He is also the
Executive President and
Managing Director of the
Mediterranean and Gulf
Cooperative Insurance and
Reinsurance Company Saudi Arabia. In addition, he is
Chairman of the Board of
Directors of Addison Bradley and MediVisa Companies, and a member of the
British Insurance Brokers
Association. Furthermore,
he is a Member of the
International American
Insurance Association and
a Member of the National
Insurance Committee in
Saudi Arabia.
Why do you feel that many
companies look to Medgulf as
a benchmark insurance company?
We have worked hard for
many years to build Medgulf into an institution where
creativity and hard work are
synonyms, and where an entrepreneurial spirit thrives in
a model of corporate governance. We are transparent in
the way we do our business,
and we work every day to
strengthen our communications and brainstorming with
our regulators.
Which of your insurance services are in highest demand in
the region at the moment?
Medical insurance has been,
for the last few years, the fastest growing product in our
portfolio. But this is simply a
reflection of the market place.
Our motor insurance pool has
been growing steadily, also.
In addition, our engineering
segment has been performing
very strongly. Medgulf succeeded late last year in winning nearly three-quarters of
the Riyadh Metro contract, an
SAR100 billion project.
Medgulf states that part of its
mission is to restore the reputation of the insurance industry in
the Middle East. How successful
do you feel you have been?
This is a work in progress. I
believe that, to date, we have
been successful. We have
moved the perception of the
market place of the insurance
industry from being simply
a brokerage business to a full
understanding of risk underwriting. Insurance, as you
know, is an essential tool in
developing any economy. And
that is being recognized more
and more. Our work with the
regulators, in implementing
strict industry-wide controls,
has delivered nicely toward
strengthening our industry.
In addition, our consistent financial performance and our
strong capital base have dramatically improved customer
confidence in Medgulf.
Biq mcahc×][hn q[m nb_ j[lnnership between the IFC and
Medgulf in 2011?
In addition to being a financial giant, the IFC is the global
reference in corporate governance and compliance. We
were absolutely delighted that
it recognized our position as
leaders in the region in developing these management
tools. It has been key in helping us get stronger and better
in this area. In addition, and
due to the nature of their strategic interest in economic development, it is involved with
us in defining market and
strategic opportunities that
will strengthen Medgulf in the
near future.
In what ways are you trying to
restructure your manpower to
improve corporate governance?
We offer our associates education and training in insurance
programs from worldwide
institutions, such as from the
Chartered Insurance Institute.
We have introduced an internal program to cross train our
colleagues on all aspects of
our insurance operations in
order to encourage in-house
promotions. We are investing
heavily in bringing in outside
consultants to chaperone and
support this process. Finance
THEBUSINESSYEAR
59
INTERVIEW
global PLAYER
TBY talks to Hala Haidar, General Manager
of AIG Lebanon, on the changing Lebanese
insurance sector and AIG’s international
strategy and regional presence.
Could you talk about how the
×h[h]c[f ]lcmcm [``_]n_^ nb_
country?
What happened in 2008 affected the whole world. Firstly, AIG came out of the crisis
a smaller company; however,
we are nimbler, more solid,
and more regulated. We find
it a positive to become more
regulated. Secondly, the crisis
did not affect the insurance
companies and subsidiaries of
AIG, which honored all of their
liabilities vis-à-vis the policyholders. Thirdly, the US government provided financial
support to AIG because it had
faith that ultimately, it would
be beneficial to the global financial system as a whole. In
four years, we repaid the $182
billion loan, with a profit of
$22.7 billion. As a result, local
regulators are more confident
of our financial position and
acknowledged our commitment to the local market.
90
+
Years helping
people insure
brighter tomorrows
How did this affect the strategy
of AIG internationally?
How would you assess the mare_n`il×h[h]c[ffch_mchF_\[hih9
We honored our commitment
to the international community. We continued to provide our product innovation,
services, and expertise to our
clients and brokers and maintained our global footprint.
The operation in Lebanon
also maintained its position as
market leaders in commercial
insurance.
The market for financial lines
still needs further encouragement, because it is confined
to Bankers Blanket Bonds
(BBB) coverage for banks.
Other products, such as directors and officers, professional liability, and cyber, have
yet to develop. We won’t see
much activity unless there is
a requirement by law to buy a
professional liability or management liability policy.
How has your portfolio changed
over the past decade?
When we started in 2001, our
goal was to be a leading insurer in commercial lines. There
was a great need in the market
for expertise in commercial
lines, hence we decided to
support the market with lead
terms in the various business
areas that comprise commercial lines: marine, casualty,
property, energy, construction, and financial lines. We
are known for product innovation and are the first insurer
to offer cyber coverage.
AIG is a global insurer, and is a
great advocate of diversity and
inclusion. This is part of our
value proposition to our customers. The business model
that we follow varies and depends on the size and potential of the market. In Lebanon,
we look specifically at multinational clients, Lebanese
interests abroad, and the local
presence of a wide network of
Who are your other target clients?
Corporate clients, banks, financial institutions, investment bankers, high-impact
accounts, big projects in development, electricity, and
infrastructure are the main
areas we target. We benefit
from the global network of
Lebanese expatriates working
outside their home country. BIO
Hala Haidar has spent the
past 24 years in insurance.
She started her career with
the reinsurance company
Arab Re, and then moved
on to work with the international reinsurer, Cologne
Re. She has been with AIG
for 12 years. Currently the
Country Manager for Lebanese operations, she also
works on other regional
assignments. She holds a
BA Degree in Statistics and
Economics from the American University of Beirut.
115.1M
$
63,000
AIG employees
worldwide
How important is Lebanon for
the company’s overall presence?
regional brokers. We also try
to benefit from the Lebanese
diaspora abroad. In Lebanon,
there are around 4 million
people, but outside Lebanon
there are another 14 million
expatriates and their children.
one
Average property casualty
claims paid each
business day in 2012
130
World Trade Centre
rebuilding as
lead insurer
Countries where
AIG has clients
1.5B
$
Global Property
per risk capacity
People.
What’s behind AIG’s numbers?
Insurance isn’t about numbers. It’s about people. In our case, 63,000 people coming together to take
on the impossible challenges. Because we believe that with the right people and the right attitude you
can turn even the toughest today into the brightest of tomorrows. Learn more at www.aig.com
AIG is the marketing name for the worldwide property-casualty and general insurance operation of AIG Inc. All products are written by
insurance company subsidiaries or affiliates of AIG Inc. licensed to provide insurance in that jurisdiction. In Lebanon, all products are written by
AIG Lebanon SAL. Non-insurance products and services may be provided by independent third parties. All product descriptions in this
document are for information purposes only and should not be relied upon to justify coverage in any situation. The product(s) may vary from
country to country and may not always be available in each country. Scope and terms are subject to the terms & conditions of the policy which
are available on request. Nothing in this document constitutes legal advice. Please consult your legal adviser if you wish to receive legal advice.
60
THEBUSINESSYEAR
LEBANON 2014
VOX POPULI INSURANCE ANGLES
BACK UP IS HERE
Insurance companies are looking for ways to increase awareness
and education about their products as they look to increase
penetration and market share.
T
here is definitely better growth in the life
insurance business
than in the non-life segment.
With the struggling economy,
we foresaw that our retail business would decelerate, as we
experienced in marine cargo
a decrease in the sub-issued
component and it appeared
that more people were opening
letters of credit (LCs) for smaller amounts out of prudence in
a time of economic slowdown.
Marine cargo insurance tends
to follow the general economic
trend, and so we expect lower premium generation from
policies as customers are only
importing what they need for
a shorter time period, rather
than building up stock. On the
other hand, during periods of
drawback, people tend to save
by buying life investment products for essential needs, one of
them being education plans for
their kids. We have two young,
well-performing companies in
Egypt: AROPE Life Insurance
S.A.E and AROPE Insurance for
Properties & Liabilities S.A.E,
and once greater stability takes
hold we foresee solid performance. We offer the same
products and services in Egypt
as we do in Lebanon, including retirement and education
plans, as well as a raft of nonlife products.
MOHAMAD AMIN
DERIAN,
General Manager,
Al Aman Takaful
Insurance
I
FATEH BEKDACHE
Vice-‐Chairman &
General Manager,
AROPE Insurance
slamic insurance, or takaful, is the same as conventional insurance, with the only difference
being that at the end of year the profits are redistributed to the policyholders, whereas in conventional insurance profits are redistributed among the shareholders.
The main advantage of Islamic insurance is to achieve the
principles of cooperation among participants in Islamic
sharia principles of equality and integrity. That is the main
difference. Otherwise, the insurance process is almost the
same. Islamic insurance can be considered one of the largest growing industries in the world. We are working through
our own bank, Al Baraka. Although growth has been slow, it
is happening nevertheless. We are increasing our network
of brokers and offering more and more direct lines, which
creates a more personal relationship with customers. Our
customers and brokers prefer to work with Al Aman Takaful
because they see that we have better ratings, better services,
and better facilities. Working with brokers and attracting
the right ones is an excellent way to improve your exposure,
because they all bring with them a basket of clients they can
direct your way. Meaning if you can persuade the brokers of
the quality of what you offer and your services, then you are
thereby increasing your market share and exposure almost
directly. We prefer to deal mainly with small-to-mediumsized brokers, those who are interested in doing business
and getting their commissions, as opposed to large brokers
who impose their own regulations on the insurance companies, and even impose their own clauses. All in all, we have a
solid business plan, and we are expecting to see some good
results over the coming years.
Finance
THEBUSINESSYEAR
B
NAJI SULTANEM
General Manager,
VICTOIRE
A
t VICTOIRE, we leverage our experience, meaning we know
what to give our clients, and we know what they need or
don’t need. We have a close relationship with our clients,
which is essential if you are going to provide tailor-made policies and
products. We talk to them, listen to them, understand their needs,
and never impose ourselves upon them. Ultimately, our job is to provide options, and then it is up to the client to approve and go with it,
otherwise we change it until it has suited our clients’ expectations.
This approach has been a fundamental element of our growth, because back when VICTOIRE started off as a brokerage representing
other insurance firms, it was the investment from our clients that
enabled VICTOIRE to become a standalone insurance company.
In other words, our clients became our shareholders, and that was
simply because we had their trust, we had a partnership relationship
with them, and they didn’t think twice about becoming shareholders in VICTOIRE as a fully-fledged insurance company providing its
own policies. We are not owned by a bank, and we are not owned by
any leading financial or political interests in Lebanon. We have only
one focus and one interest: the business of providing insurance. VICTOIRE is a family-managed company, ultimately, and this is reflected
in the shareholders as well, which are the Sultanem family, the Rizit
family, and the Shamaoun family, among other smaller shareholders.
Though it is family managed, it is not family owned.
ancassurance is a specific business model
brought from the south of Europe, though it
has not taken off in the MENA region yet. Now
this model is spreading all over the world, in the South
and North of Europe, in Asia, and there are some reflector countries such as the UK, and the US. In the US, it has
changed; it is an interesting model that has become very
profitable. This is true in Lebanon as well. This is because
the only channel of distribution of bank insurance is the
bank, so there are no agents or brokers. Here in Lebanon,
three banks make up the capital of Bancassurance: Fransabank, BLC Bank, and Banque Libano-Française—three
powerful alpha banks. Bancassurance defines what products to implement and serve life insurance for the different banks. Bancassurance designs its products to respond
to clients’ needs, makes the actuarial studies, and also
negotiates with the reinsurer, meaning we have the full
package. This is why it is so successful. After, we sell life
products through the branches. In fact, the model is very
profitable because you sell at any branch for a much lower
cost. If you sell by a broker or agent then the commission
is very high, and if it’s at the branch the commission is low.
And for the clients, the model allows them to have all their
financial and insurance services answered at one place,
meaning the bank has bank become a “one-stop-shop.”
CHRISTIAN
BESSE
General
Manager,
Bancassurance
ALEXANDRE MATOSSIAN
Chairman & CEO, Al Mashrek Insurance & Reinsurance
I
61
n Lebanon the main two insurance
policies we sell are car insurance and
medical insurance; this is how you
penetrate the market initially. These are the two
basic forms of insurance that everyone uses in
Lebanon. When I say “car and medical,” they
represent about 60%-65% of the portfolio, while
the rest is general business. There are some
companies that only do life, but for us, the companies that work only in life are not as big as the
other insurance companies. Some of the companies that have banks on their backs get life
policies automatically. Whenever anyone takes
out a loan, they have to have life insurance as
well. Their life portfolio might be bigger because
there is a bank that is behind them. Each policy
that we have in this company is sold without a
bank’s assistance. This is unfortunate in Lebanon because the banks that own insurance
companies oblige you to go to one insurance
company and this is not professional. We are
trying to keep our prices competitive, but there
are some policies where I do not play with the
price. For example, third party bodily injury
(TPBI) motor insurance policy is one area we
do not play with the price. Actually, Al Mashrek
was the first company to create this policy in
Lebanon. My father created this policy with the
government and a single policy cost $50. Most
other companies played with the price; but we
didn’t. Today, those companies that sold the
policy at less than $50 are in big trouble due to
the accidents that are happening. The courts are
being more generous in compensation claims,
creating big problems for those who undercut
the standard rate. Many have now gone back to
$50, but there were four or five years where they
were playing with the price.
THEBUSINESSYEAR
66
68
70
The Minister of Energy and
Water on the prospects of
offshore drilling and the
potential for gas.
Managing Director of Total Liban
on the role the firm will play in
gas exploration.
Renewables are hot property
in Lebanon, with a number of
companies taking advantage of
the increased interest.
63
Energy
REVIEW
Strong oil prices are still affecting the cost of living for the citizens of
Lebanon, and renewables are expected to play a more important role in
the future of the country's energy matrix.
FILL HER UP
L
ebanon’s total petroleum product
imports in 2013
totaled 6.1 million
tons according to the Lebanese Association for Energy
Saving and for Environment
(ALMEE), slightly down YoY
on the 6.6 million imported
in 2012. Transport accounts
for the majority of consumption at 45%, followed by the
homes and services sector account for 30%, which leaves
industry to consume the remaining 25%.
Gasoil and diesel is imported in the largest quantity at
47% of all imported petroleum products, as it is used by
Electricité Du Liban (EDL) for
public sector electricity generation and the private sector
alike. This is followed by motor gasoline at 26%, the main
fuel of the transportation sector. The gasoline market in
2013 was above 1.62 million
tons alone, down slightly on
1.68 million in 2012. According to the Association des
Importateurs d’Automobiles
au Liban (AIA), cars account
for 86% of all vehicles on the
road, and Lebanon today has
While renewables represent an
increasingly attractive segment, oil and
gas will still remain prominent, especially
if offshore fields begin to produce results.
a total of 1.6 million vehicles
on the road, a rate of ownership of just three persons per
vehicle. This is followed by
fuel oil in third place, which
is used in power stations and
industry.
Lebanon’s total petroleum
imports represented no less
than 27% of the nation’s total
imports in 2013, down from
27.6% in 2012. A more concerning statistic is that EDL
spent a total of $2.03 billion
on fuel oil and gasoline, up
from $1.53 billion in 2012,
equating to more than onethird of the entire national
energy bill.
The energy bill’s gradual growth is due to steadily
increasing demand and the
price of oil rising nearly 40%
since 2008. Given the cost of
living crisis in Lebanon, passing this cost onto the average
consumer would be both untimely and unjust. Importers
stand ready to lobby the Ministry of Energy and Water on
the weekly prices of gasoline,
gasoil, and diesel, as well as
natural gas, in order to defend their own margins and
affordability for the consum-
64
THEBUSINESSYEAR
LEBANON 2014
er. This inevitably only increases the burden
of spending and hemorrhage of state revenues at EDL.
Switching to cheaper, natural gas for private
energy consumption had proved a promising
alternative and remedy following the completion of the Arab Gas Pipeline in 2005, a
1,200-kilometer pipeline constructed at a cost
of $1.2 billion. This line became operational
in November 2009 when the Syrian Petroleum
Company created an offshoot to start providing natural gas to Lebanon. The arrangement
came to a standstill in November 2010 due
to the uprisings in Egypt and the bombing of
the feeder pipeline in the Sinai. However, the
Lebanese government still has an ambitious
plan to construct GASYLE 2, a mostly offshore
pipeline to connect power plants located all
along the coast, at Zahrani, Hreiche, Zouk, and
Jiyyeh. The plans are currently on hold due to
the ongoing regional conflict. Lebanon’s insatiable desire for consumer goods continues to
push the amount of electricity required higher
and higher. According to the US Energy Information Administration (EIA), Lebanon’s demand for electricity is just above the regional
average at 3,500 kWh per person per year, compared to 3,250 kWh across the Middle East and
the 8,500 kWh average for wealthier member
nations of the Organization for Economic Cooperation and Development (OECD).
The market for gasoil and diesel, and its use
by the state and private companies—mainly
cement, metals, paper, glass, and ceramics industries that use the fuel for furnaces and boilers—has increased significantly. The private
sector’s consumption of diesel and gasoil has
grown exponentially, totaling 1.9 million tons
in 2012, up on 1.1 million tons on 2011, and
most recently 2.9 million for both public and
private in 2013.
This strongly implies the intensified smuggling of gasoil and fuel oil into Syria. Numerous upstream and downstream distribution
companies that TBY interviewed in 2014, as
well as the Lebanese Ministry of Energy and
Water, came under scrutiny in 2013 from the
UN Security Council and EU authorities for
their inability to prevent smuggling, following
sightings of Syrian tankers collecting red diesel from the Ministry’s refineries in Zahrani
and Tripoli. While the Security Council has
not prohibited Lebanon or any other country
from conducting such business with the Syrian regime, the Ministry of Energy vehemently
denied that gasoil and fuel oil was transported
to Syria for military purposes. There is a kind
of unwritten agreement between the public
and private sectors over who supplies which
petroleum products. The state exclusively imports gasoil and diesel for public sector power
generation, whereas private companies import fuel oil for industry, jet oil, and gasoil for
vehicles in the local market.
The formation of the Association of Petroleum Importing Companies (APIC) in 2007,
which is composed of 14 companies, serves the
very necessary purpose of uniting and regulating the private sector, particularly in regard to
product integrity and service in terminals and
petrol stations. The body also negotiates with
the administration on issues such as taxation,
pricing, and regulation.
In theory, any company can obtain importer status; however, this requires significant
investment in coastal terminals and infra-
COMING SOON…
When a 2010 study by the US Geological Survey reported considerable deposits of natural
a[mÊ[mq_ff[mmcahc×][hn[giohnmi`icfÊchnb_?[mn_lhG_^cn_ll[h_[hi``nb_]i[mnmi`
F_\[hih&nb_A[t[Mnlcj&Cml[_f&=sjlom&[h^Mslc[&nb_l_q[mal_[nijncgcmgnb[nnb_×h^
could help transform national economies. Lebanon’s government estimates that there are
potential natural gas reserves of at least 25 trillion cubic feet (tcf) or more located within its
i``mbil_n_llcnils(<on&ohncfgil__rjfil[ncihi]]olm&nb[n×aol_l_g[chmmj_]of[ncp_5cn]iof^
ch`[]n\_go]bbcab_l(Ih]_nb_×aol_m][h\__mn[\fcmb_^&nb_×h^qiof^acp_F_\[hihmcahc×][hna[ml_m_lp_m&jimmc\fsnb_+/th largest in the world, according to BP’s 2012 ranking of
world gas reserves. Naturally, there is keen international interest as well. Companies in early
competition for licensing contracts include oil and gas giants such as Chevron, ExxonMobil,
Inpex, Eni, Maersk, Petrobras, Statoil, Total, and Shell.
S_nmig_jli\f_gml_g[ch&[h^nb_m_b[p_f_^ni^_f[smch_rjficnchanb_×h^(Jifcnc][f
uncertainty in Lebanon has meant that it is currently unable to make key decisions, notably
on the demarcation of 10 offshore drilling blocks. Lebanon’s Minister of Energy and Water,
;lnbolH[t[lc[h&[hhioh]_^ch;oaomn,*+.nb[nnb_×lmnfc]_hmchalioh^qiof^\_^_f[s_^
for a maximum of six months until the government is able to meet and ratify a number of
outstanding points concerning tender protocols, block delineation, and a model for the exploration and production (EPA) agreement. The Lebanese government hopes to complete the
necessary early stage exploration and licensing procedures in the country’s territorial waters
by late 2014. The hope is that drilling can commence in 2015 or 2016.
SALAH
KHAYAT
CEO, Petroleb
What is the vision behind
Petroleb?
Petroleb is an independent, oil
and gas E&P company totally
owned by Lebanese shareholders and incorporated in 2011 as
a joint stock company. Its vision
is to positively contribute to
the development of Lebanon’s
economy and hydrocarbon resources, together with providing
investment and employment
opportunities for indigenous
Lebanese.
Petroleb was one of the few
Lebanese companies selected
among 34 non-operators. What
are Petroleb’s credentials?
Q_q_l_ko[fc×_^[m[hih'ij_lator right holder jointly with one
of our E&P partners (GeoPark).
We also built a technical team
to participate in a consortium
to bid on an offshore block in
the exclusive economic zone
(EEZ). Some of our people have
been working elsewhere with
major regional and international
oil companies. We also have academics, such as Dr. Naji Abi Aad,
who is a natural gas expert.
Qb[n\_h_×nm]ig_qcnb\_cha
a local Lebanese company in
the bidding process?
Being a local company brings
a number of advantages to the
company and its partners. These
include a thorough knowledge
of the country’s dynamics and
people, easier accessibility to
local resources and services,
particularly human resources,
and the ability to get those resources and services at a lower
cost, which makes the operancihmgil_jli×n[\f_(
Energy
Percentage Breakdown of
Oil Consumption 2012
Source: ALMEE
Transport 45%
Homes & Service Sector 30%
Industry 25%
Electricity Consumption
kWh per Capita 2010
Source: ALMEE
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
World
OECD
Non-OECD
Middle East
Lebanon
0
structure on appropriate coastal lands, which
few companies can afford, particularly given
increasing prices. The majority of the terminals with the largest storage capacities are all
located around Dora, including Uniterminals,
Medco, Wardieh, and Total, with respective
capacities of, 85,000, 65,000, and 54,000 cubic
meters.
The most significant way that importers
collude is to buy whole tankers on the international market, which enables them to get
more competitive prices and mitigate risk in a
very volatile market. The Lebanese importers
pay for these shipments with letters of credit.
Total is one of the companies leading the
fight against product contamination, particularly vigilant in ensuring that downstream
companies that bear Total’s brand sell the
agreed product. “We bring added value to the
end user by giving them not just the product
that the government is allowing us to sell, but
also an additive product. At our cost, we put
additives in our depot that bring additional
qualities to the fuel, which makes it better for
the environment and with less pollution to
the environment,” says Jacques Souplet, Director General of Total Liban.
Total have gone as far as investing in mobile trucks that drop by stations selling their
product to check that the product is genuine.
It is this kind of action from the larger importers and distribution companies that serves as
one of the strongest arguments for further
mergers and consolidation in a sector where
14 companies apparently leave great room for
unfair competition, particularly in regard to
under-the-table dealings with independent
and illegal stations.
Lebanon’s big four—Total, MEDCO, and
Hypco, and the most recent major player
Liquigas—are all undergoing rebranding
and diversification campaigns. Total is in the
midst of a massive international rebranding operation, for which Lebanon is an ideal
choice of location to implement their ethos
of transparency and more sustainable products, likewise local companies such as Hypco
are modernizing the brand and attempting
to move away from being perceived as solely a commodity-focused companies to service-orientated brands.
The oligopolistic structure of the sector means that whether these companies
rebrand or not, they are equally likely to
maintain their market share. Cartelism and
price collusion does not seem to be present amongst the leading importers; this is
not; however, to say that the competition
is necessarily fair. “Until now, you can say
that there is no true cooperation between all
importers—they sit, they talk, but they give
you a discount under the table,” says Jihad
Zouhairy, the General Manager of leading
distributor Cogico.
THEBUSINESSYEAR
65
It could be high time for consolidation
amongst Lebanon’s APIC members, especially given that several have bid for non-operator rights in Lebanon’s ongoing tenders for
oil and gas exploration. Following Lebanon’s
fifth consecutive delay in the bidding rounds
for operator and non-operator rights of its
five open blocks for petroleum exploration,
onlookers may not be surprised by a sixth or
seventh delay. The two pivotal laws are those
related the block delineation and the model
exploration and production agreement, both
of which for a variety of reasons have been
subject to extreme political polarization.
Meanwhile, Lebanon has made solid progress with its pledge to generate 12% of its energy via renewables by 2020. To date, Lebanon
generates around 5% to 6% of its electricity
from renewable sources, namely hydropower,
solar thermal, and recently solar photovoltaic
systems. If wind farm projects turn into reality
soon, the 12% target could be easily exceeded.
According to experts, the capacity for more
dams for hydroelectric purposes is low, as
few geographic locations are ideal for rapidly
channeling water to generate such an amount
of hydro-electricity. The jury is still out on
whether either of these forms of renewable energy are really capable of generating a quantity
of 500 MW. The main challenge will be first to
attract the investment. JIHAD
ZOUHAIRY
General
Manager,
COGICO
In terms of the market for the
importation of different oil products
in Lebanon, 2010 was good and now
the market is stable. There is an
understanding among the importers
and it all depends on the three major
players—Hypco, Total, and MEDCO.
One new player, Liquigas, has entered
the game, and although its storage is
limited, it can compete with the big
guys and offer some good prices. But
until now, you could say that there
was no true cooperation.
66
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
gassed up
& READY
IN NUMBERS
Ministry of
Energy and Water
TBY talks to HE Arthur
Nazarian, Minister
of Energy and Water,
on the prospects for
offshore drilling and
the potential for gas to
change the face of the
economy.
What prospects are there for
offshore hydrocarbon drilling?
Advanced seismic surveys
have been conducted offshore. The interpretation of
this data is ongoing, resulting
in very promising prospects
for hydrocarbon resources
spread over the whole offshore, extending from north
to south and from shallow to
deep waters. These surveys
provide excellent estimates
of the hydrocarbon reserves;
however, they need to be confirmed through drilling wells.
Accordingly, the bidding
round needs to be concluded before an exploration and
production (E&P) agreement
is signed to initiate the exploration activities.
What infrastructure needs to be
further developed to fully ben_×n `lig nb_ jli]_mm [h^ _h^
goal of extracting petroleum?
The current plans of the
Ministry to build the floating
storage and regasification
unit (FSRU) and the coastal
gas pipeline are vital for the
supply of gas to the power plants and local industry
until the offshore gas is extracted. The coastal pipeline
will be used for the transportation of offshore gas once
produced. In addition, based
on the size of the discoveries
to be made, as well as the
market options, additional
infrastructure needs to be
built. This will be detailed
in the development plans to
be prepared after discoveries
are made and assessed.
How will the development of
Lebanon’s oil and gas industry
\_h_×nnb_F_\[h_m_j_ijf_[h^
the international community?
The oil and gas industry will
have direct and indirect benefits to the national economy. The direct investments
will boost the local economy,
which will provide the goods
and services needed by the
IOCs and provide new employment opportunities for
the Lebanese youth. The Ministry and the Lebanese Petroleum Administration (LPA)
have put in place a strong policy for local content, whereby
IOCs are required to employ
up to 80% of Lebanese nation-
Target for renewable
energy use by 2020
12%
als in their workforce. This
target is to be met gradually.
In addition, goods manufactured in Lebanon will have a
5% cost incentive, and 10%
for services provided by Lebanese companies. The benefit
during exploration and production is vital in order to ensure that foreign investment
benefits the local economy.
Lebanese gas will boost the
industrial sector by providing a secure and affordable
source of energy. Currently,
the energy bill represents a
burden, hindering the growth
of local industry. In addition,
petrochemical industries and
industries with high energy
demand will have an opportunity to grow and prosper, thus
providing new sustainable job
opportunities. The availability
of Lebanese natural gas will be
vital to secure a clean affordable energy source to generate
electricity. The Ministry’s plan
is to have all existing and new
power plants operate using
natural gas. This will cut the
energy bill of Electricité Du
Liban (EDL) and thus ease the
budgetary deficit.
Is Lebanon on track to meet its
targets for renewable energy by
2015?
Back in 2009, the Lebanese
government committed itself
to reaching 12% renewable energy use by 2020. The Ministry
of Energy and Water, through
the work of the Lebanese Center for Energy Conservation
(LCEC), has launched different initiatives toward achieving this challenging goal. Currently, 5%-6% of Lebanon’s
electricity generation comes
from renewable energy sources, namely hydropower, solar
thermal, and recently solar
photovoltaic systems. Should
the wind farm projects became a reality soon, the 12%
target could be easily achievable. BIO
Arthur Nazarian was
born in Beirut in 1961 and
studied Textile Engineering
in the US. He is active in the
trade and industry sectors,
owning several companies
in the Gulf. Previous governmental positions have
included serving as Minister
of Tourism and Environment. He was elected as a
deputy in 2009.
Energy
THEBUSINESSYEAR
67
INTERVIEW
What is the current status of the
two decrees relating to the delineation of the offshore blocks
and the model exploration and
production agreement?
We are waiting for the Council of Ministers’ approval for
the two decrees. One of them
relates to block delineation,
and the other to the draft
exploration and production
agreement (EPA). In April
2013, the Council of Ministers
formed an inter-ministerial
committee. We had questions about the autonomy of
the Lebanese Petroleum Administration (LPA) and how it
can be improved. Other questions were more technical,
mainly about the management of the EPA because we
do not have a national petroleum company yet, and about
how Lebanese interests can
be protected. The LPA’s powers and responsibilities can
be improved parallel to the
development of the upstream
(exploration and production
[E&P]) sector. Stopping the
current bidding process until more powers are given to
the LPA would not be fruitful.
Having more autonomy and
developing the upstream sector can be done in parallel.
Why are there 10 blocks and not
16 or 20?
The LPA divided the Lebanese
offshore into 10 blocks based
on geophysical seismic surveys that covered the whole
offshore. We tried to have
equivalent blocks in terms of
surface area and potential.
Then, we took into account
the fact that we do not have
any oil and gas infrastructure in Lebanon. Upstream
companies working in Lebanon will have to make huge
investments to build what is
required, including all types
of facilities. We cannot attract
them if the block size is any
smaller; bearing in mind that
Lebanon is still considered
virgin territory in terms of the
upstream industry. The average block size in offshore Lebanon is around 1,700 square
kilometers, which is less than
in the Syrian and Cyprus offshore areas, where it is around
bring on THE GAS
TBY talks to Nasser Hoteit, Board Member
& Head of Technical and Engineering of the
Lebanese Petroleum Administration (LPA), on
developing the role of the LPA and Lebanon’s
upstream sector in parallel and steps to ensure
the Lebanese workforce has the necessary skills
to contribute to the E&P sector.
3,000 square kilometers. Once
the exploration well results
are available from the first
round, the LPA will redo its
geophysical interpretation for
the whole offshore. Then, we
might propose smaller blocks
for the second bidding round,
if we manage to use facilities
already developed during the
first round.
How many blocks are currently
open for bidding?
We have five blocks currently open: two in the north and
three in the south. We will
decide if we will open more
or less in the near future. We
believe it is wiser to award a
limited number of blocks in
the first round.
Is there a strategic plan to
draw investment into Lebanon
separate from the bidding process and interest by the multinationals?
A strategy will be drawn up
once the exploration well results are available and proven
discoveries are announced.
Our vision for the petroleum
sector covers both upstream
and the petrochemical industry. For upstream, field
development and facilities
construction will bring investment. Lebanese SMEs will
play a role in covering the upstream value chain: services,
catering, logistics, transport,
E&P, and construction. They
will be encouraged by the
preference we are giving to
local enterprises. Petroleum
companies will be required
to subcontract to local en-
terprises that have the same
technical level as their foreign
equivalents, even if they are
5% to 10% more expensive.
Plus they will be required to
hire more than 80% Lebanese.
On the other hand, we are
studying the possibility of developing LNG facilities to feed
the Asian market. Of course,
we will require more than 8 tcf
to 10 tcf for plants to be built.
The petrochemical industry
is a significant potential job
creator in terms of plastics,
fertilizers, and so forth. We
are working with the Ministry
of Industry to see how petrochemical industries can be
developed in the country.
How have you decided on appropriate royalties to be taken?
Our model is a standard production sharing agreement
(PSA). Profit is shared between
companies and the state, after
deducting royalties and capital expenditure (capex). The
government take includes
royalties, profit sharing, and
taxes on company profits. For
royalties, we are proposing 4%
on gas, as we are in the first
bidding round. This value can
increase in the second bidding round.
What other kind of infrastructure do you want to see in anticipation of exploration, perhaps
in education or other programs?
First of all, a new land use law
adapted to the upstream and
petrochemical industry will
be adopted to establish where
petroleum facilities will be
installed, including services
bases, gas or oil terminals, and
processing and petrochemical
plants. In higher education,
the LPA has done a great job
with the universities in terms
of awareness. Five universities
have opened petroleum-engineering classes with all the
specialties covered including
geology, geophysics, production, and processing. BIO
Nasser Hoteit graduated
from N. Polytechnic School,
HEC-Paris, and the Grenoble Institute of Technology.
He has been involved in
the energy industry since
1984 and has occupied
various positions in both
international nuclear, and
oil and gas companies. His
activities encompass offmbil_^_p_fijg_hn×_f^m&
geosciences, and gas plant
development. From 1984
to 1994, He was involved in
R&D and offshore engineering for the petroleum industry. Subsequently, from
1994 to 2004, as head of a
geosciences department,
he was involved in extensive geophysical surveys
and exploration drilling
programs around the world.
From 2004 to 2013, he was
the technical authority for
the development of gas and
LNG plants in several countries. He was appointed as
a member of the Lebanese
Petroleum Administration
in December 2012.
68
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
at the PUMP
IN NUMBERS
TBY talks to Jacques
Souplet, Managing
Director of Total
Liban and Total
Group Representative
in Lebanon, on the
role the firm will play
in gas exploration.
How do you set the standards in
the market?
What have been the main ways
Total has positioned itself for
the impending offshore exploration in Lebanon?
Total has been present in Lebanon for 63 years now and has
built a strong marketing base
in the country. Despite the
unstable situation and all the
difficulties faced during the
15-year civil war, our company decided to stay and continue its mission in the country
by maintaining its activities
and local workforce, making
us the only major international company aiming at building a long-term relationship
within the land of the cedars.
In the past, most of our international competitors decided
to leave the country because
of the situation. However, our
presence, extending for more
than half a century, reveals
our commitment, as one of
the world's largest oil groups,
to this country. Total is one of
the 12 companies that have
been prequalified as an operator for the first offshore exploration round. In line with
our long presence and commitment to Lebanon, Total
is willing to help the country
with its worldwide deep offshore experience.
As far as marketing and distribution are concerned, we
have no choice; we have an international standard that we
need to follow and it applies
to Lebanon just as it would in
any other country. As far as the
environment is concerned, we
implement extremely high
standards when we set up a
service station. Our service
stations are equipped with
spill collectors on the forecourt and at the level of oil
change and car wash facilities, designed for collecting
hydrocarbons, spilled water,
and oil in order to ensure a
proper disposal system. It is a
costly investment and invisible when you visit the service
stations, but it is there and a
factor that differentiates us.
Moreover, when it comes
to energy savings, we try to
reduce the consumption of
electricity at our service stations, which are equipped
with LED lighting that reduces energy consumption by up
to 80%. We position ourselves
as an energy company. Total
is also a global gas and petrochemical operator. Today,
in response to soaring energy
demand, Total is stepping up
its expansion into solar and
biomass. Going forward, the
group’s mission is to enable
as many people as possible to
access energy. To do that, Total is counting first on oil and
gas and activities in renewable
energies. That is why, some
Total Liban
Stations under direct
control
40
years ago, we acquired 60% of
SunPower, one of the largest
solar panel company in the US
and the world's most efficient
solar panel technology.
How are you diversifying your
goods and services?
It is all related to consumer satisfaction and what the
consumer expects from our
stations. We offer additional
services to fuel at our service
stations. We aim at applying
the one-stop shop concept.
Total offers its customers a
Branded service
stations in Lebanon
180
Years present in
Lebanon
60
BIO
Jacques Souplet joined
Total group in 1993 after
obtaining a Master’s degree
in Marketing and Business
Administration in Paris in
+322[h^a[chcha×p_s_[lm
of experience in a family
business. He was appointed
Managing Director of Total
Liban in November 2009,
following four years in
the UAE as head of Total
Marketing Middle East in
Dubai and other various
positions within the Group
in Paris and Asia. He is the
Representative of the Total
group in Lebanon, a French
Foreign Trade Advisor
(CCEF), and a member of
the Board of the Movement
of French Enterprises and
Economic Representation in
Lebanon (MEREF).
wide range of products and
services. Thus, when the customer visits the service station, we provide attractive
promotions in our Bonjour
stores, and even the option to
play the Lottery. In addition to
being enjoyable, our service
stations are also efficient since
they are equipped with automatic car wash and oil change
facilities,
ATM
services,
money transfer, and mobile
phones and internet recharge
cards. Now, all over the world,
Total displays its new visual
identity within its network of
service stations to ensure its
customers comfort and safety
by providing quality service
and an unmatched range of
products and services. As a
leader in the market, we have
to provide what we feel is best
to the customer. Energy
THEBUSINESSYEAR
69
BEIRUT RIVER SOLAR SNAKE PROJECT FOCUS
AT ITS 2003 EOI LAUNCH, Pierre El
Khoury, Director of the Lebanese Center for Energy Conservation (LCEC), declared the Beirut
River Solar Snake (BRSS) Project to be “a landmark to initiate a national momentum towards
the implementation of solar technologies for
electricity production.” The 10-phase project
costing an estimated $40 million involves covering a 7-kilometer section of the Beirut River
with solar panels ultimately capable of generating 10 MW of power, and clearly signals the
Lebanese government’s commitment to renewable energy solutions. The government’s
target is in fact for around 12% of renewable
energy resources in Lebanon to reach the grid
by 2020. And the LCEC believes that with the
involvement of the private sector the national
target of around 200 MW of solar farms by 2020
can be met.
RIVER
of the sun
An ambitious new
solar project looks
to turn around the
fortunes of the Beirut
River and generate
much needed
electricity for a powerhungry economy.
The BRSS Project, the largest photovoltaic
(PV) project in Lebanon, is currently in its first
phase, involving the construction of a 1.08 MW
capacity PV Farm funded by the Ministry of
Energy and Water through the LCEC. Joint venture partners Phoenix and ASACO were awarded Phase I of the project, which is on target for
commissioning before March 2015. Rabih N.
Osta, Area General Manager for Phoenix emphasized “In PV, we are working closely with
our partners … to provide the most optimized
solution with the best ratio of quality versus
price. Our objective is to provide an ecological
and economically suitable solution.” Electricity generated by the BRSS solar farms will be
handed over to Electricité du Liban (EDL), the
operator of the national grid. The subsequent
phases in the project to take generation capacity up to the full 10 MW target will be carried out
over the next five years, with final ownership
of the resource going to EDL at the conclusion
of the project. Ultimately, it is expected that
the scheme will provide electricity for 10,000
houses. Ramzi AbuSaid, Managing Director of
ASACO for Lebanon commented to TBY that,
“Lebanon is the ideal solar market given the
electricity sector production deficit. Blackouts
may well be expected for the coming few years.
The industry is dependent on private generation, mainly using costly diesel. People are now
getting to know the benefits of solar energy.”
The project has more than just clean energy as a positive externality. Severe pollution of
the Beirut River caused by both domestic and
commercial waste is a significant environmental problem for the city and surrounding area.
Arguably the BRSS Project could also have a
role to play in improving the general health of
the waterway, or at least in preventing further
harm to some sections of it. In the first instance
because the solar panels will cover the river using a suspended design that does not touch the
water, there should be less water evaporation.
The whole project area will also be surrounded
by fences and backed up by security services,
meaning in theory there could be a decrease
in fly-tipping into the river. The LCEC has also
suggested that the solar farms will give a better
look to the much-neglected watercourse, thereby giving an additional environmental benefit
to the residents of Beirut in the near future. 70
THEBUSINESSYEAR
LEBANON 2014
B2B RENEWABLES
the
RIGHT
gear
RABIH OSTA
RAMZI ABUSAID
Area General Manager,
Phoenix Group
Managing Director,
ASACO
Renewables are hot property in Lebanon right
now, with a number of companies taking
advantage of the increased interest.
What unique products do you
i``_lchnb_l_h_q[\f_m×_f^9
RABIH OSTA We are involved
in solar water heaters, and have
worked for many years with a
company based in the Netherlands that has a unique product. This is the only product
actually on the market that is
provided with a 20-year warranty from us, and we work
hard to promote this product
in Lebanon. While our competitors may offer cheaper products, we have looked to deliver
quality products able to last
for 20 years. Meaning, we took
a different strategy in our marketing and it was successful. In
2011, the number of solar water
heaters that we sold in Lebanon
was a record for our agents and
we acquired the company in
2013 and relocated the production line to Lebanon.
RAMZI ABUSAID We were one
of the pioneers of the solar segment, before renewable energy
was much considered. At that
time, solar energy was extremely expensive, and investments
largely came from environmental enthusiasm. Yet, while businesses may be environmentally
friendly, project feasibility is
always key to an investment decision. In the late 1990s, alternative energy was predominantly
derived from hydro, wind, and
biomass, but progressed mark-
edly when the price of solar
electricity generation declined,
prompting further investment.
In 2006, this segment of the energy matrix had very few local
competitors in Lebanon. I recall
that back in 2007 or 2008 there
were only three companies
competing for one UN tender,
including us. The others were
even involved in the solar-thermal business and this project
was the first photo.
Qb[nmcahc×][h]_^i_mnb_<_crut River Solar Snake (BRSS)
project hold?
RO We recently won the tender for the BRSS, which is the
largest photovoltaic project in
Lebanon and involves placing solar panels all along the
Beirut River. We are working
jointly with ASACO and Yingli, which are our partners. Actually, we are at the assembly
phase on site. It should be
complete by end-2014, when
everything should be installed
because commissioning is
scheduled to finish by the end
of February 2015.
RA We won a project some
months back, which is also
the largest in Lebanon so far,
namely the BRSS project. The
1-MW capacity scheme involves lining the Beirut River
with solar panels. We won the
project, valued at $3.8 million,
in a joint venture and consortium with Phoenix Machinery
and Dalal Steel.
What potential does solar energy have overall?
RO I think the National Energy
Efficiency and Renewable Energy Action (NEERA) program
is a major driver for the renewable energy sector in Lebanon,
and without this we would not
have been able to work on a
project like the BRSS, and we
would not been able to install a
lot of biomass boilers because
people in Lebanon are looking
for a quick payback solution.
RA Lebanon is the ideal solar market given the electricity sector production deficit.
Blackouts may well be expected for the coming few years.
The industry is dependent on
private generation, mainly using costly diesel. People are
now getting to know the benefits of solar energy. THEBUSINESSYEAR
74
76
77
Fady Gemayel on long-‐
term growth, international
partnerships, and Lebanon’s
private sector.
TBY talks to two industry
insiders on what makes
Lebanon a good place to
conduct business.
Dalal Steel Industries is more
resilient, widespread, and
successful than anyone could
have imagined.
71
Industry
REVIEW
Lebanon’s industrial sector is rapidly increasing trade links abroad and
continues to benefit from subsidies from the central bank.
TOOLS ON THE TABLE
L
ebanon has historically, been capable of manufacturing excellence in
a variety of sectors from the
paper industry, chemicals,
and silverware, to medical
supplies, and agro-industry
products; the list is long and
impressive. Many industrial family holding groups are
present not only all over the
Middle East, but are active
all over Africa, often running
power stations. Groups such
as SACCAL and Sakr manufacture and assemble electrical generators and electrical distribution systems and
supply transformers that are
set up as far away as Disneyland Paris.
Industrialists have fared
surprisingly well in Lebanon over the last few years,
considering the increasing squeeze on operational
costs. This negative impact
of the Syria crisis was partly
offset by Lebanese industrialists seeking to fill gaps in
the Syrian market. In 2013,
exports through Syria as a
percentage of GDP declined
YoY from 2012 by 1.8% to
A lack of electricity generation
capacity is hampering Lebanon's
industrial development. However,
the country looks to overcome these
challenges and continue its growth.
1.3%. Yet, imports of industrial equipment increased
to $300.4 million in 2013, a
rise of 4.3% YoY on 2012. Industrial exports on the other
hand increased 4.2% from
$2.95 billion to $3.08 billion
over the same period. Lebanon’s industrial net exports
are representative of the
country’s industrial innovation and adaptability, which
has only increased during
times of hardship, including
over the last three years.
According to statistics reported by the Association
of Lebanese Industrialists
(ALI), Lebanon’s most exported items were $527 million of base metals (17.14%),
$508
million
machinery
and mechanical appliances (16.51%), $425.8 million
foodstuffs (13.84%), $355.9
mineral products (11.57%),
$329 million of chemical
products (10.7%), $175.2 million of paper and cardboard
(5.7%), 155.8 million pearls
and precious stones (5.1%),
and $144.2 million plastic
products (4.6%).
Given Lebanon’s strategic
proximity to Europe, Asia,
72
THEBUSINESSYEAR
LEBANON 2014
and Africa, the footprint of Lebanon’s industrial exports is gradually expanding. Lebanon’s
top five main export destinations for industrial
products during 2013 were Syria with $482.7
million (15.6%), followed by Saudi Arabia at
$331.4 million (10%), the UAE at $270 million
(8.8%), Iraq at $254 million (8.3%), and Turkey
accounting for $175.3 million (5.7%).
Lebanon’s central bank, the Banque du Liban (BDL), regularly tries to gauge opinion in
the industry, and evaluate public opinion in
terms of activity of the industry. Although at
the time of printing no data from BDL’s business survey from 2014 was available, it is apparent from looking at 4Q2013 statistics that
there was a deterioration in relative terms,
with a balance of confidence standing at -4
compared with a +5 in the preceding quarter,
but that had slightly improved from -8 during
the same quarter of 2012. The balance of opinions was the lowest in the north, Beirut, and
Mount Lebanon at -13 each.
The surveys are undertaken by enterprise
managers on the evolution of their businesses, looking at the most significant indicators:
total demand, foreign demand, and volume of
investments, among others.
FRAMEWORKS
ALI has been lobbying tirelessly and smartly
in Lebanon to defend the interests of its members and the income they generate domestically and internationally. The competitiveness
of Lebanese industry in local and global terms
has been put to the test over the last couple
of years with the establishment of different
geographical zones, and syndicates, by the
industrial sector. “We have subgroups, one
for geographic and one for sectorial activity…
this was [due to] a long-lasting demand from
various sectors,” explained the newly elected
President of ALI, Fadi Gemayel. Lebanon’s
industrial sector is one of the sectors that has
been the most affected by the deadlock of the
political system. “We have had strong support
from the ministers, all of them, but nevertheless, there is no clear industrial policy. We are
interacting concerning various issues; for example, the government has given soft loans to
industry,” Gemayel opined. ALI has recently
been embroiled in a debate regarding what its
members consider to be the state’s excessive
duties on imports and exports. After years of
deliberation, the group successfully lobbied
for a 50% discount on taxes related to exports;
these, in addition to the BDL’s 5% subsidies
for any industrial investment, are some of the
tenets of support that are enabling Lebanese
industrialists to open up new markets.
Top 10 Export Items In 2013
(In Millions)
Source: ALI
ASAAD SACCAL
Managing
Director, SACCAL
Industries
Base Metals
Machinery & Mechanical
Appliances
Prepared Foodstuffs
Mineral Products
Chemical Products
Paper & Cardboard
Pearls & Precious Stones
Plastic Products
Textile Products
Gypsum Stone Products
$527.2
$508
$425.8
$355.9
$329
$175.2
$155.8
$144.2
$121.4
$42.6
The industrial sector in Lebanon was actually one of the first to start vocally asking for
assistance from BDL, and has benefited a great
deal from the central bank’s stimulus packages, which started in the paper sector three
years ago.
Regardless of the lack of an updated regulatory framework and the low level of governmental support, investment in Lebanese
industry has steadily increased, “the previous
authorities had a program of soft loans to industry since maybe 10 years ago. This has
played a very important role because if you
look at the growth of our exports since 2005,
they have more than doubled. This has been
very productive in consolidating the industrial
base and increasing exports and local output,”
Gemayel commented.
Lebanon’s industrial sector shows high investment potential, and it would be significantly higher if it weren’t for sky-high operating costs for energy-intensive industries.
What are the most iconic
projects you have completed in
Lebanon?
We have executed private power
plants for all of the major malls,
hotels, and hospitals in the
country. For the government, we
have not done anything, because
it hasn’t invested in the sector.
In the 1990s, the government
invested in large power plants,
and we participated in this;
however, now it does not. The
government offered one tender
recently, but no Lebanese company was invited to submit a bid.
It only invited foreign companies
to construct a power plant in the
north of Lebanon near Tripoli,
which was won by the Greek
company J+P AVAX, and GE of
the US for some $470 million.
Qb[nq_l_nb_[hho[f×aol_m
for SACCAL as a group over
2013?
Our yearly group turnover is
$105 million. Most of our turnover is not in Lebanon, though.
It is mainly in Africa. Lebanon
represents maybe 20%, with
the remaining 80% coming from
outside of Lebanon. Lebanon is a
small market.
Do you foresee that your ratio
of international to domestic operations will gradually change
in favor of Lebanon?
I don’t think so. Our group is
growing fast outside the country,
as a percentage. However, our
operations will grow in Lebanon
because we entered the contracting business, and this is a
major step forward.
Industry
73
3200
$300
3100
$200
3000
$100
2900
$0
2800
Syria
$400
Saudi Arabia
3300
UAE
$500
Iraq
3400
Turkey
$600
Jordan
Source: ALI
Korea
Source: ALI
Qatar
Annual Industrial Exports
(In Billions)
US
Top 10 Export Countries In 2013
(In Millions)
Kuwait
Indeed, competing with regional powerhouses Egypt and Turkey is even more challenging
as both these countries have subsidized fuel
and electricity for industrial purposes. Lebanon still faces a major shortfall in terms of
electricity generating capacity, with scheduled blackouts still affecting the country at
large, meaning that energy-intensive industries need to establish their own generators.
However, should the natural gas deposits
found off the coast of Lebanon be successfully
brought into its energy matrix, this situation
may turn around in favor of not just industrialists, but the country at large.
Yet, the current strength of Lebanon’s economy as a whole, particularly the assets held in
the banking sector and GDP per head standing at $10,000, compounded by the assistance
provided by the BDL, have played a fundamental role in allowing Lebanon’s industrial
sector to maintain a cautious growth path.
ALI, through its newly elected board in May
2014, seems to be heading a general call for
public policy change that encourages investment in more productive areas of industry.
A key way that ALI intends to do this and simultaneously enhance the competitiveness of
Lebanese industry is to utilize the full breadth
of the country’s trade links, human capital, innovation, and determination to boost growth.
“The economy depends on the private sector
THEBUSINESSYEAR
2011
2012
2013
and we want to put in motion the synergies
between success stories of the Lebanese, like
in design and fashion and software,” stated
Gemayel. “I am sure that the Lebanese industrialists are solid partners and Lebanon
can be a hub for production of value-added
products.”
Time will tell how successful ALI’s strategy
of introducing more modern industrial products and promoting synergies between Lebanon’s different industries can be. ZIAD BEKDACHE
General Manager, Oriental Paper Products (OPP)
How would you describe your current export
markets?
There are many successful industries in Lebanon,
and lots of exports that we are proud of. But,
unfortunately, the volume aggregated is still not
mo`×]c_hn(Iolg[chjli\f_gch_rjilnchacm×h^cha
h_qg[le_nm(<l[h]bchaionip_lm_[mcm^c`×]ofn
and expensive. For example, attending an exhibit in
Europe could cost between €24,000 and €50,000,
while conducting a feasibility study in foreign
countries is also costly. Elsewhere, it is easier. For
example, any French producer can ask a French
embassy somewhere in the world to carry out a
feasibility study for its product for a mere €2,000.
Our ambassadors in foreign countries have never
tried to help our local industry in exploring new
markets. But recently, Foreign Minister Gebran
Bassil, to whom we are thankful, invited 60 Lebanese ambassadors and consultants to come to
Lebanon to assist in a workshop conducted by the
Lebanese Franchise Association (LFA), and called
it “Economic Diplomacy.” We are hoping this will
boost Lebanese exports.
How does your global presence help your operations?
Should we get our government’s help, our exports
qcffch]l_[m_mcahc×][hnfs(CnbcheF_\[h_m_
industry could easily compete with the Far East,
for example. Oriental Paper Products (OPP) offers
fi][fg[ho`[]nolcha[h^jli^o]ncihØ_rc\cfcns[n
competitive prices. Our quality and designs are of
high standards; we follow European norms.
Do you plan to increase your sales to Europe?
OPP has had a new partner, PH Holding, since
2012. This partnership has increased capital and
introduced more sophisticated machines. Our target now is to increase our local sales and exports
by 15% in 2015.
74
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
march of the
MACHINES
TBY talks to Fady Gemayel, President of the
Association of Lebanese Industrialists (ALI), on
long-term growth, international partnerships,
and Lebanon’s private sector.
IN NUMBERS
What have been the most significant achievements of the Association of Lebanese Industrialists (ALI)?
Lebanese industry is driven
exclusively by the private sector. The association is defending the general interests of and
representing the industralists.
We are also trying hard to
boost industry’s role in the
Lebanese economy. Among
the most recent achievements
of our previous board headed
by Neemat Frem was the establishment of four industrial
zones across Lebanon. This
was a long-lasting demand
from various sectors. We are
interacting with the Ministry
of Industry and with government officials to solve specific
problems, and to promote an
overall industrial policy for
the benefit of the sector and of
the economy. As part of a free
market economy, we are always trying to put forward the
role of industry, particularly in
development, growth, and job
creation. Although public policy does not envision a clear
industrial plan, despite the
great efforts of all ministers of
industry of recent years, ALI
has been proposing suggestions and concrete measures
both to tackle specific issues,
and provide a building platform for an industrial and
economic plan. ALI is interacting with governmental
bodies and non-governmental institutions that can play a
role in industry. For example,
the central bank has been offering loans preferential terms
for capital investments.
Association
of Lebanese
Industrialists
(ALI)
What have been the most active
committees within the ALI over
the past year?
ALI has three councils and 15
committees, each dedicated to a specific topic. In view
of what is happening in the
country, and in order to avoid
further economic decline
caused by the regional turmoil, we have focused lately
on economic policy. We have
proposed mechanisms and
economic stimulus measures,
as has been seen elsewhere in
the world. We called to inject
3% of the GDP, hence $1.2
billion, into the whole economy, and across all sectors
of activity. We have also put
forward what is needed for
industry in particular. These
demands began in the paper
sector three years ago. The
validity of this suggestion has
been confirmed by the fact
that the Banque du Liban has
launched a financial stimulus
package worth $1.4 billion.
How did you transform the stimulus package into long-term
growth?
Measures were taken by various industries. Some of the
financing was dedicated to industry, specifically. This package has ensured that viable in-
ALI established in
1942
BIO
Fady Gemayel is currently
Chairman & General Manager at Gemayel Freres, a
family-owned corrugated
cardboard and packaging
company established in
1929. He is Chairman &
General Manager of two
sister companies, Société
Libanaise de Carton (SOLICAR), which is Lebanon’s
major paper recycling mill;
and Blue Pack, specialized
in brand recognition products, such as labels. He is
also Chairman & General
Manager of GEMDOUBS,
a paper mill company in
Novillars, France. He obtained an MS in Economics
from Texas A&M University,
then an MA in 1981 from
Georgetown University
in the US. He obtained a
Doctorate in Management
Science from Université
Paris 1 Sorbonne in 2001.
dustries that provide jobs and
growth have been able to sail
through these difficult times,
particularly when many traditional export routes were
compromised. Investment in
industry has continued. This
has been productive in consolidating the industrial base
and increasing exports and
local output. This has played
an important role, because if
you look at the growth of our
exports since 2005, they have
more than doubled. Our exports are in traditional, and in
value-added products. We are
reaching traditional as well as
more demanding markets all
over the world.
How have you been opening
new markets and improving
partnerships with industrialists
abroad?
This is what we are working on
now. As a newly elected board,
a central component of our
strategy for industry development is to promote partnerships both with international
groups and the Lebanese diaspora. Our confidence that this
can be successful lies in the
fact that Lebanon has strong
resources, $167 billion in assets in the banking sector, and
a very solid base of human
resources. Our GDP is only
$45 billion in size, and our per
capita income is $10,000, so
there is a great deal of growth
to be achieved and potential to be tapped. We want to
move forward. This is why we
have called for measures and
programs for “Lebanizing” the
economy by putting together,
in synergy, all of the potential
of Lebanon—both the residents and the diaspora. We
have a strong diaspora that
is capable to creating some
growth. We had 9% growth in
2009 when everyone else was
in crisis. So, we are capable of
putting more growth into the
economy by building in these
synergies. Industry
THEBUSINESSYEAR
75
INTERVIEW
want NOT WASTE
TBY talks to Maysarah Khalil Sukkar,
Chairman of averda, on seizing opportunities
to build a business, increasing the privatization
of waste management services, and expansion
into Ireland.
What have been the main milestones in averda’s progression
to becoming one of the leading
international waste management companies?
Since the company was
founded in the 1960s, I have
invested in technologies and
quality engineering that help
solve operational challenges
and creates efficiencies. Our
first focus as a company was
on specific industries, especially food manufacturing.
At the time, most factories in
Lebanon were artisanal. Because the local market could
not absorb the high capacities
of professional production
lines from the US or Europe,
they made do with a combination of manual labor and
sub-standard machines. Noticing this area of weakness,
in 1965 I secured contracts
to upgrade almost all of the
food manufacturing plants
in Lebanon as well as various
projects in other fields in the
region. This created a strong
core in the company that still
exists today.
What have been the main changes in the culture and business of
waste disposal and collection
that you have experienced in the
last 30 years?
The main change we have
experienced is the privatization of waste management
services. Whereas the municipality itself used to control
waste management, now it
is increasingly outsourced to
private operators. This has
caused a fundamental change
in the way the service is provided, in that governmental
bodies are now both the client, utilizing the service from
the private operator, and also
the regulators, allowing for
growth in the market. However, while the waste management industry has matured in
Europe and North America, it
has seen little change in this
region. The duty of care principle, where every polluter is
responsible for his or her pollutants, still lags behind international standards, and needs
to be addressed urgently. We
have partnered with regional governments for several
initiatives that will hopefully
yield fundamental changes in
behavior, such as sorting at
the source, pay as you throw,
and hazardous waste collection.
You recently launched your
×lmn a[m'ni'_h_las jlid_]n ch
Naameh. To what extent would
you say this is a landmark project for averda?
This is indeed a landmark
project for averda, where we
have obtained permission to
distribute electricity as a pilot plant, free of charge to the
neighboring areas. We plan to
do this in every region where
we have a landfill in operation, as it reduces the reliance
on polluting fuels.
How much of your total waste
disposal is recycled?
We have a multitude of waste
streams in our operations
globally, ranging from household waste to industrial and
construction waste. Many of
the simpler wastes can reach
over 70% diversion and recycling rates, while more high-
IN NUMBERS
averda
Cities present in
18
BIO
Maysarah Khalil Sukkar
m_nojbcm×lmn_hach__ling company in Beirut in
1968. The civil war made
relocation inevitable, and he
moved his company to Saudi Arabia. He established
a reputation as a turnkey
contractor, with projects
in bakeries, dairy plants,
and petrochemicals plants,
among others. Whilst working in Saudi Arabia, Sukkar
also bought and operated
some UK companies. In
1992, with peace restored
to Lebanon, he brought the
company home to aid in the
country’s reconstruction. As
\omch_mm^cp_lmc×_^&Moee[l
launched averda Group,
now one of Lebanon’s
largest corporations. Sukkar holds a BSc degree in
Communications Engineering from the San Jose State
University, California, US.
ly technical waste streams
require disposal as recycling
them may cause harm.
You have recently expanded to
Galway in Ireland with a $15
million investment in The City
Bin. What was the motivation
behind this investment?
Our investment in The City
Bin Company was a strategic
decision. First, Ireland operates a unique waste management model, whereby the
individual chooses his or her
waste collector; similar to
the way you would choose a
milkman. The relationship is
direct between the client and
the company, which is a strategic advantage that allows
us to serve our ultimate client
directly and learn his or her
expectations and habits. Secondly, we now have access to
a new talent pool that we can
recruit from for our operations elsewhere.
Where else are you concentrating expansion efforts?
Our expansion efforts are focused primarily on the Middle East and Africa. We have
been successful in pursuing
this strategy, and plan to continue with it for the foreseen
future. The population and
economic growth in this region interests us, and we have
skills that have been specifically designed and developed
to cope with the complexity
of operating in developing
economies. We also can cope
with the risk that such markets present. 76
THEBUSINESSYEAR
LEBANON 2014
B2B FMCGS
flying off
JACQUES JEAN
SARRAF
Chairman & CEO,
Malia Group
GABY TAMER
President, G. Tamer
Holding
THE SHELF
TBY talks to two industry insiders on what
makes Lebanon a good place to conduct
business.
What are your biggest markets?
What have been your milestones in recent years?
JACQUES JEAN SARRAF Malia Group has operations in
six sectors, which include industry, consumer goods distribution, fashion and luxury,
engineering and contracting,
hospitality, and real estate. The
group encompasses 22 legal
entities, and we have a direct
presence in the Levant countries, Algeria, and, soon, in the
UAE. This diversification in
territory and sector is in accordance with our 10-year road
map, which began in 2003. In
terms of territory, our plan was
to begin with countries that
were one hour away from our
base in Beirut and that covered
Syria, Iraq, Jordan, and Egypt.
In the second phase of our roll
out, we decided to launch operations in territories two hours
away from Beirut and, then,
three hours flight away, and
that includes the Gulf and Algeria. A major milestone has also
been our growth in Iraq and the
Kurdistan region in the north,
both of which are key markets.
As a rule, we are looking for opportunities to invest where the
returns are high, and we are
looking for opportunities.
GABY TAMER We now have a
strong business outside Lebanon. Our Paris office takes
care of our cosmetics business,
with some products manufactured there and in Germany,
and that’s where our R&D facilities are as well. Our industries and exports are all doing
very well. The Lebanese central bank extended long-term
credit to businesses to develop
their machinery and industry
and promote exports, and this
helped us a lot. We were able to
acquire the best machinery and
equipment and our exports tripled. Many Arab companies
love Lebanese products, especially food, wine, cosmetics,
fashion, and plastics. So we’ve
done well. Now we are well
established in Iraq, where we
have our offices in Erbil, as well
as in Turkey.
GT The Gulf, Iraq, Saudi Arabia, Turkey, Ethiopia, Nigeria, and the Ivory Coast are all
major markets, and there are
many Lebanese people in those
countries as well, so there is a
little sentimentality attached to
our products. Lebanon is also
emerging more and more as a
hub for US, French, and German companies that enter the
Middle East through Lebanon.
Lebanon has the right human
resources for them, the right
skilled people, and the necessary language skills. Compared
to other countries, where it is
hard to communicate in any
language other than the native
one, you find that Lebanon has
a major advantage language
wise. We have a lot of people
who are fluent in three languages—Arabic, French, and
English—and this serves us and
Lebanon well.
Have your operations in Lebanon been affected by the crisis
in Syria?
Do you have any major plans
for 2015?
JJS Our operations in Lebanon
have been slightly affected
in certain areas, but we have
managed to remain solid as a
company. Our operations in
Syria have shifted from direct
distribution of some brands to
supplying personal care and
pharmaceutical products to
one of the leading distributors
in the country.
JJS Yes, we have plans for Iraq.
We recently signed a 25-year
build, operate, transfer (BOT)
agreement with the American
University of Sulaimani to develop The Courtyard Sulaimani, which is a complex that
includes branded restaurants,
entertainment, and convenience stores. Moreover, we
have a joint venture with a re-
gional leader in logistics to establish Malia Logistics, which
will cover all logistics concerns
in Iraq as a first step. Then,
there is the ceramic line, which
is a state-of-the-art plant that
produces ceramics located in
the suburbs of Erbil on a strategic plot of land with an area
of 137,500 sqm and access to
gas and water.
GT We want to expand into Africa and North America; those
are big potential markets for
us to grow in, and we have the
certification to expand there.
We are preparing for a big exhibition in New York in Autumn 2014, organized with the
American Lebanese Chamber
of Commerce. It is a big and
important market, so we want
to enter with a bang. Industry
THEBUSINESSYEAR
77
NEW USE OF TEUS FOCUS
GET
ON UP
GET
INTO
IT!
Almost a decade
after manufacturing
operations were
entirely destroyed by
airstrikes, Dalal Steel
Industries is more
resilient, widespread,
and successful than
anyone could have
imagined.
After 24 years of specialization in designing,
manufacturing, and supplying steel structures
for a broad spectrum of customers, Dalal Steel
Industries (DSI) continues to innovate in ways
that expand its client base. Geopolitical events
in the MENA region, and intense regional economic growth in the Middle East and Africa, are
driving demand for the construction of showrooms, airplane hangars, and military facilities
with time constraints that conventional construction methods are unable to meet. With the
advantage of offsite prefabrication, and the entailed cost savings, Dalal provides timely solutions that allow commercial interests to meet
market demands, while enabling military and
humanitarian projects to meet rapidly evolving
threats and challenges.
Dalal’s biggest customer is the US Army,
which in 2006, at the height of the Iraq conflict,
accounted for 80% of the company’s sales. When
Dalal was contracted to build US Army accommodations in Iraq, the size of the project necessitated the doubling of the company’s work
force. With an average employment of around
400 workers, camp construction for American
troops required ramping up employment to 950
workers in order to meet the demand for 10,000
units at a rate of 60 buildings a day. Other less
truculent institutional customers are also lined
up to purchase prefabricated homes, such as the
UN Interim Forces in Lebanon (UNIFIL), which
spent over $3.2 million on prefabricated structures. However, despite the company’s positive
outlook and remarkable growth, the real story is
Dalal’s tortuous road to success.
TRIALS & TRIBULATIONS
On July 23, 2006, Israeli airstrikes leveled Dalal’s 22,000 sqm steel works factory in Bekaa,
destroying an estimated $25 million worth of
assets and leaving manufacturing capabilities
in tatters. While incidents of this magnitude
can derail the most ambitious projects, Toufic
Dalal began doggedly reassembling the company that he had founded almost 20 years earlier.
Within a week, Mr. Dalal was in Chicago purchasing equipment and flying it back to Lebanon. Using a combination of bank loans and $3
million out of pocket, the brand new facilities
were quickly operating at pre-war capacity, as
the orders flooded in once more. Ironically, the
denouement of the episode that almost ruined
Dalal was the ongoing contracts with UNIFIL,
the organization tasked with maintaining the
ceasefire. Soon, Dalal was selling between $3
million and $5 million worth of prefab units to
the UNIFIL per year as the number of peacekeepers grew to almost 13,000. The tenacity of
Dalal’s operations also bolstered the company’s standing in the region, and attracted other
new clients.
Mr. Dalal also used the opportunity to expand Dalal Steel. The new facility was 12,000
sqm larger than its predecessor, and featured
a fully computerized production system. Further expansions grew the factory floor to 55,000
sqm. By 2011, Dalal Industries had assets valued at twice the company's pre-war value, and
turnover had increased 10 fold.
BACK TO AFRICA
With the American military no longer stationed
in Iraq after 2011, and subsequent instability further threatening sales in Dalal’s primary
market, the company has expanded into Africa
where sales in Nigeria, Angola, and the Democratic Republic of the Congo are offsetting declines in other markets. In Kinshasa, Dalal is
constructing a six-story, 10,000-sqm shopping
center. In Angola alone, the company recently
completed construction of a state-of-the-art car
showroom, a 500-ton cold storage warehouse,
and a 12,000-sqm storage warehouse. Oil, gas,
and mining companies in West Africa are also
proving to be valuable customers. In Ghana,
the company is building a factory for prefabricated houses and sandwich panels, which will
serve the West African market. A new sales office has opened in Nigeria with another one in
the works for Angola. Dalal also has representatives in Angola, Gabon, Ghana, Nigeria, Côte
d’Ivoire, Liberia, Tanzania, Mozambique, Sudan, and Togo. Almost a decade after his operations were entirely destroyed, Mr. Dalal and his
resilient company are an established force on
the global market for prefabricated buildings. MARWAN DALAL
Managing Director/Owner, Dalal Steel Industries
What have been the most important milestones
for Dalal Steel since it was founded in 1990?
Our factory was built in Beirut in the Choueifat
area. It was a small factory of around 1,000 sqm,
which my father founded. His clients appreciated
him for his transparency and professionalism.
Gradually, the company started its expansion.
In 1997, it was moved to Bekaa where land and
mj[]_q_l_al_[n_l(;ffnb_\omch_mmjli×nq[m
used for the development of the company. Today,
we have around 52,000 sqm of covered area and
250,000 sqm of land.
How did you form contracts with the US Army?
Some were direct contracts since we were already
registered with the US army. The rest were indirect
contracts signed through contractors. We are an
[jjlip_^[h^]_lnc×_^mojjfc_li`nb_OM;lgs
and UN. We receive direct contracts from the
OHmnl[cabnioni`H_qSile(Nb_×lmnjlid_]nq_
signed with the US Army was when it entered Iraq
in 2001. We also recently had a long-term agreement with UNICEF and UNHCR, which stipulates
that it can only purchase prefab housing in the
MENA region exclusively from our company.
78
THEBUSINESSYEAR
LEBANON 2014
VOX POPULI INDUSTRIAL OUTLOOK
PIERRE YARED
CEO & Director of
Operations,
Jean-‐Claude Yared &
Fils SAL
HOW TO
OPTIMIZE
A number of industry insiders discuss
their outlooks and future plans in
Lebanon.
ABBAS MOUSSAWI
CEO, Arcom Group
S
W
e currently have a
strong
recruitment
strategy. We are planning to increase our head count
in order to support the launching of new products and product categories into different
segments. Jean-Claude Yared &
Fils is currently known mainly
for pipes and fittings, but there
are still many products we could
expand into. The strategy is to
keep introducing new products
and developing them into new
segments with the right customers and team members. The goal
is to consistently increase the
market share in respective product divisions, and, of course,
increase the company’s market
share as a whole while maintaining sound, logical returns.
ince we started, we have been trying to find the
right partners. We don’t work with just anyone;
we have to be conservative. When we work with
someone it is because, at the end of the day, we are suppliers and they are going to cut, assemble, and perform the installation. If the fabricators are not fabricating their product
in the right way, this affects our image as well, as both the
system quality and the installation quality of the system are
interdependent. This is why, when we chose a fabricator,
we have certain criteria to ensure they deliver the highest
quality. That is why we only work with select companies.
We supervise because we have to be sure they deliver the
right product in the right place with the right image.
ALI KHALAF
Managing
Director,
Reynaers
Middle East
T
he Lebanese ceramics market is developing, and displaying
a continuous higher demand
due to the increase of construction projects that are
being executed and the material knowledge that people
are gaining. That is why the
Lebanese government should
focus on improving this sector
by creating financial and geographical facilities to enhance
the production and the manufacturing of ceramics.
RONY KARAM
Managing Partner, KARAMBOIS
(Les Fils d’Antoine B. Karam), Karam Holdings
K
arambois was started three generations ago by my grandfather in Beirut,
Lebanon. It then expanded into the
Levant area under the leadership of my grandfather and his sons. The company gradually
established its position as a major player in the
region. Our company has evolved over the years
and is today at the forefront of the regional timber market, particularly in Lebanon. Although
the market has drastically changed over the last
decades, we continuously strive to expand and
optimize our operations and to diversify our
product range in an effort to satisfy the market’s
needs. Our major obstacle remains, of course,
the persistent instability in the country, which
often halts expansion and diversification plans.
This instability, however, also drives us to optimize our business to make sure we are always
ready to deal with a volatile local market, especially for our hospitality business.
Lebanon's industrial
footprint is gradually
expanding, thanks in
part to its strategic
proximity to Europe,
Asia, and Africa.
80
THEBUSINESSYEAR
LEBANON 2014
FORUM AUTOMOTIVE
CHANGING
LANES
FAYEZ C. RASAMNY
Chairman & CEO,
Rasamny Younis Motor
Company (RYMCO)
T
he automotive industry is very
much related to the economy
and stability. If it goes well, the
trend will go well. If it goes down, the sales
of the car industry will drop and shift toward
cheaper cars. It all depends on where we are
headed. It is a challenging market. At times
some dealers dump prices for the sake of
sales, which creates a negative momentum
in the market. It is difficult not to follow
them, but sometimes you need to in order
to maintain a certain margin and to lead.
This is a tricky thing. It is a difficult market,
and it is constantly shifting. Creative doesn’t
necessarily mean successful. A creative strategy can be a failure, too. The most creative
was the multi-balloon structure. This was
a financial system to help people afford a
car. It does this by creating what we called
“balloons.” For example, you pay a regular
installment every month; however, if you get
a bonus at work then you are able to pay a
larger “balloon” payment and then return to
paying the regular payment. Basically, people are able to have bigger cars on a smaller
budget. It was creative, but it is difficult to
advertise it. When a person comes, it is easy
for them to get confused. You need a creative mind to understand this concept. People tend to like simplicity. It was a creative
financial strategy.
Despite recent fluctuations in the Lebanese
economy, the automotive sector remains
vibrant, forward looking, and ready to face
the challenges of the market.
NICOLAS
BOUKATHER
Co-‐CEO, A.N.
Boukather (ANB)
A
NB is one of Mazda’s oldest distributors in the world. Initially, the
Mazda brand was not well known;
however, today it is recognized for its reliability, quality, and a mixture of many other
attributes. It is a beautiful car from the outside in. The craftsmanship is excellent and
the engineering is Japanese, produced in
Japan. Mazda cars have a five-year warranty
with unlimited miles that no one else provides, and we provide extensive after-sales
service. This is the key to Mazda’s success
in the automotive business today. You have
to do more than sell the car; it is also about
what comes afterwards. This means the body
shop, the paint shop, the insurance, fixing
mechanical problems, maintenance, spare
parts availability—the whole suite of services. This is why twice we have been recognized as providing the best customer service
for Mazda in the world. We won an award
that we received in Turkey from Arabia 500
relating to being one of fastest growing company in its field among companies in Arab
countries and Turkey—they call it Arabia 500
plus Turkey. In 2012-2013, we were named
as one of the fastest growing Lebanese companies. We received several other awards in
2013 for our marketing ability.
ASSAAD RAPHAEL
Chairman & General
Manager, Porsche
Centre Lebanon
A
t Porsche Centre Lebanon, we
recently introduced several new
products, such as the new generation Panamera, 911 Turbo, and Turbo S and
the all-new Macan. We are enjoying a clear
demand for them. As usual in the first year of
production, we have a limited quota for the
Macan in 2014. I am pleased to say that we
have already taken binding customer orders
for over 70% of our allocation, which, given
the current times, is a fantastic achievement.
No wonder, our new product offer is the
perfect, all-round, four-door sports car and
people here love it, given their preference for
high-rise vehicles with outstanding driving
performance. We are furthermore looking
forward to the introduction of the new 911
Targa generation, which is expected to arrive next month. Our model range has never
been more attractive than today, and I am
hopeful that this will give us the necessary
basis to keep our sales as stable as possible
despite challenging economic times. The
2013 performance matched that of 2012,
with close to 300 new cars delivered to Lebanese customers across the country. Given
factors beyond our control, we are satisfied
with our 2013 results.
THEBUSINESSYEAR
85
86
88
HE Boutros Harb on what
needs to be done to improve the
telecoms industry in Lebanon.
The Ministry of
Telecommunications has realized
that the country must initiate
reform across the IT sector.
Claude J. Bahsali, Chairman &
CEO of Information Technology
Group (ITG) Holding, on
nurturing local talent.
81
Telecoms & IT
REVIEW
Lebanon’s telecommunications sector is in need of a major overhaul.
With a new minister appointed, the sector can expect to see some
significant changes in the short term.
I
n June 2014, a television
commercial was launched
by the Ministry of
Telecommunications showing a group of astronauts
descending to the moon,
then they bounce around
and plant a Lebanese flag
before the message is broadcast across the screen, “Of
course we didn’t arrive on
the moon—but the internet
has become faster, cheaper,
and better.” The commercial
adequately reflects the pain
of a disgruntled population
and the need for progress in
the Lebanese telecommunications sector. The telecommunications industry has
frequently been eclipsed by
political disputes and vested interests, and has been to
the brink of privatization and
back over the last decade.
The 12-year pending Telecommunications Law No.
431 was adopted by Parliament in July 2002, the idea
being to organize and regulate the telecommunications
sector and allow the formation of a joint-stock company, Liban Telecom, to which
CONNECT ME
A number of IT and communications
reforms have been implemented with
the goal of increasing connectivity and
reducing costs for consumers.
the fixed-line operations
and assets of the Ministry of
Telecommunications would
be transferred and granted a
20-year license for the provision of telecom services. A
decree for the formation of
Liban Telecom was adopted
by the Council of Ministers
in December 2004. Law No.
431 provides for the sale of
up to 40% of Liban Telecom’s
shares to a strategic partner
within two years of the establishment of the company;
however, the company has
not yet been established.
The
government-owned
Ogero Telecom still maintains
the fixed network in Lebanon
and the state owns the two
mobile operators, Touch and
Alfa, which Zain and Egypt’s
OTMT manage, respectively.
Zain took control of Touch
in 2004 and OTMT of Alfa in
2009, and their management
contracts have repeatedly
been renewed since then,
usually on an annual basis.
Both companies’ contracts
were renewed in June 2014.
A Business Monitor International estimate put
Touch and Alfa's combined
82
THEBUSINESSYEAR
LEBANON 2014
ABDALLAH
BSAIBES
Chairman &
General Manager,
GeoSpatialMinds
How has the Geographical
Information System (GIS)
services industry evolved in
Lebanon since the 1990s?
I worked for Khatib & Alami,
which is the leading company for
GIS services in Lebanon and the
l_acih&b[pcha]l_[n_^cnm×lmn
application in 1988 in cooperation with Esri International. It
implemented a GIS for electricity
purposes, which meant we could
map consumption and so forth.
Nb[nq[mih_i`nb_×lmnjlid_]nm
in Lebanon and the Middle East
that could boast a GIS, and
it gave us some considerable
exposure in the Middle East. Here
in Lebanon, companies started
to establish themselves in the
1990s and 2000s, and there are
[lioh^×p_l_jon[\f_]igj[hc_m
operating in the sector today.
Where are you focusing your
geographical expansion for
2014-2015?
We intend to expand into Iraq;
predominantly Kurdistan, and
also into Baghdad. We also have
ioli`×]_chMionbMo^[h&qbc]b
we will be expanding. Our focus
there is mostly on supplying surveying equipment, GPS devices,
and satellite imagery, as we are
reseller for several leading providers like Trimble, Esri, Cellular
Expert, and CityWorks beside
our GIS services and training
capabilities. In Southern Sudan,
our main market is NGOs.
revenues in 2011, and therein treasury revenues, at $1.6 billion, of which $1.4 billion
went to the government, making telecoms
the second-largest contributor to state coffers after taxes on goods and services. Lebanon is estimated to have more than 4 million
cellular subscribers at present. According to
Zain Group’s report published in June 2014,
their Lebanese subsidiary Touch’s subscriber base increased by 4% to reach 2.1 million,
up 4% YoY, while Alfa is reported to have 1.8
million—both numbers have grown significantly with the influx of over a million Syrian
refugees in the last two and half years. Touch
is the market leader, with a 53% share of Lebanon’s mobile phone subscribers. According
to a Ministry of Telecommunications report
in 2012, the mobile phone penetration rate
in Lebanon was 91% and fixed telephone at
21%—the highest in the region for the latter
compared to a regional average of 9.6%. In
more recent 2013 ITU report, taking account
of the influx of over 1 million Syrians by that
period, Lebanon’s penetration rate for data
subscription is 50%, putting the country on a
par with most European countries. However,
according to the 2014 international Household
Download Index by US broadband tester Ookla, Lebanon’s average internet speed currently
stands at 2.2 Mbps, which ranks the country
181st out of 192 countries globally.
Such ineptitude has been part and parcel of
not having elected officials to the Telecommunications Regulatory Authority (TRA). “They
did not nominate anyone in the regulatory
body, meaning we don’t have a regulatory
body now and we don’t have a Lebanese telecommunications company,” said Telecommunications Minister Boutros Harb during
an exclusive interview with TBY. “The companies currently running the sector have reduced their attention, which is why I told them
I could not accept their quality and they had
to improve or I would break the agreement,”
Harb continued. It may be true that both Alfa
and Touch had succumbed to the lack of productivity incentives offered by the Lebanese
government. Affirmative action by the Ministry meant in 2014 the Council of Ministers
agreed to the formation of a steering committee to control the quality of service, and accelerate the handover to the regulatory body.
“In the future, we will have a regulatory body;
however, it does takes some time to nominate
the right people,” said Harb.
The Head of the Higher Council for Privatization, Ziad Alexandre Hayek, also laments on
the Ministry’s apparent 180-degree turn and
the consequent delays to the creation of Liban
Telecom and its privatization. “Throughout
this process we can be opening up more to
competition. For fixed line, we had a plan that
was stopped by the Minister of Energy at the
time… to create a parallel fixed-line network
that could be deployed for reading electricity and water meters,” Hayek said. “Once you
have that network you can use it also for telecoms. Therefore, it automatically competes
with Liban Telecom.”
Upon taking control in March 2014, the
Telecommunications Minister passed three
new decrees by the Council of Ministers, not
only to significantly slash phone rates, but also
announce Lebanon’s first unlimited broadband plan and increased speeds for existing
DSL services in the country. These plans and
prices went into effect on July 1, 2014. The
Ministry decided to award post-paid mobile
line holders with an additional 60 minutes
of free calls in exchange for the current $15
monthly subscription fee, while the rate of
calls on pre-paid mobile lines were reduced
by around 30% from $0.36 to $0.25 per minute.
The registration of a new landline was introduced at no cost, as opposed to a previous $33
onetime fee, while the monthly subscription
fee was reduced from $8 to $6.
Harb went a step further in May 2014 with the
controversial introduction of unlimited broadband, and was met with delight by Lebanon’s
start-up and ICT companies that rely on the
heavy usage of the services to optimize their
productivity and generate investment. It is in
this sector where the most significant injections
could be made in the long term. These will include significant reductions on DSL packages—
an average of 80%—as well as important reductions on mobile calls and 3G services.
With the new DSL package for $50, subscribers will get the 2 Mbps and an unlimited download plan compared to a previous cap of 20 gigabytes. The 4 Mbps plan will see its price drop
to $33, from $50, and have its usage increased
to 50 gigabytes, from 25 gigabytes. The service
providers may well have been saved by their
last-minute pledges to make the necessary
upgrades to their infrastructure required, enabling them to boost the speed and quota for
their existing customers as per the new data
plans set out by the Telecoms Ministry.
Telecoms & IT
THEBUSINESSYEAR
83
84
THEBUSINESSYEAR
LEBANON 2014
Lebanon has in total 45 internet service
providers and data operators. However, the
cumulative revenues generated by these 45
generate revenues of not more than $200 million, versus Alfa, Touch, and the Ministry of
Telecommunications that does $2 billion.
Companies such as Cedarcom and IDM,
the latter holding approximately 60% of the
ISP corporate segment and more than 50% of
private sector, have invested significantly in
the upgrading of switch nodes; yet, the implementation of these higher quality services is
still dependent on Ogero completing its own
upgrading of switch nodes at services points.
Ogero technically has the capacity for ISPs
without buying additional capacity on two
submarine telecommunication cables, such as
the IMEWE line.
Lebanon’s current link between households
and service points, which is largely still reliant
on copper cabling, can handle speeds of up
to 8 Mbps, which under current data plans is
sufficient. However, any increase above that
speed would require the completion of the
fiber-to-the-x (FTTX) project, including fiberto-the-home and fiber-to-the-office components. Only a few large firms, universities, and
hospitals are currently linked to the internet
through a fiber-optic network.
Time will tell whether the need and demand
for higher capacity requires further investment in international infrastructure. All indicators would point to this becoming inevitable
in the coming years. Fortunately, the Ministry
of Telecommunications is looking at forming
partnerships with neighboring countries, at
the same time as incentivizing domestic companies. “Turkey has a major interest in connecting with Lebanon because it will be connected through this channel to India and the
Far East. I think this is the kind of project that
we can do besides inviting the Lebanese corporations to start creating new projects themselves,” explained Minister Harb. CEDARCOM
Companies such as
Cedarcom and IDM,
the latter holding
approximately 60%
of the ISP corporate
segment and more
than 50% of private
sector, have invested
mcahc×][hnfschnb_
upgrading of switch
nodes; yet, the
implementation of
these higher quality
services is still
dependent on Ogero
completing its own
upgrading of switch
nodes at services
points.
Telecoms & IT
THEBUSINESSYEAR
85
INTERVIEW
What is the Ministry’s plan to
bring down the cost of telecoms
in Lebanon?
When I started in my role as
Minister of Telecommunications, I knew my plan would
not exceed a three-month
period because of political
and constitutional reasons.
Therefore, I introduced a plan
of 100 days in order to achieve
what I could achieve in that
period. I assigned a group of
technicians and counselors,
and together we studied the
problems that we are facing.
I found that Lebanon is far
behind the average in regard
to telecommunications, and
there is a lack of strategic decisions. That is why Lebanon
should look at where to go,
how to get there, and how to
succeed in taking measures
that help to change the face
of Lebanon in telecommunications. Fortunately, we went
to the Council of Ministers
and my plan was approved.
At my suggestion, we reduced
the prices of internet, telecoms, mobile, and fixed services. This was implemented
between June and July 2014.
This is a huge step for Lebanon, and it will contribute to
changing the face of telecommunications in the country.
It will help the Lebanese reap
the benefit of high-speed,
low-cost broadband. We have
fiber optics to help DSL for
fixed-line users. We have 3G
on mobile telephones. Decreasing telecommunications
and internet prices encourage
people to use more, and increases the penetration rate,
which in the end will generate
more income and open the
gates to the future for an enhanced economy.
tough CALLS
TBY talks to HE Boutros Harb, Minister of Telecommunications, on what
needs to be done to improve the telecoms industry in Lebanon.
What are you trying to do to improve the framework for investors coming to Lebanon?
Raising Lebanon to international standards will help. It
will increase the interest of
people coming to Lebanon
and working here, while taking advantage of the services
we offer. In Lebanon, compared to the West, the cost of
work is less. That will encourage people who have money
to come to the Middle East
and find a place where the
prices and climate are good
and the people are hospitable.
I know that Dubai and Abu
BIO
Boutros Harb was born in
1944 and graduated with
a degree in French and
Lebanese law from Saint
Joseph University in 1965.
He became an elected
member of Batroun Caza in
1972. He has held a number
of ministerial positions
and is currently Minister of
Telecommunications.
Dhabi are much better now
because they have the liquidity, they don’t have political
problems, and they have an
up-to-date telecommunications hub. I think we should
transform Lebanon into a
telecommunications hub. I
have many projects that we
can start or think about and
put in the hands of my successor. For example, I started negotiations with Turkey
about laying a cable between
Turkey and Lebanon for international communications. It
will be beneficial for Lebanon
because Turkey needs it, and
we need it as another way of
securing our telecommunications if any problem happens.
The Ministry recently redistributed LBP56 billion ($373 million) to 800 municipalities. Are
there any conditions on how this
money is spent?
No. This is the right of the
municipalities. It has been
stopped for the last four years,
and I don’t think it was logical
or a good thing. When I took
this post, I considered that the
money should be given to the
municipalities. It will help inspire economic development
in the country. Secondly, it
IN NUMBERS
Telecommunications
Cash grants
distributed to 800
municipalities
373
Million USD
was their right to take it. I met
the Minister of Finance and
the Minister of the Interior,
and we decided to start giving
the municipalities this money, and I think it will soon be
implemented. The three of us
agreed on how to distribute
the revenue to the municipalities. How the municipalities
are going to use it is their responsibility; we don’t have the
right to tell them what to do.
It could help their growth and
help with creating a dynamic
economy and a new environment in the country. 86
THEBUSINESSYEAR
LEBANON 2014
FOCUS IT PRICE REFORMS
TIME FOR CHANGE
After analyzing the current market and Lebanon’s
competitors, the Ministry of Telecommunications realized
that the country must initiate reform across the IT sector if it
is to remain competitive.
In Lebanon’s proclaimed “government of
national interest,” there are a few more dynamic driving forces for reform than Minister of Telecommunications Boutros Harb. On
March 31, 2014, Harb proposed an ambitious
and dynamic “100 Day Plan” to rapidly reform the Telecommunications sector during
his three-month term appointment in office.
“I knew my plan would not exceed a three
month period because of political and cost
reasons. Therefore, I introduced a plan of 100
days in order to achieve what I could in this
period…I made a group of technicians and
counselors, and we studied the problems that
we are facing together,” Harb explained in an
exclusive interview with TBY.
THE 100 DAY PLAN
Harb’s plan began with the slashing of fixedline prices operated by OGERO for international calls and prepaid cards by up to 50%,
a company that holds an absolute monopoly
over fixed-line prices in Lebanon. The dramatic reforms are a much-needed attempt to
reach out to low-income Lebanese citizens.
For example, people using the cards will now
pay LBP50 instead of LBP100 for every minute of call time from a landline, and LBP100
instead of LBP200 from a mobile line.
He has since had three proposals to cut the
cost of landline subscriptions, pre- and postpaid mobile calls, and internet data plans approved in parliament. The Ministry of Telecommunications has acted pre-emptively to
the annual renewal of contracts, in an unprecedented move not least for concerns over
the effect this will have on state revenues.
According to Business Monitor Internation-‐
al, Touch and Alfa’s revenues accounted for
$1.6 billion in 2013, of which $1.4 billion was
paid to the state, accounting for 12% of the
Lebanese treasury’s revenues. Harb disclosed
that the Ministry had undertaken significant
empirical studies of its own, which strongly
indicate that the reduction in line costs will
significantly boost line usage. “We have undertaken a conservative study, which stated
that in three to six months, we may lose some
of the revenues; however, after six months,
we would resume gaining and having more
revenue than we used to…Whenever you
give people the possibility to speak at a lower
price, they will speak more,” Harb said during
his interview with TBY.
Harb has repeatedly issued warnings to the
state affiliated companies Zain, ORASCOM
Telecom, and OGERO that manage Lebanon’s two main mobile service and fixed-line
services in Touch, Alfa, and OGERO, respectively. Most recently, on May 8, 2014, Harb requested that the companies significantly improve the quality of their services by May 12,
2014, or face a termination of their contracts.
After the minimum requirement rectification of interrupted services, and a consequent
meeting on May 27, 2014, Harb summoned
the Vice-President of Zain and operator of
Telecommunications company Touch, Badr
al-Kharafi, and General Manager of OGERO
Dr. Abdel Monhem Youssef, where they reaffirmed their commitment to improving the
quality and the non-interruption level of their
services, but it may be too little, too late.
On May 24, 2014, Harb controversially unveiled Lebanon’s first unlimited broadband
internet plan, which will cut prices and increase speeds on existing DSL services. Harb
said the price of the new 2 Mbps, unlimited
download plan would be LBP75,000. Previously, for LBP75,000, consumers could get a 2
Mbps plan with a 20 gigabyte data limit, paying LBP6,000 per additional gigabyte.
POWER SHIFT
All of these plans are in principal to support
the much-delayed creation of a regulatory
body and free up greater private sector competition in the telecommunications industry.
“We agreed that the government would be
permitted to have a steering committee to
control the quality of the service, and at the
same time start the hand over…We had a law
in 2002 for creating a regulatory body and a
Lebanese telecommunications company.
Unfortunately, this has not been implemented by the Ministry,” Harb explained to TBY
the Ministry’s attempts to implement a new
regulatory body.
REAL IMPACT
For individuals in Lebanon seeking reliable
and affordable internet services at home,
these recent government reforms in DSL
speed, along with the introduction of cheaper
telecom plans, may unfortunately be a moot
point. In May 2014 reacting to the Minister’s
pricing and service reform package, Lebanese IT blogger (tagged Najib on the site
BlogBaladi) commented, “While this is great
Telecoms & IT
news, there’s still a major problem for a lot of
Lebanese outside Beirut as their phone lines
don’t allow them to get more than a 1 Mbps
connection and won’t be able to benefit from
these speeds. I still have this issue at my parents’ house in Jounieh and I am not sure if
they’re working on fixing it or not.” Clearly
private users can see that there is still a lot of
work to be done to bring IT delivery up to an
acceptable standard in the country.
On the other hand, in Lebanon’s knowledge
and IT industries there is some optimism that
the recent lowering of internet and other telecoms costs by the government will relieve the
financial stresses of operating, particularly
for start-ups and SMEs that struggle under
higher telecom prices. The government’s ini-
HISHAM ITANI
Chairman & CEO, Resource
Group Holding (RGH)
Established in 1973 as a security
printing house, we have expanded
to become an international provider
of secure solutions to governments,
n_f_]igmij_l[nilm&[h^×h[h]c[f
institutions. RGH used to have
operations in countries affected
by the Arab Spring, and there was
a fall in our revenues in those
countries. This has forced us to
shift into new markets, with all
the attendant costs of doing that.
Having said that, we have adapted
and created new markets to replace
those we have lost, ultimately
creating a zero-sum gain.
The dramatic reforms are a
much-needed attempt to reach
out to low-income Lebanese
citizens.
tiatives may even free up these companies’
resources to employ more staff or embark on
expansion plans.
And it is not just immediate financial relief
for the existing industry that concerns the IT
sector. Encouraging the growth of the knowledge economy by attracting young Lebanese
into the field and keeping them in-country is
an imperative if IT service companies are going to compete regionally and internationally
in the future. According to figures from the
Investment Development Authority of Lebanon (IDAL), around 800 companies currently
make up Lebanon’s IT sector and the sector
as a whole contributes more than half of Lebanon’s total services exports. The software
development subsector already employs
around 5,000 specialists. When you couple
this with the fact that the average wages for
software engineers in Lebanon are 40% lower than in the GCC and more than 50% lower
than in some developed countries, you can
understand why the government and the sector are keen to capitalize on the industry’s advances so far and get more young Lebanese
into the industry with the help of these price
cuts and service improvements.
The remaining question is where does Lebanon stand today on the implementation of
Law No.431? That law would allow for free
competition among private telecom providers whilst they would still be under government regulation, bringing Lebanon into line
with most of the developed world. TBY spoke
to key players concerned with the IT sector
recently, including Ziad Hayek, Secretary
General of the Higher Council for Privatization in Lebanon, who is pushing for liberalization of the sector. He believes that the
2002 legislation is sound and notes that whilst
there was a regulator, “…unfortunately the
mandate ended and they have not appointed new people, however reinvigorating the
regulatory authority is on the cards.” Rather
an unsatisfactory status quo for the ICT industry, which Hayek firmly believes is being
overtaxed hampering infrastructure investment and the development of the knowledge
economy within the country. THEBUSINESSYEAR
87
88
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
steady MOVER
TBY talks to Claude J. Bahsali, Chairman &
CEO of Information Technology Group (ITG)
Holding, on regional expansion plans, and
what needs to be done to nurture local talent
in the IT sector.
How would you describe your
system of corporate governance?
Unlike most companies in
this region, we are not a family business. The group was
established in 1967. Shortly
after its inception in the mid1970s, the founder started to
introduce the shareholding
concept to various managers.
It was, and still is, a privately
owned group, but it is managed in a way that is a hybrid
model between a public and
private group in terms of the
ability of managers to acquire
shares in the company. The
major advantage of such a
model is that you able to motivate talented resources and
retain them. This is how our
group sustained its growth in
the various businesses, sectors, and countries we are
present in.
What sectors are you currently
expanding into?
First of all, it is worth noting that 90%+ of our group’s
business is in the IT and
telecoms industry. We do
have sister companies that
operate in pharmaceuticals
too, but 100% of Information Technology Groups'
(ITG’s) business is in IT. In
addition to banking, which is
our top target sector, we are
involved in various other verticals. Traditionally, we have
worked with many banks, because this is the largest and
the most solid sector in Lebanon. Historically, it was natural for us to work with banks.
However, over the years, we
have expanded to other verticals, in particular hospitality,
higher education, and public
sector infrastructure. More
recently, we are starting to
invest in acquiring expertise
in healthcare. We have established some partnerships
and started to train people,
aiming to develop that promising business. That is a sector we are looking at with lots
of interest.
IN NUMBERS
Information
Technology
Group (ITG)
How would you assess ITG’s
business performance over the
last year?
Despite the fact that 2013 was
a challenging year, we were
able to grow over 2012, which
by the way was an excellent
year. To be able to do that, we
focused on growth while controlling our expenses. We also
developed value-added businesses in terms of introducing
more value-added solutions
to our portfolio, in particular
those that generate service
revenues. We are actively pro-
Shareholders in ITG
moting more software and
more services, with less of an
emphasis on hardware, which
you practically sell at cost. In
fact, we use hardware sales as
a vector to introduce ourselves
in accounts and then target
the sale of services and solutions that generate margins.
This is how we are managing
our growth, by investing more
into value-added businesses.
Have you undertaken any mergers or acquisitions this year?
BIO
Claude J. Bahsali received
his Bachelor’s degree in
Electrical Engineering from
the American University of
Beirut in 1982, and joined
Mideast Data Systems
"F_\[hih#Ê[`×fc[n_^ni
ITG—shortly after. Since
then he has undertaken
various responsibilities in
the context of the group.
Claude joined the Board of
Directors of ITG (Holding)
in 2001 and was appointed as Chairman and CEO
in 2004. ITG is part of
HOLCOM, an international
group operating since 1967,
with a strong presence in
the Middle East, Europe,
and Africa. HOLCOM
employs more than 3,500
professionals in 200+
companies operating in 30
countries.
Yes, over the recent period
we have acquired an Oracle
Gold partner, Fadel Systems,
which we renamed Primeware—family names don’t fit
in our group’s culture. After
establishing a company called
SYSPRO around 18 months
ago, specialized in smart
building solutions, we then
acquired Light & Build, which
was established a decade ago
in Lebanon, to complement
our solutions and integrated
it into SYSPRO. Moreover,
as Canon—one of our major
suppliers—has acquired Océ
globally, we have decided to
acquire the business of the
local Lebanese distributor
of Océ. That transaction was
completed in early 2014. We
have made other investments
as well. Back in October 2013,
we invested in a banking software company called Capital
Banking Solutions, which has
offices in New York, Paris, Monaco, Dubai, and Beirut.
35
Employees in ITG
600+
What can be done to nurture talent in the IT world in Lebanon?
The country needs faster
internet and a better legal
framework. Those things need
a lot of work. Today, we have
poor internet speeds and high
costs; our telecoms infrastructure is old and needs to
be upgraded. In 2013, we had
12 months without a government, meaning people were
not legislating or implementing new laws. On the bright
side, our education system is
still good; we have a good and
growing talent base. It is worth
noting that our company is
very much merit-driven and
people normally evolve from
the bottom up. Our preferred
approach is to recruit from
within. Most of the managers
here in the company started
as engineers, sales persons,
programmers, or accountants. I personally started as a
field engineer in one of our affiliated companies and I slowly, but surely, moved up. Bumper years, growth years, record-breaking
years, challenging years. The key players and
their stories are all in The Business Year.
The Business Year is also available on tablet, giving you
an insider track into the country’s most dynamic
sectors—in the palm of your hand.
w ww. thebu sin essy ea r. com
90
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
in the
TREES
How did Level 5 Holding evolve
into the advertising empire that
it is today?
I started in 1992 with an ad
agency, while I was in my
second year at the American
University of Beirut (AUB),
and then shifted in 1996 to
a media house, Espaces. In
1999, I founded Tree Ad with
my former partner and up
until then, we were doing
classic regular media sales,
and nothing else. Then, in the
early 2000s, we ventured into
retail when we acquired the
franchise for Lebanon of Eden
Park, the renowned French
clothing, accessories, and
home decoration brand. In
2004, we started consolidating
the business, and established
the holding company that
would connect all the dots
and allow us to grow further.
We, therefore, founded Level
5 Holding and the latter fully
acquired Tree Ad and Ligne
Bleue (the franchisee of Eden
Park), and then served as a legal and financial platform for
our other ventures.
How did you look to broaden the
activities of the company?
I am a firm believer in seizing
opportunities and focusing on
the “who” before the “what.”
Following the consolidation
process, we got the opportunity to develop a beach resort
in Jiyeh. We knew very little
about beaches, but it looked
like a great opportunity financially. So we branched out,
adding hospitality to advertising and retail as a third pillar of Level 5 Holding’s scope
of work. We opened Orchid
TBY talks to Mazen
Moussallem,
Chairman of Level
5 Holding, on
advertising, expansion
into retail and
hospitality, and the
importance of ethics
in business.
BIO
After graduating from the
Business School of the
American University of
Beirut in 1992, Mazen joined
nb_[^p_lncmcha×_f^[h^b[m
since remained one of its active players. Tree Ad Group,
which he founded in 1999,
ranks today among the top
media houses in Lebanon
and the region. In 2000, he
established Ligne Bleue,
and in 2006 he launched his
career in hospitality with
the Orchid Resort and later
expanded it with La Réserve
in 2010. He bases his managerial tactics on two main
values: ethical conduct and
team spirit.
Beach Resort in 2006 one
month before the Israeli-Lebanese War; nevertheless, it
quickly became a success story. It might be the entity of the
group that I am most proud
of, as we have succeeded in
making Orchid more than a
beach resort; it is a destination
and a franchise-able concept.
We are now working on a new
beach resort Orchid Batroun
with a total investment of $1.5
million.
How is the advertising side of
the business progressing?
From 2007 onwards, we started consolidating Tree Ad, our
main advertising business. We
succeeded in less than seven
to eight years in increasing
Tree Ad’s revenues over 10fold, mainly by venturing into
the outdoor industry and afterwards in print. Lately, we
also moved toward TV as well.
When we started the outdoor
business, we had around four
or five major suppliers that
were under exclusive contracts with us. Between 2008
and 2009, we started acquiring
these suppliers, and founded
a company called Viacom that
today owns the majority of the
outdoor panels that Tree Ad
sells, a kind of vertical integration for our business.
What are the most important
emerging markets for you?
Our strategy is to look for
opportunities
irrespective
of where they are. However, the natural evolution of
our advertising arm is in the
Levant region, whereas we
aim for the Gulf for our retail
operation. In 2007, Iraq was
emerging from the war, and
it did not have a structure for
advertising flows. Noticing
that there were international
and multinational clients in
Iraq that nobody was serving, we established Tree Ad
Level 5 Holding
acquired the
×lmn?^_hJ[le
franchise outside
of France
Total investment
in Orchid JYEH
$1.5 million
Iraq. We started our operation there as a media-buying
unit, although this is not our
core business. We succeeded
in doing business in Iraq for
three or four years, but things
slowed down as the political
situation got worse. We now
focus on outdoor advertising
and have transformed the
media-buying unit into a regular media representative, the
way we do in Lebanon and
Syria as well.
What is the future for Tree Ad,
and how do you intend to maintain your share of the market?
Thanks to Tree Ad’s credibility we are always being approached by media looking to
expand their business. We are
brand builders who focus on
the positioning of the medium and its image, we also help
develop and implement new
marketing strategies for each
medium to ensure its utmost
success and growth. THEBUSINESSYEAR
94
97
100
CEO of Net Holding on logistics,
maintaining a competitive edge,
and prospects in the oil and gas
industry.
The government and
development institutions are
spending billions to update the
country’s road infrastructure.
Alain Maaraoui, President of
Sea Pros, on the market for
yachts in Lebanon and the
region.
91
Transport
REVIEW
While Lebanon’s international land options for transport are somewhat
constricted for the time being, trade is moving to the sea, where numbers
are up and the ports are expanding.
A
s Lebanese merchants and traders
brace themselves
for the possible
huge influx of goods for the
reconstruction of Syria, overall imports and handling of
freight at the Port of Beirut
continue to increase on account of Lebanon’s intermediary hub status.
Maritime trade activity in
1Q2014 comprised a 8.2%
annual rise in TEUs, totaling 182,188. Some 674 ships
docked at the port in the first
four months of 2014 compared
to 711 vessels in the same period of the previous year. The
ongoing increase in terms of
tons of goods and TEUs moving through Beirut port, and
especially
transshipments,
is partly due to the diversion
from those that are on the
periphery of Syria and Iraq’s
conflict that has intrinsic repercussions, namely those of
Arida, Masnaa, Aboudieh, and
Kaa. The closing of the Jordanian border in April 2013 also
effectively meant that for Lebanese products to reach the
Gulf, the main land route was
through Turkey.
THE PORT OF CALL
Lebanon's ports are a hive of activity
these days as more companies look to
the sea to cater to their logistical needs.
According to the latest
figures released by the Port
of Beirut, republished by
a Bank Med report, the total income of Beirut Port
reached $68.1 million in the
first four months of 2014, remaining almost stable from
the same period the year
before. Freight activity went
up by 6.1% YoY to reach 2.84
million tons in January-April
2014 in comparison to 2.68
million tons in 2013. Over
the same period, the number
of imported cars via the port
of Beirut rose by 8.2% YoY to
reach 31,387, while the number of containers (excluding transshipment) was up
by an annual 3.7% to reach
240,897. As for the number of
transshipments, it increased
by 13.4% annually to reach
139,025 containers at endApril 2014.
In a recent Byblos Bank
report, figures showed that
overall receipts generated
through the port reached
$809.3 million in the first four
months of 2014, constituting a decrease of 6.4% from
the same period in 2013.
Customs receipts through
92
THEBUSINESSYEAR
LEBANON 2014
Port of Beirut Revenues (USD Millions)
Source: Port of Beirut
80
60
40
20
Jan-Apr 2014
Jan-Apr 2013
Jan-Apr 2012
Jan-Apr 2011
Jan-Apr 2010
0
the port totaled $376.3 million in the first four
months of 2014, down 12.7% from the $431.2
million in the same period of 2013; while receipts
from value-added tax (VAT) reached $362.5 million, almost unchanged in the first four months
of 2014. Of the increase in tonnage, import
freight accounted for 90.1% of the total, while
the remaining 9.9% was export cargo. Thus, the
balance of imports to exports is continuing to tilt
even further to the import side.
AIR FREIGHT/PASSENGER COUNTS
Airfreight deliveries were off to a rough start in 1H2014, with total air
cargo down by 23%, or 9,887 tons from the same period in 2013. Air
nl[`×]chnb_`ilgi`[llcp[fm[h^^_j[lnol_m[fmi^_]l_[m_^&[n[f_mm_l
rate of 1.7%, approximately 50,000 passengers. This decline likely stems
`ligl_]_hnl_acih[fchmn[\cfcns&[mj[mm_ha_l[clnl[`×]Ê_r]fo^cha[
sharp decline following the 2006 war—has risen markedly over the last
decade.
Nb__m][f[ncha]ihØc]nninb_q_mncm[aliqcha]b[ff_ha_niF_\[non’s aviation industry. While MEA posted a net income of $63 million in
2013, $14 million of that was from a one-time sale of planes. With passenger counts falling, especially from the Gulf region, and the taxman
knocking at their door, the company is implementing measures to ride
out the lean years. In 2013, the Lebanese government issued the results
of an audit that found MEA liable for $1.3 million in back taxes—an allegation that the company strongly denies. MEA management responded
by refusing to issue tickets to employees of all state institutions.
Meanwhile, MEA is hoping to offset passenger declines by opening
new routes. The company will open a route to Khartoum, Sudan, this
s_[l&qcnbnqiØcabnm[q__e(Gil_Øcabnm[l_[fmi\_cha[^^_^ni
Iraq, with Basra in March 2014, and Baghdad, Erbil, and Najaf already
in operation. MEA will also double its services to London Heathrow in
2014, after buying a night slot from Cyprus Airways for $9 million. For
Lebanon’s aviation industry, geopolitical adversity is nothing new, and
prudent planning and investment are steering the industry through yet
another turbulent period.
Lebanon’s second port in Tripoli has been
quite a different story. Overall, revenues generated through the Port of Tripoli reached
$35 million in the first four months of 2014.
While customs receipts reached $13.3 million
down 13.1% from $15.3 million in the first
four months of the previous year, VAT receipts
reached $17.6 million and dropped by 7.7%
from $19.1 million in the first four months of
2014. The port’s revenues rose by 3.1% YoY to
$4.1 million in the first four months of 2014.
Further, the Port of Tripoli handled an aggregate weight of 378,036 tons of freight in the
first four months of the year, constituting a decrease of 20.7% from 476,727 tons in the same
period of 2013. A total of 174 vessels docked at
the port in the first four months of 2014, representing a 3.3% decreased from the 180 ships in
the same period the preceding year.
Figures released by the Port of Beirut authority show that activity is still bustling at
the ports and stood at a grand total of 113,130
TEUs in the first four months of 2014, constituting a rise of 4.4% from 108.386 TEUs in the
same period in 2013.
They also accounted for 60.5% of the total
freight importing market during that period.
Mediterranean Shipping Company (MSC)
handled 38,437 TEUs in imports for the local
market in the first four months of the year,
equivalent to a 20.6% share of the total freight
forwarding import market. This was followed
by Sealine Group with 23,838 TEUs, or 6.4%.
Gezairi Transport registered the highest
growth in import shipping among the top five
freight forwarders at 59.8%, while Sealine suffered the steepest drop of 23.1% YoY.
Exports through the Port of Beirut are significantly down over 2014. The top five freight
forwarders reached 20,262 TEUs in the first
four months of 2014, representing a decrease
of 6.2% from 21,593 TEUs in the same period
of 2013. Although Lebanon’s freight forwarding market has low barriers to entry and is
becoming increasingly saturated, the top five
aforementioned freight forwarding companies still hold 98.3% of the total export freight
forwarding market. Sealine Group handled
7,559 TEUs of freight, equivalent to a 36.7%
share of total freight forwarding in the Lebanese cargo market. It was followed by Merit Shipping with 6,635 TEUs (32.2%), Metz
Group with 3,339 TEUs (16.2%), MSC with
1,767 TEUs (8.6%), and Gezairi Transport
with 962 TEUs (4.7%). Metz Group registered
Transport
the highest growth in export shipping among
the top five freight forwarders at 246.7% YoY,
while Sealine group equally posted the steepest drop in exports, of 31.7% YoY.
Samir Noaime, Managing Director of
Sealine Group, gives no concrete reason for
the steep decline in the company’s export
and import forwarding, “From April 2013,
the market has slowed down considerably,
we can feel it. Nobody knows why, unfortunately… there is no specific reason because
the Syrians are still here, the Lebanese are still
here, but this decrease happened suddenly.”
On the contrary, Metz Group’s exponential
growth is a clear indication that the Lebanese
freight market remains extremely competitive and opportunistic during times of market stress and external shocks. The cumulative positive affect in boosting sales that the
Syrian crisis has had on Lebanon’s ports is
undeniable. The country enhanced its position as an intermediary port of call, as many
Western and Eastern states alike imposed
trade sanctions on Syria and Iran over the
last three to five years. Lebanon’s proximity
to Syria and sophisticated banking sector enabled agents to bring goods into the free zone
temporarily.
The substantial impact this has had on
TEU volumes, activity at the free zones, and
incentives for the ongoing expansion of the
Port of Beirut is only strengthened by companies’ optimism looking forward. “When the
war in Syria ends, we will benefit, for sure. We
have a well-equipped airport and port. The
Beirut Airport has two terminals now, while
the ports can handle big vessels of 10,000 or
15,000 TEUs that Lattakia cannot handle,
even before the war,” says Noaime. Comparative advantage of location and relative ease
of doing business is one thing, but the scale
of goods and services in the efforts to reconstruct Syria are set to be enormous. A World
Bank report has estimate the rebuilding costs
of Syria to stand at almost $350 billion, not
taking into consideration the infrastructure
needs in the country, which are expected to
cost another $600 billion or $700 billion. The
likelihood that a large share of these inflows
will be managed by Lebanese contractors and
entrepreneurs means that Lebanon’s maritime trading capacity, and its transport sector
as a whole, is likely to contribute as much to
the long-term creation of employment and
sustained growth over the next decade. THEBUSINESSYEAR
93
NICOLAS HAROUNY
CEO, GL Management
Cm__AFG[h[a_g_hn[m[hij_l[ncih[fi`×]_`ilnb_Gc^^f_?[mn(
It is a long-term plan; therefore, now I am working on establishing
partnerships with a number of large companies. GL Management
h__^mnim_noj[h_nqilechnb_Gc^^f_?[mn(Nb_b_[^i`×]_qcff
mn[sb_l_[h^]ihnlifnb_ij_l[ncihm(Nb_i`×]_mionmc^_F_\[hih
will be small, with one or two employees in the beginning. This way
of expanding our business is also appealing to potential investors, as
it doesn’t require a huge investment.
94
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
How many subsidiaries does
Net Holding currently have?
What synergies are you pushing
between the companies?
Our group counts over 12
companies rolled into a legal
and statutory structure. We
run two independent companies, one engaged in express
(Net Express) and the other in
logistics (Net Logistics), both
subsidiaries of Net Holding.
Additionally, Net Holding
includes Net Manager, an
IT company powering the
Group’s IT infrastructure
and moving into IT solutions
development. We are developing innovative software
solutions mapped onto the
concept of express in a global
dimension. Our multi-branch
mail distribution, management, and tracking software,
which was specifically developed for financial institutions, has been adopted by
Bank Audi, a leading bank in
Lebanon.
How has the business share between your express and logistics services changed over the
past year?
In the express industry, we
experienced growth of 20%
in 2013, a good figure considering the geopolitical situation. A number of logistics
strategies had to be changed,
for example, we used to have
a regular truck coming from
Dubai to Lebanon called a
Time-Definite Trucking Service. Due to the situation in
Syria Time-Definite Trucking
had to be replaced by active
airfreight from Dubai into
Lebanon—a substantial transformation in our business
model from a logistics point
of view. Overall, Net Logistics
has shifted to ocean freight for
most logistics into and out of
the GCC, and this is where we
saw considerable TEU growth
in exports.
Did you see an increase in gross
revenues?
The company has been growing at a rate of 30% to 35% over
the past three years.
couriering
ON
IN NUMBERS
Net Holding
TBY talks to Mourad
Aoun, CEO of Net
Holding, on logistics,
maintaining a
competitive edge, and
prospects in the oil
and gas industry.
Number of
subsidiaries
12
Years in operation
What do you consider to be your
niche in the Lebanese logistics
and express delivery sectors?
The unique position of Net
Holding is that we have our
feet in both industries—express, and freight forwarding
and logistics. Other companies
are either express or freight
forwarders. This is where we
get our edge, as a single-point
solutions provider.
Do you anticipate a need to increase your storage capacity?
The storage facility that we
have in the free zone has not
grown, as we are not concentrating on warehousing or 3PL,
as other companies are. We
are focused on cargo flow in
and out of the Levant. In Lebanon, Net Logistics is growing
its business on the basis of exports in TEUs, and on imports
in the absence of a road network. In Iraq, market development is extremely interesting.
The transit business between
Lebanon and Iraq is not happening due to the situation in
Syria, but many businesses
coming into Iraq from Jordan
and Turkey are counter balancing that.
In what areas do you intend to
enhance your logistics services
over the coming years?
We are getting more involved
in the oil and gas sector in
Iraq and this has brought additional business to the organization, along with additional expertise.
20
How are you planning ahead for
this?
We are positioning ourselves
with the major IOCs, making
sure they become familiar
with our capabilities and expertise. We already know that
many are interested in exploration in Lebanon.
BIO
Mourad Aoun has over 25
years’ experience in sales
management, leadership,
and strategic development.
He started Net Holding
in 1994 by representing
the international express
network, Skynet Worldwide
Express. The group grew to
own and manage 12 subsidiaries in the express and
freight forwarding industry
in the Middle East. Mourad
has a BA in Economics and
a Master’s degree in Marketing from Saint Joseph
University, along with a Finance for Senior Executives
ko[fc×][ncih`ligB[lp[l^
Business School.
What kind of assistance could
Net Holding provide in the reconstruction of Syria?
Our infrastructure in Syria has not changed, and we
are always ready to service
the country. Consumption
continues, regardless of the
conflict. There are many new
flows of humanitarian aid
coming into the country that
need effective logistics solutions.
Biq^isiol]_lnc×][ncihmb_fj
your business?
Abiding by the Foreign Corrupt Practices Act (FCPA) is
important for us. We are a
compliant company and our
work and contracts reflect
it. This is a prerequisite for
working with multinationals
looking for suppliers that can
provide them with adequate
operational
transparency,
which is what we focus on
most. In terms of potential
for future oil and gas projects,
logistics companies must realize that they will only secure
contracts if they are compliant and reliable. 96
LEBANON 2014
THEBUSINESSYEAR
VOX POPULI LOGISTICS SOLUTIONS
WHATEVER
YOUR MEDIUM
Logistics providers continue to invest in solutions and adapt
to the changing needs of clients in the region.
JOHN CHEDID
RAYMOND RIZK
General Manager, DHL Lebanon
CEO, Agility Lebanon
T
he time definite delivery of documents
and packages remains our core business
and is what we are mostly focused on.
Our time definite service continues to improve
thanks to our continuous investment in our network and facilities. DHL remains the market leader in the express industry, and we continue to grow
in market share and revenues. We invest in every
arm of our business, including our network, technology, fleet, facilities, and processes; however,
the most fundamental share of our investment is
on our people. We have a world-class international training program that every single member of
our organization across the world undergoes.
I
n Lebanon, we can say that 3PL is definitely our niche. We foresee more demand on the way as it isn’t yet a mature
market, with some major traders that still resist
the idea of putting their cargo in warehouses
that they do not control themselves. We used to
ship from all over the world, but the focus is definitely on Asia and Europe at present. We no longer focus on land freight in the MEA region because clients are hesitant regarding land freight
in the current insecure climate; therefore, are
requesting alternative services. We offer existing
customers the ocean alternative and in the process have secured new ones to add to the trade.
AWSAF KHALIL GHORAYEB
Managing Director, Ghorayeb Clearing & Forwarding Co. (GIFCO)
W
e used to work about 50% by land,
now it is about 20%. It was 30% by
sea, now it is 50%. By air, it was about
15%, but now accounts for 25%-30% of our
shipments. Things have changed. Shipping by
land is more dangerous now, and it was even
impossible for three or four months in the past
year or so. Recently, some roads reopened,
which has allowed us to ship again; however,
there are still some challenges. Another specialized market for us is in handling time-sensitive cargo such as medicine and food products; a market that has been growing lately.
Additionally, we also offer complete supply
chain solutions, from order management to
storage to distribution.
Transport
THEBUSINESSYEAR
97
ROAD TRANSPORT FOCUS
LIFE IS A HIGHWAY
TRAVELERS IN LEBANON have born witness to a series of ambitious improvements of
an infrastructure system battered by years of
war and political instability of late. In the two
decades following the civil war, between 1992
and 2012, $2.09 billion was awarded to infrastructure development, and according to the
Council for Development and Reconstruction
(CDR), $847 million of that funding was still tied
up in construction projects in 2013. The majority of the funding comes from the World Bank.
Of the $11.42 billion total infrastructure funding awarded by the government between 1992
and 2012, 25%, or $2.86 billion, was awarded to
transportation development projects.
Over time, the nature of transportation in
Lebanon has changed as well. Cars have proliferated. In 1970, only 20% of Lebanese transport
was in private cars, with service taxis picking
up 72% of passenger activity and the other 8%
travelling by bus. In 2009, service taxi rates had
fallen to 18%, and private vehicles dominated
with 80% of transport activity. Buses fell even
further to less than 2%. These new circumstances meant that the number of vehicles on
the road rose from 60,000 in 1970 to 1.2 million
in 2009. That same year, over 50% of Lebanese
households owned one car, while another 25%
of households had two or more. In 1998, the
traffic flow on the southern entrance of Beirut
(in both directions) was 65,000 vehicles per 24
hours. By 2011, it had reached 110,000 vehicles. By 2012, Lebanon ranked 17th in global car
ownership per capita, with 90% of the vehicles
on the road being private cars. Looking to the
future, annual traffic growth rates are expected
to rise by at least 3% through 2020, and stay well
above 2% through to at least 2045. These significant changes in transportation habits will necessitate adaptive road development well into
the future. In response, Lebanon is rolling out a
slew of projects intended to reduce congestion
and facilitate transportation throughout the
country.
A major component of the CDR’s development program is the Urban Transformation Development Project (UTDP), which is designed
to improve the operational and economic efficiency of Beirut’s urban transport system and
Over the last two
decades, the number
of vehicles on
Lebanon’s roads
has increased
exponentially. Now,
the government
and development
institutions are
spending billions to
bring the country’s
infrastructure up to
date.
facilitate the flow of traffic. The project involves
a high-tech monitoring and management hub,
which is connected to 120 traffic lights with DSL
technology. Over 45 kilometers of fiber-optic
cables will connect the center with traffic lights
and traffic monitoring cameras, enabling technicians in the center to tackle congestion in real
time. A further 10 intersections will be installed
with cameras used to enforce compliance with
red lights, as improper observance of traffic
signals is a major cause of congestion and accidents. The UTDP will also feature an on-street
parking management program with 7,500 parking slots. The program will also introduce technical assistance for transportation planning,
public transportation planning, air quality
management, and transport feasibility studies.
Lebanon’s government is opening its checkbook for other development projects as well.
These projects fall into two categories, those
already funded and in motion; and those projects expected to take place between 2014 and
2018. In the former category is a $19.2 million
construction project on the southern highway
near Deir al-Zahrani. Another $5.89 million,
contributed by the Arab Fund and the CDR, is
being spent on road works near Hbariye-Chebaa and Zaghla-Chouba-Chebaa, which are
slated for completion by the end of 2014. Another road project, funded by the Islamic Development Bank (IDB) from Bir Hitt to Sawana
is being completed at a price tag of $8.85 million. Further in the future, the Qalamoun-Deir
Ammar highway project, also funded by the
IDB to the tune of $70 million, is scheduled for
completion in 2018. A slew of other road travel
developments, adding up to over $813 million,
are set to be finished between 2015 and 2018.
Lebanon’s significant investments are already paying off. According to the CDR, the
average speed of vehicles on the northern entrance to Beirut was only 15 kilometers per
hour, but by 2013 speeds had increased to 35
kilometers per hour. New traffic systems should
also reduce ambiguity on Lebanon’s roads,
which in turn should reduce accidents and
congestion. These are timely developments, as
road congestion is estimated to cost Lebanon
$2 billion per year. 98
THEBUSINESSYEAR
LEBANON 2014
VOX POPULI MARITIME
SMOOTH SAILING
Lebanon has a number of competitive and
growth-driven maritime companies offering the
whole range of shipping services that cater to all
needs of the country and the region.
JACQUES ELIE
ABOUZEID
Managing Partner,
Cargo Master Group
NAGY FEGHALY
General Manager,
Global Freight and
Logistics (GFL)
O
ur company is around
90% imports and 10%
exports. We conduct
all of our exports with other
companies, carrying out only
the logistics. Usually, in Lebanon, the customer goes straight
to the carrier for exports. About
75% of the full-container cargo
at Global Freight and Logistics
(GFL) goes to Africa. Perhaps
only 6%-7% goes from Lebanon
to the Middle East. In terms of
what we import, around 50%
comes from China to Lebanon,
and 45% from Europe. We get
some raw materials from Saudi
Arabia and Dubai as well. These
raw materials are to make juice,
wine, dyes, and coloring for textiles. Lebanon generally imports
raw materials for textiles and
then exports to third countries.
While freight for order is based
on containers, groupage, and
airfreight clearance, packing is
our specialty. When you go to
Africa the rate is given from the
carrier to the customer, and it
is better than the rate given by
freight for order. The carrier
needs the cargo to be exported
from Beirut, which affects the
rate of the import. To get a competitive rate for imports, you absolutely need export cargo.
I
n Lebanon, not many
deal in dangerous
cargo (hazardous material). This highlights the importance of being able to move
critical cargo, like biological
substances or goods that are
time sensitive. For example, we
had a shipment of medicine for
patients and it was moved in
a cryo-shipper, which is a box
that no one else has in Lebanon.
We buy it from suppliers in the
UK, Germany, and the US. We
ship blood samples packed with
dry ice to laboratories in the UK
that must be delivered under 24
hours. We do this basically every day. Per year, we are talking
about 4,000 shipments, so that is
about 10 per day.
ROY ELIE
ABOUZEID
Managing Partner,
Cargo Master Group
W
e do what others
don’t. For example,
we worked with a major courier company that can’t
handle dangerous cargo. It had
a shipment of lithium batteries,
which required special treatment and extraordinary packaging. You cannot load this kind
of cargo onto passenger aircraft;
you have to load it onto cargo
aircraft without passengers. That
service requires a special license,
and we specialize in that area.
SAMI BALLOUT
General Manager, ABC
Shipping Co.
F
reight forwarding is
huge; however, we
mostly specialize in
sea and airfreight. We do very little land freight now; our number
one activity is sea freight, with
number two being air, and land
is number three. In the area of
customs clearance, we are wellenough established in the market to deal with any problems,
and we have a good reputation
with our customers. Customs
clearance in Lebanon is not an
easy business, but we are tough
enough in customs clearance to
handle any challenge. We also
offer all other logistic services
than any forwarder would do.
We have door delivery, packaging, insurance, and warehousing. Lebanon is not an exporting
country; it is mostly an importer. Freight forwarders that are
strong and have a lot of power
in exports are rare. For me, ABC
Shipping is, if you want to have
some sort of ranking, in the top
10 for sea freight exports in the
country. We have great relationships with the major players,
such as Maersk Line and CMA.
New roadworks are changing
the urban landscape and
improving traffic flows,
especially in the Beirut area.
Image: Francisco Anzola
100 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
SAIL
away
TBY talks to Alain Maaraoui,
President of Sea Pros, on the
market for yachts in Lebanon and
the region.
What led to your interest in the boating industry?
BIO
Alain Maaraoui established
Sea Pros in 1998. Out of his
passion for the sea, extensive knowledge, credibility
chnb_×_f^&[h^]iggcnment, it has developed to
become one of the leading
distributors worldwide and
a key player in the GCC,
supported by a lineup of the
most prestigious brands
of boats and yachts in the
world.
I started my career as a computer engineer in
Switzerland. I would often visit Lebanon to
visit family, friends, and just enjoy the things I
love best in life, including waterskiing, diving,
and fishing. Often on my visits many people
would seek my advice and opinion when purchasing a boat. I never thought much of it then
until a good friend of mine, who owned a service boat company that I used to spend most
of my days fishing with, said to me “Why don’t
we start a boating business? You sell the boats
and I’ll take care of the service.” It sounded
like a good idea, and so I took the challenge
and went to the Miami Boat Show, where my
business in this field all began, becoming a
dealer for three brands. The first brands I represented were Regal, Fountain, and Proline. I
selected the boats based on their characteristics and the demand in the area at that time.
Regal was for pleasure boating, Fountain was
for speedboats, and Proline was for fishing. I
was determined to have my business grow
quickly, so I invested a lot of my time and efforts to accomplish this goal.
Q[mcn^c`×]ofn`ilsioni_hn_lnb_F_\[h_m_g[lket?
To enter any market is a challenge. The difficulty is that there are competitors already
established and you are new; however, it was
an easy task to accomplish, and we obtained
a respectable reputation in this market, as it is
my hobby, my life, and my passion. I was well
prepared, motivated, and determined—and
those are three strong tools that assisted me to
succeed instantly. After two years of being operational, I obtained the exclusive dealership
for Riva in Lebanon because of the Boat Show
in 2000. Then, in 2001 Riva became part of the
Ferretti Group, which noticed me and told me
that I was the right person for it, hence, becoming the Ferretti Group dealer for Lebanon.
By 2007, I covered the territories of Kuwait,
Saudi Arabia, and the UAE, being the exclusive
dealer to selected brands that best suit those
markets.
How much do your boats cost?
The price range of our boats starts from
$50,000, going all the way up to the millions.
We represent over 12 brands now in order to
assure that we have a diversified range of boats
that can meet the needs of any client wishing
to own a boat.
How many units of boats do you sell?
The units sold by Sea Pros Yachts don’t show
in numbers, but rather in volume and value.
Sea Pros Yachts has sold the largest CRN yacht
ever for over $100 million. We are one of the
rare companies worldwide that is able to sell
two to three mega yachts per year.
How many SEABOBs did you sell in 2013?
The SEABOB is a well desired water toy because of its advance technology and top performance. We are selling 60-70 units per year
here in Lebanon, each unit ranging between
€9,000 and €13,000. The recently launched
new SEABOB F5 & F5S, weighing only 29 kilograms compared to the 64-kilogram older
model, allows any boat owner to own a SEABOB, and has been revolutionary, selling out
before the units have been supplied to us.
Why did you keep the name as Sea Pros?
Sea Pros Yachts is the name that I started with
in 1998, and will carry on to be the name as
it has taken its place in the industry and has
a highly respectable reputation. We are now
leaders in this industry because of our passion, determination, and commitment to innovative business developments that enhance
customer satisfaction.
Transport
How important is Lebanon in relation to your international market?
Lebanon is a rich country with its resources,
being a beautiful country in a prominent location. It is situated perfectly on the map, open
to the fruitful Mediterranean Sea, allowing
boat owners the freedom to travel to many
wonderful coasts, islands, and beaches. Many
Kuwaiti, Saudi, and Emirati clients moor here
in Lebanon rather than the South of France
because of the benefits of the country and the
leisure to use the boat eight months in the year
rather than two to three months. Apart from
the country’s benefit to boat owners, Lebanon
is also an important market because mega
yachts are in demand.
What do you think needs to be done to resolve the
shortage of moorings?
All countries along the coast are facing problems in mooring, and the only solution is to
have investors wanting to develop a marina or
create a new one. This is one of the dreams I
have been pursuing since June 2012; to create a
larger, advanced facility for mooring and recreational activities. I am still awaiting the permit
for this project that would be a game changer
for the boating industry and the economy. Both
boating aficionados, along with the government, will benefit from such a project, having
tourism and GDP increase with a new innovative facility that will allow those who travel by
sea to visit and experience something magical.
IN NUMBERS
Sea Pros
Countries present in
5
Increase in turnover
in 2013
40%
Employees in
Lebanon
50
THEBUSINESSYEAR
101
Is there much construction involved?
The land and space available is much larger
than any other marina facility in Lebanon.
The construction involved will be extensive
as there will be a lot of different facilities for
members, such as swimming pools, tennis
courts, squash courts, the marina itself, and
much more. All the drawings and layouts
have been sketched and designed; this project is really something worth the wait.
What are you expecting for 2014?
As always, Sea Pros Yachts every year is focused on moving forward by constantly finding innovative solutions for the boating industry. For 2014, we are hoping to have the
consent to commence with our project to
grow and establish a better area to serve our
clients in both sales and service. With the current infrastructure situation restricting both
sales and service, both Sea Pros Yachts and
our after-sales sister company, Yachting Services, are finding it difficult to reach potential
and accomplish goals. I am hoping to realize
this dream of a new marina facility to create
a better yachting experience for customers. I
believe that once it is operational, we will experience an increase of over 100% just from
the first year; it will definitely be a completely different way of boating and a promising
project for a better future. 102 THEBUSINESSYEAR
LEBANON 2014
B2B YACHTS
MOHAMAD Z.
CHEHAB
Owner & General
Manager, Chehab
Marine
ROGER DAOU
General Manager,
Yacht Vision
How did you get to where you
are today?
L’EMIR MOHAMAD Z. CHEHAB I started this business 22
years ago, presenting both Cranchi boats from Italy and then
Princess Yachts from the UK. We
started in Lebanon selling quite
a few boats, and in around 2009
we were approached by representatives from the Princess factory to represent it in the Middle
East. We have opened subsidiaries and distributors in the UAE,
Oman, Qatar, and Saudi Arabia,
and we are currently in discussions to appoint a distributor
in Kuwait. We want to continue
expanding in the region.
ROGER DAOU I started with
the Prestige brand, which is one
of the top brands in France. The
first year was a boom year for
me, with sales of seven to eight
boats a year, and the people
from Prestige were impressed
by a small country producing such sales in its first year.
They were proud of us and the
Lebanese market, and we were
proud of what we were doing. A year later, I received the
dealership of Absolute, which
is again one of the best Italian
shipyards. In the second and
third year, we acquired Ranieri
and some other sports boats
brands. In 2013, I became the
dealer for Chris-Craft Boats,
sheets to
THE WIND
Yachting and the exclusive clubs
associated with the sport come hand
in hand when it’s time to hit the water.
because the market demanded
something luxurious and it is
one of the best small boats in
the world; it is like a Rolls-Royce
and I took the three boats and
sold them all. The boats range
from 14 to 16 meters in length.
How do you try to reach out to
high-net-worth (HNW) individuals, and what strategies do
you use to keep sales moving?
LMZC It is all about networking and public relations mainly. Of course, we exhibit at boat
shows in the region. We go
to the Kuwait Boat Show, the
Dubai Boat Show, the Qatar
Boat Show, and the Beirut Boat
Show, and they affect business
quite a lot; however, the main
way is through networking, the
internet, and connections.
Is it part of your strategy to expand your portfolio of brands
as much as possible to reach
as many potential customers
as possible?
RD Exactly. We are trying to
expand Yacht Vision across the
MENA region. Our next projects
are for Qatar and Dubai over the
summer/winter 2014-2015. We
already have offices in Qatar,
and we have an office in Kuwait;
however, we do not have a special crew in Kuwait at the moment. Still, we are training sales
staff and technicians for the
Kuwait and Qatar offices at the
moment, and we hope to have
them open by the end of summer 2014. In 2015, we will have
boats on show at the Qatar Boat
Show, and hopefully in Dubai as
well. Prestige is our best seller.
The largest demand for boats
in Lebanon is for boats between
12 and 16 meters in length, and
Prestige and Absolute have both
of these sizes. There are some
people who prefer Italian styles,
designs, and brands, while others prefer classic styles, such as
the shape of the Prestige; however, for me, both brands are
similar, both are excellent, and
they only require a little maintenance every year, which is normal for yachting.
Are there any trends that the
Lebanese are embracing?
LMZC There is no limit; they
have the means to buy mega
yachts even. Of the 100 largest
yachts in the world, at least six
are owned by Lebanese nationals, meaning you have some
big names. Hence, there is no
limit on size. Coming back to
the question, though, the most
common yachts sold are mainly between the range 15 and 25
meters, which is about 60% of
the market. The average price
is between £500,000 and £4
million. ✖
THEBUSINESSYEAR
106
107
110
Georges Zard Abou Jaoude on
environmentally sustainable
techniques in real estate
development.
The BeitMisk project looks to
satisfy the public demand for
small-‐scale luxury developments.
Lebanon has a number of
megaprojects in the works,
keeping the construction
industry in good health.
103
Real Estate & Construction
R E V I E W R E A L E S TAT E
While Lebanon’s real estate sector is beginning to show signs of
improvement, investors in residential and corporate developments alike
have grand visions for some of Beirut’s more industrial locations.
THE BOUNDARIES
OF URBANISM
O
n the whole, developers are happier than they
were in 2013. Figures released by the Bank
Audi Lebanon Economic Report: 1st Quarter 2014 in May
showed that the number of
real estate sales increased
by 16.3% YoY in the 1Q2014
from 13,619 to 15,834 transactions. This upward trend
was complemented by an
increase in the total value of
property sales transactions
by 35.8%, from $1.5 billion to
$2.1 billion, with an increase
in the average value per sale
from $111,000 to $130,000.
This increased cumulative
property value and number
of transactions are encouraging signs that the economy
could be picking up after a
steady two-year decline due
to the ongoing regional conflict and civil war next door in
Syria, which has had a negative effect on FDI flows and
buyer confidence.
While Arab investors and
Lebanese expatriates remain
cautious investors, the report
notes the rise in property sales
to foreigners, which saw a
The residential real estate sector is
showing signs of growth, with people now
preferring smaller apartments or houses
of around 100 sqm instead of the larger
500-sqm apartments that were popular
in the past.
7.3% rebound YoY. Still, these
figures remain below levels
registered in previous years.
This upward trend is partly
due to renewed interest from
investors from the Gulf, following the official lifting of the
GCC countries’ ban on their
nationals traveling to Lebanon, which was imposed for
over a year. However, at the
time of print, renewed sectarian conflict in Lebanon has
called into question the reimposition of this ban.
Another positive indicator is
that the number of construction permits issued in 1Q2014
was up 18.0% compared to
the same period in 2013. Figures released by the Association of Engineers of Beirut and
Tripoli show that the largest
share of the geographical distribution of these permits is at
44.8% in the Mount Lebanon
district, followed by 19.6%
for North Lebanon, 11.4% for
South Lebanon, and 8.6% in
Beirut. The high proportion
of these permits being issued
outside Beirut is simply down
to questions of congestion,
available space, and land pricing. Such outward expansion
104 THEBUSINESSYEAR
LEBANON 2014
of the Beirut districts to the north and the
south, as well as other large residential, corporate, and retail developments is a trend that
can only continue because of the geographical limitations in Beirut. However, 1Q2014 actually showed Beirut to be the only region that
increased its share of property transactions
at the expense of other regions, reversing the
trend of investors and the property buyers’
preference to invest in property outside Beirut. The increasing number of amateur developers who have attempted to rapidly exploit
the over-liquidity in the market for their own
gains, leaving a trail of sluggish consequence,
has compounded the element of stagnancy
in Lebanon’s real estate sector. The skyline of
central Beirut and its surrounding suburbs are
littered with incomplete developments that
carry expensive presale prices. If it were not
for initiatives such as the stimulus packages
of $1.46 billion and $800 million extended in
November 2013 and January 2014, respectively, launched by the Banque du Liban (BDL),
the bubble in the sector may have proved unsustainable. The package was a lifeline to the
real estate and housing sector, which offered
credit facilities to commercial banks at a rate
of 1%, with some 5% of these funds reserved
for housing loans. Speaking at the BDL Regional Outlook conference in June 2014, the
Governor of the BDL, Dr. Riad Salameh, said,
“this package provided 50% of the growth that
Average Price per sqm for
120-sqm Apartment (USD)
Source: Global Property Guide
UAE
5,037
Lebanon
3,693
Morocco
2,015
Jordan
1,282
Egypt
831
we saw in 2013, that was about 2.5%. We did
the same for 2014, and we are pleased to see
that the credit enhancement we did was successful, and the funds have been used almost
completely, which is why we are looking at
increasing that package.” That being said, the
vast majority of those apartments remain at
the smaller end of the market, between 80 sqm
and 120 sqm. The current slowdown in the real
estate market is partly due to landlords and
developers being unwilling to reduce prices,
partly as they perceive an idiosyncrasy of the
Lebanese market to be that most buyers are
investing in long-term property rather than
speculation. “Prices always go up 5%-10% after a period of stability. There is a solid reason
behind that, because everyone wants to have
property,” said Zaher Diab, General Manager
of Trusthold Development Group. “It is a real
market with market prices. If you come to buy
a property in our project you will not re-sell
it, you will use it. The apartments do not have
an expiry date.” The reluctance of landlords
and developers to budge is a surefire sign
that many developers feel confident that Lebanon has managed to avoid the dangers of a
bursting housing bubble, and they have every
reason to. The inflows into the country from
Lebanese expatriates have been key to maintaining steady inflation, which is also the reason why asking prices remain stubborn, if not
wise, to market functionality.
MICHEL GEORR
CEO, CGI-‐Saradar Group
How did Saradar’s real estate arm CGI evolve
`lignb_M[l[^[lAliojÎm×h[h]c[f[]ncpcnc_m9
The history of the Saradar family in the banking
business goes back to 1948 when Marius Saradar
founded Banque Saradar. After the third generation
chairman, Mario Saradar, took charge in 1992, the
\omch_mmmn[ln_^ni\_]ig_gil_^cp_lmc×_^[h^
the guiding idea was to shift the bank from universal banking to being specialized more in private
banking. CGI was founded in 1998. At that time,
Saradar had an extensive portfolio of high-networth (HNW) individuals, whether Lebanese residents, expatriates, or investors from the Gulf, all
of whom were hungry for investment opportunities
in the real estate sector. Saradar’s objective was
to increase its share of assets under management
within the bank and real estate products allowed
this to happen.
How much has the group expanded its operancihmmch]_\_]igcha[`×fc[n_^qcnb<[he;o^c
in 2004?
When Banque Saradar and Bank Audi joined forces
to form Group Audi Saradar in 2004, CGI became
a subsidiary of this group. We had the opportunity
to offer our projects to a much larger panel of
investors, with Bank Audi being one of the largest
in the country. We had larger opportunities and we
were able to increase the number of projects. In
2010, for example, we raised $55 million to launch
a shopping mall at the southern entrance to Beirut.
Airport Mall was greatly over subscribed and one
of the most successful placements done by CGI.
Our vision was that regional mall operators would
be interested in our small market because of the
[`n_lg[nbi`nb_×h[h]c[f]lcmcm(
Where are you concentrating your international
investments?
Saradar’s real estate portfolio grew and reached
a 33% allocation level compared to the group’s
overall assets. The objective is now to achieve geoal[jbc][f^cp_lmc×][ncih&[mnb_jiln`ifcicmb_[pcfs
concentrated in Lebanon. The group is to focus
mainly on income generating assets in stabilized
markets, the eurozone being one of them, while
dedicating a minor share to risky destinations, such
as Syria or Africa.
Real Estate & Construction
A NEW URBANISM
In addition to the current trend of investors in
corporate and retail developments looking for
out-of-the-box locations, developers of residential premises are also taking the latter approach to service a growing residential demand
for out-of-the-city, up-and-coming industrial
areas.
Loft Developments is a company that aims
to do just that, by converting old industrial
premises, located mostly by the Beirut River, into modern alternative living spaces. “We
were thinking that the market would reach a
point where people would become selective in
their choices,” said Mark Doumet, Director of
Loft Developments. "We have created such a
niche for expatriates who mostly lived abroad
in places such as New York or London and were
familiar with the loft concept: industrial spaces,
high ceilings, where luxury would not be simply
defined by the type of bathrooms that you install, but by the design.” Since 2008, such developers have seen prices increase three fold. “We
bought a piece of land and tried to convince the
investors for more purchases, but they thought
it was a too risky a venture…prices have risen
from $2,000 to $5,000-$6,000 per square meter,”
Doumet said. Given the saturation noted by the
majority of developers, apparent in their standoffishness and the delays in contracting across
the board, it seems that investment in the few
underdeveloped areas of Beirut is the way that
seasoned investors are moving. This is especially the case for areas located along the banks
of the Beirut River, the Quarantina district,
Corniche El Nahr, the boundaries of Beirut’s
eastern suburbs, and Sin El Fil—the gateway to
the adjacent mountain province of the Metn. If
people are not prepared to trade in the suburban for the industrial, then in Lebanon they
can always trade the suburban for residential
developments in Mount Lebanon, practically
a northern extension of Beirut province in the
adjacent Metn region. The highly publicized
$800 million megaproject BeitMizk, launched
by developer GZA Group, aims to accommodate 12,000 people over 665,000 sqm of green
mountainous surroundings and is one of several examples. Numerous other megaproject developments being constructed outside Beirut
are undertaking everything from selling from
their sales hub in their future country club, to
fitting their own irrigation systems. The CEO
of GZA Group, Georges Abou Jaoude is happy
to declare “all the infrastructure is done by us,
the water, the telecommunications, the internet, the electricity” and as a consequence of
these special touches they have constructed
and, according to Abou Jaoude, sold 400 of the
2,000 units. However, even with the demand
for out-of-the-city living being high, and prices competitive compared to those in the city,
THEBUSINESSYEAR
105
projects such as BeitMizk and Sky Towers of
CIBCO still have up to 80% of construction
pending completion. In the meantime, delays
in contracting are pushing up costs, which are
consequently being passed onto the consumer.
“Costs have risen slightly since we began construction, which affects the final selling price.
We are now selling at 1.5 to 1.8 times the original price, and it is still rising,” says Jaoude.
OFFICE & RETAIL
In the same way that residential developers are looking for out-of-the-box locations,
corporate and retail developers are starting
to do the same. Unlike many of the amateur
residential developers, the retail and corporate communities are looking at permanent
investments, concentrating their efforts on
finding the ideal location on which to build
future investments according to tight specifications. Corporate office and retail developments are increasingly migrating out of
the city, on account of both unaffordable
pricing and the availability of significantly
cheaper developments sprawling out across
the South and North of Beirut. Some of these
mentioned intend to develop land previously
thought untenable, or to bring modern consumerist developments to smaller cities and
towns outside Beirut where there is clear
demand, as is the case with Chaddad’s Sour
Mall, planned for completion in 2017.
With rock-bottom land prices in the Quarantina and Corniche El Nahr affording corporate and retail prices of $1,500 and $3,000
per sqm, respectively, and no uniformed relocation of corporate companies to the Metn
anytime soon, it is these developments that
have the potential to transform the corporate and retail landscape of Beirut more than
any other. Real estate development giant CGI
Saradar has already taken preliminary steps
and shared its master plans, “because of the
prices, competition, and low purchasing
power…you have to think outside of the box
to be able to attract investors,” explains CEO
Michel Georr. Lebanese and regional real estate giant Horizon Group’s most recent Lebanese development is ABC Verdun, launched
as a joint development between ABC and
Verdun 1544 Holding. CEO Baha Hariri, son
of Lebanon’s late prime minister Rafic Hariri,
was quoted in Lebanon’s Daily Star on June
12, 2014 saying that the group was “making a
bold bet on the construction sector that three
or four years down the line at the end of the
construction phase of ABC, the situation in
Lebanon, Syria, and Iraq will get better.” The
one common feature between developers of
all calibers in Lebanon, then, is that they recognize the highly cyclical nature of Lebanon’s
real estate sector. JOSEPH HAYEK
CEO & General
Manager, Hayek
Construction
Company (HCC)
Could you tell us about your
company?
HCC is a sister company of
Hayek Group. We are a construction company, and we only
deal with construction projects,
whereas Hayek Group takes
care of development, management, and real estate, mainly in
Lebanon and the GCC region. In
the beginning, Hayek Group took
care of all those jobs, including
construction and contracting.
HCC generates about 60% of
total revenues from our projects
in the Gulf and Erbil.
What projects have you been
involved with?
We have been in Iraq since
2003, and worked on several
governmental projects funded
by the US. We worked in Iraq
from 2003 to 2009, taking care
of up to $70 million worth of
projects in that six-year period,
qcnb[h_njli×ni`+/gcffcih(
After 2009, we moved our
operations to northern Iraq,
where Erbil, the capital of
Iraqi Kurdistan, was booming.
We undertook a few projects,
including a $12 million project
for the construction of electrical
substations for the Department
of Electricity in Erbil. Not every
company has the spirit to meet
the challenge that we have, and
that is what made us successful
there, whereas other companies
have left the country.
106 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
IN NUMBERS
GZA Group
Total investment
in BeitMisk
infrastructure
58
community
CREATION
TBY talks to Georges Zard Abou Jaoude, CEO
& Owner of GZA Group, on consolidation, the
BeitMisk project, and applying environmentally
sound techniques to real estate development.
Million USD
Accommodation
capacity of Misk Town
12k
People
Initial total
investment in
BeitMisk
800
Million USD
When and how was the GZA
Group established?
We have a history of over 35
years, and have now consolidated all operations into the
GZA Group, which was originally called Zardman and
Renaissance Holding. Renaissance deals with the BeitMisk Project, which concerns
Misk Town—a 70,000 sqm
residential village with retail
services. Zardman, on the
other hand, has 104 buildings
ongoing, and is managed by
my children.
What was the total investment
in the BeitMisk project?
The original investment was
around $200 million, and the
project will take 10 years. In
the beginning, we did not
need that much equity. I believe that over the coming one
or two years, another wave of
consolidation will take place.
We have some business today
in Erbil, in a significant project
with an area of 200,000 sqm.
We are also in the process of
establishing some work in
Africa, which will also be a
megaproject.
How has the business portfolio
developed over the past decade?
It was in around 2008 that I
fully committed to working
in real estate. The first major real estate project we did
was the retail center at the
entrance to the Presidential
Palace of Saint Jean. We also
worked on two large telecommunications center buildings.
There are many buildings like
those that we have worked on,
but BeitMisk is on a different
scale, and occupies well over
50% of my time.
What is the range of properties
on offer at BeitMisk, and why do
you feel it is such a unique project in Lebanon?
The properties go from one
bedroom to huge villas. There
are 2,000 units altogether, and
it can accommodate up to
12,000 people. There are currently 400 families living in the
project, and we are starting
the downtown for BeitMisk in
the latter half of 2014. We have
an occupancy rate of 100% for
the units already built. Many
of the apartments that we are
still building have also already
been sold. We have connected the infrastructure, such as
water, telecommunications,
internet, and electricity, and
the scheme even uses waste-
water to irrigate the green areas. This is giving us an edge
over the competition, because
we have our own security. We
have truly mastered all of the
energy-related ins and outs.
We have achieved zero pollution, as we use both solar and
gas energy. Meanwhile, in our
scheme you will never see the
BIO
George Zard Abou Jaoude
started his real estate
career in Saudi Arabia in
1976 after graduating from
the American University
of Beirut (AUB) with a
Bachelor of Arts Degree in
Architecture. From 1976
to 1988, he managed and
co-chaired both the Modern
Design Company, and the
Saudi Aluminum Manufacturers, and successfully
developed over 20 high-end
architecture and interior
design projects. A decade
later, Abou Jaoude moved
back to Lebanon and undertook over 30 residential,
commercial, and mixeduse projects. Among them
is one of the largest real
estate developments in
Lebanon, BeitMisk, located
in the heart of Mount Lebanon. Abou Jaoude is also
the man behind Zardman,
a real estate company that
develops new neighborhoods and promotes new
lifestyles.
wiring, and with the lighting,
we use a new advanced system that is energy efficient. It
is a masterpiece and unique
to the region.
How much of the entire project
is constructed?
Almost one-fifth of the town
has been constructed so far,
and around 400 of the 2,000
units. The rest of the construction will be determined
by market demand. The
project land is large enough,
meaning that we are not
obliged to build all the units
simultaneously. We are using less than 20% of the total
area, meaning that 80% of the
land is given over to gardens
and green space. Naturally,
the downtown area is pedestrianized, and we have a large
club with its facilities spread
over a 15,000-sqm area. Still,
costs have risen slightly since
we began construction, which
affects the final selling price.
We are now selling at 1.5 to 1.8
times the original price, and it
is still rising.
How would you assess GZA
Group’s performance over the
last year?
We are doing well, but we
could be doing better. Emaar,
the company that built the
highest tower in the world,
the Burj Khalifa, is assisting
us in almost every aspect. As
one of the largest companies
in the world it has a great
deal of experience, which we
are leveraging in terms of our
cooperation. Real Estate & Construction
THEBUSINESSYEAR
107
BEITMISK PROJECT FOCUS
ROOM WITH A VIEW
THE DEMAND FOR huge apartments is over
in Lebanon, and people have been left struggling to offload a once hot commodity. Now,
the Lebanese desire smaller, more compact
apartments, but still with all the modern luxuries and amenities as before. This is leading to
a number of new projects with everything the
modern citizen would need.
One such project is the BeitMisk project. Out
in the Northern Metn region in the hills overlooking Beirut, the development is spread over
655,000 sqm. It is just 18 kilometers away from
Beirut and 2 kilometers from Baabdat, placing
it in an ideal catchment area for commuters to
both cities.
Announced in 2009, the project is expected
to cost around $800 million in total. Georges Zard Abou Jaoude, Owner & CEO of GZA
Holding, is largely funding the project by putting up 60% of the funds over a number of
phases, with the remaining 40% coming from
Banque Libano-Française. The project will be
able to accommodate up to 12,000 residents
in a number of village-style neighborhoods,
including three-story apartment blocks and
private villas. There will be 2,000 housing units
in total once the project is complete, with 400
units already finished where families have
already taken up residence. Construction began in 2009 and the first phase came online
in 1Q2014. The entire project is expected to
be completed by the end of the decade. The
average apartment will be in line with current
trends in the market for smaller apartments at
between 180 sqm and 260 sqm at an average
cost of $1,650 per sqm. This would make for an
average apartment price of between $297,000
and $429,000. All maintenance services, such
A number of luxury
developments have
been announced over
the past few years with
the aim of satisfying
the public’s demand
for small, luxury
housing.
as road sweeping, garbage disposal, exterior
landscaping, infrastructure maintenance, and
waste treatment, are taken care of by the management of the development. Apartments will
also include fire alarm systems, gas detection,
total security management, and burglar alarm
systems. In addition, the project will also have
its own standby power plant for 24/7 electricity, an LPG network, a solar energy system, and
fiber-optic services for internet and cable TV.
In addition to these services, the BeitMisk development is also hoping to be as environmentally friendly as possible by reducing waste and
water consumption. “We have truly mastered
all of the energy-related ins and outs. We have
achieved zero pollution, as we use both solar
and gas energy,” Georges Zard Abou Jaoude,
Owner & CEO of GZA Holding, explained to
TBY. He went on to say, “In regard to lighting,
we use a new advanced system that is energy
efficient. It is a masterpiece and unique to the
entire region.”
In addition to its residential commitments,
the developers are also planning on constructing a multitude of entertainment activities.
Each neighborhood will host a number of public and green spaces, as well as boutique streets
for shopping. There will be trendy restaurants
and coffee shops, a hotel, art galleries, gourmet
shops, postal services, a library, multi-purpose
conference areas, recreational areas for children, numerous retail shops and services, as
well as office space.
Numerous projects like BeitMisk have been
announced over the past few years surrounding Beirut as developers seek to satisfy the
public’s changing demands for smaller, modern living spaces. 108 THEBUSINESSYEAR
LEBANON 2014
VOX POPULI DEVELOPMENT OUTLOOK
I
think
we
have
enough assets in
Lebanon at the moment. We are looking more in
the US and Dubai, as well as
other places. There is a lot of
liquidity injected in the world
at the moment, and as you
know all that cash is placed in
safe havens, such as London,
New York, and Paris; however,
it will come back. It is difficult
to find quality opportunities
today, which is also part of the
reason why we think it is better for us to keep the real estate
if we can. We just signed for a
long-term lease of the Bush
Tower in New York, and are
looking to find other promising opportunities in New York.
However, interest rates are
low, and, therefore, the cap
rates are low, which makes it
difficult to find these opportunities, but it goes in cycles.
UP &
OUTWARD
Never one to stay down for long, Beirut is rising again with
a multitude of developments. Lebanese developers are also
casting their gaze abroad.
T
MARWAN DALLOUL
Managing Partner,
DALFA Group
here is no doubt that
Lebanon as a whole
has been affected
by the regional political environment. However, Chaddad
Group hasn’t been affected yet
in Lebanon by these outcomes
due to its strategy, which has
made the whole company
capable of emerging outside
Lebanon. In addition to the
business in Lebanon, Chaddad
has other businesses abroad
and development projects in
Europe. We are also seriously
studying several potential development projects in Lebanon. We believe that there are
still opportunities to seize in
the real estate sector. The demand for smaller apartments
in prime locations is still very
high. We are also developing a project in Algeria that is
comprised of two towers of 20
floors each. The project should
be delivered by end-2016.
SAID CHADDAD
President, Chaddad
Group
MICHEL ASMAR
General Manager, Platinum Invest Holding
R
eal estate has always been a pillar of the economy of
Lebanon; however, we have been through times when
anyone could build anything and it would sell. Now, it
is different. Today, you have to know the product that you are
offering, because the market is tight, especially during these
times, when the economy is not in the best shape. Our signature
is to create a new trend in the Hazmieh region of Beirut—small
units, in a trendy project, with high-quality specifications. Today, we offer 75-sqm apartments for $150,000. We believe that
this is the type of property most needed in Lebanon.
Real Estate & Construction
THEBUSINESSYEAR
W
109
e have started many projects, and have completed maybe 150 projects in total. Currently, Beam’s
major project is the Rue Damas Tower, which
is almost finished. Ciel et Jardin is another large project,
which should finish in three years’ time. It is a tower of 35
stories with three technical floors, a ground floor, and five
basements. It is a purely residential building. But really,
we are somewhat on hold. We are a bit hesitant to start
most of our projects right now. The ones we have already
started, we are still working on them, but we are on hold
for the new ones because we are a bit worried about the
economics of the situation. We Lebanese are a bit crazy
sometimes; we jump into projects even though we are
fighting, as we know things will eventually pick up. But
right now, we are not worried about the Lebanese situation; we are worried about the Syrian border.
NADIM
FAKHRY
Founder &
CEO, Beam
Developers
Downtown Beirut is a hallmark
of Lebanon's construction
resurgence
MARK DOUMET
CEO, Loft Construction
L
oft
Construction
was founded in
2005. The idea behind it is to offer something
different to the local market.
At that time, the real estate
market was booming. Basically, we were thinking that
the market would reach a
point where people would
become selective in their
choices. All the buildings
looked alike, meaning the
prices would eventually fall
unless you offered something
different in the sense of creating a niche in the market. We
have created such a niche for
expatriates who mostly lived
abroad in places such as New
York or London and were familiar with the loft concept:
industrial spaces, high ceilings, where luxury would not
be simply defined by the type
of bathrooms that you install,
but by the design.
110
THEBUSINESSYEAR
LEBANON 2014
Lebanon has a number of large-scale megaprojects underway helping to
spur along the construction industry.
Review
CONSTRUCTION
BUILD WITH ME
Construction Permits
(In Thousand sqm)
Source: BankMed
4,000
3,000
2,000
1,000
500
1Q2014
1Q2013
1Q2012
1Q2011
1Q2010
1Q2009
0
Cement Deliveries
(In Thousand Tons)
Source: BankMed
1,400
months of 2014 and rose by 9.3% annually,
relative to an increase of 3.6% in the same period in 2013 and a drop of 2.8% compared to
the first four months of 2012.
According to Byblos Bank’s Lebanon This
Week Report Issue 359, cement deliveries increased sharply by 14.81% during the month
of March 2014 to 416,946 tons, up from
363,176 tons in February. On a cumulative
basis, cement deliveries expanded at an annual rate of 7.33% to 1.21 million tons in the
1Q2014, up from 1.13 million tons during that
same period in 2013. It is worth noting that
Lebanon imports around 80% of its construction equipment and building materials.
The statistics on the levels of cement deliveries and construction permits are an indication of how supply activity adjusts to
demand trends in the real estate sector. Yet,
although the materials are being ordered and
delivered, this does not necessarily give the
full picture of their materialization or use for
construction, and is better gauged as an act of
intent to begin construction, whenever confidence in the markets begins to resurge.
PRIVATE-PUBLIC DILEMMA
1,200
1,000
800
600
400
200
1Q2014
1Q2013
1Q2012
1Q2011
1Q2010
0
1Q2009
The last official measurements undertaken
by the Investment Development Authority of Lebanon (IDAL) in 2010 evaluated the
Lebanese construction sector’s contribution
to Lebanon’s GDP at 15%, employing 9% of
Lebanon’s workforce. The vast majority of the
manual labor utilized by the sector is undertaken by Syrian and Egyptian migrants. The
overall volume of construction in Lebanon
totaled more than $9 billion in 2013, according to the annual Banque Du Liban (BDL) report.
Figures released by the order of Engineers
of Beirut and Tripoli show that the number
of construction permits reached 7,203 in the
first five months of 2014, constituting a marginal decrease of 0.4% from 7,234 in the same
period of 2013. Mount Lebanon accounted
for 43.1% of the number of construction permits in the covered period, followed by South
Lebanon with 16.8%, the North with 12.6%,
Nabatieh with 12.5%, Bekaa with 10%, and
Beirut with 5%. At the time of print, a total of
382 housing projects were under construction in the Municipal Beirut area in 96 different locations divided into different price
categories.
The total surface area covered by construction permits issued in the first five months
reached 6.1 million sqm, constituting an increase of 14.3% from the same period in 2013
and compared to decreases of 14.8% and
11.9% in the same periods of 2013 and 2012,
respectively. Mount Lebanon accounted for
2.7 million sqm or 44.3% of total construction
permits in the covered period. It was followed
by the North with 1.1 million sqm (17.4%), the
South with 719,493 sqm (11.9%), Beirut with
640,913 sqm (10.6%), the Bekaa with 503,224
sqm (8.3%), and Nabatieh with 455,247 sqm
(7.5%).
In addition to the YoY rise in construction
permits, cement deliveries began to increase,
totaling 1.7 million tons in the first four
Lebanon’s construction megaprojects, notably BeitMisk, Majid Al Futtaim, and Joseph
Khoury et Fils’ $2 billion Waterfront City on
the seafront of Dbayyeh, tread on, partly occupied and at various stages of completion.
There is also the $500 million Sama Beirut,
which is the highest tower planned in Lebanon, and will start delivering by mid-2015. In
June 2014, Solidere announced that it would
restart infrastructure works at the Beirut Waterfront district and start the construction of
a department store, which at the time of print
was planned to commence before October
2014. The district has been a priority for Solidere for some time, given its prime location
and the readiness of developers to begin investing.
Real Estate & Construction
The ever-present dilemma for Lebanon’s
old-school contractors is whether to participate in tenders for Lebanon’s public works
body, the Council for Development and Reconstruction (CDR).
Two of Lebanon’s veteran first tier and fivestar CDR contractors, Quality Investment
Group (QIG) and Chaddad, have played an
instrumental role in both the CDR-backed reconstruction of the Lebanese university and
the $104 million reconstruction of the Port
of Beirut; however, they prefer to focus their
energies on private residential and retail-orientated projects. Chaddad Group is sporadically applying for small-scale public restoration contracts, while QIG has not bid for
any CDR projects in 10 years. “CDR is another
ball game and we’re not comfortable with it.
I’m a board member of the syndicate of public work contractors, meaning I’m in the right
place to witness close up all the problems
SARMAD SHAYBOUB
Founder & CEO, The
Constructors
Originally, there was a boom
following the Palestinian migration,
and then in 1981, 1992, 2007, and
again now. But the market has
slowed down. More or less every 10
years there is a boom in construction
and real estate prices—that has
happened for the past 50 years I
have been working here. We are not
expecting a dramatic change over the
next few years. During the war, I was
designing and selling apartments,
and at one point I was probably the
only Christian developer in West
Beirut. However, in hard times I was
always accompanied by militia. It
q[mp_ls^c`×]ofn&\oncnj[c^i``(
faced by those taking part in public projects,”
explained Roger Karam of QIG, the principal contractor for BeitMisk. He is instead focusing his efforts on a residential project, a
655,000-sqm development in the Bekaa, but
the phasing of its execution is wise of experienced contractors familiar with both seasonal lulls in demand and the perils of deploying
cement and other construction resources too
rapidly, “we didn’t have the guts to move full
blast on this. Instead, we are planning to develop this project over 10 to 15 years, phase
by phase,” says Karam.
As Antoine Assi, of Cabbabe Real Estate, notes
securing investors for construction projects
from the private sector is an entirely separate
challenge to securing construction permits,
and developers ought to be careful in which
order they proceed. The numerous risk-taking
developers that have moved into contracts prior to being issued construction permits may be
the reason why such large amounts of cement
are sat going dry in mixing barrels. “I have done
a project of 40 apartments, it was five buildings.
I have done incredibly launching the project. I
have sold 50%, and we still do not have the permit,” says Assi.
Many developers in Lebanon have intricate
relationships with the land banks, which for
many of the larger contractors is a more profitable and safer relationship than working for
the state. Indeed, the constantly increasing
price of land in Lebanon shows a far simpler
cycle than that represented by the mishaps
and delayed payments that have plagued CDR
projects since the organization was founded.
For Rafik el Khoury & Partners, on the other
hand, CDR is its principal client, consistently
winning tenders for infrastructural projects
in telecommunications, gas, water, and electricity over the last 40 years. These projects
rely heavily on international donors such as
the Arab Fund for Development (AFD).
Their most significant tender in process is
for the constructing of water diversion and
treatment facilities such as the Beirut Awali
Tunnel. “There is going to be a water treatment plant for drinking water which will treat
the water that comes in from Awali River,”
explains Khoury, as part of the Greater Beirut
Water Supply Initiative, a plan to rechannel
water from the Qaraoun Dam. Rafik Khoury
and its partners are one of the few Lebanese
companies qualified to construct such dams,
for which there are currently six tenders in
process. “We have designed one of the larger dams in Lebanon, which is the Ibl El-Saki
Dam in South Lebanon in the Caza of Hasbaya about 30 kilometers from the Israeli border, says Khoury. “This is sort of an international dam. The size has been reduced from
80 million to 50 million cubic meters.” THEBUSINESSYEAR
111
ROGER KARAM
Chairman, Quality
Investment Group
(QIG)
QIG has delivered Beirut
Arab University in Tripoli,
the BeitMisk, the Mondrian
Tower, Magic Planet, two
or three small University
of Beirut projects, the
Lebanese American
University (LAU) Medical
School car park and
dormitories, and we are
on the verge of delivering
a new hospital in Beirut as
well. Those are the major
projects that have come
to completion that we
have worked on. We are
currently bidding on some
major residential projects,
and are also awaiting
word on new phases of
BeitMisk. Eventually, there
will be a Misk Village, too.
112
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
GET involved
TBY talks to Rafik El-‐Khoury, Chairman
& CEO of Rafik El-‐Khoury & Partners, on
building an engineering consultancy, and new
opportunities to diversify into cultural and
environmental works.
Biq b[m L[×e ?f'Ebiols Partners developed since its establishment in 1967, particularly
in terms of the geographical expansion of its operations?
From the outset, the firm
has, on the one hand, been
involved in the structural designs of delicate architectural
projects where only the full
interchange of ideas between
architect and engineer could
lead to the success of the venture. On the other hand, it has
been involved in important
engineering and structural
designs per se. To satisfy the
demands of its clients, the
services of the office were extended early on to include
architectural and electro-mechanical design, and working
drawings. The firm has been
closely involved in major
projects both in Lebanon and
in the Middle East. From the
start, we decided to establish
branch offices in the UAE (Abu
Dhabi in 2006) and Saudi Arabia (Riyadh and Al-Khobar in
2010), to be able to undertake
first hand our activities locally.
In which main sectors are you
involved?
Structural design, road and
bridge design, infrastructure
design, the design of industrial installations and maritime
works, preparation of tender
documents, and project control and supervision (including cost control and project/
construction management)
are some of the firm’s major
fields of activity. The firm has
also been extensively involved
in structural steel and prefabricated concrete design,
and the preparation of fabrication and shop drawings
for these industries. Also, to
keep up with market developments, the firm has entered
into the field of solid waste
management. This includes
the design and supervision of
wastewater treatment plants
and sea outfalls, industrial
equipment and power station
maintenance, and preparation for the privatization of the
water and electricity sectors,
cultural heritage projects, and
environmental work.
How did your company build
up such a multi-disciplinary
portfolio?
The firm has over 250 engineers and technical staff and
maintains full-time specialists
in our main fields of activity.
For the more highly technical
aspects of work, we maintain
close relationships with major
international consultants in
the various fields of engineering. In certain domains, the
firm has long-term arrangements with major international consultants to exchange
and second staff. The firm has
built-up a multi-disciplinary
portfolio, in particular to deal
with projects funded by major
agencies such as the World
Bank, European Investment
Bank, Japanese Bank for International Cooperation, Saudi Fund, Kuwait Fund, and the
Islamic Development Bank.
IN NUMBERS
Rafik El-‐Khoury
& Partners
Founded in
1967
Qb[n [l_ nb_ gimn mcahc×][hn
tenders that you are working toward at the moment?
Some of the prominent tenders under preparation at
present are, for Lebanon, a
water treatment plant, a dam
in South Lebanon, and waste
water treatment plants in
Keserwan. For Saudi Arabia,
we have the military airport,
a hospital in Riyadh, supervision of a 1,500-villa project
in Riyadh, and design work
for parts of the Riyadh metro
project. We also have a hotel
and a mall project in Dubai,
along with a high-rise apartment building in the UAE.
Qb[n [l_ nb_ gimn mcahc×][hn
projects that you are currently working on at the regional
level?
We are doing detailed design of infrastructure works
in Mecca, Saudi Arabia. The
project covers the construction of roads, tunnels, and
overpasses, including utility
services and tunnels in the
Holy City. We also have the
“Mussallah in Mecca” project, which is a 150,000 sqm,
75,000-person mosque built
on eight levels. Then, we have
an administration building
project in Riyadh consisting
of office buildings and related
utilities, such as a data center,
general administration, and
conference hall, with a built
up area of 40,000 sqm. In the
UAE, we are working on the
upgrading of an urban road
in Ras Al Khaimah. That project includes a dual carriageway with three lanes in each
direction, with parallel side
road parking, and sidewalks.
The upgrade is 9 kilometers
long, and includes road and
pedestrian bridges. We are
also engaged in an interesting project being built on the
Littoral Nord site, which is a
reclaimed plot of land north
of Beirut. Our present involvement there comprises the
design and supervision of a
business park, a hotel, and a
residential building. BIO
L[×e?f'Ebiolscm[q_ff'
ehiq×aol_chnb_]ihmofning world. He worked with
a leading British consultant
from 1960 to 1965 after
graduating in engineering
sciences in 1960 from
Oxford University, and
subsequently he obtained
his Master’s degree. After
completing a scholarship
awarded by the French
government, he returned
to Lebanon in 1965. There
he worked as a consultant
nip[lciomi`×]_mjlcilni
`ioh^chaL[×e?f'Ebiols
& Partners – Consulting
Engineers in 1967. He has
directed its activities in
Lebanon and the Middle
East up to the present.
THEBUSINESSYEAR
113
114
116
Lebanon is leveraging a
history of agriculture in the
region to boost output today.
Elie F. Issa, CEO of Domaine
Des Tourelles, on exporting
wine and arak.
HE Akram Chehayeb,
Minister of Agriculture, on
the country’s historic links
to quality.
113
Agriculture
REVIEW
Long renowned for its quality agricultural produce, Lebanon today has a
burgeoning agro-industrial base and continues to bolster its name as the
source of many a fine wine. Structural challenges remain to getting the
most out of the land, however.
RIGHT AT HOME
W
ith the Levant
often referred to
as the “home of
agriculture,” it’s
easy to understand why Lebanese produce often makes
a splash. Organizational barriers, though, hinder the sector’s growth and profitability.
Such barriers include land
fragmentation and low mechanization rates, while exporters struggle with a complex
trade agreement framework
and high costs. The country’s
main agricultural exports are
fruits and vegetables, while
Lebanese wine also continues to make its mark on foreign palates. Agro-industry is
also fairly big business, with
$453 million of total industrial exports of $3.076 billion
represented by prepared
foodstuffs in 2013, according
to BLOMINVEST BANK.
LAY OF THE LAND
According to a report from
Al Akhbar, the sector suffers
from high costs of production,
monopoly of traders, and unfavorable trade agreements.
Food security is also a concern, with 280,000 hectares
Wine and arak are becoming much
more important products for Lebanon's
agriculture sector, but traditional crops
will always have a prominent role.
of the 1.1 million hectares
of exploitable land actually
utilized, only 32% of which
is irrigated. The sector also
suffers from fragmentation,
with another report, this time
from the American University
of Science and Technology’s
Basam Hamdar, reporting
that agricultural land is divided into 195,000 parcels, with
50% less than 5 dunums in
size. This impacts the mechanization rate, which stands at
under 25%, well below that of
the EU and sometimes lower
than neighboring Arab states
in some crop categories. The
sector represents some 5% of
GDP and 6% of the workforce.
But according to the Basam
Hamdar report, 70% of those
engaged in agriculture are
also involved in other economic activities to support
their basic needs. The report
also estimates that up to 60%
of farmers produce for their
own consumption.
Lebanon does have further
potential, however, boasting a moderate climate and
abundant water sources.
Lebanon is also blessed with
more rain than its neighbors,
114
THEBUSINESSYEAR
LEBANON 2014
averaging 2.2 billion cubic meters per year.
The Bekaa region represents the country’s
breadbasket, with 40% of the Bekaa plain cultivated. The North is also a strong focus for agriculture, while in the South much production
is carried out in greenhouses.
Total Industrial Exports
(in USD millions)
PRODUCTION & EXPORTS
3,000
Lebanon’s key agricultural produce categories
are fruits, including mainly apples, oranges,
bananas, grapes, and olives, which account
for 41% of total production, and vegetables, including potatoes, tomatoes, and maize, which
account for 23% of the total. In fruit, the largest sub-category, according to the Investment
Development Authority of Lebanon (IDAL), is
citrus, representing 28% of total fruit production. That is followed by apples on 19%, grapes
on 15%, and bananas on 11%. In export terms,
the MENA region remains the largest market,
but Lebanese produce also finds its way into
fruit bowls and vegetable baskets in more distant markets, with France importing 456 tons
of apples in 2013 and Germany importing 596
tons. In terms of citrus fruits, Saudi Arabia was
the largest importer, hauling in 21,144 tons in
2013, followed by Russia, Australia, France, the
UK, and Africa. In potato terms, 189,339 spuds
filled sacks leaving Lebanese shores in 2013,
mainly to the Arab world, Russia, and Africa.
Olives are also a big export category, with the
salty treat finding its way around the region as
well as to Spain, Germany, France, the UK, the
Netherlands, Ukraine, Sweden, Canada, Australia, Latin America, and Africa.
Source: BLOMINVEST BANK
4,000
3,500
2,500
2,000
1,500
1,000
500
0
2011
2012
2013
Other industrial exports *
Prepared foodstuffs exports *
Top Importers of
Lebanese Olive Oil (2013)
Source: BLOMINVEST BANK
AGRO-INDUSTRY
Lebanon’s agro-industry sector is based mainly
around food processing and production, holds
a share of around 2% of GDP, and represents
over one-quarter of the industrial sector’s added value. Just over 20,000 people are at work in
the sector, around one-quarter of the industrial sector’s total labor force. The sector has also
avoided the negative impacts of crisis in Syria.
Lebanon is compensating for the loss of the
troubled country as a significant export market
with increased demand from markets previ-
US
Spain
Canada
Saudi Arabia
Kuwait
Other countries
UAE
Qatar
28%
8%
4%
19%
7%
21%
10%
4%
ously used to buying from Syria itself, with the
value of prepared foodstuff exports rising from
$380 million in 2011, to $392 million in 2012,
and $453 million in 2013. That $453 million in
exported prepared foodstuffs represented 46%
of total yearly production, leaving the rest for
domestic consumption. The exports of manufactured food products represented 1% of GDP
in 2013, far higher than the 0.5% accounted for
by raw agricultural exports, which also represented 5.5% of the country’s total exports for
the year, compared to 11.4% for manufactured
food products. Top manufactured export categories included processed vegetables, fruit, and
nuts (25.6%) and beverages, spirits, and vinegar
(22.1%). On the flip side, top imports included tobacco, cereals, starch, and milk products. There remains a trade deficit in terms of
agro-industry, which stood at $957.39 million
in 2013, a bit better compared to the previous
year’s figure of just over $1 billion. According to
BLOMINVEST BANK, the average price per ton
of exports dropped by 13.4% in 2013, with the
cost of imports per ton also dropping, albeit at a
slower rate of 8.5% YoY.
Olive oil is also a significant part of the country’s agro-industry matrix, with approximately
100,000 tons produced per year. In 2013, exports
of olive oil grew 70% YoY to reach 7,085 tons at
a value of $22.45 million, up from 4,163 tons at
a value of $15.24 million in 2012. The majority
of Lebanese olive oil exports find their way to
the US (28%), Saudi Arabia (19%), and the UAE
(10%). BLOMINVEST BANK also reports a drop
in the price of exported olive oil to $3,168 per ton,
down 13.5% YoY. When importing, that figure
comes down to just $2,000 per ton, good news
for Lebanon, which was a net importer in 2013
as it sourced 5,428 tons of the oil from abroad,
at a price tag of $10.87 million, 98% from Syria.
Due to the high price of exports, however, olive
oil posted an external trade surplus of $11.58
million in 2013. A positive trade agreement with
the EU, which allows a certain amount of the olive oil to be exported duty free, also helped along
the sector in 2013. Elsewhere, exports of dairy
products were up 5.2% in 2013 after two years of
decline, and were worth $9.29 million.
ELIE F. ISSA
CEO, Domaine Des Tourelles
What kind of growth have you had since you took
over in 2000?
We have grown, even when there was a crisis. We
have been doubling our yearly growth since 2000.
In 2011, we grew by 65%. In 2012, we grew by
72%, and then we grew another 30% in 2013. There
has been a great demand for our products, both
wine and arak, and so we have been producing
more and more. We used to produce 50,000 bottles
j_ls_[l[^_][^_[ai&[h^,**&***×p_s_[lm[ai5
however, now we produce 500,000 bottles per year
of both arak and wine.
To what extent do you export?
We export both wine and arak to 17 countries. Our
main markets are the UK, France, Denmark, Canada, the US, the UAE, Jordan, Iraq, and Australia.
What are your plans for further investment and
growth?
The investment will be oriented more into
oenotourism. We will launch a boutique hotel in
one of our old historical buildings. In addition, the
production line will always be updated with the
latest technology.
Agriculture
THEBUSINESSYEAR
115
INDUSTRY WORTH
50
Million USD
Lebanon Wine Exports by Country
Source: Blominvest Bank
Hectares of
vineyards
2,000
UK
29%
France
17%
US
13%
Canada
5%
UAE
Belgium
5%
4%
Percentage
of production
exported
33%
Production
concentrated in
Bottles
Produced
in 2013
8
Million
Average Price of
Imported Bottle
of Wine in 2012
Grape Varieties
Used
$11.64
30
(down 8% YoY)
WINE
Wine Imports By Country
Lebanon’s wine industry is worth $50 million,
with 33% of the 8 million bottles produced annually exported. There are around 40 producers, representing 2,000 hectares of vineyards.
Just over 20 of the approximate 40 producers
are members of the Union Vinicole du Liban
(UVL), and those represent 95% of production.
Production is centered on the Bekaa Valley,
Mount Lebanon, and the South, where nearly
30 grape varieties are employed. Indeed, with a
7,000-year history of viniculture in the region,
it is clear to see why interest is growing in produce from the Levantine nation. But Lebanon
is still far from the giants of France, Italy, and
Spain, which represent half of the world’s supply, representing just 0.05% of total global output, making it the 45th largest winemaker. The
country is a net exporter, with imports worth
Source: Blominvest Bank
France
84%
Italy
8%
Other
8%
Bekaa
Valley,
Mount
Lebanon,
the South
$12.1 million in 2012, while exports were worth
$14.3 million. Major export destinations include the UK (29%), France (17%), and the US
(13%). According to BLOMINVEST BANK, the
three largest exporters in Lebanon are Château
Ksara, Château Kefraya, and Château Musar.
And thanks to Lebanon’s adaptation of the Euromena Accords, the price of imported wine is
also falling in the country as import taxes drop,
meaning that in 2012 the Lebanese paid, on average, 8% less than in 2011, at $11.64.
While challenges remain to getting the most
out of Lebanese soil, the sector has remained
resilient in the face of regional strife with more
and more manufactured products reaching
foreign shores. But while exports increase in
value, concerns at home must be addressed if
Lebanon is to ensure food security and reduce
its dependence on imports. 116
THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
HAY
there
TBY talks to HE Akram Chehayeb, Minister
of Agriculture, on the country’s historic links
to quality, main exports, and infrastructure
developments.
Lebanon and the region is
known to be “the home of agriculture.” What do you think
makes Lebanon worthy of such
a title?
Historically, “the home of
agriculture” was a Lebanese
trademark of excellence for
many reasons. Among them
is the Mediterranean atmosphere it enjoys and four-season weather, which implies
diversity in temperature enabling the growth of various
agricultural products, such
as cold weather products,
warm products, Mediterranean products, and desert
products, among others. In
addition, Lebanon enjoys an
environmental richness and a
bio-agricultural diversity that
enables the growth of fruit
crops and other Mediterranean products. The coastal and internal plains, the
mountainous and agricultural fields, and the forest areas
represent the richness of agricultural products in Lebanon.
Add to those the natural reasons, a social-economical belief based on a widely spread
idea that “an easy living farmer is as wealthy as a ruler,”
and Lebanon’s situation as a
bridge between the West and
the Arab world on the Mediterranean facilitated and
still facilitates the trade of all
agro-industrial products.
What are the main products
produced in Lebanon for export,
[h^ qb[n [l_ nb_ gimn mcahc×cant markets?
The main products for export
are fruits and vegetables. The
official figures show that the
main markets are the MENA
region; France, which imported 456 tons of apples in 2013;
Africa, mainly Nigeria and the
Congo; and Germany, which
imported 596 tons of grapes in
2013. In regard to citrus fruits,
again, it is the Arab countries,
mainly Saudi Arabia, which
imported 21,144 tons in 2013,
and then Russia, Australia,
France, the UK, and Africa.
BIO
Akram Chehayeb has a degree from the Beirut Arab
University and a Master’s
degree from the University
of Cairo. His previous positions have included Minister
of Environment and Minister of the Displaced.
Concerning potatoes, Lebanon exported 189,339 tons
in 2013 to mainly Arab countries, Russia, and Africa. Finally, Lebanon exports olive oil
to many countries, including
Arab countries, mainly Saudi
Arabia and the UAE, Spain,
Germany, France, the UK, the
Netherlands, Ukraine, Sweden, Canada, Australia, Latin
America, and Africa, where a
Lebanese diaspora is present.
What steps are being taken to improve the country’s
infrastructure
for
agriculture and agro-industry, and
what structural investments are
being made to create jobs, reverse urban migration?
Among the steps that have
been taken to improve the
agricultural infrastructure we
can state: the rehabilitation
of agricultural lands; opening
agricultural roads; creating
artificial mountainous lakes;
launching irrigation projects;
and reducing the construction percentage in agricultural
lands. In addition, steps are
being taken to improve and
support farmers’ capabilities
by introducing various laboratories; for example, specialized laboratories to identify
the nature of soils and their
conformity with product
types, laboratories to identify the validity of products, as
well as research on seeds and
agricultural medicine. The
Ministry is trying to introduce
more projects in cooperation
with international organizations and donor countries to
support farmers and improve
the sector, help agricultural unions, cooperatives, and
farmers groups, and provide
them with all the facilities they
need to improve the production both in quality and quantity, and reduce the cost of
production as well as strengthen the domestic market while
respecting the standards and
requirements of growth and
production. The Ministry of
Agriculture introduced more
control procedures over livestock, agro-industry firms,
seeds, and agricultural medicine, while keeping tight
control on refrigeration and
conservation warehouses, all
for the sake of respecting the
chain of production. As for
the agro-industry sector, the
Ministry is seeking to provide
farmers with low prices for
raw materials, introducing
new control measures on food
safety, quality standards, and
specifications, assuring longterm loans without interest,
and improving marketing
procedures. The structural
investments are also being
concentrated on the support
of the agro-industrial sector
with the aim of keeping the
farmer attached to his land
and help him market his products, while the Ministry has
activated a support plan for
the agricultural cooperatives
meaning that the latter would
participate in sharing the production costs, not to mention
our efforts to encourage the
conversion of unused and neglected lands to agricultural
lands in order to make use of
them agriculturally. THEBUSINESSYEAR
117
122
124
126
Two senior pharmaceutical
executives on the state of
healthcare in Lebanon.
For Lebanon to maintain its
educational reputation, the
country will need to implement
meaningful reforms.
Lebanon’s universities are
growing and expanding to cater
to a greater demand for higher
education and specialization.
Health & Education
R E V I E W H E A LT H
The Lebanese healthcare system is facing a number of challenges, and it
must find new sources of funding. A switch to a more domestic approach
may be key to lowering costs.
L
DUTY BOUND
ebanon’s healthcare sector is under an extraordinary amount of
pressure currently as it hosts
over a million Syrian refugees displaced by the civil
war next door. While NGOs
and other international organizations are helping with
aid and donors, the majority
of the bill is being footed by
an already stretched healthcare system. In response to
the ongoing crisis with refugees as well as a desire to improve the general health of its
own citizens, the Ministry of
Public Health has launched
a number of initiatives in an
effort to ease the pressure on
the system through the domestic production of drugs
and an increased number of
support services.
HOME FRONT
While Syrian refugees present
their own problems, Lebanon
still has a number of domestic issues that need to be addressed. The country is going
through an epidemiological
change presently whereby
communicable
diseases
Lebanon is looking to produce more
of its drugs domestically to help reduce
costs and the burden on an already
overstretched healthcare system.
common with developing nations, such as polio, remain
present but are generally falling, while non-communicable diseases often associated
with developed nations, such
as heart disease, diabetes,
and obesity, are rising. Lebanon has made great strides
over the past decade combating communicable diseases
through a systematic vaccination program; however, the
large influx of unvaccinated
refugees could jeopardize
the progress that has been
made and increase the risk of
preventable and waterborne
disease outbreaks. Having
suffered through civil war in
the 1970s and 1980s, Lebanon’s healthcare system was
ravaged; however, the rapid
growth of the 2000s led to a
drastically improved private
offering, but the public side
somewhat lagged behind as
the profits of the private sector allowed it to continue its
growth.
The WHO, in partnership
with the government, established five key areas to help
boost the country’s health
in its Country Cooperation
118
THEBUSINESSYEAR
LEBANON 2014
PHARM IN
Strategic Agenda (2010-2015). The first two
strategic priorities are focused on the control of
communicable and non-communicable diseases. Strategic Priority III is aimed at promoting
health through life courses. These include information on reproductive, maternal, and child
health, as well as courses for children on youth
health. Strategic Priority IV aims to tackle some
of the problems inherent in the system through
reform. It hopes to introduce an integrated
healthcare system centered on the people of the
country through universal healthcare as well
as personalized healthcare coverage. It aims to
increase access to medicine and enhances the
Ministry of Public Health’s regulatory capacity. It will also help to reinforce the information
available to citizens on e-health services, and
health financing and expenditures. This strategic area will also introduce a secondary and tertiary accreditation system for public hospitals,
central public health labs, and laboratories. Part
of this strategy was recently launched by the
Ministry of Public Health in its Second Emergency Social Protection Implementation Support
Project (ESPISP II). The main aim of the project
is to improve administration, delivery, financial
sustainability, and target social services through
the implementation of new systems and policies in the Ministry of Public Health. Part of this
system has included a scoring system on the
performance of all hospitals. Patients can now
look up all private and public hospitals split into
price brackets and examine key statistics such
as admissions, deduction rates, patient satisfaction scores, and contracting, among others,
which all go together to give each hospital a total
score. The final target area for the whole project is Strategic Priority V. This area is focused on
preparedness, alert, and response. The project
is targeting Lebanon’s emergency risk and crisis
management to create a more efficient and effective management team to deal with possible
epidemic and pandemic prone diseases.
One of the ways Lebanon’s government feels it
can improve the general standard of healthcare
offered is by producing more of its drugs domestically. In the summer of 2013, Arwan Pharmaceutical Industries opened its $40 million
pharmaceutical plant in Chouf. The company
hopes it will become a game changer in the region and help to attract more of the $1 trillion in
estimated pharmaceuticals turnover to the region. The CEO of Arwan, Abdul-Razzaq Yousef,
told The Daily Star that the plant's gross sales in
its first 18 months of operations is expected to
be $45 million. After this period, a rise in production should increase sales to $180 million.
Arwan chose Lebanon to build its facility because of the country’s dedication to creating a
high-caliber healthcare industry. Yousef stated
Lebanon’s high standards for medical professionalism, minimal visa and residency complications, and high-quality workforce were key
factors in building the factory in Lebanon. In
addition to these, the country’s free trade zones
(FTZs) allow for the export of pharmaceutical
products with lower tariffs.
The pharmaceutical sector is big business in
Lebanon, with the total value in 2012 coming
in at $1.28 billion, growing 6.5% on the 2011
figure according to the Investment Development Authority of Lebanon (IDAL). The forecast annual compound growth for the sector
is expected to come in at 7.71% up until 2015,
which should bring the value of the sector to
OSCAR TARAKJIAN
Founder, Silkor Holding
Q_mn[ln_^ch+331qcnbiol×lmn\l[h]bch;\l[d=_hn_l(Chnb_×lmn
few years we invested quite a lot in advertising, documentaries, and
TV commercials to get the maximum reach possible and build the
brand identity. As the business was growing, we started expanding
in terms of equipment, staff, and the size of our facility. And then
we opened our second branch in Kaslik, and a third one in Verdun in
2006. Then, the war struck us, so I had to think outside the box and
the solution was to enter the Gulf area starting with Dubai. Since
then, we have grown bigger and faster, and today we have more
than 35 Silkor centers around the region.
120 THEBUSINESSYEAR
LEBANON 2014
$1.41 billion. This increase in value is also followed by an increase in the sales of pharmaceuticals, with per capita expenditure rising
from $206 in 2009 to an expected $426 in 2019.
Arwan’s new plant is hoping to change the
balance of domestic versus foreign pharmaceuticals. In 2012, 90% of drugs consumed in
Lebanon were imported, while only 10% were
produced domestically. The top sources of
imports came from France, the UK, Germany,
and Switzerland, while Lebanon’s top export
destinations were to Arab countries, mainly
Jordan, Iraq, and the UAE. Even though Lebanon imports the vast majority of its drugs,
its exports have been increasing steadily between 2008 and 2012 at a compound annual
rate of 14.1% to reach $31.43 million according to IDAL.
REFUGEES
During the Syrian civil war, Lebanon has gone
above and beyond its neighborly duties in taking in over 1 million refugees, which equates to
25% of the Lebanese population. In two years,
refugees have racked up a health bill of over
$92 million according to the World Bank, and
since only 2% of this is being funded by foreign donors, much of the bill is being paid for
by an already over-stretched and under-funded public health system. Since the Ministry of
Public Health has long preferred to fund the
private health system, the public sector has
very limited funding at only 2.9% of the government’s budget in 2011. Of the 163 hospitals
in the country, only 20 are public and they account for only 15% of hospital beds, according
to a 2013 Banque Bemo report. This reliance
on the private sector has demonstrated a critical underlying problem in the health system
of Lebanon. According to the latest government statistics, 51.7% of Lebanese people are
Healthcare Expenditure Per
Capita (USD)
Source: World Bank
Jan 01
479.27
Jan 02
456.41
Jan 03
442.92
Jan 04
449.21
Jan 05
449.63
Jan 06
446.06
Jan 07
510.09
Jan 08
555.76
Jan 09
617.13
Jan 10
651.04
Jan 11
622.03
Jan 12
674.68
uninsured, which technically means that they
are the responsibility of the Ministry of Public Health. Uninsured patients are supposed
to pay 5% in public or 15% of the bill in private hospitals for treatment, while the Ministry covers the rest. However, due to budget
constraints, payment by the Ministry has not
been forthcoming and the cost of the treatment has often been pushed onto the hospitals themselves. Private hospitals have been
able to counteract this problem via fee-paying
patients; however, public hospitals have been
saddled with crippling debts. Add to this the
influx of 1 million uninsured refugees; unless
something changes soon, it is only a matter
of time before something gives. The UNHCR
is active in the refugee camps, but only deals
with the relatively inexpensive primary healthcare, such as medication, tests, and consultations. However, the more expensive secondary and tertiary healthcare is dealt with by
the Lebanese healthcare system. Before 2011,
hospitals in Lebanon used to deal with roughly 140 refugee cases a year, while in 2012 this
went up to 2,400 a year, until suddenly in 2013
the number of Syrians going through hospitals
increased dramatically to 2,600 a month. The
UNHCR has stated that more attention must
be paid to primary healthcare to reduce the
number of patients seeking unnecessary secondary and tertiary health treatment. A recent
report by the World Bank stated that to return
the system to pre-crisis quality levels, an investment of at least $431 million is needed in
both the public and private sector. Currently,
there is no easy solution to this problem. International donors are hesitant to back public
hospitals, which are not allowed to refuse services to people in need. Ultimately, while the
crisis is ongoing, more funding is needed from
international donors. ANTOINE KEIROUZ
CEO, Fitness Zone
How was Fitness Zone established?
The business was known as Fitness First in
Lebanon until 2009, by which time it had lost a
great deal of money due to mismanagement. When
we took over the Lebanese business, we changed
the name to Fitness Zone. We also made some
[^domng_hnmninb_\omch_mmni×nnb_F_\[h_m_
market, where we became the premier branded
×nh_mm]b[ch(
Are you planning on further expansion?
Our aim is to expand more outside of the Beirut
area. But with 1,500 members per club, we can’t
afford to go beyond two more premises. Now, we
have our third opening, followed by a fourth in
>\[s_b&[h^[×`nbih_chDh[b&j_lb[jm\snb_
end of 2015. We also want to expand outside the
country, moving out perhaps to Cyprus and Syria.
If that expansion is successful, we will perhaps
eventually move into Iraq or Turkey. However,
for now, we want to expand and consolidate in
Lebanon, and once we are on a solid footing, we
can branch out.
Who makes up your clientele?
Our members are mostly middle class and up. Of
the Lebanese population, only 1% to 2% go to the
gym. Around 30% of all gym-goers come to us, and
we want to increase that percentage to 50%. We
use internal marketing, outings, and special events
to retain our members. We have 2,000 members in
Baabda and 1,700 at our club in Hamra.
Did you know?
The Lebanese Cedar, or Cedrus libani,
takes up to 30 years to mature.
But once it does, it can have a lifespan
of over 1,000 years.
Find out more in The Business Year Lebanon 2014.
w ww. th ebu sinessy ea r. com
122 THEBUSINESSYEAR
LEBANON 2014
B2B PHARMA
ABED AL RAHMAN
SABRA
MOUNIR KHARMA
CEO, GlobeMed
Country Manager,
Hoffmann-‐La Roche
What trends are you noticing in
the Lebanese market?
ABED AL RAHMAN SABRA In
Lebanon, like in other countries around the world, there are
many barriers preventing people from having access to quality healthcare, such as income
levels, disease epidemiology,
political commitment, and resources allocated to healthcare,
along with the availability and
quality of healthcare infrastructure. To address these barriers,
the public and private sectors
collaborate on many levels to
seek sustainable solutions that
promote access to care, through
disease awareness, education,
and the establishment of new
healthcare centers in remote
areas. The aim is to enable access to diagnosis, ensure the
responsible use of medications,
and ultimately improve patient
health outcomes, especially for
life-threatening diseases. On
another side, healthcare professionals in Lebanon are highly exposed to global healthcare
trends, research, and guidelines
and are active participants in
international meetings and congresses that help them transfer
the best practices around the
globe and deliver even greater
results locally.
MOUNIR KHARMA Lebanon
enjoys a professional medical
education platform, with a longstanding tradition of success.
The abundance of healthcare
talent has consolidated Lebanon’s healthcare sector over
the years. Against this, surplus
capacity in some of the medical specialties has taken its toll
as well, particularly due to an
unfavorable system of remunerations to doctors. Indeed, the
health sector in Lebanon has a
comparative advantage distinguished with its professional
resources and the facilities in
place. Against this, a good number of other countries have reduced the gap under this comparative advantage, and in some
instances surpassed Lebanon
with the professionalism they
have attained.
How closely do you work together with the government?
AARS We collaborate with the
government in order to remove
the different barriers that prevent the Lebanese population
from having access to the right
medical information, education,
and treatment. Our major initiatives revolve around awareness
campaigns that we have been
doing for years in collaboration
with the Ministry of Health, especially campaigns related to
life-threatening diseases such
the
DOCTOR
is in
TBY talks to two senior pharmaceutical
executives on the state of healthcare in
Lebanon, public-private partnerships, and what
the future holds for the sector.
What is your strategy in Lebanon over the medium term?
as breast cancer, rheumatoid
arthritis, and hepatitis B and
C. We conduct other programs
with governmental institutions
and ministries with the aim of
providing value to patients and
society, and a commitment to
improving access and making
the treatment available.
MK I am an advocate of partnerships between governmental institutions and the private
sector to strengthen the healthcare sector. Considering that
the workings of the healthcare
sector are fully embedded in
the public interest, one cannot imagine the healthcare
sector flourishing in the absence of governmental regulations, safety nets, and controls. Against that, government
institutions are typically rigid
and sluggish when it comes to
implementation. The private
sector is far more dynamic and
creative, particularly in the service side of the sector, including the financial services side.
Questions of cooperation between the sectors remains contingent upon how much power
governmental institutions are
willing to relinquish in favor of
the private sector.
AARS As a company that has
always been open to new technologies and approaches, Roche
has been setting medical milestones since the beginning.
Roche’s primary contribution
to improving global and local
healthcare has been researching
and developing new medicines
and diagnostic tests that deliver significantly better treatment
than those currently available.
Our aim is to provide sustainable value by improving people’s health and by bringing
clear medical and economic
benefits to the Lebanese healthcare system and society.
MK GlobeMed has a number of
initiatives underway with the
aim of improving the quality of
care as well as controlling costs.
For example, we have already
completed the proof of concept
with respect to using outcomes
management as a supplementary utilization review process.
This is currently being deployed
at all operations. Likewise, we
have embarked on a program
that will introduce case management services as of 2015. Similarly, we are introducing disease
management processes covering a specific number of diseases. These will be expanded upon
as we progress. Health & Education
THEBUSINESSYEAR
123
INTERVIEW
HEALTHY
options
TBY talks to Dr. Adnan Tahir, Hospital Director
& Chief Medical Officer at the American
University of Beirut Medical Center (AUBMC),
on strategies moving forward, partnerships,
and transferring the university’s model to other
countries.
What strategies do you have for
the AUB Medical Center (AUBMC) moving forward?
The AUBMC 2020 Vision is a
progressive transformational
vision for the Medical Center. It is the first of its kind
for the Medical Center, AUB
in general, and in the region.
It will take this entire institution, AUB and AUBMC, to a
different level of excellence.
This strategy began with
Dean Sayegh when he joined
AUBMC in July 2009, and set
forth the AUBMC 2020 Vision. The focus is on a few
clearly stated pillars and objectives, which are truly critical for the healthcare sector
in Lebanon. We are setting a
trend, and setting a standard
about what it is that needs to
happen to move forward, not
only for Lebanon but also for
the region. One of the pillars
is to deliver patient-centered
care. Regionally, most health
care systems operate under
the traditional style, whereby
the various disciplines (physicians, nurses, and pharmacists, for example) work
in silos. We have turned all
this around with our multidisciplinary approach to
care whereby various members of the treatment work
together to deliver the best
to our patients. We started
with patient satisfaction surveys, and by offering service
excellence training to our
staff and physicians. We also
opened up a Patient Affairs
Office. The second pillar is
related to the recruitment
and retention of staff, which
is a major strength for AUB.
We added almost 50% to our
clinical staff in a matter of
one or two years. And almost
all of them are trained in the
US and were attracted back
by our AUBMC 2020 Vision.
Hence, many of these people
trained in AUB, left to finish
their training in the US, and
then came back. A third and
important pillar of the vision
is our focus as an academic
institution on teaching and
research. We have quite a
bit of external funding from
outside Lebanon, particularly the National Institutes of
Health (NIH), and this is to
support a variety of research
areas, some of it basic, meaning bench research, but much
of it is clinical research.
BIO
Adnan Tahir attended the
American University of
Beirut (AUB) in 1980 to
study Biochemistry, before
taking on his MD in 1984 at
the AUB. He later attended
Baldwin-Wallace College,
Ohio in 2006 to acquire
his MBA. He began his
employment in 1990 at the
Endocrinology and Internal
Medicine, Southern West
Virginia Clinic. In 1992, he
established his own private
practice in Endocrinology
and Internal Medicine in
Cleveland, Ohio, which he
left in 2009. During this
time, he also worked for
numerous hospitals and
clinics in various positions,
including Medical Director,
=bc_`Ko[fcnsI`×]_l&=bc_`
G_^c][fI`×]_l&[h^;mmiciate Director mainly at St.
Vincent Charity Hospital
and St. John West Shore
Hospital. Tahir took up his
current position as Medical
Center Director & Chief
G_^c][fI`×]_lch,*+*(
Why do you feel you have found
willing institutions and partners
in Iraq rather than Saudi Arabia
or Qatar?
In Iraq, the healthcare sector was almost totally destroyed during the war, the
needs were tremendous, and
the system could not cope
with the demand. Therefore,
people started going out of
the market to places such as
India, Turkey, Jordan, and
Lebanon. Companies started
looking to other countries to
help rebuild their services.
Many places do not have the
comprehensive services we
offer. Our Continuous Medical Education (CME) Office
works with them and provides training for their staff.
People trust us because we
are stable, transparent, and
have an extensive number of
specialties, whereas, in other
countries, they might have to
go to several hospitals to do
that. Here, it is all provided in
one place.
Do you feel then that it could
be harder in other countries to
transplant this model?
It is a philosophy; however,
the problem, in my judgment, is relying on the local
population is critical for that
model to be sustained. You
cannot have a sustainable
program with long-term performance when your leadership and a large number of
the healthcare providers are
going to change every three
or four years. This is the challenge in many areas. Now, if
you look at Saudi Arabia, it
has managed to create stability in staff turnover. Saudi
Arabia invested in ensuring people who were Saudi
nationals went through the
training, went abroad, and
then came back. 124 THEBUSINESSYEAR
LEBANON 2014
Lebanon’s status as the education capital of the Middle East is being
challenged by ambitious projects in the Gulf region. If it is to retain
its title, the country will need to implement meaningful reforms and
address the growing inequality between private and public institutions.
Review
E D U C AT I O N
KEEN TO LEARN
The education sector of Lebanon remains one of
the country’s distinguishing features, giving rise
to its moniker, “the school of the Middle East.”
Lebanon is home to Saint Joseph College of Antoura, which was founded in 1653, and is the
oldest francophone school in the Middle East.
Both public and private actors are involved in
the education sector in Lebanon. Government
schools, which are practically free of charge, are
broken down into around 1,275 schools, 117 vocational schools, and the Lebanese University,
which employs around 5,000 staff and teaches
some 70,000 students. The private sector entails
approximately 1,502 private schools, 300 vocational schools, and around 40 universities located throughout the country.
A cursory review of the country’s educational
standing suggests that education is doing remarkably well. The Lebanese have a relatively
high literacy rate of 89.6%, with strong gender
equality. The 2014 Global Information Technology report ranks Lebanon 13 out of 148 worldwide in terms of the quality of its educational
system. Among other MENA countries, Lebanon was only outpaced by Qatar, which spends
exponentially more per student and came in
fourth place globally. However, Lebanon outperformed the UAE (15th), Jordan (27th) and Saudi Arabia (39th). The country also attained the
fourth international ranking in mathematics
and science education quality, trailing behind
only Singapore, Finland, and Belgium. Lebanon
also ranked 41st in terms of higher education enrollment rates, and 58th in terms of the availability of research and training services. With the
value-added share that education contributes
to the national economy hovering around 6%,
education is critical to Lebanon.
Even more impressive, the World Economic
Forum’s 2013 Global Information Technology
Report ranked Lebanon in the top five countries
for math and science education, and in the top
10 for quality of the educational system. While
the conflict with Israel sent Lebanon’s numbers
of out-of-school children to 52,185 in 2006, by
2012 that number was down to 17,915. In 2006,
total gross enrollment rates were 72.1%; however, by 2012 these rates had risen to 91.1%.
During the same time period, the net enrollment rate rose from 100.6% to 106.6% in pri-
Among other MENA
countries, Lebanon
was only outpaced
by Qatar, which
spends exponentially
more per student
according to the 2014
Global Information
Technology report.
mary education. In secondary education, the
net enrollment rate was worse, with a decrease
from 69.5% in 2006, to 67.5% in 2012. For tertiary education, the same rates rose from 44.1% in
2006 to 46.3% in 2012. During this time, however, government expenditure on education, as a
percentage of GDP, fell from 2.7% to 2.2%. However, these statistics belie a number of structural weaknesses that threaten to undermine the
past successes of educators in Lebanon.
SPARE A DIME?
The cost of education is rising in Lebanon, and
rates are expected to rise at a compound annual growth rate (CAGR) of 7%. According to the
Central Administration of Statistics, education surged by 60.5% between 2007 and 2013.
During 2013, the price of education increased
overall by 7.1%, and posted marginal 0.1% yearto-date growth during 1Q2014. Total spending
in the sector was estimated to be 5.5% in 2011,
with public spending registering 1.6% of GDP,
and private 7% during the same time period.
Aside from a recent spike, the share of government spending dedicated to education has decreased since 2006, and in 2011 this figure was
Health & Education
7.1%. For comparative purposes, World Bank
figures for public expenditure on education, as
a percentage of total government spending, are
around 18.6% in the MENA region, and around
14.2% globally. Another illustration of Lebanon’s educational spending habits is its expenditures per student rate. In 2005, this rate was
at 18.5% of GDP per capita, but fell to 8.8% in
2011. Remarkably, the ratio rose again in 2012,
to 14.1% of GDP per capita.
MONEY TALKS
Lebanon’s relatively strong showing is driven
in large part by the performance of the private
education sector, which consistently outperforms its public counterpart. The total number
of students for the year 2012-2013 was 975,695,
30.7% of whom were enrolled in public schools,
16.4% in subsidized or free private schools, and
52.9% in private schools. In 2013, 88.3% of total enrolled students in private schools passed
their classes, while only 77.2% passed in the
public sector. Like many countries in the developing world, access to education is both
expensive and ruthlessly competitive, with
children studying long hours in hopes of attaining coveted spots in good schools. Parents
also dole out tuition fees to private schools on
the expectation that results will be better, and
they are. A study published by the UN Development Report revealed that only nine out of
1,000 students from public schools obtained a
baccalaureate without repeating one or more
years, while 255 out of 1,000 private school students reached this level. These results explain
why students enrolled in the private sector rose
by a yearly 1.2% to 676,450 students in 2013. If
Lebanon is to maintain its position in the Middle East education sector, it will have to fend off
growing competition from the Gulf region, and
countries like Jordan, which is implementing
drastic educational reforms. With its storied
educational past, and scholarly national ambitions, this process is just getting started.
THE OLD COLLEGE TRY
Lebanon’s higher education comprises technical and vocational institutes, university colleges, university institutes, and universities.
Private universities accounted for 62.8% of total
enrolled students in 2013, and saw their student
enrollment rate rise by 1.3% YoY to 120,348.
Meanwhile, the state-run Lebanese University
attracted a 37.2% share of the total, or 71,440
students during the same period, down slightly
from 73,698 students in 2012. One major threat
to Lebanon’s higher education sector is the
country’s reliance on struggling public schools
for enrollments each year. No matter how many
reforms are implemented at the university level, the real onus for change lies with the institutions charged with preparing students for
university level study, a responsibility largely
assumed by the government. A series of extant
public and private reforms and initiatives may
well set this change in motion.
THEBUSINESSYEAR
125
CHANGE WILL DO YOU GOOD
In 2013, the Ministry of Education and Higher
Education closed seven public, and two private
schools. These schools were targeted for their
inefficiencies, and if this trend continues, parents may reconsider sending their children to
public schools, further decreasing the cost of
education. In 2012, the Council for Development and Reconstruction (CDR) started construction on more than 10 new public schools.
Several other projects are also under way, and
slated to start by 2015 totaling $58.22 million,
with expected completion dates by 2018. Educators in Lebanon are also pushing forward with
efforts to integrate ICT into classrooms across
the country, with Lebanon’s National Education Strategic Plan from 2012 through 2017. The
plan proposes technologically driven solutions
to the most pressing deficiencies. For example,
the plan tackles a perceived lack of high-quality
instruction in government schools by creating
a technologically driven educational landscape,
recruiting new teachers, providing ongoing
professional development, support, and evaluation for existing teachers. Lebanon’s schools
have also experienced a growing shortage of
qualified teachers, which the plan addresses in
the short term by pivoting toward online learning to provide students with advanced content
and instruction, especially where teachers are
under qualified or in short supply. The plan also
connects Lebanese students with multi-lingual
educational programs of an international standard, and brings the national curriculum in
line with international standards in math, science, and English-language abilities. Whereas
schools outside high-population areas tended
to be underserved in the past, the new plan
targets traditionally underserved areas. These
steps should go a long way toward rectifying areas of Lebanon’s educational system that have
been neglected in the past, and reaffirm its status as an educational hub for the region. Distribution of Schools by
Type (2012)
Lebanon's Education Spending
(in USD Millions)
Source: BankMed
Source: BankMed
3000
2500
2000
1500
1000
500
0
Public
1,282
Private
1,077
Private-Free
358
UNRWA
69
2005
2006
2007
2008
2009
2010
2011
Total Spending
Private Education Spending
Public Education Spending
126 THEBUSINESSYEAR
LEBANON 2014
FORUM HIGHER EDUCATION
SET UP
campus
Lebanon’s universities are growing and expanding
to cater to the greater demand for higher education
and specialist tuition.
MGR. CAMILLE
MOUBARAK
DR. JOSEPH
G. JABBRA
PETER F.
DORMAN
Rector, Sagesse
University
President, Lebanese
American University (LAU)
President, American
University of Beirut (AUB)
U
niversité La Sagesse (ULS) was
founded in 1875, making it 140
years old in 2014. The university
has evolved from a college that taught law
to introduce new faculties and disciplines,
such as business administration, political
science and international relations, hotel
management, religious studies, canon law,
and ecclesial sciences. Additionally, there
are 22 Master’s degree programs. Administratively speaking, previously there was one
head that ran the entire university. However, as the university expanded, a university
council was established composed of vice
rectors, deans, and consultants to divide up
the task. This council adheres to the internal
structure of the university and takes all the
necessary and important decisions so as to
progress all the academic programs. International relations, for example, is taught in
cooperation with international universities located in Switzerland, France, Australia, and Canada. Currently, we have been
working on obtaining accreditation from
international institutions, specifically two
located in Italy and the US. This university
is a non-profit academic institution that receives tuition fees from students that in turn
should be sufficient to fund professors, laboratories, infrastructure, and any expenses
the university incurs. Moreover, ULS follows
the Lebanese Maronite congregation, which
is able to financially support the university
when the funds are insufficient, specifically
during difficult socio-economic times such
as now. The Lebanese Maronite congregation has generously contributed $700,000 to
ULS to help fund its activities.
I
n 2013, the Lebanese American
University (LAU) spent between
$40 million and $45 million, aside
from equipment. We also have a capital investment plan that has $333 million in provisions. Currently, there are two buildings
under construction in Byblos. One of them
will house the engineering hall and the other will be a library. We are also working on
the Byblos campus infrastructure, which will
cost over $30 million, as well as revamping
the power plant and improving the wastewater system. We have also just inaugurated a state-of-the-art building, the Gilbert
and Rose-Marie Chagoury Health Sciences
Center, to house the School of Medicine,
School of Nursing, and School of Pharmacy.
I believe that any talented student should be
given an opportunity to come to LAU, regardless of social or economic background.
Our budget for 2014-2015 is $157.7 million,
$20 million of which is allocated for scholarships. This allocation has increased greatly
in the last five years. We are looking ahead
all the time. We are even looking at starting
programs that aim to ensure adequate training for human resources and the expertise
we need to extract gas and oil in Lebanon.
As an innovative institution, we should play
a major role in terms of providing engineers
for the oil and gas industry. In recruiting for
the new programs, we always try to attract
expatriates back to Lebanon and we have
been extremely successful in that regard.
O
ur most visible investments are the
new facilities that have recently
been completed on the AUB campus—including two at the Medical Center.
One building, the Wassef and Souad Sawwaf Building, is a gift from one of our new
trustees, Mu’taz Sawwaf, and houses the
university health services as well as a new
PET-CT scanner and cyclotron, equipment
that will improve our capacities for on-site
medical imaging and diagnosis. In addition,
our new medical administration building
is about to open, enabling AUB to implement the first phase of our new vision for
the medical center expansion, scheduled to
culminate in 2020. These facilities have been
complemented by the establishment of new
research centers of excellence at the hospital
and the hiring of newly recruited physicians,
reversing the traditional “brain drain” that
has been plaguing Lebanon. On the main
campus, we have also added a major complex for our Faculty of Engineering and Architecture, which consists primarily of new
laboratories as well as spaces for teaching
and for graduate student study areas. This
new facility is named after Ray Irani, former
co-chairman of our Board of Trustees who
served for many years as the CEO of Occidental Petroleum. The fourth major building
is for the Issam Fares Institute for Public Policy and International Affairs. It is designed
by the world-renowned Iraqi architect, Zaha
Hadid, whose iconic and futuristic structure
is the first of her buildings to be completed in
the Middle East.
THEBUSINESSYEAR
130
135
138
Nizar Alouf, General Manager of
the Riviera Hotel, on Lebanese
hospitality and building a long
term hotel name.
Byblos, possibly the oldest
constantly inhabited city in
the world, continues to dazzle
visitors.
Despite regional challenges
and some economic bumps,
the Lebanese retail sector is
optimistic for the future.
127
Tourism & Retail
REVIEW TOURISM
The Lebanese tourism sector is failing to attract the number of foreign
visitors it once did; however, a number of new initiatives may reverse
this trend and bring back the good times.
LIVE, LOVE, LEBANON
T
he last few years
have been tough
for the tourism industry in Lebanon.
According to the Ministry of
Tourism, total arrivals had
decreased for the third consecutive year at the end of
2013 standing at 1.27 million,
down 6.69% from 1.37 million
in 2012 and 23% from 1.66 in
2011. This trend extended into
1Q2014 when a total of only
229,252 tourists arrived, a decrease of 16.5% on the 274,663
that had arrived over the same
period in 2013. This ongoing
reduction was primarily due
to the continuing instability
in the country on account of
there not being a government,
an instability that was partly
remedied when the government of national interest was
formed in February 2014. The
Bank Audi first quarter report
identifies that there has been
a cumulative contraction of
60% since the beginning of the
Syria crisis, and that average
hotel occupancy rates have
fallen from 67% in 2013 to 51%
in 2014. The dip in this industry can be measured alongside
real domestic investment hav-
Regional problems have affected
tourism in many countries in the Middle
East, but with Lebanon's beaches, cities,
and mountains it will not be long before
visitors start returning.
ing fallen by 15% over the same
period, and total FDI by 24%.
According to the World
Travel and Tourism Council’s Lebanon 2014 report, the
direct contribution of travel
and tourism to GDP was $3.2
billion (6.9% of total GDP) in
2013, while the estimate of
the indirect contribution of
travel and tourism to GDP was
$9 billion, or 19.2% of GDP in
2013. In 2015, these figures are
forecast to rise by 2.1% and
2.2%, respectively. Travel and
tourism generated 92,500 jobs
directly in 2013 (6.7% of total
employment), which is forecast to grow by 2.7% in 2014 to
95,000 (6.8% of total employment) and place Lebanon 99th
in the world in this regard.
In May and June 2014, a series of meetings between GCC
leaders and their Lebanese
counterparts led to the travel
ban imposed by GCC countries on their citizens being
lifted. The ban had proven a
major spanner in the works.
Imposed following the kidnapping of a number of Gulf
citizens since June 2012, the
ban went through various different phases of being official
LEBANON 2014
128 THEBUSINESSYEAR
Total Arrivals (In Thousands)
Source: Ministry of Tourism
160
140
120
100
80
60
40
20
Feb 14
Mar 14
Jan 14
Dec 13
Oct 13
Nov 13
Sep 13
Jul 13
Aug 13
Jun 13
Apr 13
May 13
Feb 13
Mar 13
Jan 13
0
and non-official, and was largely geo-politicized by the GCC states as a means of sanctioning Hezbollah, Lebanon’s largest political
party, and their alleged military and operational assistance to the Syrian regime. The war
next door has gradually increased the number
of terrorist factions crossing Lebanon’s borders and carrying out indiscriminate suicide
bombings, mostly in the Bekaa Valley and Beirut’s southern suburbs. This led to a dramatic
drop in foreign visitors, and investor confidence, and a rapidly instilled sentiment of disgust and despair on the part of the Lebanese.
European and Western states consequently
stepped up their travel warnings as well, and
the numbers of European visitors decreased
dramatically in the third and fourth quarters
of 2013, and the first quarter of 2014.
Following the formation of the government
in 2014, and the army’s valiant attempts to restore order on the streets of Tripoli showing
solid results, there seemed to be an overriding
sentiment of optimism in the hotels, mountain
getaways, and coastal resorts, which has undoubtedly had a positive effect on the tourism
industry. The most important thing is "that
there is now a political will, though not an
agreement on security,” said Minister Michel
Pharaon, during an interview with TBY.
The cabinet of national interest has aimed
to resuscitate sectors of the economy where
confidence is a key determinant of demand,
particularly with regard to tourism, investment,
and exports. A key way in which all three can
be strengthened is through Lebanon’s hub
status for business conferences. Lebanon reaffirmed its reputation as a business hub during
June, which saw six international business
conferences focused on trade, economy, and
the forum for debate organized during Lebanon’s glorious spring season. The business
intelligence brand behind the conferences,
Al-Iktissad Wal-Aamal, organized the hugely
successful Arabic Economic Forum, attracting hundreds from the international business
community, as well as regional ministers and
heads of state. The proximity of these events to
Lebanon’s most famous five-star hotels in turn
ensured that occupancy rates reached almost
maximum capacity across the board.
Unfortunately for all, terrorism reared its ugly
head again during a short spate of suicide attacks around Beirut in late June, renewing fears
of instability creeping in just before the crucial
summer high season. Nonetheless “reservations after the month of Ramadan were around
15% higher than in 2013. Planes were so fully
booked that Middle East Airlines put 40 extra
flights on to Riyadh for the season,” according
to Tourism Minister Pharaon.
However the indicators for Lebanon’s hotel
industry as a whole were not promising. According to EY Benchmark’s report for the first
five months of the year, Lebanon’s average
occupancy rate was at 46%, down from 58% in
2013, and a regional average of 65%, making
Beirut the second lowest occupancy rate in the
region. Hoteliers have attempted to make Lebanese hotel accommodation more competitive
over the last year. Figures published by Byblos
Bank’s Lebanon This Week report the country’s
average room rate as $155 per night for the first
five months of 2014, down 8.9% on last year, the
third steepest decline in the region. More concerning still is that Beirut’s average revenues
per available room (RevPAR) were at $73, down
from $99 in the same period in 2013, this 26%
decrease was the steepest decline of any country in the region.
The cyclical nature of investment booms is
sadly correlated to that of violence and spurts of
confidence in between. The long-term problem
posed by perceived instability in the country
warrants a long-term organic solution on the
part of the Lebanese themselves, designed to
remedy dependency on GCC high-value tourism and an admission that ultimately, it may be
the Lebanese who love Lebanon the most.
In April 2014, the Ministry of Tourism
launched a new campaign, “Live, Love, Lebanon,” an indication that resuscitating Lebanon’s tourism industry was clearly high on the
cabinet of national interest’s priorities. In July
2014, a 50-page document was drawn up by the
company Beyond Beirut, a non-profit organization funded by USAID, that aims to establish a
five-year plan for a sustainable Lebanese tourism industry, and has been endorsed by various
stakeholders including guesthouse owners, ecotourism ventures, NGOs, and the Ministry of
Tourism itself.
The strategy highlights a number of existing
and potential attractions that can be further
developed to appeal to both local and foreign
visitors. “We go in and create packages for religious tourism…wine tourism, honey…and
even silk. We strive to be modern and dynamic
and express the feeding that something new is
happening for tourism in Lebanon. This is what
we have managed to do, through the website,
WALID M.
KANAAN
Director of
Operations,
Le Yacht Club
How did Le Yacht Club come
to be?
Le Yacht Club is a members-only
club and the closest thing to a
boutique hotel/private club. In
a very prime location, it boasts
high-end, luxurious facilities.
Members from certain business
sectors and socio-cultural backgrounds can meet and share the
same values. In addition to the
club facilities mentioned above,
we have retained nine suites on
nb_]fo\Îm×lmnØiilf_p_f(Nb_s
will be operated like a boutique
hotel, but can only be booked by
members for their own use or
for their guests. The reason is to
protect the environment of the
club. Membership is by invitation
only or through an existing
member’s recommendation,
and guests are allowed in only if
they are in the company of the
member.
How many members do you
have?
Le Yacht Club has about 200
members, though we are working to reach a capacity of 500
members. Some of the memberships were pre-sold, and it was
an ongoing process. The best
way to approach new recruits is
on a one-to-one basis, although
it’s a lengthy process. That was
a great way to close sales. We
don’t want to be too aggressive
because the club facilities can’t
take more than 200 members
at a time and, in the end, we
are selling a certain exclusive
fc`_mnsf_(Nb_×lmnfincmch[h^
the membership enrollment
is ongoing until we reach our
target of 500 members.
Tourism & Retail
through our campaign, and with these new
packages” said Minister Pharaon during an
interview with TBY. “Part of this is to have the
Lebanese come to Lebanon more from expatriate countries and revisit Lebanon. We will have
small hotels. Now, there are 60-80, but we think
we can bring this up to 200 in the villages”
The idea is that bolstering infrastructure facilities around rural Lebanon will act both to
significantly raise real domestic investment
and travel amongst Lebanese, but will also bolster the country’s reputation to attract greater
FDI from expatriate and other Arab investors,
who have traditionally supported the sector
due to the rapidly increasing value of land. “It
is not very difficult to make a small investment
in Lebanon succeed, whether it is in restaurants
or hotels,” says Pharaon.
Lebanon’s tourism infrastructure is within
reach of being fantastic. There are countless
trekking and hiking groups including Vamos
Todos and Liban Trek, the management of the
latter was responsible for mapping the Beirut
Mountain Trail, a project financed by USAID
and a landmark in Lebanon’s mapping of its
mountains for tourism and leisure purposes. It
is projects such as this and Beyond Beirut that
have the potential to lay the long-term foundations for the tourism sector to achieve the
phenomenal growth it is capable of. Foreign-
117 standard rooms
THEBUSINESSYEAR
129
There are numerous
archaelogical sites
around Byblos
ers will always keep coming to Lebanon albeit
in dwindling numbers if violence persists, but
to take rural tourism beyond Beirut and to the
next level the Lebanese need to set the example of how it ought to be done, through the
good times and the bad. 39 suites fully equipped
3 restaurants and bars
AD HOLDER
E [email protected] / T + 961 1 619 999 / F + 961 1 397 697 ext. 6807
Damascus Road - Museum District, Beirut, Lebanon
5 conference rooms
130 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
Luxury
LIKE HOME
TBY talks to Nizar Alouf, General Manager of the
Riviera Hotel, on longevity in the hotel business,
customer loyalty, and Lebanese hospitality.
What have been the key changes in the Lebanese tourism sector since the Riviera Hotel was
founded?
Beirut has a long history of
iconic five-star hotels. We
opened in 1956, and at that
time the Bristol Hotel and
the Saint Georges were already open, followed by the
Palm Beach. There was also
Le Commodore, and then
the Phoenicia arrived on the
scene, whereby year after
year, Beirut’s hotel offering
expanded, today numbering
99. Beirut started as a summer destination principally
for visitors from other Arab
countries. The wealthy citizens of the Arab world arrived to visit the mountains,
for their alluring, greener
scenery and cooler climate.
Some tourists came for Lebanon’s archaeological sites,
a trend which continued until the 1960s. From Europe,
visitors started to arrive from
Germany, the Netherlands,
Sweden, Norway, Italy, the
UK, and France. We began to
see a second wave of more independent tourists enjoying
tours through Lebanon, Syria, Jordan, and Egypt. Lebanon was always the common
denominator in these tours.
And following the war, the
Riviera was the first hotel to
recover, reopening in 1992.
The Phoenicia also underwent renovation, and then
new hotels like Le Gray and
the Four Seasons opened, as
well as many small boutique
establishments.
How do you ensure that expatriates become repeat visitors?
How do you go about appealing
to tourists from Europe?
Over the years Riviera’s loyalty signature was naturally
organic thanks to its brand
recognition by the international tourists who have
built a great reputation for us
generation after generation.
We have witnessed guests
from 40 years ago becoming
grandfathers who are now
bringing their family members here to remember the
nostalgic Riviera. Our personalized service contributes
very positively to the expatriate visitors who become
repeat guests.
France is a good target market
for Lebanon due to the similarities between the French and
Lebanese cultures. The French
feel at ease here, as French is
widely spoken. English is also
commonly spoken. An additional advantage for the visitor
is the relative ease of communicating in Lebanon. If you go
out, be it to a restaurant, bar,
nightclub, or concert, Lebanese people initiate communication. They tend not to wait
for you to come over and do
so. They will then try to assist
you, familiarize you with the
country, and make you feel at
ease. As a natural appeal for
tourists Lebanese hospitality
is in the blood.
How did you alter your yield
management in the face of increasing competition in the industry?
We personalized our service,
for one, by rotating our staff
less often, so that they could
become familiar with repeat
guests, and tend to their individual needs and preferences. We try to understand
the wishes and preferences
of each individual guest and
offer what they like. It is also
important not to have too rigid an approach to our rates.
Our sector is seasonal, and we
work according to whether it
is the low, medium, or high
season. Our greatest asset at
the Riviera is our location, and
our beach is a major point of
attraction.
IN NUMBERS
Riviera Hotel
Proportion of
revenues drawn from
conferences and
events
25%
First opened its doors
1956
How important are international
events and conferences for your
business?
Such events form a crucial
element of our business as
increased brand awareness
ultimately leads to new guest
arrivals. Such events account
for approximately 25% of our
business.
Qb[n^inb_h_rn×p_s_[lmbif^
in store for the Riviera Hotel?
We want to maintain our
business and preserve the factors both large and small that
make us unique. We want repeat guests to feel this continued attention to detail. BIO
Nizar Alouf studied hotel
business management in
both Europe and the US.
He managed the Casino du
Liban from 1986 to 1988.
Then from 1989 to 1991 he
ran the Intercontinental
Hotel Mombasa, before
becoming the GM of the
Riviera Hotel, where he has
been since 1992.
132 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
rising STAR
TBY talks to Anna-‐Maria Keyrouz, Deputy
General Manager of Etoile Suites Hotel, on
the tourism sector in Beirut and promoting
Lebanon to overseas visitors.
What are the special characteristics of Etoile Hotel?
BIO
Anna-Maria Keyrouz graduated from the LAU Lebanon
with a degree in interior
design, and a diploma in
History of Art from St. Luc
Ecole Superieure Des Arts.
She began her career in
interior design with JLM
company (Jean-Louis Mainguy Architecture Interieure
sal). Later, she earned
her MBA in international
hospitality and service
industry studies from the
Glion Institute of Higher
Education, and went on to
manage the family business
Etoile Suites Boutique Hotel
in 2011.
Uniquely set in one of Beirut’s oldest and most charming districts, the “Place De
L’Etoile” of Solidere is rich in
history and entertainment.
The Etoile Suites Boutique
Hotel is only 10 minutes from
Beirut International Airport,
2 minutes to Beirut’s famous
beach fronts, and a few meters to major Beirut areas
including businesses, shopping, government buildings, historical mosques and
churches, and archaeological sites, with easy access to
major mountains and seashore destinations.
How do your rooms differ from
each other?
Each of our 21 spacious private suites and rooms is
designed to offer ultimate
comfort in a practical refined
setting of comfortable elegance with a high standard of
service for both business and
leisure.
What changes in tourism
trends have you seen since
2006?
The tourism industry in Lebanon has been historically
important to the local economy, and remains to this day
a major source of revenue
for the country. But unfortunately, since 2006 due to
political instability, leisure
tourism has been decreasing
leaving space for business,
medical, and cultural tourism, and it also relies on the
large number of Lebanese
living abroad who return regularly to the country.
Are any of your suites residential?
Although we have long-term
rentals, they are for approximately two months at most.
Some diplomats and Lebanese politicians choose to stay
at the Etoile Suites hotel for a
couple of months at a time,
since the location and services
are very convenient for them.
By what means are you trying
to promote tourism yourself?
We are always sending special
offers to our clients to encourage them to visit Lebanon.
Who is your target market?
Arab tourists are our main
target. They used to come because they liked the hotel for
its large suites. They all have
a nice character. However,
since May 2012, we have been
dealing a lot with corporates
—we moved from tourism to
corporate guests since leisure
tourism was decreasing. Etoile Suites
Boutique Hotel
21 integrated
suites
Etoile Suites
Boutique Hotel
was opened in
summer 2005
TRADITION
OF LUXURY
Located in the heart of one of Beirut's oldest
and most charming districts, Etoile Suites
stands out for its elegance and allure that
caters to all walks of life.
T +961 1 976 197 | F +961 1 997996 | E [email protected]
A Hussain Al Ahdab str.-­port area solidere-­Beirut
134 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
the light
FANTASTIC
TBY talks to Ali Saleh, General Manager of
WH Hotel and Co-founder of Überhaus, on
the present state of the hospitality industry in
Lebanon, and the draw of nightclubs.
What gave you the inspiration to
found WH hotel two years ago
and move into the hospitality
sector?
My family has been in the
hospitality sector for many
years. We saw that the building where the hotel is now
located was being renovated,
and so took the opportunity
to open a hotel there. We saw
great potential in the layout of
the building and its location. I
previously had experience in
sales, accounting, and PR, so I
felt well prepared to move into
the hospitality sector full time.
Given the downturn in the Lebanese tourism industry, what are
you doing to bring tourists to
WH hotel?
We are presently focusing our
attention on the European
market over the Arab market.
I am concentrating on online
platforms such as Trip Advisor
and Booking.com. The most
important website, Agoda,
constitutes at least 45% of our
bookings. WH hotel is currently the best-rated hotel in Lebanon. We have an occupancy
rate of 85% most weeks, though
there was a real decline in the
market in the period from 2007
to 2009. When we opened two
years ago, we based our prices for the hotel on prices from
around five years ago, but prices have declined a lot. We have
not had high season prices
since we opened. In four-star
hotels over the winter season
the price usually averages between $70 and $90, and in high
season it can be $120 to $140 a
night.
What do you think gives WH hotel an edge over its competition
in the market?
Being relatively young, I feel
that most hotel managers in
their 40s underestimate the
potential of the internet and
search engines, and they do
not fully recognize the importance of being rated on these
sites. I easily have double
the reviews that other hotels
have, with over 500 reviews
on Booking.com alone. The
nearest figure to this among
my competition is 300. If
these hotels begin to work on
Located at the heart of Beirut, the WH Hotel is an icon of
elegance, serenity, and modernity amidst the hustle and
bustle of Hamra. For those on business, or simply seeking
adventure in Beirut, the WH Hotel provides the perfect base.
the same level, then I will have
more competition. The modern design and convenient
location of the hotel on the
outskirts of Hamra have also
helped me, as well as our exceptional service.
How did you begin pushing synergies between your hotel and
the nightlife business?
I was in between jobs, and
the nightlife business was
something I was always surrounded by, as my father had
managed clubs for 15 to 20
years. These nightclubs, After
8 and Club 15-50 on Raouche,
targeted Arab tourists more
than local Lebanese and Europeans. When we opened the
hotel we found that we had
a huge space downstairs in
the basement, and it seemed
logical that we should turn it
into a club. The brand now
known as Überhaus began
last winter, and we effectively
incorporated it into our hotel
downstairs. It was a small club
that only opened every Friday
and Saturday. My partner and
I got Romax, one of the most
talented DJs in Lebanon, on
board as there were no venues
for underground house music, and that was a niche we
wanted to work on. We moved
on from Überhaus to establishing The Garten, a venue on
the seafront that caters for up
to 2,000 people and we will be
expanding that this year. The
problem with The Garten was
that it started being compared
to venues in Ibiza, and when
we reverted back to Uberhaus,
we felt it was no longer big
enough.
IN NUMBERS
WH Hotel
Average occupancy
rate
85%
What is your expansion strategy
over the next year?
We are targeting a few hotels
around Hamra, either old
hotels that need renovation
or existing hotels that need
better management. We are
working on expanding the hotel business in Lebanon. At the
moment we are concentrating
on Lebanon, and we want
to open a much bigger hotel
and resort on the sea front
by Raouche where we have
the land. This is our biggest
project yet, but we are waiting
for the regional situation to
improve first. At the moment
there is not so much demand
in the regional industry as a
whole, and the only country
that has tourists flooding into
it is Dubai. I do not think the
WH brand is ready to compete there yet. However, if WH
grows into a chain we may be
able to move there. The nightlife business with Überhaus
and The Garten is starting to
take up more of my time. The
nightlife business is a unique
concept that allows our brand
to expand much faster, and
the return on your investment
can be much quicker than
with any other business. A Emile Edde (Leon Street),
Hamra – Beirut - Lebanon
T +9611348888 | F +9611345345 | PO BOX: 113 - 6508
E [email protected] | W www.whhotel-lb.com
Tourism & Retail
THEBUSINESSYEAR
135
B Y B L O S P H O T O ES SAY
BYBLOS
TIME
CAPSULE
Considered the oldest constantly
inhabited city in the world, Byblos
offers locals and tourists a chance
to visit a living archeological site.
WHILE A RELATIVELY SMALL CITY IN
population, Byblos more than makes up for this
with its long and distinguished history. Known
in Arabic as Jubayl, people are thought to have
first settled the area between 8800 BC and 7000
BC. According to mythology, Byblos was built
by Cronus, one of the titans of ancient Greece,
and was the first Phoenician city. Today, it is
widely believed to be the oldest continuously inhabited city in the world, which is one of
the reasons that led to it becoming a UNESCO
World Heritage site.
Over the years, almost all the major empires
of the world have passed through or had control
of the city, including the Phoenicians, Romans,
Greeks, Egyptians, Assyrians, Persians, and
Ottomans, before coming under French mandate and eventually achieving independence in
1943. This mix of rulers has left the city with a
unique mix of architecture and ruins scattered
all around the city. People come from all over
the region these days as tourists to see the wide
variety of archaeological sites on display, such
as ancient Phoenician temples, Byblos Castle,
medieval city walls, mosques, and the Historic
Quarter and Souks.
While many come to see the old city, Byblos
has also developed a modern city to cater to the
needs of the many travelers than pass through.
During the summer, the city has regularly hosted the Byblos International Festival, which
attracts musicians from all over the world to
play in its Historic Quarter. The Byblos Fossil
Museum also displays the region's historical
inhabitants from nature’s point of view and
offers visitors the chance to see fossilized fish,
sharks, and eels, some of which are millions of
years old. With the city being on the coast of the
Mediterranean, there are numerous beaches
where locals and tourists alike relax. The city's
proximity to the mountain ranges of Lebanon
also provides many nature excursions for tourists to consider. The roads and paths in
Byblos are some of the
oldest in the world
A wide range of fossils can
be found in Lebanon, and
many are on display at the
Fossil Museum
136 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
How did you develop from there?
GRAND
ambitions
What are the main milestones
for your business since its foundation in the UAE?
In April 1989, I decided to partner with an Iranian friend living in Dubai and we decided to
operate a new company under
the name of 2001 Film at that
time, then after two years I decided to change the name to
Gulf Film. We continued growing the business in film distribution, though it was mainly
for the GCC area—UAE, Bahrain, Qatar, and Oman plus a
few movies for the whole Middle East—until 1992, when we
decided to venture into the
cinema business. We leased
one cinema in Dubai, which
was part of the Al Nasr Club,
and named it Al Nasr Cinema.
We fully refurbished it, and
opened it in September 1992
with a movie called Unforgiven featuring Clint Eastwood.
The movie won four Oscars,
but we lost all our money because no one wanted to see a
Western. We continued losing
from September to December
1992, until we got the movie
The Bodyguard. At that time,
Star TV was playing Whitney
Houston’s songs all day long,
which helped us to promote
the movie. People really came
in great numbers. Going to the
cinema in UAE and Dubai in
1992 was not a familiar thing
for people; they had the mentality that cinemas in the UAE
were for the laboring classes.
Patrons came and enjoyed
the experience, which later on
became a habit and a must for
TBY talks to Selim
Ramia, CEO of
Selim Ramia & Co
Grand Cinemas,
on his company’s
growth story, which
saw him create
one of the Middle
East’s major cinema
and entertainment
operations.
them to do on the weekend. In
1994, we opened Galleria Cinema in the old Hyatt Regency
Hotel with two screens, and
later we moved to Abu Dhabi with another two screens.
We started putting screens in
Sharjah, but it was not a big
business until 2000, when we
opened our first multiplex in
Abu Dhabi at the Al Mariah
Mall with nine screens, and
added a standalone project in
Dubai with 12 screens. Then,
we continued growing in the
UAE until 2005 when we acquired Century Cinemas in the
UAE and Jordan. Then we took
over another company called
Al Massa Cinemas. Within
one year, our screen numbers
jumped from 60 to 96.
The last project I opened
was at the Festival Centre in
Dubai. The number of screens
continued growing, whereby we became the leader in
the whole of the Middle East
in terms of screen numbers,
plus controlling the distribution of movies across the Middle East. In the meantime, in
2005-2006, I was contacted by
people from the ABC Mall in
Beirut, and they wanted me to
lease their cinemas. We were
ahead of all our other rivals in
the region since we were the
first to introduce digital systems and 3D as well as IMAX
to the Middle East. We took
over the cinemas at ABC Mall
in Achrafieh, and at the same
time in 2005-2006 we entered
Jordan with Amman’s first
10-screen multiplex.
How did it feel to move back to
the Lebanese market?
I was not welcomed by my
competitors, but I believe
in competition; it’s healthy,
it improves both the industry and client service quality. Some people think we
had done enough in Dubai,
so why should we come to
Lebanon? I’m Lebanese, so
of course I am interested in
the market here. We started
here with seven screens and
expanded. We now have 32
screens under our Grand Cinemas brand, and I hope our
next project will be at the ABC
Verdun Mall, which is set for
completion in 2018.
How large is your market share
in the Lebanese market?
Grand Cinemas had 45% of the
market before the other players came to Beirut, each with
their own huge multiplexes
of 14 and 15 screens. However, we are still maintaining
our lead and presently have
around 33% of the market. And
if you compare the number of
seats we have with the number
of seats of our competitors, we
are filling more than 30% while
they cannot do more than
24%, which means we are still
the number one operator in
Lebanon. BIO
Salim Ramia started his
career in 1966 working
for the record industry in
Lebanon before moving to
Dubai from 1975 to 1979
to work in the cinema and
×fg^cmnlc\oncihm_]nil(
In 1980 he formed a
distribution company in
Lebanon with a partner,
but returned to Dubai in
1986 and in 1989, created
a partnership to form
Gulf Film. He continued
distributing movies until
1992, when the partners
ij_h_^nb_cl×lmn]ch_g[ch
Dubai, AlNasr, under Salim
Ramia Gulf Film. In 2000,
he created Grand Cinemas,
which had more than 106
screens. He was voted two
times, in 2008 and 2009,
the most powerful man in
the entertainment business
in the Middle East. In 2007
Salim Ramia returned
again to Lebanon to launch
his Grand Cinemas brand,
having 32 screens at
×p_fi][ncihm(Ch,*++&
he decided to sell Gulf
Film and moved back to
Lebanon, but continued his
success story in Jordan and
Kuwait where he opened
his Grand Cinema chain.
SELIM RAMIA & CO (GRAND CINEMAS)
IN PROGRESS
138 THEBUSINESSYEAR
LEBANON 2014
REVIEW RETAIL
Seen for a decade as cosmopolitan, smooth, and exclusive, Lebanese
retail—even in Beirut’s upmarket shopping districts—is showing signs of
being affected by regional political instabilities; but many retailers remain
optimistic for the future.
A SILVER LINING?
Lebanon is known throughout the region for its
retail strengths, particularly at the luxury end of
the market. Along with banking and tourism, a
vibrant retail sector recalls Lebanon’s history as
a connecting point between different civilizations and cultural traditions. This openness to
the surrounding region and beyond has benefited Lebanon over time, but it has also left it
exposed to regional instabilities. Recent insecurities caused by the Syrian conflict, as well
as other clashes in neighboring countries, have
negatively affected both investor and consumer confidence. While the Lebanese real estate
and banking sectors have proven to be resilient, retail has experienced some turbulence
since 2012. Whether the situation for retail will
improve or deteriorate in the near future is difficult to assess. Unfortunately, the key determining factors—regional instability and local
political stasis—remain beyond the scope of
even the most successful retail concerns.
The Beirut Traders Association (BTA)-Fransabank Retail Index (2014) is a market index
that was jointly established in September 2012,
with the support of the Central Administration
of Statistics of Lebanon (CAS). It monitors the
business sectors in the local retail market, and
is released on a quarterly basis. Based on the
most recent available figures, the activity of the
retail sector during 1Q2014 witnessed a drop of
7.2% in comparison to the previous year. Beyond this one must bear in mind that this same
level of activity had already declined 4.86% in
1Q2013 in comparison to the same period in
2012. This does reflect a notable contraction
in Lebanese retail activity. The report goes on
to further explain that when adjusted for inflation, retail sales figures have been falling since
3Q2012. According to Nicolas Chammas, the
BTA chairman, the luxury sector has been particularly hard hit. “Between the end of 2011 and
the end of 2013, the retail sector has dropped
by 35%,” a situation which has been especially
noticeable given its comparative importance in
Beirut.
Lebanon has, for many years, sought to replicate the successes of Dubai in becoming a retail hub, an aspiration that, while possible, has
been hampered by consistent regional insecurities. Izzat Traboulsi, the Managing Director
of Hugo Boss and the Fashion Trading Company (FTC) in Lebanon told TBY: “You need to
compare the stores here in Lebanon and outside Lebanon, and when you do you see that
our stores are much smaller and the turnover
is less.” The challenge for upmarket retailers in
Beirut is to overcome local factors beyond their
immediate control and design strategies to play
to their own local advantages.
Your home
in the heart
of Beirut
12 spacious studios
38 one-bedroom suites
6 two-bedroom suites
2 three-bedroom penthouses
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ǁŝƚŚŵŽĚĞƌŶďĂƚŚƌŽŽŵĂŵĞŶŝƟĞƐĂŶĚĨƵůůLJͲĞƋƵŝƉƉĞĚ
ŬŝƚĐŚĞŶĞƩĞƐ͘ǀĞƌLJŐƵĞƐƚƌŽŽŵΘƐƵŝƚĞƉƌŽǀŝĚĞƐĂĚŝŐŝƚĂů
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ƐLJƐƚĞŵƐƚŚƌŽƵŐŚŽƵƚƚŚĞďƵŝůĚŝŶŐŬĞĞƉLJŽƵĐŽŶŶĞĐƚĞĚ͘
Koreytem, Wadih Sabra Street - Beirut, Lebanon
Tel. 00961 1 351100 / Mobile 00961 70 118115
[email protected]
santonaresidence.com
140 THEBUSINESSYEAR
LEBANON 2014
THE TOURISM FACTOR
Lebanon’s retail activity has traditionally been
buoyed by the large numbers of Arab tourists
and Lebanese expatriates who come to visit
the country every year. There has been a dramatic slump in tourist arrivals to Lebanon in
the past two years; tourism normally accounts
for 22% of GDP, but has dropped as low as
10%. Syria’s armed conflict has affected Lebanon’s interlinked tourism and retail industries, particularly since 2H2012. Additionally,
Gulf states such as Saudi Arabia and Qatar
have issued official travel bans against Lebanon, which is hampering tourist arrivals, especially during the popular Eid holidays. According to recent figures released by the Ministry of
Tourism, the number of tourists visiting Lebanon has decreased by 16.5% to reach 229,252
in 1Q2014, as compared to 274,663 in 1Q2013.
As for the distribution of tourists by region,
it shows that the greater part of visitors were
from Arab countries with 34.8% of visitors, followed by visitors from Europe on 32.7%.
However, the current local political stalemate
and security instability, when coupled with the
effects from the neighboring Syrian crisis, have
weighed heavily on the tourism sector, and are
thus affecting the retail sector in Lebanon. The
drop in tourist arrivals and the consequent decline of tourist spending has, for example, negatively affected the growth of Lebanon’s apparel market, which was already facing lower local
demand due to diminished consumer confidence and purchasing power. According to a
2014 market analysis carried out by BankMed,
the size of Lebanon’s apparel market contracted by 4.3% in 2013—a noticeable loss that was
felt across the sector.
live outside of Lebanon. There are approximately 8 million Lebanese outside of Lebanon,
while only 4.5 million actually live in the country. And while the situation in Syria has created
a huge refugee issue, which has affected spending, it has also ironically led to an influx of higher spending Syrian expatriates and an exodus of
upper class Syrians to cities like Beirut. So the
retail picture is mixed.
Much of the success that Lebanese retailers
have had in recent years has come down to
their own drive and ability to adapt to uncertain times. Romen Mathieu, the Chairman of
Khoury Home, explains his strategy for maintaining profitability in 2014: “By providing a
superior customer experience across all showrooms while controlling our operating expenses, we will maintain our market leadership
during this temporary downturn in the consumer electronics industry as well. And this is
what we are doing during 2014—the best year
for the company since 2011.” It is often said of
the Lebanese that they are a flexible and resilient people, natural entrepreneurs who are
used to adjusting to difficult circumstances in a
rapidly changing region. In the final analysis, it
is this will to flourish that can best propel Lebanese retailers into a prosperous future—and
that will seems as solid and consistent as ever. Much of the success
that Lebanese
retailers have had
in recent years has
come down to their
own drive, resilience,
and ability to adapt to
uncertain times.
HOPE SPRINGS ETERNAL
Despite some uncertainty in recent years, Lebanese retail is still regarded as generally stable.
According to the 2014 Global Retail Development Index (GRDI), Lebanon remains a steady
retail market, ranked 24th in the world, and
although it did drop two spots in the GRDI, its
per-capita consumer spending actually rose by
5%. This has led market analysts to report that
the retail environment in Lebanon is still in the
game, even as the civil war in neighboring Syria
has raised anxieties.
On balance, many retailers continue to profit. Jeethendra Babu, the General Manager of
the fashion retailer Landmark Group, reports
his company has actually had its best year yet
in 2014. “We are a $40 million company within
only our fourth year of operations. We are looking at reaching $100 million in the next three
years. In spite of the turbulence and many
challenges in the market, the past three or four
months have been great for us, and we are positive that 2014 will be fabulous as well.” There
are some mitigating factors at work here. Although there are dramatically fewer Gulf Arab
tourists, the main visitors are the Lebanese who
IZZAT TRABOULSI
Managing Director, Hugo
Boss & Fashion Trading
Company (FTC)
Now, almost 60% of our business is in Beirut and 40% beyond it. Our
new store in Dbayeh has also shown a healthy increase. We were
formerly a distribution company, but now we also have our own retail branches as well. From our retail operations in Dbayeh, we have
seen an increase of 47% during 1Q2014. We need to ensure that
wherever we relocate, the brand positioning is correct, and cannot
be positioned next to mid- or low-end brands. We make sure we
preserve our image by positioning next to other luxury brands.
Tourism & Retail
THEBUSINESSYEAR
141
INTERVIEW
OPTIMIZING
for growth
What made you feel that Khoury
Home was a unique investment
opportunity?
Since 2005, I have established
the EuroMena private equity
funds targeting the Levant
and North African countries.
Since inception, the EuroMena’s strategic objective has
been to invest in companies
with the potential to become
leading regional groups. Our
strategy proved to be very
successful, as we have played
an active role in transforming family-based companies
into regional leaders. And
our experience showed that
international companies are,
in general, more attracted to
invest in companies with a diversified, regional presence.
This has been instrumental in
executing several successful
exits. Investing in single-market companies is relatively
less attractive to international
players given the illiquidity of
stock markets in the region.
Furthermore, there are not
many companies in Lebanon
that are both regional players
and also have the potential
for high-ticket investment.
In addition, our investment
level is relatively high, in the
range of $15 million to $20
million. Nevertheless, Khoury
Home is one of them. It is a
market leader with a track record since early 2000.
What has been the one most
important message behind the
Khoury Home takeover?
The main message behind
the Khoury Home takeover
was to prove our ability in
preserving and creating
shareholder value. Our fund
management team is well
equipped to fulfill executive
roles when needed. This has
made a tremendous difference for the company as it
strengthened the management team significantly,
and created a great corporate culture. Consequently,
we have been experiencing
strong financial performance since 2013.
TBY talks to Romen
Mathieu, Chairman
of Khoury Home,
on retail sales,
regional expansion,
and strategies for
managing the retail
sector.
IN NUMBERS
Khoury Home
Net sales revenues in
1H2014
45
Million USD
What are the main points of the
internal restructuring?
BIO
Romen Mathieu is the
Co-Founder and has been
Managing Partner of the
EuroMena private equity
funds, part of the Capital
Trust Group since 2004,
covering the MENA region.
Mathieu is also a Board
Member of the International Chamber of Commerce Lebanon. He has more than
20 years of experience in
corporate transactions and
family-owned businesses,
covering Europe and the
MENA region. He was a
Partner in Ernst & Young
Corporate Finance and
M&A in France. He began
his career with Arthur
Andersen, in its corporate
l_mnlo]nolcha[h^×h[h]_
division in France. Mathieu
holds two graduate degrees
in Finance (DESS and
Magistère) and a Master’s
degree in Management
from Sorbonne University.
Khoury Home is by far the
market leader, with an 18%20% share in a very fragmented market. As a comparison,
the second largest player in
the market has less than half
of our turnover. In general,
it is easy to open one store to
sell electronics in Lebanon. It
remains relatively simple to
own and manage two or three
showrooms. However, it becomes much more complicated when opening more than
five big showrooms. Today,
any of our main competitors
would reach five or six showrooms at most, but would not
be able to grow further as they
all lack the ability to become
an institution. Originally,
Khoury Home went from four
to 13 showrooms very rapidly.
During this period, EuroMena
acquired a stake in the company and supported it in its
transformation from a family
business into an institution.
We have been successful in optimizing the footprint from 13
showrooms to 10 showrooms,
consolidating the MegaMart
brand under the Khoury
Home brand, introducing
IT system optimization, and
streamlining operational processes across all departments.
In addition, we were efficient
in managing the inventory,
which helped us optimize our
working capital needs. We are
capable of planning early with
all our suppliers due to the
better understanding of the
market’s needs. Moreover, we
have optimized our advertising spend while using more
efficient channels.
Is this the model that you will
follow when you start expanding regionally?
Definitely. Our experience
during the past 18 months in
restructuring the company
has provided us with several best practices across all
fronts. For example, providing superior customer experience along with operational
excellence such as inventory
optimization is now part of
the company’s DNA. This experience will make it easier
to franchise and transform
the company into a regional
player. Additionally, we have
a franchise plan and strong
team to support our expansion plan. Also, we are registered with the Lebanese Franchising Association (LFA).
How would you evaluate your
sales over the last year?
The consumer electronics
market has been decreasing
at a rate of 15% over the last
two years. In 2013, our sales
went down by 10% compared
to 2012, impacted by the closure of some showrooms.
However, sales are expected
to increase again in 2014 as
we are improving our conversion rate. In addition, the loss
of sales is compensated for by
an increase in gross margins,
and a decrease in operating
expenses. 142 THEBUSINESSYEAR
LEBANON 2014
INTERVIEW
Could you talk about the origins
of the company?
The group started in 1978 with
a small store in Hamra. We
had always been a small business until 1997-1998, when
we acquired one of the largest
fashion houses. And we have
been growing quite rapidly
ever since.
fashion
CONSCIOUS
TBY talks to Said G. Daher,
CEO of Azadea Group, on
fashion, property development
collaborations, and investing back
into the community.
What have been the most important milestones for the company in terms of brand acquisition and expansion?
I think 1997 would be a turning point. That was when we
were introduced to the Spanish fashion houses. The first
store we opened was Mango
and then Zara. We were lucky
in acquiring these brands that
were sought after by many
consumers in other regions.
They provided us with an opportunity to grow and expand
in the MENA region.
How successful has your dip_lmc×][ncih chni nb_ mjilncha
goods sector been?
Decathlon is a well-known
brand in Europe. If you look
at the region, you will find
numerous premium sporting
goods, and there are a lot of
low-priced sporting goods.
Decathlon is actually filling
the gap quite well. It fits our
DNA, our group, and our
business model.
How is your company looking to
leverage your relationship with
Virgin?
Virgin is an amazing brand
and we first opened in a store
in Dubai. We felt that our consumers would benefit from
having it in the market to
contribute to a wider range of
product offering at more competitive prices.
Could you tell us about your collaboration with regional property developers?
We work with many real
estate developers. Majid
Al-Futtaim Properties and
Abdullah Al-Futtaim are two
of the largest property developers in the region. We have
had relationships with both
of them since the 1990s. It
IN NUMBERS
Azadea Group
Founded in
1978
was in 1994-1995 when we
started in Deira City Center with Majid Al-Futtaim.
And we have strengthened
these relationships since by
working on many other projects, such as the Mall of the
Emirates, Mirdif City Center,
Bahrain City Center, Mall of
Egypt, and the Dubai Festival City Center. We have
opened about 20 plus stores
as well as Cairo Festival City
with Al-Futtaim Group Real
Estate. And we are looking
forward to operating more
stores in Festival City.
How do you look to balance
the presence of brands across
your malls?
It depends on the property
itself. If it is a large development, over 100,000 sqm in
gross-leasable area (GLA),
we like to bring a good anchor tenant into our portfolio, which normally requires
about 25,000-30,000 sqm. If
you look at the Gulf region,
malls are actually places
where our customers spend a
lot of their leisure time. Malls
tend to be the winners in the
Gulf region.
What kind of trends can you see
in the industry?
I think consumers are looking
for affordable, fast fashion.
Recent economic conditions
mean that people and companies are trading down.
The proliferation of malls in
the market is a bit more dispersed. The Souks and Solidere zone are becoming quite
important. They are now
opening cinemas and entertainment centers, which attracts a lot of traffic.
Azadea group has a history of
corporate social responsibility
projects in Lebanon, what are
you currently working on?
The environment is the cause
that every Lebanese citizen can, potentially, benefit
from. Therefore, we established the Azadea Foundation to organize and support
environmental projects. Currently, we are renovating the
largest park in Beirut, René
Mouawad, Sanayeh Garden. I
hope that there will be more
companies that follow our
example, and invest profits
back into the country.
What are Azadea’s plans for the
next few years?
We are looking at expanding
into the shoe segment, and are
always looking to add new and
interesting fashion brands to
our existing portfolio. Also,
we are moving more into food
and beverage formats. We
have just opened our first Eataly store in Dubai. The brand
is also in Turkey, Japan, and
Italy, and there are some more
stores to come. BIO
Said G. Daher is CEO of
Lebanon-based Azadea
Group Holding. Said has
played an integral part in
the development of Azadea;
he was appointed as Director of Operations in 1995,
CFO in 2000, COO in 2005,
and then CEO in 2008. He
holds an MBA from the
Booth School of Business,
University of Chicago, and
a BA from the University
of North Texas. Said is a
founding member and sits
on the Azadea Foundation
Board; he also serves as
a board member of Bader
Young Entrepreneurs
Program, which promotes
private initiatives by inspiring a younger generation of
entrepreneurs.
Tourism & Retail
THEBUSINESSYEAR
143
FASHION B2B
off the
HANGER
TONY WARD
Owner, Tony Ward
BASIL SODA
Owner, Basil Soda
How has your brand developed?
TONY WARD My father started
the fashion house in 1965. He
was one of the designers who
used to work for Lebanon’s elite,
and he also frequently worked
with international clients, although he never moved out of
the country. He preferred to
have the clients come to Lebanon, until the war changed the
situation. In 1988, I went to Paris
to study design, and I worked
there for six years with various
designers, including Dior, Lanvin, and Claude Montana. Then
I came back to Beirut. We started our ready-to-wear collection
five years ago out of Milan, and
the bridal collection three years
ago, also with a showroom in
Milan. We always had couture
wedding dresses, and now we
have a bridal collection that
serves around 35 countries.
Lebanon is becoming better known as a
design hub thanks to a number of successful
domestic fashion houses.
BASIL SODA People called me
the Greek gladiator designer because many of my designs have
represented a woman of strong
character. In 2006, I brought out
a collection called Parure-Armure, or “Jewelry and Armor,”
which was based around the
contradiction between attractive jewelry and the armor normally worn in combat. There
was a political message as this
was during the conflict with Israel. This Parure-Armure combination suits me in some way,
as I like the feminine side of
women, but am also interested
in the more masculine aspect
that women can possess. In this
vein I have also created a men’s
collection that encapsulates the
role of the man, while representing a certain femininity at the
same time. Everything for me is
about duality.
What do you see for the future of
Lebanese design?
TW There is a lot of talent in Lebanon. We still have a chaotic situation here; fortunately, we get
our inspiration from the chaos.
The region is a demanding one
for the fashion industry. You
need young designers to cater
to the market, because certain
clientele are not willing to spend
substantial sums of money. This
is why you have a number of
young designers coming in producing lower-priced, ready-towear fashion, as the market can
sustain this. Ideally, the good
ones will grow and start doing
something more significant in
the industry, whilst the less-sustainable designers in the market
will fall away.
BS I worked with the students at
ESMOD for one year. I believe
that we should run dedicated
fashion weeks, as there are at
least five or six Lebanese designers who stage couture and
prêt-à-porter shows, and we
also have a good market for couture. This would be of considerable advantage to us, and would
expose the younger generation
to a broader range of fashion
as not everybody of course has
the means to travel to a show in
Paris. It costs at least €400,000
to do so, and not everybody can
afford it every season. Putting
on shows in Beirut would naturally be much cheaper, and they
would gain visibility and profit
from the press. 144 THEBUSINESSYEAR
LEBANON 2014
LIFE & LEISURE
ENJOY
LIFE
A number of specialized leisure providers
have invented concepts tailor-made for
Lebanese consumers.
DIVERSITY,
ENJOYMENT,
EXCELLENCE
One of the most dynamic restaurant groups in Lebanon, GHIA
currently owns and operates
many restaurants representing
a number of different concepts.
Each of these restaurants has its
own style, décor, and cuisine. Yet,
they all share one quality: an upscale casual setting. GHIA takes pleasure in having a diverse customer base, and caters for various age groups from business people to families and young adults. Over the past years, the group has
used its experience in the restaurant industry to offer consultancy
services and has also expanded geographically through franchising operations in the Middle East. CEO Jean Claude Ghosn explains how this expansion took off in the early days: “When started
our business back in early 1990s, it was a different time altogether.
There was of course no internet or social media, and GHIA Holding was fortunate to have a strong marketing team to depend on
getting the word out.” GHIA brands include two Duo cafes, two
Abdel Wahab Lebanese restaurants, four Caribou Coffee stores,
two Ahwak modern Lebanese restaurants, and four Harbor 201
branches, which combine a restaurant and lounge concept.
KIDS AT HEART
KidzMondo is a unique Lebanese concept designed to provide a
complete experience for children, by offering a unique edutainment oriented indoor theme park, created to amuse while simultaneously imparting knowledge. KidzMondo provides children
with a relevant and tangible learning experience, appealing to
the need to address and encourage interest. Children will be
exposed to age-appropriate activities in a dynamic and safe environment, featuring a miniature-sized city replicated from the
real world. They will be encouraged to go through the different
establishments, and provided with a mental and physical voyage
of investigation, exploration, and introduction to the world of
adult life. Chairman Ali Kazma describes what children and parents alike can expect at Kidz Mondo:“If you ask any parent about
edutainment these days, they say that they are happy spending
money on edutainment for their children; with the Kidz Mondo
concept, there are a lot of educational aspects included such as
cognitive aspects, team work, and simulations. Because what a
child learns in Kidz Mondo is something that they do not learn
at home or at school.”
SUPERIOR QUALITY
& TIMELESS BEAUTY
The words of the writer Napoleon Hill are emblematic of Azar Gems'
history in the business; “Cherish your vision and your dreams as they
are the children of your soul; the blueprints of your ultimate achievements." Founded in 1948, Azar Gems is a global family business that
was built on the principles of integrity, superior quality, and most
importantly a worldly style that is imbued in timeless and beautiful
jewelry pieces. Azar Gems’ began as a diamond wholesale and trading company based in Beirut and later expanded to Los Angeles. As
the company grew, the Azar brothers began to explore new opportunities in jewelry manufacturing. Nabil Azar puts it this way: “Jewelry in the US formerly tended to
be classic and simple in design—earrings, bracelets, and bands. Yet today customers are interested
in new fashion trends, and the opposite tendency is in evidence, as successfully promoted by Italian designers over time. We reviewed our designs to address this demand.” With each passing year,
Azar Gems debuts new collections that include a mix of modern and traditional jewelry that is perfect for any occasion. These collections can be viewed at one of the three boutiques in Lebanon, or
multiple locations in the US, online, and of course in jewelry exhibitions all over the Gulf countries.
KIDZ MONDO
Beirut Waterfront,
KidzMondo Building,
P.O.BOX 5136 Riad El Solh,
Beirut, Lebanon
Tel: +961 1 998 866
www.kidzmondo.com/
Beirut/En/Home
AZAR GEMS
azargems.com/index.php/
en/homepage
GHIA HOLDING
4th floor Nohra Building,
Highway, Tahwita area
Furn El-Chebbak (Baabda)
Tel: +961 1 286 600
www.ghiaholding.com
THEBUSINESSYEAR
145
147
151
152
Detailed outlines of
administrative procedures
will help you make smarter
investment decisions.
Carlos Abou Jaoude, Managing
Partner of Abou Jaoude and
Associates, on working with
foreign firms in Lebanon.
Get to know the ins and outs
to make your stay in Lebanon
more productive, efficient, and
enjoyable.
Executive Guide
REVIEW SETTING UP A BUSINESS IN LEBANON
The Investment Development Authority of Lebanon (IDAL)
takes us through the steps of how to hit the ground running in
the local business world.
laying the
FOUNDATIONS
T
he first step in beginning the process
of setting up your
business in Lebanon is to officially register the
entity. Foreign investors and
Lebanese nationals can equally establish businesses all over
the country with no restrictions. There are six types of
business structures that an investor can choose from.
person delegated by the Board.
…'JMMJOUIF"QQMJDBUJPO'PSN
for the company’s registration.
…1BZUIF1VCMJD/PUBSZ´TGFFT
of: 0.1% of the company’s capital, a lump sum of LBP8,500
per page, and a fixed sum of
LBP90,000.
SETTING UP A JOINT
STOCK COMPANY
(JSC) OR SAL
Step 1: Completion of Prelim-‐
inary Legal Tasks
… 1SFQBSF UIF DPNQBOZ´T #Z
Laws or Articles of Association; have them signed by the
founders before a public notary in whose district the company’s head office is located.
… )PME B $POTUJUVUJWF (FOFSBM
Assembly to elect a Board of
Directors.
…"TTFNCMFUIFOFXMZBQQPJOUed Board of Directors to elect
the company’s Chairman, appoint a Principal Auditor and a
Legal Advisor.
… $PNQMFUF UIF $PNNFSDJBM
Circular, and have it signed by
the Chairman, and any other
Lebanon is hoping to attract new
foreign investors to help drive the
economy. To do this, it wants to have a
set of efficient and effective laws in place
to protect sensitive industries, while not
discouraging potential investors.
Step 2: Payment of Share
Capital
… 0QFO B CBOL BDDPVOU JO B
Lebanese bank under the
name “SAL Under Constitution.”
…"DPQZPGUIF#Z-BXTXJMMCF
required, in addition to minutes of the Constitutive and
first Board Meetings, and legal
identification of the founders.
Deposit the capital of the company (LBP30 million at least or
$20,000) in the chosen bank.
… 0CUBJO B DFSUJGJDBUF GSPN
the bank, evidencing the
opening of the bank account
and the subscription of each
founder’s shares.
Step 3: Registration at the
Trade Register
… 4VCNJU BMM UIF GPMMPXJOH
documents at the Trade Register and in the Court of Com-
146 THEBUSINESSYEAR
LEBANON 2014
merce located in the same district (or Muha-‐
faza) as the company’s head office:
- The application forms of the company’s
registration,
- The company’s By-Laws,
- Minutes of the Constitutive General Assembly,
- Minutes of the first Board Meeting,
- The Commercial Circular,
- The certificate of bank deposit,
- Copies of legal identification for all partners/shareholders,
- Deed of property/rent registered at the municipality, or occupancy deed for the company’s headquarters,
- Ask the Court of Commerce to appoint a
complimentary auditor for the company,
- Pay for the stamp duty, the sum of around
LBP250,000, and registration fees, and
- Pay the Magistrate Mutual Fund fee, which
is 50% of the stamp duty.
…'JMMJOUIFBQQMJDBUJPOGPSNGPSUIFDPNQBOZ´T
registration.
…1BZUIFQVCMJDOPUBSZ´TGFFGPSUIF"SUJDMFTPG
Association only. The fees consist of 0.1% of the
company’s capital, a lump sum of LBP8,500 per
page, and a fixed sum of LBP90,000.
Step 4: Registration at the Bar Association
…4VCNJUBEPDVNFOUDPOGJSNJOHUIFBQQPJOUment of a legal advisor at the Bar Association.
…1BZUIF#BS"TTPDJBUJPOGFFXIJDIDPOTJTUTPG
0.1% of the company’s capital and a fixed sum
of LBP100,000.
Step 3: Registration at the Trade Register
… 4VCNJU BMM UIF GPMMPXJOH EPDVNFOUT BU UIF
Trade Register, in the Court of Commerce located in the same district (or Caza) as the company’s head office:
- The application forms for the company’s
registration,
- The company’s By-Laws,
- Minutes of the Constitutive General Assembly of partners,
- The Commercial Circular,
- The certificate of bank deposit,
- Copies of legal identification for all partners/shareholders,
- Deed of property/rent registered at the municipality, or occupancy,
- Deed for the company’s headquarters,
…"TLUIF$PVSUPG$PNNFSDFUPBQQPJOUBDPNplimentary auditor for the company,
… 1BZ GPS UIF TUBNQ EVUZ UIF TVN PG BSPVOE
LBP150,000, and registration fees, and
…1BZUIF.BHJTUSBUF.VUVBM'VOEGFFXIJDIJT
50% of the stamp duty.
Step 5: Payment of Duties at the Ministry of
Finance
…1BZUIFTUBNQEVUZBUUIF-FCBOFTF.JOJTUSZ
of Finance, consisting of a lump sum of LBP1
million and 0.3% of capital.
… 3FDFJWF DFSUJGJFE DPQJFT PG UIF $FSUJGJDBUF PG
Incorporation, Articles of Association, Commercial Circular, and the minutes.
…"UBYJEFOUJGJDBUJPOOVNCFSXJMMCFBUUSJCVUFE
to the company.
Step 6: Release of Capital
…4VCNJUUIFGPMMPXJOHEPDVNFOUTUPUIFCBOL
in order to release the capital that has been
blocked during the registration phase:
- Minutes of the Constitutive General Assembly,
- Minutes of the first Board Meeting,
- A certified copy of the Certificate of Incorporation,
- A certified copy of the By-Laws, and
- A certified copy of the Commercial Circular.
SETTING UP A LIMITED LIABILITY
COMPANY OR S.A.R.L
Step 1: Completion of Preliminary Legal Tasks
…1SFQBSFUIFDPNQBOZ´T#Z-BXTPS"SUJDMFTPG
Association; have them signed by the founders
before a public notary in any district or directly
before the Head Clerk of the Trade Register.
…"QQPJOUPOFNBOBHFSPSNPSFBMFHBMBEWJTPS
and an auditor (if applicable).
…$PNQMFUFUIF$PNNFSDJBM$JSDVMBSBOEIBWF
it signed by the manager(s).
Step 2: Payment of Capital
… 0QFO B CBOL BDDPVOU XJUI B -FCBOFTF CBOL
under the name “LLC Under Constitution”. A
copy of the By-Laws will be required, in addition to the minutes of the Constitutive meeting,
and a legal identification of the partners.
…%FQPTJUUIFDBQJUBMPGUIFDPNQBOZ-#1NJMlion at least or $3,333) in the chosen bank.
…4VCNJUBEPDVNFOUDPOGJSNJOHUIFBQQPJOUment of a legal advisor, at the Bar Association.
…0CUBJOBDFSUJGJDBUFGSPNUIFCBOLFWJEFODJOH
the opening of the bank account and the subscription of each founder’s shares.
Step 4: Registration at the Bar Association
…4VCNJUBEPDVNFOUDPOGJSNJOHUIFBQQPJOUment of a legal advisor at the Bar Association.
…1BZUIF#BS"TTPDJBUJPOGFFTXIJDIDPOTJTUTPG
0.1% of the company’s capital and a fixed sum
of LBP100,000.
Step 5: Payment of Duties at the Ministry of
Finance
… 1BZ UIF TUBNQ EVUZ BU UIF -FCBOFTF .JOistry of Finance consisting of a lump sum of
LBP750,000 and 0.3% of capital.
… 3FDFJWF DFSUJGJFE DPQJFT PG UIF $FSUJGJDBUF PG
Incorporation, Articles of Association, Commercial Circular, and the minutes.
…"UBYJEFOUJGJDBUJPOOVNCFSXJMMCFBUUSJCVUFE
to the company.
Executive Guide
Step 6: Release of Capital
…4VCNJUUIFGPMMPXJOHEPDVNFOUTUPUIFCBOL
in order to release the capital that has been
blocked during the registration phase:
- A certified copy of the By-Laws,
- Minutes of the Constitutive General Assembly,
- A certified copy of the Certificate of Incorporation, and
- A certified copy of the Commercial Circular.
SETTING UP A BRANCH/
REPRESENTATIVE OFFICE OF A
FOREIGN COMPANY
Step 1: Certification at the Foreign Trade Reg-‐
ister
…5IFGPMMPXJOHEPDVNFOUTNVTUCFDFSUJGJFECZ
the Trade Register and/or its equivalent (Public
Notary) at the place of incorporation of the foreign company:
- Certificate of Incorporation in the foreign
country,
- Copy of the By-Laws, or Articles of Association (if applicable),
- The Corporate Resolution of the company,
- Copy of the Manager’s identification or
passport, and
- Deed of property/rent registered at the municipality, or occupancy deed for the company’s headquarters.
Step 2: Legalization & Translation
…5IFEPDVNFOUTMJTUFEBCPWFNVTUBMTPCFDFStified by the Lebanese embassy or consulate located in the country of the foreign company’s
incorporation.
…4VCNJUBMMEPDVNFOUTMJTUFEBCPWFGPSUSBOTlation into Arabic by a sworn translator in the
country of origin or in Lebanon.
Step 3: Registration at the Ministry of Econo-‐
my & Trade
…4VCNJUBMMUSBOTMBUFEEPDVNFOUTMJTUFEBCPWF
at the Ministry of Economy & Trade (MoET), in
addition to the required registration form.
…3FDFJWFBDPQZPGUIFOPUJDFPGBDLOPXMFEHFment from the Ministry confirming the set-up
of the foreign branch or office.
…1BZUIFUSBOTMBUPS´TGFFT
… 1BZ GPS UIF GJTDBM TUBNQT B TVN PG BSPVOE
LBP400,000.
…1BZUIF3FHJTUSBUJPOGFFTPG-#1NJMMJPOBOE
other relevant fees.
Step 4: Registration at the Trade Register
…4VCNJUBMMUSBOTMBUFEEPDVNFOUTMJTUFEBCPWF
at the Trade Register, in the Court of Commerce
located in the same district (or Caza) as the foreign company’s branch or office, in addition to:
- The copy of the Notice of Acknowledgement
from MoET, and
- The required Registration Form.
… 1BZ GPS UIF GJTDBM TUBNQT B TVN PG BSPVOE
LBP400,000, and registration fees,
… 1BZ UIF .BHJTUSBUF .VUVBM 'VOE GFFT PG
LBP900,000.
Step 5: Final Steps
… 3FDFJWF B $FSUJGJDBUF PG *ODPSQPSBUJPO FWJdencing the formation of the Foreign office or
Branch in Lebanon, in addition to certified copies of the By-Laws and Company Resolution.
…"5BY*EFOUJGJDBUJPO/VNCFSXJMMCFBUUSJCVUFE
to the company.
SETTING UP AN OFFSHORE
COMPANY
Step 1: Completion of Preliminary Legal
Tasks
… 1SFQBSF UIF DPNQBOZ´T #Z-BXT PS "SUJcles of Association; have them signed by the
founders before a Public Notary in whose district the company’s head office is located.
… )PME B $POTUJUVUJWF (FOFSBM "TTFNCMZ UP
elect a Board of Directors.
…"TTFNCMFUIFOFXMZBQQPJOUFE#PBSEPG%Jrectors to elect the company’s Chairman, appoint a Principal Auditor and a Legal Advisor.
… $PNQMFUF UIF $PNNFSDJBM $JSDVMBS BOE
have it signed by the Chairman, and any other
person delegated by the Board.
…'JMMJOUIFBQQMJDBUJPOGPSNPGUIFDPNQBOZ´T
registration.
… 1BZ UIF QVCMJD OPUBSZ´T GFFT PG PG UIF
company’s capital, a lump sum of LBP8,500
per page, and a fixed sum of LBP90,000.
Step 2: Payment of Share Capital
… 0QFO B CBOL BDDPVOU JO B -FCBOFTF CBOL
under the name “Offshore Under Constitution.”
… " DPQZ PG UIF #Z-BXT XJMM CF SFRVJSFE JO
addition to minutes of the constitutive and
first Board Meetings, and legal identification
of the founders. Deposit the capital of the
company (LBP30 million at least or $20,000)
in the chosen bank.
…0CUBJOBDFSUJGJDBUFGSPNUIFCBOLFWJEFODing the opening of the bank account and the
subscription of each founder’s shares.
Step 3: Registration at the Trade Register
… 4VCNJU BMM UIF GPMMPXJOH EPDVNFOUT BU UIF
Trade Register, in the Court of Commerce
located in the same district (or Muhafaza) as
the company’s head office:
- The Application Forms for the company’s
registration,
- The company’s By-Laws,
- Minutes of the Constitutive General Assembly,
- Minutes of the first Board Meeting,
- The Commercial Circular,
THEBUSINESSYEAR
147
Setting up an
Offshore Company in
Lebanon has become
increasingly easy,
though all steps in
the set-up process
need to be carefully
followed.
148 THEBUSINESSYEAR
LEBANON 2014
- The certificate of bank deposit,
- Copies of legal identification for all partners/shareholders,
- Deed of property/rent registered at the
municipality, or occupancy deed for the
company’s headquarters, and
- Ask the Court of Commerce to appoint a
complimentary auditor for the company.
… 1BZ GPS UIF TUBNQ EVUZ B TVN PG BSPVOE
LBP250,000, and registration fees.
…1BZUIF.BHJTUSBUF.VUVBM'VOEGFFXIJDI
is 50% of the stamp duty.
Step 2: Payment of Share Capital
… 0QFO B CBOL BDDPVOU XJUI B -FCBOFTF CBOL
under the name “Holding Under Constitution”.
…"DPQZPGUIF#Z-BXTXJMMCFSFRVJSFEJOBEdition to minutes of the Constitutive and first
Board Meetings, and legal identification of the
founders. Deposit the capital of the company
(LBP 30 million at least or $20,000) in the chosen bank.
…0CUBJOBDFSUJGJDBUFGSPNUIFCBOLFWJEFODJOH
the opening of the bank account and the subscription of each founder’s shares.
Step 4: Registration at the Bar Association
…4VCNJUBEPDVNFOUDPOGJSNJOHUIFBQQPJOUment of a legal advisor at the Bar Association.
…1BZUIF#BS"TTPDJBUJPOGFFXIJDIDPOTJTUT
of 0.1% of the company’s capital and a fixed
sum of LBP100,000.
Step 3: Registration at the Trade Register
… 4VCNJU BMM UIF GPMMPXJOH EPDVNFOUT BU UIF
Court of Commerce located in the same district
(or Muhafaza) as the company’s head office:
- The Application Forms of the company’s
registration,
- The company’s By-Laws,
- Minutes of the Constitutive General Assembly,
- Minutes of the first Board Meeting,
- The Commercial Circular,
- The certificate of bank deposit,
- Copies of legal identification of all partners/shareholders, and
- Deed of property/rent registered at the
municipality, or occupancy deed for the
company’s headquarters.
…"TLUIF$PVSUPG$PNNFSDFUPBQQPJOUBDPNplimentary auditor for the company.
… 1BZ GPS 4UBNQ %VUZ B TVN PG BSPVOE
LBP250,000, and registration fees.
…1BZUIF.BHJTUSBUF.VUVBM'VOEGFFXIJDIJT
50% of the stamp duty.
Step 5: Payment of Duties at the Ministry Of
Finance
…1BZUIFTUBNQEVUZBUUIF-FCBOFTF.JOJTUSZ
of Finance, consisting of a lump sum of LBP1
million and 0.3% of capital.
…3FDFJWFDFSUJGJFEDPQJFTPGUIF$FSUJGJDBUFPG
Incorporation, Articles of Association, Commercial Circular, and the minutes.
…"UBYJEFOUJGJDBUJPOOVNCFSXJMMCFBUUSJCVUed to the company.
Step 6: Release of Capital
… 4VCNJU UIF GPMMPXJOH EPDVNFOUT UP UIF
bank in order to release the capital that has
been blocked during the registration phase:
- Minutes of the Constitutive General Assembly,
- Minutes of the first Board Meeting,
- A certified copy of the Certificate of Incorporation,
- A certified copy of the By-Laws, and
- A certified copy of the Commercial Circular.
SETTING UP A HOLDING COMPANY
Step 1: Completion of Preliminary Legal
Tasks
… 1SFQBSF UIF DPNQBOZ´T #Z-BXT PS "SUJcles of Association; have them signed by the
founders before a Public Notary in whose district the company’s head office is located.
… )PME B $POTUJUVUJWF (FOFSBM "TTFNCMZ UP
elect a Board of Directors.
…"TTFNCMFUIFOFXMZBQQPJOUFE#PBSEPG%Jrectors to elect the company’s chairman, appoint a principal auditor and a legal advisor.
… $PNQMFUF UIF $PNNFSDJBM $JSDVMBS BOE
have it signed by the chairman, and any other
person delegated by the board.
…'JMMJOUIF"QQMJDBUJPO'PSNGPSUIFDPNQBny’s registration.
…1BZUIF1VCMJD/PUBSZ´TGFFTPGPGUIF
company’s capital, a lump sum of LBP 8,500
per page, and a fixed sum of LBP90,000.
Holding companies
are an increasingly
attractive model,
especially for familyowned enterprises
that have branched
ionchni^cp_lm_×_f^m
of activity.
Step 4: Registration at the Bar Association
…4VCNJUBEPDVNFOUDPOGJSNJOHUIFBQQPJOUment of a legal advisor at the Bar Association.
…1BZUIF#BS"TTPDJBUJPOGFFXIJDIDPOTJTUTPG
0.1% of the company’s capital and a fixed sum
of LBP100,000.
Step 5: Payment of Duties at the Ministry Of
Finance
…1BZUIFTUBNQEVUZBUUIF-FCBOFTF.JOJTUSZ
of Finance, consisting of a lump sum of LBP1
million and 0.3% of capital.
… 3FDFJWF DFSUJGJFE DPQJFT PG UIF $FSUJGJDBUF PG
Incorporation, Articles of Association, Commercial Circular, and the minutes.
Step 6: Release of Capital
…4VCNJUUIFGPMMPXJOHEPDVNFOUTUPUIFCBOL
in order to release the capital that has been
blocked during the registration phase:
- Minutes of the Constitutive General Assembly,
- Minutes of the first Board Meeting,
- A certified copy of the Certificate of Incorporation,
- A certified copy of the By-Laws, and
- A certified copy of the Commercial Circular. The content of this article
is intended to provide a
general guide to the subject
matter. Specialist advice
should be sought about your
specific circumstances.
TBY would like to thank
IDAL for compiling this
analysis.
www.investinlebanon.gov.lb
Executive Guide
THEBUSINESSYEAR
149
INTERVIEW
What are the unique attributes
of Abou Jaoude & Associates?
Our uniqueness stems from
our structure and our human
capital. We were established
in 1996, and in 1998 we were
pioneers in introducing the
Anglo-Saxon structural model of law firms in Lebanon,
instead of the family-based
firms, which were the standard in the country. We are
organized as a civil company
that practices law. Our model and the ascendance within
the firm relies on meritocracy, where any member has
the chance to become a partner, and business ethics are
paramount. Because of our
structure and image, we are
able to attract the best talent.
Our lawyers have an in-depth
specialization, a sharp understanding of the commercial
as well as the legal aspects of
clients’ businesses, and the
ability to tackle any challenge
using fast and innovative solutions. The firm is renowned
for its added-value in structured finance and unparalleled experience advising on
cross-border deals of the first
impression in the region.
Qb[n [l_ nb_ gimn bcab'jli×f_
mergers and acquisitions you
have worked on over the last
year?
We worked on a merger between Société Générale and
the Lebanese-Canadian Bank,
which was implemented
through the sale of the latter’s
assets and equity components. This was definitely the
largest consolidation of banking operations in the market.
We also recently acted on several high-profile acquisitions,
including the acquisition of
Orange Uganda by Africell,
and the acquisition by M1
Group of a stake in GLB Invest,
and several other telecoms
transactions in Africa. We also
work heavily on equity transactions, for instance we did
so in relation to Africell Holding. In terms of real estate, we
SOUND advice
TBY talks to Carlos
Abou Jaoude, Founder
& Managing Partner
of Abou Jaoude
& Associates Law
Firm, on the firm’s
depth of legal and
commercial talent,
assisting international
clients with crossborder transactions,
and enabling
corporate governance
compliance.
BIO
Carlos Abou Jaoude is the
Founder and Managing
Director of Abou Jaoude &
Associates Law Firm (AJA).
Carlos’ multidisciplinary
and international experience covers a broad range
of industries in both the
public and private sectors.
His expertise is particularly
sought after in structured
×h[h]_&[h^b_]ig\ch_m
his legal capabilities and
business perspective to
handle major cross-border
and complex transactions
i`nb_×lmncgjl_mmcihch
the region. He is recognized as a leading lawyer
by prominent directories
including Legal 500 and
Chambers & Partners.
Clients
(local and
multinational)
1,200
Members 45
represent not less than 10% to
15% of the real estate development market. One of the biggest ones is BeitMisk.
Biq[l_sio[mmcmncha×h[h]c[f
institutions to adapt to the new
capital market laws?
Not only to capital market
laws, but they have to comply
with several rules and regulations related to disclosure,
anti-money laundering, and
most importantly corporate
governance. Financial institutions have to train themselves to adapt to these new
regulations. You have to bear
in mind that there is a world
pre-2008 and post-2008. Our
advice to clients has been
corporate governance-driven
since 1994, because I believe
in the rationale of a transparent world. The substantial increase in our revenues
was due to the fact that many
unwilling companies had to
undergo the switch, upgrade,
and apply the latest rules, and
the firm already had a track
record in advising on governance rules.
How are you growing your base
of multinational clients?
We advise many multinationals and banks, such as Nissan, Deutsche Bank, Emaar,
and ZTE Corporation, locally
or worldwide. The firm offers businesses in need of legal assistance in any country
easy access to global advice
by maintaining privileged
partnerships with a number
of correspondents in various
jurisdictions. Based on our
attorneys’ experience, we are
able to advise on various legal
systems in different countries.
What is your strategy for expanding the company domestically and internationally?
In three to five years’ time, we
will be 100 members with 12
to 15 partners; we will have
our own network. I do not
have any plans to increase
offices or agencies anywhere
else in the world, especially not in the MENA region.
From our headquarters in
Beirut, we advise clients in
Lebanon on their ongoing
day-to-day business, but we
also service international clients on a transaction basis.
My vision was to become the
best in my market, Lebanon.
We have a great way of structuring transactions and that
is one of our core added values. Not many law firms specialize in this area. This gives
us an edge and the possibility of working on cross-border transactions. The firm’s
growth and expansion policy
revolves around segregation
and distribution of risks:
maintaining a 15% cap of
the firm’s total exposure per
main practice area or sector,
and a 5% cap per client. 150 THEBUSINESSYEAR
LEBANON 2014
Where to Stay
8
9
BEIRUT
01 The Smallville Hotel
Damascus Road, Museum District
T +961 1 619 999
www.thesmallville.com
Rooms 117 rooms and 39 suites.
Guest Services Conference and
events facilities, BBQ facilities,
outdoor pool, garden, terrace,
DQGDûWQHVVFHQWHUDining The
Social, Café Trottoir, and The Pool
House offer gourmet comfort
food and coastal Mediterranean
inspired cuisine.
02 Mövenpick Hotel & Resort
Beirut
General de Gaulle Ave., Raoucheh
T +961 1 869 666
www.movenpick-hotels.com
Rooms 292 Rooms and suites.
Guest Services Meeting and
banquet space, and a spa and
health club. Dining Bourj al
Hamam offers Lebanese cuisine,
while the Mediterranee Restaurant
offers Mediterranean cuisine.
Rooms 230 Rooms and suites.
Guest Services Meeting & banquet
space, outdoor pool, and a spa
and health club. Dining The Grill
Room, The Roof, The Lounge, The
Boulevard, and The Bar have food
and drinks to cater to all moods.
12
06 Le Royal
Leisure Hills Complex, Dbayeh
T +961 4 555 555
www.leroyal.com
Rooms Deluxe rooms, ambassador
suites, and suite apartments. Guest
Services%XVLQHVVFHQWHUûWQHVV
center, beauty salon, and a spa.
Dining Le Jardin du Royal offers a
mix of Italian, Mexican, Lebanese,
and seafood specialties. Titanic
Piano Bar offers drinks and casual
cuisine.
6
3
03 Etoile Suites
Hussain Al Ahdab Street, Solidere
T 961 1 976 197
www.etoilesuites.com
07 Le Gray
Martyrs’ Square, Central Beirut
T +961 1 971 111
www.campbellgrayhotels.com
Rooms 21 rooms and suites.
Guest Services Conference room,
car service, and a rooftop terrace.
Dining Etoile Suites restaurant
and bar offers international cuisine
and drinks.
04 Riviera Hotel
Paris Avenue
T +961 1 373 210
www.rivierahotel.com.lb
Rooms 120 rooms and suites.
Guest Services Business center,
conferences and banqueting
facilities, and beach and pools.
Dining Au Gros Sel offers local
and international cuisine, Riviera
Prive and pool bar offers drinks.
05 Four Seasons
3URIHVVRU:DûF6LQQR
Avenue
T +961 1 761 000
www.fourseasons.com/beirut
1
Rooms 12 deluxe rooms, 62
executive suties, 1 two-bedroom
corner suite, 1 one-bedroom and
1 two-bedroom presidential suite.
Guest Services Boardroom,
spa, hair salon, and a health
club. Dining Gordon’s Café, Pool
Lounge, Cherry on the Rooftop,
Cigar Lounge, Bar Three-Sixty, and
Indigo on the Roof.
08 WH Hotel
Emile Edde Street
T +961 1 348 888
www.whhotel-lb.com
Rooms 62 rooms and suites.
Guest Services Business center
and tours. Dining WH Restaurant,
WH Café, and the Uberhaus Club
serve a variety of food and drink.
Executive Guide
09 Monroe Hotel
Kennedy Street, Solidere
T +961 1 371 122
www.monroebeirut.com
Rooms 112 rooms and suites.
Guest Services Meeting rooms,
ballroom, theater, business
center, pool, and a health center.
Dining Sanderson and Awtar offer
international and local cuisine,
respectively.
Radisson Blu Martinez Beirut
Ain el Mreysseh
T +961 1 368 111
www.radissonblu.com
10
Rooms 185 rooms and suites.
Guest Services Fitness club,
7
meeting, and event facilities.
Dining Olivos Restaurant serves
local and Mediterranean dishes.
11 InterContinental Phoenicia
Beirut
Minet el Hosn
T +961 1 369 100
www.ichotelsgroup.com
Rooms Suites, deluxe, and
standard rooms. Guest Services
Business center, meeting and
HYHQWIDFLOLWLHVKHDOWKDQGûWQHVV
center, and a spa. Dining Eau de
Vie and Mosaic offer local and
international cuisine.
14
151
12 Hotel Cavalier
Abdel Baki Street
T +961 1 353 001
www.hotelcavalier.com
Rooms Standard and executive
rooms, and junior and executive
suites. Guest Services Business
center and conference room.
Dining Mediterranean and
French cuisine.
13 35 Rooms
Baalbeck Street, Hamra
T +961 3 345 676
www.35rooms.com
Rooms 35 rooms and suites.
Guest Services 24-hour
reception, room service, and
a reservation service. Dining
International cuisine available at
its in-house restaurant
14 Santona Residence
Wadih Sabra Street, Koreytem
T +961 1 351 100
www.santonaresidence.com
Rooms 12 studios, 38 one-bedroom
suites, 6 two-bedroom suites, and
2 three-bedroom penthouses.
Guest Services 24/7 Wi-Fi,
housekeeping and laundry services,
and underground parking. Dining
Walking distance from Hamra
Street restaurants, cafes, and bars.
13
THEBUSINESSYEAR
17
15 Staybridge Suites Beirut
Alfred Nobel Street, Verdun
T +961 1 759 859
www.staybridgesuites.com
Rooms 121 rooms and suites.
Guest Services Business center,
KHDOWKDQGûWQHVVFHQWHUURRIWRS
terrace, and outdoor pool. Dining
International cuisine available.
TRIPOLI
16 Quality Inn Hotel
16 Quality Inn Hotel
Rashid Karami International Fair
T +961 6 211 255
www.qualityinnlebanon.com
Rooms A selection of rooms
and suites. Guest Services 24/7
Wi-Fi, room service, taxi service,
and all-day laundry service.
Dining International cuisine
available from the hotels in-house
restaurant.
BYBLOS
17 Byblos Sur Mer
T +961 9 548 000
www.byblossurmer.com
Rooms 30 rooms and suites.
Guest Services Meeting and
wedding facilities, and a business
center. Dining International
cuisine available from a number of
restaurants.
MZAAR
InterContinental Mzaar
Mountain Resort & Spa
Kfardebiane, Ouyoun El Simane
T +961 9 340 100
www.icthotelsgroup.com
18
18
16
Rooms 131 rooms and suites.
Guest Services Business center,
meetings and events facilities,
and indoor and outdoor activities.
Dining Fondues are on offer at Le
Refug and an international buffet is
on offer at Les Airelles. La Tavola
offers Italian cuisine and Al Hor
tent offers authentic Lebanese food.
152 THEBUSINESSYEAR
LEBANON 2014
Helpful Hints
Some survival tips that will help get you through
the first few days in the country.
When in LEBANON
Useful Contacts
$1
EMERGENCY SERVICES
INTERNAL SECURITY 112
RED CROSS 140
CIVIL DEFENSE 125
LBP 1,500
FIRE 175
MINISTRIES
MINISTRY OF ECONOMY & TRADE
www.economy.gov.lb
The US dollar acts as Lebanon’s
de facto second currency, accepted for payment in most places at
a rate of $1:LBP1,500.
European-style 220 V twin plugs
are used, though often of the
non-grounded narrow gauge
variety. Plug adaptors are widely
available.
Lebanon is one of the few places
you can ski in the morning and
swim in the Med in the afternoon.
MINISTRY OF FINANCE
qqq(×h[h]_(aip(f\
MINISTRY OF FOREIGN AFFAIRS
& EMIGRANTS
www.emigrants.gov.lb
MINISTRY OF INDUSTRY
www.industry.gov.lb
MINISTRY OF TOURISM
www.mot.gov.lb
visa
MINISTRY OF AGRICULTURE
www.agriculture.gov.lb
CHAMBERS OF
COMMERCE
CHAMBER OF COMMERCE,
INDUSTRY, & AGRICULTURE OF
The Lebanese are experts at
tabbouleh and fattoush salads.
Do not even consider discussing
Western variations!
Over 80 countries are granted
a month visa upon arrival to
Lebanon. This includes a month
grace period.
/HEDQRQKDVVRPHRIWKHûQHVW
olive oil in the world. Some of the
trees are over 1,000 years old.
BEIRUT
www.ccib.org.lb
ASSOCIATION OF BANKS IN
LEBANON
www.abl.org.lb
ASSOCIATION OF LEBANESE
INDUSTRIALISTS
www.ali.org.lb
LEBANESE BUSINESSMEN
ASSOCIATION
www.rdcl.org.lb
PRESS
AL-IKTISSAD WAL-AAMAL
www.iktissadonline.com
THE DAILY STAR
www.dailystar.com.lb
AL-AKHBAR ENGLISH
english.al-akhbar.com
Byblos is considered by many to
be the oldest continuously lived-in
city in the world. Be sure to pay
it a visit!
The Lebanese Cedar, the country’s
national symbol, can live for over
2,000 years. Today, they are mostly protected by nature reserves.
The Lebanese coast is often more
humid than the Arabian Gulf, so
cotton clothes are advised.
EXECUTIVE MAGAZINE
www.executive-magazine.com
LEBANON OPPORTUNITIES
www.opportunities.com.lb
Technology leads to
development.
We lead on technology.
What is the purpose of a technological
innovation if it is not in the service of people?
Technology’s main objective should be to
advance businesses and societies. Bank Audi
understands this, and embraces the innovations
that drive people forward.
Grow Beyond Your Potential
LEBANON
SWITZERLAND
FRANCE
JORDAN
SYRIA
EGYPT
SUDAN
KINGDOM OF SAUDI ARABIA
QATAR
MONACO
TURKEY
IRAQ
ABU DHABI REP. OFFICE
www.banqueaudi.com