In the dead of a crisp November night, the elite unit of Lebanon’s Internal Security Forces prepared to pounce. Their target? An unlicensed neighborhood water distributor at the southern edge of Beirut’s Hamra district. Acting on a tip from public health minister Wael Abou Faour, the police stormed the distributor’s ad hoc basement factory, shutting off pipes, rounding up suspects and smashing open water cooler jugs as though they were barrels of booze in Prohibition era USA. Over the next few days, this scene was repeated hundreds of times in the capital’s various neighborhoods, as well as in villages and cities across the country. The battle for safe, regularly tested drinking water had begun.

Don’t remember reading about this crackdown in the news? That’s because it didn’t happen. While Abou Faour did threaten to move against what he estimates are 800 unlicensed drinking water providers throughout the country, the reality is he didn’t. Nor does he know exactly how many of them there are. In truth, no one is sure how many there are, but there are indications that a significant number of Lebanese regularly drink water that has been filtered though never tested for safety.

Water, water, everywhere

There are 38 companies licensed by the Ministry of Public Health to distribute drinking water. These companies are listed on the ministry’s website and include well known national brands such as Tannourine, Sannine and Sohat. According to the Central Administration of Statistics (CAS), 10 percent of the Lebanese relied on bottled water as their main source of drinking water in 2009, the most recently available statistics on the subject. Ihsan Atwi, head of the sanitary engineering department at the Ministry of Public Health, tells Executive that the 1983 law governing bottled water stipulates that it cannot be treated or otherwise tampered with. It’s taken straight from the ground (whether from a well or a spring) and sold to consumers. He says bottled water is tested by the Ministry of Public Health’s central office to make sure it is safe to drink when the company applies for a license. After obtaining a license, the ministry’s “decentralized services” carry out tests according to their own schedule and only report back to headquarters in Beirut “if there is a problem.” His tone and demeanor while explaining this suggest he is not sure whether testing is regular or rigorous, but he notes that some Lebanese water is exported. “Because there aren’t any complaints about our [bottled] water outside, this is an indirect indicator that our water is safe,” he offers. 

What we know nothing about, Atwi says, is the quality of water sold by small scale neighborhood or village distributors in larger quantities than bottled water for a fraction of the price. These are the ‘off brands’ you might see in the corner grocery story in 10 liter plastic bottles. Small scale distributors also allow customers to refill 18.9 liter water cooler jugs for $1, according to Atwi and Executive’s own experience with such a distributor. “These are the danger,” Atwi says, in reference to the distributors, whom Abou Faour says number 800. Atwi explains that the ministry tried to count them in 2012 but the survey was “not accurate” because of difficulties in reaching all parts of the country. “In general, there are hundreds,” he says. No doubt hyperbolically, he adds that a new small scale distributor opens “every day,” as the investment cost is low but the return can be high. Executive was unable to convince a distributor to talk financials, but Atwi notes that “evidence that [this business] is worth it [from a revenue standpoint] is that it is widely spread. If it wasn’t worth it, no one would work in this field.” Expenses such as a license and bottling lines are not necessary for small scale distributors, he says. 

Atwi and Lena Dergham — director general of the Lebanese Standards Institution (LIBNOR), which sets local standards for water quality, among other things — say these small scale distributors do filter or otherwise purify the water before distribution, for example with small amounts of chlorine. The problem is that no one monitors or tests this water, so diarrhea outbreaks in a concentrated area is one of the only ways to know if there is a problem with it.

These small scale distributors provided the main source of drinking water for a plurality of the Lebanese — 36 percent — in 2009, according to the CAS survey. As for where the water comes from, Atwi says, “The well of the building [they operate in], the public networks — they steal it, for example — or they buy it [from a large truck or well owner]. They filter it and they sell it.”

Waiting for Godot

The existence of these unlicensed and unregulated distributors is no secret. Executive was not able to ascertain exactly when they came into existence. However, in 2012 — following media reports on unsanitary conditions in some distribution facilities — Parliament passed law 210 to regulate the quality of the water — based on standards set by LIBNOR — the methods of filtration and the conditions of the distribution facility. The law is still not being enforced because it does not stipulate which ministry is responsible for actually implementing it. Dergham explains that the government needs to pass a new decree assigning enforcement authority to a specific ministry before the law will be enforced.

Even if that happens tomorrow, however, the World Health Organization argues that Lebanon — or LIBNOR, to be more specific — must also update its drinking water quality standards, which have not been revised since 1999. In a process that has taken “a lot of time,” the WHO has been pushing Lebanon to update its standards, according to Nohal Al-Homsi, a project officer working on environmental health, food safety and community health with the WHO. Homsi would not be more specific about how long the WHO has been arguing for an update, but Dergham, from LIBNOR, says the process has taken over a year. Dergham and Homsi say new drinking water standards are being discussed by a technical committee including members of Parliament, the WHO, LIBNOR, academics, members of relevant ministries and representatives of Lebanon’s four regional water authorities, which handle treatment and distribution of state supplied drinking water. Dergham notes that while LIBNOR writes the standard, it cannot be applied — or considered mandatory — without a decree from the government codifying it into law.

The WHO last revised its own drinking water quality standards in 2011, however the UN agency notes that its standards merely serve as guidelines and do not necessarily need to be adopted as a whole. “The nature and form of drinking water standards may vary among countries and regions,” according to the WHO’s 2011 report on its update. “There is no single approach that is universally applicable.”

Neither Dergham nor Homsi would be specific about what updates Lebanon’s standards need — though both argued that the standards need to be revised. Homsi offered only that Lebanon’s standard is “outdated for chemicals.” However, the WHO’s 2011 standards update notes, particularly of chemicals, it “provide[s] guideline values for many more chemical contaminants than will actually affect any particular water supply, so judicious choices for monitoring and surveillance should be made prior to” setting national standards. Dergham notes, “the new update mentions stricter limits” but, as the WHO document says, Lebanon cannot adopt all of them blindly without first studying what is most relevant for the country. “There are some specific national issues that need to be addressed, it doesn’t mean we will allow something that will have [a negative] impact on human health.”

Homsi and Dergham refused to say that regulated and licensed drinking water in Lebanon is unsafe. Homsi also refused to explain why revising the standard has taken so long, though she does indicate there is opposition to an update that she would not elaborate on. Dergham says the regional water establishments don’t have the proper lab equipment to test for new possible water contaminants even if the standards were updated, yet another roadblock to a quick revision. Dergham notes that LIBNOR has no legal authority to test water, and highlights the need for a national policy on strict testing that is actually implemented. “We will push more in order to quicken the process, but this discussion has to happen because if we have a standard that is not implemented and is not able to be implemented, this will be a problem. We need to be sure the requirements are there based on scientific data and these requirements are able to be implemented.”

The post A dangerous source appeared first on Executive Magazine.

Health Minister Wael Abou Faour caused quite a stir by telling the Lebanese they are eating “shit” — his word, not ours. What he failed to do, however, is give any details about the methodology and precise results of tests on food his ministry recently conducted. In short, Abou Faour spread fear, not information. He also failed to point out that testing food and water once in a blue moon does nothing to ensure that they are consistently meeting health and safety standards. Lebanon has several laws and decrees setting standards for food, water and the preparation of these two necessities; the problem — as always — is enforcing these standards and punishing those who violate them. This is especially true for unlicensed and unregulated small scale water distributors — the ‘off brands’ selling 10 liter bottles in corner shops and supermarkets as well as the neighborhood distributors who fill 18.9 liter jugs for $1 (see “A dangerous source“).

According to the most recent statistics — which of course are laughably outdated — these distributors were the most common source of drinking water for the largest number of Lebanese. While Abou Faour in late November vowed to crack down on these distributors, in reality he did nothing. Admittedly, we do not know if these gray market entrepreneurs are selling unsafe water, but there should be a system in place to monitor and organize them.

Law 210 of 2012 does this. It outlines the exact quality standards this drinking water should meet and details the sanitation standards required for the facilities in which this water is treated, stored and distributed. But because the law does not specifically say who is responsible for monitoring and implementing these standards, it is not being enforced. We don’t know for sure where these distributors get their water; we don’t know whether they store and bottle it in sanitary conditions; and we don’t know how well it has been treated before being sold. What we do know is that such a system can easily lead to public health problems. Every citizen has the right to safe drinking water, and it is clear that the state cannot yet provide that. Until it can, the very least it can do is consistently monitor this gray market so that people can drink with confidence.

Extralegal water distribution is reflective of the wider problems with Lebanon’s food and beverage sectors. Whether it is rotten meat, expired potato chips, counterfeit booze or fruits and vegetables with alarming amounts of pesticides, we know we have a serious monitoring problem. The best way to deal with all of these tainted products is to regularly and rigorously enforce health and safety standards. Launching brief campaigns every few years for unclear purposes is not helpful.

Haphazard monitoring and enforcement will generate media attention and make a politician look good. It won’t ensure health and safety standards for food and beverages are consistently applied. That is, it won’t protect the public. Only regular and robust inspections can do that.

The post Politics and public health appeared first on Executive Magazine.

On the clouded horizon of Lebanese retail in 2015, the next quarter’s biggest bang in fashion retail may well be a new store in the, recently often maligned, Beirut Central District. Come this spring, Hamra Shopping and Trading Company (HST), best known for its retail brand Grand Stores (GS), will open a new retail space smack in the center of downtown Beirut, facing the Souks and 200 steps from the security cordon around Nejmeh Square.

With about 2,400 square meters (m²) in sales area, the new GS multibrand store will be the company’s largest. “This project consists of four floors, each comprising around 600 m², and it will be our flagship store, taking us to the next era as a company and as retail[er] in Lebanon. We are designing and planning and working [so that] this store [can] really cement our presence in the retail market in the region,” says Jamil Rayess, current helmsman of family owned HST.

Costs for getting one of HST’s stores up and running in Lebanon, according to Rayess, range between $1,000 and $1,150 per square meter, giving the project an investment dimension in the neighborhood of $2.5 million. In the context of the HST portfolio of over 30 multi and monobrand stores between Tripoli and Saida, this new space will add about one fifth to their existing retail surface, which Rayess meticulously cites as 11,221 m² at the end of 2014.

Crisis of companies

Of course the new GS store in downtown, even as HST’s largest project ever, amounts to a nice, rather than overwhelming, splash in the urban storescape when compared with the tens of thousands of square meters in new fashion retail surfaces that have come to market between 2003 and 2014 in prime areas, namely in shopping malls and the Beirut Central District.

Notably however, this national expansion in gross leasable area for prime retail has not been as smooth as depicted in shopping malls’ promotional brochures or the musings of experts like Simon Thomson, founder of the London based consultancy Retail International, who 10 years ago predicted the “regeneration of Beirut as a significant international retail destination city capable of competing with the likes of Dubai.”

Especially in downtown, where fashion mongers made it their ambition to make local and visiting shoppers wear down their heels in extensive strolls around Foch-Allenby and Minet El Hosn, this expectation has faltered time and again and retailers have of late either moaned over bad business or altogether refused to discuss sales results when queried by Executive.

Asked if he wasn’t concerned about the weak economy in general and turned off by the purported anemia in the downtown retail environment, Rayess has two answers. On the economy, he says, “We have never made any plan for our company based on a negative scenario for the country, because to do so would be self defeating and mean that we would be standing still.” HST instead approaches the future by “planning on [a] day-to-day basis, hoping that things will [get] better,” he enthuses.

As for downtown’s troubles, he comments that the negative perspective “is not all true. I may not have the same presence in this area as some of my competitors in terms of size,” he continues, “but I have two retail shops in the central district. I have been in this area for 11 years now and can say that it is not all bad. There are a lot of retailers that are not satisfied but there are several retailers that are satisfied and are growing their presence in this area.”

Strategic positioning

Another facet of the company’s confidence in the Lebanese market is a strategy mix that is built upon HST’s identity of being a Lebanese retailer whose source of success is the importing of well established but not extravagant foreign labels. According to Rayess, HST was established under this formula by his father 40 years ago and has developed its middle of the road approach into an art form, tuned to the Lebanese taste. It can compete with local outlets of international monobrand chains, whether they are recent arrivals to the Lebanese market, such as H&M and Marks & Spencer, or have been present for years, such as Mango and Zara.

The strategy mix involves marketing, purchasing, pricing and positioning. The fairly aggressive marketing activity entails diversified outreach activities ranging from common tools, such as discounts and seasonal campaigns, to instruments that are sparsely used in Lebanon, such as an in store magazine and a mobile app. 

Purchasing and exclusive franchise representations are the next building blocks in the business formula. This includes franchise partnerships with four brands — Timberland, Springfield, Geox and Bossini — which HST offers in monobrand stores and a much larger portfolio of about 100 brands which the company’s team of buyers obtains from foreign suppliers. Sold in GS stores, this portfolio consists of 90 percent exclusive representations, Rayess says, and 13 to 14 professional buyers in the HST team are constantly on the road to source collections from trade fairs and suppliers “all around the world.”

Although the HST product portfolio includes two house brands where items are produced by contractors in China, Turkey and Lebanon, these brands are used to fill supply gaps and their contribution to the bottom line has been shrinking to the point that they recently accounted for less than 2 percent of turnover. “We are dealing with our house brand not to maximize margins but for a different philosophy: we sometimes fall short of a specific product, an item that was en vogue but which we were unable to acquire from one of our suppliers. In such cases, we take this product and tell our contract manufacturers to produce it for us,” Rayess says.

Pricing is mainstream and conservative but orientated to match the pricing in the home markets of the manufacturers whose brands are in the portfolio. This translates into a policy of combining price comparability with limiting discounts.

Dedicated bargain hunters can find products such as a pair of Geox shoes at this or that Beirut retailer, but when it comes to comparing prices displayed at an HST store with those shown internationally for the same product, customers who go to the — today very small — trouble of checking those prices online will rarely encounter a significant differential in favor of buying outside. This is because Rayess tends to price a Timberland product according to the US market and a Springfield product according to the Spanish market, etc.

He says, “Let me not enter price debates with my customers, who can confront me right there in the store with what my product costs in another market. So let me price it right according to the price in the country of origin of this product. Most of the times, the country of origin is where the product is sold at its cheapest when compared with the remainder of the markets.”

This correlates with a longstanding practice to stay away from the Lebanese market’s flashiest sales methods. “In the history of HST or GS or any of my brands, we never did 70 percent discounts. I price my products so that the lowest I can go in terms of discounted prices is 50 percent,” Rayess explains. With markdowns from the regular retail price being limited in this way, the company seeks to engender customer loyalty and avoid a behavior where customers delay purchases in order to wait for the bigger discounts.

On the accounting side, the company has a policy of aiming for stable earnings before interest, taxes, depreciation and amortization (EBITDA) margins. “We are trying to work with an EBITDA of 10 percent, sometimes successfully so, sometimes less. Less successful means [achieving] EBITDA [that is] lower by half a [percentage] point,” Rayess says.

Refusing to disclose data on the turnover and bottom line of the HST retail business in Lebanon and other countries, he only volunteers the information that “our company and its affiliates have been growing every single year since 1974, with year on year growth in terms of turnover and gross profits.”

Manifest less Syria

The company has set its same-store turnover growth targets for 2015 at 6 percent, and expects new points of sale will add to overall growth in gross revenues. These new points of sale include not only the upcoming flagship facility in downtown Beirut but also new stores in Iraq, of which one is scheduled to open in June in Suleimaniya, and Jordan, where a 500 m² store in Amman’s Abdali district is planned to launch at the end of the year.

Iraq, with five stores, and Jordan, with three stores at end of 2014, are the two regional markets where the expansion of HST has been successful. But the company is still recovering from its exposure to Syria where it began an enthusiastic rollout of stores in 2008. Opening six stores in three cities between 2008 and 2010, the decision to close all outlets and put activities on hold had to be made in 2011, the Syrian conflict thus having a “big” impact on HST, Rayess admits.

Rayess, who stepped up to the position of general manager at HST in 2010, nonetheless emphasizes that he still attributes great potential to the Syrian market. He is not deterred by the challenges of operating in a difficult and extremely complex environment and still has dreams, such as developing a fully fledged fashion brand.

This venture, to be created by HST with full brand philosophy, packaging and everything else, has been on the drawing board “for a good while,” according to Rayess. It has moved between pipeline and drawing board without having been scheduled for implementation due to the financial requirements of investing several million dollars and because of the even greater challenge of building a team that can develop and run such a brand.

Once the family run company establishes itself regionally, it may consider a public listing, says Rayess, noting that “We are a family business of the 21^st century, so we are not looking specifically for any of our children to take over or hold the reins.”

All things considered, this leaves HST looking like a firm that is not out to reinvent fashion or overthrow the global order of retail, but a company where conservative and ambitious elements are in a balance. Their corporate passion is conveyed by Rayess as not being focused on the amount of cash that can be generated from a customer. “I never look at people this way. I always look at what they are wearing and I always feel a sense of pride if an item they are wearing was purchased from one of my stores. I don’t care whether it is a small bracelet or the most expensive suit I carry. I look at them with satisfaction because I was able to have them enter my stores and purchase a product.”

The post Holding the middle ground appeared first on Executive Magazine.

Executive met with Monisha Abraham, general manager at Brasserie Almaza, to discuss the business of beer in the country, market share, exports and plans for a new brewery.

You recently came to Beirut to manage Almaza, which is owned by Dutch group Heineken. How long have you been with the Heineken Company?

I started working at Almaza in July [2014], and before that I was in the Netherlands as the regional marketing manager for the MENA region. I’ve been with the company for nine years.

In early 2014, Almaza had 74 percent of the beer market, according to BLOM Bank data. Has your share of the market been impacted following the introduction of new brands, such as Beirut Beer and Colonel? 

It is not our policy to talk about market share, but our share was not affected by the competition that came in, in fact volumes have grown compared to 2013, and we seem to be on a winning track. 

Why have sales grown given the current local and regional situation?

The market is growing. There is excitement about beer, the new entrants and the category, and what has partly helped are our innovations, as well as more and more people reaching the legal drinking age.

Was this a reason for diversifying your offerings?

For us, innovation is key — not only in Alamza, but Heineken, to increase the global innovation rate to 6 percent by 2020, to create excitement and cater to consumer needs. Over the last three years we introduced Light, Radler and Al Rayess, and all are doing very well for us, and not cannibalizing the Almaza brand. 

Unlike many other food and beverage items, the price of a bottle of Almaza has not increased for years. How are you managing to stay so price competitive? 

We are looking at the economy and what consumers really need at this time. Al Rayess is retailing for LBP 1,000 ($0.66), and one of the reasons we introduced it was to provide consumers with a good Lebanese beer at an affordable price.

Can you give a breakdown of sales in your portfolio?

I can give an indication. The Almaza brand is about 85 percent of total volumes, and then Heineken brands about 15 percent.

Why did you decide to do special bottle packaging for Almaza at certain clubs and bars? 

It is done in other markets — and this was the first time in Lebanon — to show our partnership with an organization; it creates excitement and something that you can connect with as a consumer. It is small scale, but we [also] did it for the whole brand, as seen with the World Cup 2014 campaign. We had eight different national flags on the bottles. 

Was it a successful campaign? 

It was extremely successful, and touched on the true insight of the Lebanese, as yes, you support different countries but [you’re] still Lebanese first, just like Almaza is the number one Lebanese beer brand.

Have exports of Almaza been affected by the conflict in Syria? It was quite a good market before, I believe. 

We continue to export to Syria and it’s a well known brand, and we also sell to something like 25 to 30 markets around the world. 

Were summer sales down because of weaker tourism? Indeed, a statistic floating around is that around 70 percent of beer is consumed in the summer months.

There are two factors. Yes, tourism was affected but it did not affect [our] business too much, although we would have grown more if there had been more tourism. The seasonality of beer, indeed, is present, but you see that in many countries. What I find now, more and more, is that although the summer is related to beer, the excitement that the beer category has — and if it continues — will help reduce that seasonality to a degree.

Are you considering buying a micro brewery here? 

When [it] comes to Lebanon, no. We will focus on our portfolio, and Heineken has over 250 brands around the world, so we will dip into that pot.

Are you planning to expand your brewing facilities?

We are not going to expand this current facility, but [rather] are looking to build a new brewery in Lebanon. We started this process a few months ago, and it should come to fruition in the short to mid term. We are still looking for land.

The post Growth on tap appeared first on Executive Magazine.

EuroMena is a series of private equity funds managed by Capital Trust Group. The latest fund, EuroMena III, launched in June 2014 and aims to provide financing to fast growing industries in the MENA region. Executive sat down with managing director Romen Mathieu and executive director Gilles de Clerck.

Since we last spoke in June, EuroMena III has raised its first closing at $100 million. How close are you to your second closing?

RM: The objective is $200 million. $150–$200 million. At $150 million, we will be very happy. And we’re there, at $150 million. Consider it done. By February we’ll [formally] do the second closing at $150 million, then probably [we will need] another three, four [or] five months to reach the $200 million [mark]. Now if we’re lucky, we’ll reach $200 million by February or March.

Have you made any investments yet?

RM: No, not yet. We have made our first capital call, and I think the first investment or probably two investments should be made before the first quarter of 2015.

Your clients in the first two EuroMena funds include both institutional clients, such as the European Investment Bank, as well as family groups. Are their appetites changing?

RM: Look, the hardest thing you can do in our business is fundraising and exiting. In Europe it’s fundraising; exiting is easy because you have stock markets. We are in a region with no stock markets and it’s very difficult to exit. But fundraising is even more difficult. Because when you go to sell to someone and say: ‘Hi, I’m raising a private equity fund, give me your money — but you know, I don’t know when I will invest it, I don’t know when I will call it, I don’t know how much return I will get on a yearly basis, I don’t know when I will exit, and I don’t even know if I will give you the money back. And don’t ask me which companies I am going to invest in, I don’t even know that yet,’ the pitch is very difficult. The people that invest with us are the people who know us very well, who have seen us working and seen our track record. They are the ones who come and invest with us, or they’re very close to people who have already invested with us.

In terms of private equity, there are not a lot of funds based in Lebanon. Some banks have attempted it, but there are none now. Why is there so little private equity based in Lebanon?

RM: Because small is not beautiful in our business. So setting up a small fund of $10 [or] $20 million to make private equity in the region [is] not viable. The management fees won’t allow you to pay competent people to do due diligence. And for what you invest, you only get a small capital gain. You have to have a big fund. If a bank is involved in a fund, it doesn’t work. A banker is a banker, and an investor is an investor. All the funds where you had a bank involved just didn’t work out.

We’re in a region where exits aren’t easy. If you grow a company in Lebanon and you want to sell it — impossible. You don’t have stock markets here. You want to bring someone to buy a company in Lebanon today? I mean, who would come and buy a company in Lebanon today? So our secret recipe  when we invest in a company is to take it regionally, to diversify the risk.

Even in the Middle East, if you look at data from the Middle East Private Equity Association, the amount of new funds created per year and total amounts raised is decreasing. Why is this the case?

GC: The fact that there are few funds suggests you have more maturity in this industry. People now understand that it’s not a business for amateurs, and that it’s difficult. Only the good ones who were successful in the initial years were able to continue and to carve out new teams that have been able themselves to raise funds.

RM: In the whole region, as Gilles said, first time players are being wiped out. The people who have stayed are those who have really proved that they have a track record, a business model and a serious reputation, which is very important in our business.

GC: I think if you look at the percentage of private equity as a part of the GDP, in this part of the world we’re still behind Europe 20 or 30 times, and 50 times behind the US. So there is still room to develop.

Well that begs the question, where do you want to go with this? What’s after EuroMena III?

RM: One billion [dollars]. If you know to drive on the right side, you continue to drive on the right side. Why would you go over to the left side? This is our everyday job. It’s private equity. We’ll never do anything other than private equity.

The post It’s hard to enter when you can’t exit appeared first on Executive Magazine.

Likely due to some well publicized successes, the concept of startup acceleration has spread like wildfire over the past decade. This idea — nurturing nascent innovators for a small slice of the pie — has developed worldwide. Every cluster of startups that considers itself an ecosystem needs at least one accelerator to take itself seriously. The first Middle Eastern accelerator, Jordan’s Oasis500, saw the light of day in 2010. Lebanon’s first accelerator, Seeqnce, launched its first batch of startups in 2012 but then disbanded soon after the group graduated. Since Seeqnce was established, many calls have been made for a new accelerator as something badly needed for the entrepreneurial ecosystem. Finally, a well meaning and perhaps a little exasperated group of individuals from Bader, Berytech, Lebanon for Entrepreneurs and Middle East Venture Partners came together to create Lebanon’s second accelerator, Speed@BDD, which will launch its first round of acceleration in early 2015, according to Fadi Bizri, Speed’s CEO.

Adapting to local specificities

But the region’s relatively new accelerators couldn’t simply copy their peers elsewhere. Accelerators in the Middle East have some basic elements in common with accelerators in Europe and the United States: a business development program lasting several months, where the accelerator’s fund takes an equity stake for a cash and in-kind investment. However, accelerating in the Middle East is a different beast from operating anywhere else, and accelerators have to adapt even further to take local specificities into consideration.

Making a carbon copy of a foreign accelerator in the Middle East is perhaps among the worst ideas if one wants to be successful. “If we just tried to copy and paste [US based accelerator] Techstars’ model in Bahrain it wouldn’t have worked,” says Hasan Haider, CEO of Bahraini accelerator Tenmou. “We looked at [their] program, looked at curriculum [and] it just didn’t sit with [the] characteristics of the market. We did a lot of niche things to change the way it’s delivered. We also decided we’re not going to focus on tech, we’re not going to be a Silicon Valley, we’re going to invest in any good team,” adds Haider.

Those behind the accelerators confess that they had to adapt their programs to local specificities. Ramez Mohamed, CEO of Egyptian accelerator Flat6Labs, acknowledges that their programs have to provide more basic training, since they were seeing entrepreneurs in emerging or developing markets with little experience in business. “The format of the program kept developing cycle by cycle until we develop[ed] something fit for Egypt and the region,” he says.

Those familiar with the lean startup model know that you have to keep changing, iterating and adapting your product until it fits the market. The work of those guiding an accelerator is not dissimilar to this. Over the course of several cycles, a successful accelerator adapts to the market and figures out the best way to help the startups it is supporting meet their business goals. This, perhaps more than longevity, can account for some accelerators’ successes. “Our accelerator has been developing to the needs of the market since we began in September 2010. So we’ve been very fluid [in order] to identify the most appropriate way of what works and doesn’t,” says Oasis500’s CEO, Yousef Hamidaddin.

The lineup

In this context, Executive took a look at three regional accelerators to examine the models and the value that they add to their incubated companies. While measuring the performance of accelerators is an imperfect science (see box), one ballpark metric is how well these companies are doing.

The accelerators identified were established before 2012, as it is difficult to assess the performance of companies established much later than this. We looked at Oasis500 in Jordan, Flat6Labs, which was established in May 2011, and Tenmou in Bahrain, launched in November 2010.

The first on the list and by far the most successful is Oasis500. Out of 75 startups that have graduated from it since the first quarter of 2011 when its first batch was launched, 55 are still active and nearly half have raised follow on funding with a combined total of $18 million as of Q3, according to the Oasis500 team. It is the only regional accelerator that has witnessed an exit for one of its startups. In 2013, their graduate, Run to Sport, was acquired by Jabbar Internet Group, an investment group made up of former employees of Maktoob, a Jordanian internet company acquired by Yahoo in 2009. The deal brought the Oasis500 shareholders a return of three times the original investment of $30,000 for 10 percent equity, according to Hamidaddin, meaning the company was acquired at a valuation of little under $1 million. Hamidaddin sees exits, rather than reaping dividends, as the only strategy by which the accelerator can become financially viable. Their strategy thus is to hold equity for five years and then divest in the next five.

The team states that now for a 10 percent equity slice, Oasis500 gives between $53,000 and $80,000 direct cash investment per startup, in addition to $12,000 worth of in-kind services, such as office space and internet connection. For making these investments, Oasis500 currently taps into a $6 million fund. They are also launching two more funds according to Hamidaddin, though they still have to deploy 20 percent of the first. According to Hamiddadin, the anchor investor is the King Abdullah II Fund, a non profit initiative by Jordan’s king.

 In terms of their acceleration model, Hamidaddin stresses that it is the accelerator team that adds the most value to the program. “It’s the group of people who spend hours with the startup [working] on how to develop value. We work a lot on bringing things back to the fundamentals. And the fundamentals are importance of delivering a business.” Everything else is “dressing on the salad,” he says. Even mentorship takes second stage next to the core team. “Mentors, if they are given too much high ground, distract the business,” explains Hamidaddin, cautioning against too heavy a focus on mentorship. “Mentors, because we position them as a thought leader and a reference, sometimes, or in other cases many times, cause the business to lose focus. And they do become a crutch and a handicap for some startups.”

Hamidaddin also frowns on practices that focus too much on pitch events, and claims that he only lets some of their entrepreneurs do them. “There is a buzz around startups. You push them into competitions, you push them into PR [public relations] driven activities,” says Hamidaddin.

But not all PR activities are bad PR activities, especially when it comes to attracting deal flow to the accelerator. To spread their name, Oasis500 organizes ‘bootcamps’ across the Middle East — training programs lasting several days with the chance of being accepted into the accelerator — to attract companies to their program in a region that lacks deal flow. According to Hamidaddin, they have received applications from companies from as far away as Russia, Kenya, Brazil and the US.

Flat6Labs, the Cairo based accelerator, has had comparable success having graduated 57 startups, 70 percent of which are still active, according to CEO Ramez Mohamed. Over 50 percent raised follow on funding totalling $2 million as of Q3, according to Mohamed. The accelerator takes a 10–15 percent equity slice for $15,000–$20,000 in cash investment and $15,000–$20,000 of in-kind services.

Mohamed explains that Flat6Labs has a heavy focus on mentorship. “It’s more like Techstars than Y Combinator [another US based accelerator] because we are more mentorship driven. Techstars has a huge network of mentors and support,” he says. “I think it stands for every accelerator in the world; [it’s] not just about pipeline, [but] all about [the] quality you provide, the quality of the mentors, what mentors you are engaging with,” says Mohamed.

In terms of a success formula, “There is no magic wand,” says Mohamed. “Just put the structure for them in the environment, and it’s always up to them to drive. We buy them the car, show the road, but never drive for them. We always push the entrepreneurs in any country to have confidence to drive the team [and] talk to investors. This is one of the very basic steps that we tell them at the beginning of the cycle. It’s your business,” he explains.

Bahraini accelerator Tenmou has a different approach to supporting startups. CEO Haider says, “We try to give the startups enough money to make the cash flow break even. We try not to rely on raising money to survive.” This has proved successful thus far; of the 18 startups Tenmou has graduated, 10 are still active, according to Haider. They invest between $53,000–$80,000 for equity stakes of 20–30 percent. As of Q3, seven companies have raised follow on funding, for a total of $500,000 according to the CEO.

Haider describes Tenmou as a hybrid between an accelerator and an angel network. About $2.7 million has been invested to build the accelerator, while its shareholders consist of 14 private sector family groups and two semi-governmental entities. Tenmou’s program comprises a three month acceleration period in which the accelerator’s ‘strategic partners’ come in to provide advice on marketing, finance and PR, at the end of which they have a session with investors. Haider explains that they also organize one on one mentorship. “I think having a structured program to take the entrepreneurs from the idea stage is useful. There is a major difference in companies who have gone through accelerators.”

Deep pockets

But the secret to success is perhaps not just in the content of the program itself, but also in the resources at their disposal. Accelerator programs require an important upfront capital investment, since the companies do not start making returns for the shareholders in the first few years after they are created. The accelerators then need funding until they become sustainable from the returns of shares they take from their graduated companies, a situation in which no MENA accelerator is yet finding itself.

Even management fees derived from the seed investment fund would not necessarily cover any given accelerator. According to Hamidaddin, Oasis500’s functions run on a budget derived from a 3 percent management fee per year, providing them a total of $180,000 per year. While he would not specify the exact amount, Hamidaddin concedes that operating costs are more than $500,000 per year; however, considering they have a staff of around 22, these costs are likely to be much heftier.

With no immediate returns, acceleration is certainly a project for the long haul. No Middle Eastern market is alike, and accelerators will face varying degrees of success not only based on their programs and resources but also on their local business atmosphere. Accelerators in the Middle East are still quite young and it is impossible to compare them to the big players in the US and elsewhere, yet a glimpse at their performance is worthwhile to make sure they deliver tangible business goals to the companies they host, and not just glorified office space.

The post Positive shock appeared first on Executive Magazine.

Even though Lebanon’s first offshore licensing round is on hold indefinitely, each passing month highlights the necessity for transparency and accountability in managing the country’s potential oil and gas resources. When Executive asked questions about the Lebanese firms prequalified to bid for petroleum contracts in its October 2014 issue, it found evidence that Apex Gas Limited exploited loopholes to conceal its corporate identity and that Petroleb blatantly expected government connections would result in it winning a bid.

In conducting this investigation, Executive encountered tremendous resistance from both the government entities organizing the sector and the companies in question. Likewise, Executive found that civil society, with some exceptions, is failing to hold the country’s oil and gas decisionmakers to account, with many NGOs largely uninformed and unaware of the information relevant to transparency and, ultimately, still relatively clueless as to their role in the governance of this sector. 

On one end, the problem was, and still is, a lack of communication of information by the government to the public, breeding mistrust and discouraging confidence in the government’s ability to transparently manage this sector — all at a time when political squabbling is further complicating matters. And on the other end, another roadblock is civil society’s incompetence and general lack of interest in the subject. If civil society can overcome these obstacles, however, it may be able integrate itself into the governance of this sector — and the international Extractive Industries Transparency Initiative (EITI) is one useful tool to this end.

EITI allusions

In October, what should have been a commercial conference on Lebanon’s potential oil and gas resources was instead downgraded to a day focused on civil society’s role in governance of the nascent sector. It was, according to a post-event recap on the Lebanese Petroleum Administration’s (LPA) website, a display of “support, faith, commitment and constructive inputs provided by our decision makers, local partners, civil society and academic institutions, as well as our media.”

Though the Lebanese government has not formally announced its intention to implement EITI standards, it has alluded to this intent on several occasions. Most recently, Lebanon’s minister of energy, Arthur Nazarian, welcomed the conference audience by stating that Lebanon will “explore what implementing the EITI will mean” for the country in embarking “on such a cooperation without having discovered any oil or gas yet.”

The LPA had also commissioned a study on the feasibility of implementing EITI standards, carried out by the Beirut office of international NGO Natural Resource Governance Institute (NRGI), but has not released comments on the findings of the study. With intent signaled by both the LPA and the Ministry of Energy, the Council of Ministers could also formalize its intentions — announcing intent is the necessary first step towards EITI implementation. 

These positive indications of implementation, and through the spirit of invitation subtlely extended during the conference, thrust civil society into a role of articulating the merits of the EITI, its applicability to the Lebanese context, and its benefits to the interest of the country at large — inclusive to government and company stakeholders.

Trust through cooperation

What the EITI provides — which has been articulated recently in contributions by Lebanese civil society leaders (here, here and here) to Executive on the subject — is not a parallel reporting mechanism but rather an outlet for disseminating information already collected, ideally, by a government. In many countries, explains Pablo Valverde, country manager for the Middle East and North Africa at the EITI Secretariat, this information doesn’t exist, so the EITI can also serve as an assessment tool for governments to see what kind of information they should be making available as well as helping make the information they already collect accessible. “As with everything else in the EITI Standard, the ideal is that you wouldn’t need a parallel reporting system like the EITI because all of this would already be available through the government,” adds Valverde.

Read also: Beyond EITI — Lebanon needs better institutions, not just greater transparency

If a government is already collecting EITI-relevant information it is therefore, by definition, not a radical concept. Likewise, those who fear the government might begin the implementation of the EITI only to stall assume that civil society or companies are not active partners in the process — though the tripartite cooperation is an absolute requirement of EITI candidacy and implementation. These notions are exactly the opposite of the governance environment the EITI fosters — transparency by building trust through cooperation.

The act of providing access to information is a key step towards improving transparency in the governance system, says Valverde, adding that “sunlight is the best disinfectant; having the information available is the best way to limit corruption. The government can say ‘Look, this is not the way it is in this case,’ but how do you prove it? Well this is a way of proving it.”

Trust in the government is essential to the management of this industry. “It’s important because of our past experience in Lebanon and the very intimate relationship between the political and the economic elite — many times they are one and the same — whereby government contracts are actually awarded to those who are in power or close to power,” says Sami Atallah, executive director of the Lebanese Center for Policy Studies.

Much of what currently qualifies as EITI requirements includes information on the overview of payments made by companies to the government and overview of payments received by government from companies, allocation of exploration and production rights, well production data, and the social impact of the industry — to broadly name a few. Yet EITI standards form a live organism, constantly adapting to developments around the world — one such development is that of beneficial ownership.

On the horizon

The disclosure of beneficial ownership is a relatively new concept and the value of its application is not yet fully appreciated — pilot projects in EITI implementing countries are navigating the unknown path with project evaluations commencing in 2015, and plans to make beneficial ownership a reporting requirement shortly thereafter. “There’s a really good argument here in that, ‘This is coming, this will most likely be a part of the EITI Standard in the future’ — so countries that start doing it now will have a head start,” says Valverde.

Simply put, beneficial ownership refers to those controlling benefactors of a company — the individuals behind the scenes. There can be many entities with stakes in a company, so a precise definition of beneficial ownership is the prerogative of the national multistakeholder group (MSG) — a collection of representatives from local government, companies and civil society overseeing the EITI implementation process. “What the MSG would need to figure out is how far it would be logical for them to go. Is it necessary to identify each and every owner? Maybe only those that own more than a certain percentage are of any consequence?” explains Valverde.

“The international companies usually have this information in the open,” says Diana Kaissy, MENA coordinator for Publish What You Pay, and EITI standards acknowledge this. Norway’s Statoil sets an example for disclosing beneficial ownership. The company keeps track of beneficial ownership to a threshold of 5 percent, reporting on its website that only the Norwegian state surpasses this threshold — owning roughly 70 percent of the company.

Read Diana Kaissy’s article “Extracting transparency — Lebanon’s oil industry must not be shrouded in secrecy” published in this year’s January issue

“For the government of a resource rich host country it can be important to know to whom exclusive exploration and production rights to national resources are awarded. It can be considered a matter of resource management,” explains Tonje P. Gormley, a lawyer at Norwegian law firm Arntzen de Besche who specializes in international petroleum law and is a frequent speaker at Lebanese conferences. The LPA ensured just that when it required the details of partners or shareholders with an interest of more than 20 percent, as part of its prequalification application process in the country’s first offshore licensing round last year. The Lebanese government is already collecting beneficial ownership information.

Close ties

In many cases throughout the global oil and gas industry those companies bidding for — and sometimes winning — petroleum contracts have close ties to the government through connections that influence the award. These companies can mask the identity of their ownership: “They’re hiding behind companies and law firms, behind shell companies or even entities that do not exist,” explains Laury Haytayan of NRGI.

It is the right of the individual, in Lebanon and elsewhere, to invest freely in the country — in its resources, its businesses and its people. But what raises concerns for civil society is when individuals leverage their connections to win contracts while hiding their complicity in doing so. As Atallah puts it, “We want to know that company won the contract because it had a competitive bid, not because it had the connections.”

“It’s especially important for state owned enterprises entering joint ventures that might not be 100 percent owned by the government … or companies that are local service providers. These are the companies — their names and owners — to be listed,” Kaissy explains. Valverde expressed a similar notion saying, “In some countries you can look at the smaller company in a joint venture and think ‘Okay, why is this company even here, what do they bring to the table?”

When Executive surveyed the companies bidding in Lebanon’s licensing round late last year, it uncovered evidence of both scenarios — the ownership identity of Apex was obscure, while Petroleb’s leadership outright proclaimed their competitive advantage to be government connections.

Preventing suspicions

Determining the application of beneficial ownership towards improving transparency is ongoing. Haytayan explains that “this is another way of building trust, rather than ownership remaining a mystery and frustrating citizens into believing that people from the government are stealing their resources.”

Yet, as a point of strength, beneficial ownership is a useful tool for all stakeholders. Where the primary goal in utilizing such a tool is in mitigating corruption, it also carries corollary value. “Some host countries prohibit certain persons — such as government officials of a certain seniority, parliamentarians or judges — to hold petroleum contracts. In such cases disclosure of beneficial ownership can ease monitoring of compliance,” Gormley explains, adding that, “Even without such prohibitions, disclosure of beneficial ownership may reveal that one or more owners of a company [are] very closely linked to the government — and this may give reason to question whether such [a] company is treated in a more preferential manner than other companies. At the same time, disclosure of beneficial ownership in combination with transparent awards of exploration and production rights may also prevent unjustified suspicions of corrupt behavior and thus contribute to building trust.”

Gormley points out that tax evasion can also be an issue. In fact, in 2013 OpenOil, an organization advocating transparency in the oil industry, evaluated the utility of disclosure of beneficial ownership using a Norway EITI country report from 2011, an ideal scenario. Data from the report broke down tax transactions to determine jurisdiction of parent companies, often the first step in uncovering the ultimate beneficial owner hidden layers below the apparent surface. The study also concluded that this information was useful for governments to determine “how much revenue fell outside double taxation treaties.”

The means to scrutinize

Accountability is only possible when actors make use of information made available through standards such as the EITI. Nongovernmental organizations will need support, including financial and technical assistance, if they are to champion transparency for this sector, not limited to the EITI requirements — but this highlights a need to further calibrate civil society’s interorganizational knowledge and capacity.

One such proposal to kick off this capacity building process could entail a roundtable or workshop for media in interpreting the information found in EITI reports. In fact, strengthening accountability and transparency will be core components of capacity building support which the Norwegian government will provide to Lebanon in 2015, targeting “the main transparency actors, such as decisionmakers, civil society organizations, the media, as well as public control institutions, including parliament,” the Norwegian Ambassador to Lebanon Svein Aass wrote in a recent contribution to Executive.

The post Not just a pipe dream appeared first on Executive Magazine.

It’s too soon to say whether Lebanon’s potential oil and gas resources are truly a game changer or not. But if the resources might significantly alter the trajectory of the country — its economy, its businesses, its people and their way of life — then Lebanese civil society must vigorously impress values of transparency and accountability upon the management of this sector. One important component of this is the Extractive Industries Transparency Initiative (EITI, see “Not just a pipe dream“); civil society must demand that the government commit to implementing its standards.

While instilling values of transparency and accountability can be realized in part through the EITI, differing opinions — for example, the timing of its application and the flexibility of its requirements — found within Lebanon’s civil society must first be calibrated. While some believe the EITI can be useful now, even before petroleum contracts are signed, others argue this could be dangerous: if EITI standards were implemented now but then stalled, citizens might further lose confidence in the government. There is also a suggestion that EITI requirements might be too radical to apply in the Lebanese context. These differences must be ironed out if civil society is ever to make a concerted push for EITI implementation specifically, and greater transparency generally. To be a true — that is, influential — partner with the government on the EITI, civil society must first articulate a common stance.

The EITI embraces transparency by building trust among stakeholders: government, companies and civil society. Fostering this trust is key to the good governance of Lebanon’s potential resources, and the EITI encourages this spirit by helping shed light on the farthest and darkest corners of this notoriously shady industry. The initiative does this by reinforcing access to information, wherein dialogue among stakeholders determines the pertinent information to include in an EITI report — informing public debate and enabling citizens to better grasp how the sector is managed.

Ideally, a government would already collect much of the information that the EITI requires, even if it is spread across several databases; the report compiles hard to find information into one easy to read publication. In certain instances, Lebanon’s government is already collecting information that would satisfy EITI specifications, but in many cases it may not be collecting any relevant information — as of today, we can’t be sure. Civil society should work with the government so that when EITI standards are implemented, the compiling of information can be a smooth and painless transition. Furthermore, it should put in place a culture for the straightforward compilation of information for public dissemination through the EITI report, so that unnecessary, parallel disclosure systems are not constructed.

Making information easily accessible through EITI reporting holds value for all stakeholders. It improves the investment climate environment by indicating government commitment to transparency; it helps mitigate reputational risk for companies operating under opaque governance; and it enables access to public information, increasing government accountability to citizens.

Even though Lebanon’s first licensing round for oil and gas exploration has stalled, peripheral avenues can be traversed in moving this sector forward. Civil society must begin agreeing on EITI standards and articulating the merits the initiative holds for everyone, thereby coercing the government to declare its intention to implement.

What the government needs from civil society is a suitable partner in the governance of this sector — both contributing to sound governance, but also pinpointing areas of deficiency. The government should announce its intention to implement EITI standards, but it is up to civil society to push them toward the microphone.

The post Take the lead appeared first on Executive Magazine.

February marks the 10th anniversary of the Second Intifada’s conclusion. Since then, Israel has held three elections for its parliament, the Knesset, and been involved in at least four major military offenses — facts that some suggest are related. With today’s escalation along Lebanon’s southern border and Israeli elections due in March, we decided to see if the two might be related. Of course, with so few data points, we can’t meaningfully measure correlation, but we can look at sequencing. Indeed, Israel conducted major operations 1–3 months before two of its three post-Intifada elections, but it also launched offensives that don’t quite fit the bill: both the July 2006 war with Lebanon and last year’s devastating war on Gaza didn’t directly precede parliamentary elections.

So the result? It likely depends on your point of view. Decide for yourself using our interactive timeline:

The post Cleisthenes, meet Ares appeared first on Executive Magazine.

After decades of a relatively open border policy with its eastern neighbor, the beginning of 2015 saw Lebanon take unprecedented steps to monitor the entry and residency of Syrian nationals. Spearheaded by the ministries of interior and social affairs, the policies are an attempt to regulate the nearly 1.2 million Syrians already in Lebanon — as well as others seeking entry in the future.

The first of these measures came in the form of new visa requirements for Syrians and went into effect on January 5, 2015. Despite political pushback and concerns by human rights groups, Lebanese authorities insist this new policy is only the beginning.

Neighborly relations

Prior to the conflict, entry for Syrians into Lebanon was easier than for any other foreign nationality. According to the Treaty of Brotherhood and Cooperation, signed in 1991, Lebanon and Syria share “distinctive fraternal ties” and did not require travel visas from each others’ citizens. The lax requirements meant that borders remained relatively open, allowing hundreds of thousands of Syrian laborers to enter Lebanon seasonally for work.

Syrians could enter Lebanon at any border checkpoint using a valid government ID and would be issued a onetime-renewable six month residency for free. At the end of their year in Lebanon, Syrians would have to return to Syria. Palestinian refugees from Syria had to have pre-approval from Lebanon’s government to enter.

Greg Demarque | Executive

Children in refugee communities are particularly vulnerable to the harsh winter weather

With the onset of the Syrian uprising in 2011, the policy changed. Instead of returning to Syria at the end of their one year stay in Lebanon, Syrians could renew their residency for another six months through General Security, paying $200 per family member over 15 years old. For Palestinians from Syria, the pre-authorization was lifted, and the transit visa they received at the border could be exchanged for a three month residency, also renewable for free until the $200 yearly fee.

Now, Lebanon’s policy has changed once more. On December 31, General Security announced that Syrians entering Lebanon would be issued entry documents based on the proven purpose of their visit. Their stays now fall under eight categories: tourism, study, work, medical treatment, transit to another country, checking on property, visiting an embassy, or being “sponsored” by a Lebanese citizen. Instead of the one-size-fits-all, six month residency they had previously received, the length of stay for each of these categories now varies, and strict documentation is required. 

The change was pegged as part of a new, three point policy statement that the Council of Ministers approved in October. To manage the refugee influx, the October statement said, the government would seek to decrease the number of Syrians registered with UNHCR (the refugee agency in Lebanon coordinating relief efforts for Syrians), tighten up security within Lebanese territories and lift the socioeconomic burden on Lebanon.

General Security’s new residency requirements are the first step of this statement’s implementation. “We’re trying to find out who is trying to come in and why — and this is something we have the right to know,” explains General Security press officer General Joseph Obeid.

But the decision has already sparked controversy — some of it based on semantics. Syrian Ambassador to Lebanon Ali Abdul Karim Ali said requiring visas from Syrians violated the bilateral agreements that had kept borders between the two countries open for decades. Speaker of Parliament Nabih Berri and a number of ministers from Hezbollah and the Amal Movement similarly criticized the move.

General Security, however, insists that the documents it is issuing to Syrians upon entry are not “visas” and therefore do not violate these treaties. “It’s entry documentation — it’s not a visa. It’s not like an Egyptian coming into Lebanon,” Obeid insists. Although procedures for Syrians entering Lebanon do remain distinct from those for other foreigners, the strict categories, required documentation and limited stay are exactly what constitute visas in other countries. 

And despite claims in the Lebanese daily Al-Akhbar that the visa policy will soon be retracted, Obeid says the measure will continue to steamroll forward. “There will be no change in this policy. We’re moving ahead with it as planned,” he assures.

Beyond this disagreement, Syrians and human rights organizations are worried about what General Security’s new border policy might mean for those trying to flee Lebanon’s war torn neighbor. Noticeably absent from the eight category statement is a provision for refugees — Syrians trying to enter Lebanon after being displaced by violence. According to General Security and to Khalil Gebara, advisor to Minister of Interior Nouhad Machnouk, these “humanitarian entries” will be granted on a case by case basis.

Both Amnesty International and Human Rights Watch expressed concern that the measures would limit access to safety for thousands of Syrians fleeing conflict at home. At the time of writing, UNHCR had yet to issue a statement. “We’re still studying it. We’ll let you know more when we get it,” says spokesperson Ron Redmond.

Border policy 

Even prior to General Security’s new measures, the refugee influx into Lebanon had slowed dramatically. The number of refugees registering with UNHCR saw a drastic drop in the last months of 2014 — in October and November combined, only 29,477 Syrians registered with the agency, compared with 31,158 in September alone. Even that month produced relatively low numbers compared to the rest of the year — until August, at least 42,000 refugees were registering every month.

Part of this drop is likely due to the fact that the active battlefronts in Syria’s war have shifted to the country’s north and east. Indeed, months of clashes in Syria’s western Qalamoun region in early 2014 saw the most concentrated refugee flows into Lebanon to date. As battles shift away from Syria’s west and south into the north, refugee flows into Turkey continue to increase, while those into Lebanon and Jordan have markedly dropped. 

But even many of those Syrians who made it to the Syrian–Lebanese border at the end of 2014 were having difficulty entering the country. Aid organizations including Human Rights Watch and the Norwegian Refugee Council say that toughening border controls saw “most” Syrians being denied entry. For Palestinian refugees from Syria, entry was nearly impossible — very few exceptional cases were allowed access.

Although the new policy specifies entry requirements for non-refugee Syrians, the criteria for those entering Lebanon as refugees are still being developed. “How do we know who’s really a refugee? They could be lying to us,” says General Security’s Obeid. He adds that UNHCR would determine refugee status on a case by case basis, but dodges questions on the specific criteria that would be used to make such a determination.

Gebara has worked closely on the government’s new policy. He says the Ministry of Social Affairs might have an active presence at Lebanon’s border crossings and would be giving approval for extreme humanitarian cases in line with the Council of Ministers’ October decision. When asked what kind of criteria this would entail, Gebara hinted at two potential standards: place of residence in Syria and number of people. “If one man comes from the center of Damascus and says he’s a refugee, it won’t work,” he tells Executive. “When there’s fighting in an area, the whole village shows up. The last thing that would happen would be that there would be a mass influx along the border that would get denied entry.”

Unfortunately, human rights agencies say General Security doesn’t have a great record of identifying vulnerable cases. “Even after the [Council of Ministers’] October decision, General Security officers were not inquiring about humanitarian need,” insists Lama Fakih, researcher at Human Rights Watch’s Beirut office. “The process of entry was arbitrary and discriminatory.”

Greg Demarque | Executive

Most Syrians live in dwellings ill equipped to deal with Lebanon’s harsh winter

According to Human Rights Watch and Lebanese rights NGO LIFE, instead of taking humanitarian factors into consideration, General Security was allowing entry based on perceived affluence, religion, and origin in Syria. Nabil Halabi, director of LIFE, says that “social discrimination” saw those who appeared to be from a higher social class — traveling in private cars, well dressed, often from the capital — waved through Lebanon’s checkpoints. Nadim Houry, deputy director of HRW’s Middle East and North Africa division, says Syrians with traditionally Christian names received the same treatment. Meanwhile, those coming from Raqqa or Deir Ezzor — eastern provinces in Syria which are now Islamic State strongholds — were facing significant difficulty.

Houry adds that this practice is contrary to Lebanon’s international obligation towards those seeking safety. “If a Syrian businessman from Damascus wants to come spend a weekend in Beirut, and the Lebanese government says no, then we’re not going to complain,” says Houry. “They’ve actually done the opposite — they’re happy with those with money to come spend the weekend, but they don’t want the others to come in.” 

General Security’s Obeid emphatically rejected these claims. “Nothing about this is true. Everyone is on the same level with us,” he tells Executive. “If the government says let people in, we do.”

“It’s impacting everything else” 

Holding legal status in Lebanon isn’t just a matter of convenience; it’s central to almost all aspects of refugee life. Unfortunately, rapidly changing policies, inconsistent implementation, and inadequate dissemination of information mean that many refugees in Lebanon are living here illegally. In September, Lebanon’s government gave refugees who had limited legal status as of August 21, 2014 the opportunity to regularize their stay with General Security for free. Thousands who had either entered illegally or whose legal stay had expired were able to become legal residents without paying the LBP 950,000 ($630) regularization fee. 

Still, hundreds of thousands of Syrian refugees are not living in Lebanon legally. UNHCR declined to provide Executive with numbers on how many of the 1.2 million registered refugees in Lebanon fall within this category. However, the agency’s planning figures in early 2014 anticipated that over 800,000 Syrian refugees — two thirds of those registered with UNHCR — would be living with limited legal status by the end of that year. With the government’s stricter policies on entry and residency, this number may now be even higher.

Lack of legal stay severely restricts refugees’ ability to move around Lebanon. In a detailed March report on the topic, the Norwegian Refugee Council interviewed 1,256 Syrians, over half of whom were in Lebanon illegally. NRC noted that over 73 percent of respondents reported curtailed freedom of movement as the biggest consequence of their illegal stay in Lebanon. Fear of harassment by security forces at checkpoints, local municipality police, and even regular Lebanese citizens has kept many Syrians sedentary. Refugees with limited legal status who are arrested by security forces are usually given an order for departure back to Syria, but are rarely forcibly deported.

Nonetheless, this lack of mobility has a major effect on refugees’ access to resources. For some, their limited legal status has prevented them from registering with UNHCR. Several refugees who had crossed over illegally from Syria’s Qalamoun region told Executive they felt “trapped.” Too afraid to cross Lebanese Army checkpoints, they could not register at the UNHCR center in Zahle.

According to the NRC report, illegal stay has also pushed families towards increased child labor. Male heads of households without legal stay are often too afraid to leave their homes to seek work for fear of arrest. Since children are less likely to be stopped by security forces and asked for paperwork, fathers often send their children to work or beg for money instead of going to school. NRC says this practice exposes children to potential abuse and exploitation. Furthermore, Syrians without legal stay cannot access Lebanon’s healthcare system, and crucially cannot register the birth of their children with the Lebanese authorities. 

“It creates anxiety, uncertainty. It prevents them from organizing their lives … It’s impacting everything else,” says HRW’s Houry.

Follow the money? 

At the time of writing, the Lebanese government and relevant security agencies had yet to issue decisions on the renewal process for the new visas that Syrians will hold. In their reaction to the decision, Amnesty International announced that refugees who had legal status prior to January 5, 2015, would continue paying the $200 per adult renewal fee as usual, but this has not been confirmed by the Ministry of Interior or General Security. 

For many refugees, the renewal process presented a significant financial burden. NRC’s report notes that refugee families typically pay $100 per month to rent out a small bedroom in an unfinished building. Securing food costs more than $200 per month, and fuel comes at a cost of $100 per month. Given that the average Syrian refugee family earns $250 per month, according to NRC, the renewal fee is one of the first expenses that families forego when money gets tight.

Indeed, the NRC’s March report notes that almost one third of those interviewed stated they could not renew their stay, with 85 percent of these cases saying the cost had prevented them from being able to do so. Others reported that poor treatment and a fear of General Security offices had caused them to skip renewals. 

Greg Demarque | Executive

Birth rates among Syrian refugees are significantly higher than neighboring Lebanese populations

Despite the pervasive negative effect that limited legal status has had on Lebanon’s refugees, international aid groups have declined to cover the cost of visa renewal. In 2012, when refugees were nearing their first one year stay in Lebanon and would have to pay the $200 for the first time, aid agencies agreed that they would not cover the yearly fee as part of their support. Now, only one or two NGOs provide the $200 for very extreme cases. “It would be a huge fee. It would potentially contradict our advocacy towards waiving that fee,” says Dalia Aranki, advisor to the NRC’s Information, Counseling, and Legal Assistance Program. A mere 100,000 renewals — less than 20 percent of the refugee population over 15 — would cost $20 million. 

Keeping refugees, and those helping them, informed 

Refugee and aid agencies alike have said it is difficult to keep up with the government’s changing policies. Some organizations, like NRC, have two tiers of information-gathering: the official government statements about its policies, and the observed and reported practices of security forces. They aren’t always consistent.

“If you go to General Security offices, they’ll tell you your kids don’t need to be registered. But then you take them to the border and they tell you you’re violating Lebanese law,” complains Leila, a Syrian refugee living in the Burj al-Barajneh camp in southwest Beirut.

NRC’s Aranki says she’s seen the same inconsistency. “You can see how complicated this is. There have been so many changes, and how this is implemented is not written down somewhere in one place,” she explains. Practices differ in areas with different local administrations, and NRC has even had to step in to retrain local authorities who were incorrectly registering Syrian refugee births.

Making sure refugees are aware of the legal procedures is no easy task, either. In countries like Jordan or Turkey, where large numbers of the refugee population are concentrated in government controlled camps, dissemination of information can be done much more easily. In Lebanon, refugees live in informal tented settlements, rented apartments, and unfinished buildings — and they don’t always want to be accounted for. “Over the last year, where there has been more tension between the Lebanese and refugees, people have not wanted to make themselves known very much,” Aranki added.

A developing policy

Week by week, more details are coming to light about the Ministries of Interior and Social Affairs’ revamped refugee policy. Social Affairs Minister Rachid Derbas has explained that refugees already in Lebanon and registered with UNHCR would not be forced to regularize their stay as part of the new eight category visa. “However, if the refugee decides to go back to Syria and then return to Lebanon, they will have to comply with the new measures and justify the reason behind their return,” Derbas told Lebanon’s As-Safir. 

Simultaneously, however, Lebanon’s government has been working with UNHCR to deregister Syrians from the refugee list. From June 2014 until October, 68,000 Syrians were removed from UNHCR’s list for crossing back into Syria frequently or failing to pick up aid packages. The Ministry of Interior’s Gebara says that these deregistrations go hand in hand with tighter border control.  

“Until we can audit every single refugee that’s in Lebanon, let the number of new, registering refugees be lower than the number of those being deregistered,” he tells Executive. “So negative growth.”

Both Gebara and General Security’s Obeid promised additional measures in the coming weeks. But several challenges remain, not least the growing political opposition to the new regulations and the lack of clear criteria for “extreme humanitarian” entry cases. 

For refugees and the aid organizations facing the renewed test of understanding and accurately relaying this policy, the period of tumult isn’t over. “Expect the policy to keep changing based on the security and political situation in Syria,” Gebara says.

The post No rest for the weary appeared first on Executive Magazine.

As in all historic cities across the globe, there are certain architectural structures in Beirut, such as the Egg in downtown or the old Manara in Ain El Mraisseh, that have become landmarks and a major part of the Lebanese collective memory. Even as the city progresses and develops, these buildings should be preserved, in one form or another, as part of our national heritage.

Exhibition in the Pink House

One such landmark, at least according to nearby residents, is the Pink House, situated on a green hill just off Bliss Street and overlooking the Riyadi Club in Manara. This house has long been fascinating for tourists and Lebanese alike who often pose for photos in front of it on their walks along the Corniche.

Recently, the Pink House has been the subject of documentaries and articles discussing its rich history. It was thrust into the media spotlight again in early November with an exhibition that British artist Tom Young organized in it, which ran until the end of December. 

Young had done a similar project in 2013, in “Villa Paradiso” a heritage home in Mar Mikhael. The house was being renovated by the Feghali family, who had recently bought it and was wondering what to use it for, when Young met them and suggested it become a cultural space, beginning with his exhibition. Ever since, a number of artistic events have been held in the villa. 

The Rose House Exhibition, as Young dubbed his show in the Pink House, was one of the few times in the last decade that this private residence was open to the general public. Hundreds flocked to see the house that had piqued their curiosity. During an interview with Executive in late November, Young estimated that more than 2,000 people visited the exhibition, with about 200 guests on the opening night alone. 

Greg Demarque | Executive

Tom Young, host of the Rose House Exhibition

A brief background  

The Pink House, or La Maison Rose as it’s known among the francophone community, is no stranger to cultural activities and events. The ground floor of the house was built by Mohamad el Ardati as his hunting lodge and he added the first and second floors in 1882. The house is actually a three story building, and each level is a separate apartment with no interior connection between them.

Young has researched the house’s history and had dedicated an entire room of his exhibition to this subject. He recounts that half the Ardati family lived in the Pink House until 1959, after which it was rented to notable figures including the American cultural attaché and his family, the Indian ambassador to Lebanon and his family, and the American artist John Ferren who lived in the house until 1964.

The Khazens move in 

But it was Selim Khazen’s family who lived there the longest, starting in 1964, and hence had the greatest effect on its development. The Khazen family is one of Lebanon’s aristocratic families and Selim, its patriarch, was a lawyer credited with initiating the development of the Faraya Mzaar ski resort on the land he owned in the area. 

It was Sami, Selim’s son and a well known architect and artist in the 1960s, who came across the Pink House and fell in love with it, renting it from the Ardatis. He moved his parents onto the first floor, where the exhibition took place last month, and redesigned the ground floor as his living space and studio, doing such a good job with the design that it was featured in Architectural Digest according to Young. The Khazens lived in the house, which became known as a cultural and artistic hub, and the parties the Khazens held drew the crème de la crème of Lebanese society.

With the onset of the Civil War, the Khazens left the country, save for Margo, Selim’s wife, who stayed — leaving only for a year in 1982 when the Israelis invaded Beirut and the house was badly damaged — and kept the doors open for guests from all over the world, says Young.

After the Civil War, in 1994, Margo became paralyzed so Fayza, her only living offspring (Sami and Hoda, the two other children of Margo and Selim, had passed away) returned from Paris to be with her. Aside from taking care of her mother, Fayza continued promoting the family tradition of cultural activities through establishing her own publishing house, Terres du Liban, which released coffee table books on the Levant and life in Lebanon.

Although Fayza kept the first floor of the house in relatively decent condition for her to live in, the ground and second floors were left to decay and the house began to show its age.

New owners take over 

Shortly before Margo passed away in 2011 at the age of 94, the last remaining son of the branch of the Ardati family who owned the house, Adel Ardati, passed away in Germany where he had lived almost all his life. With no one left to inherit the house, the family lawyer sold it to Hisham El Jaroudi, the current president of the Riyadi Club and a prominent architect with many projects across the city.

Fayza was asked to vacate the house by November 2014 in preparation for its new owners and it was during her last months there that she met the artist. Young says that he had been always fascinated by the house and curious about who lived in it. Recalling the day he met Fayza, Young says, “It was after the Villa Paradiso exhibition and I was looking for a similar project as I was sad at leaving that Villa, and missing it, after having invested so much of my heart in it but in the end it’s not mine; maybe I sort of wanted to replace it and I was a bit lost in my direction. Early in April 2014, I was walking down the Corniche with my wife Nour and we looked up and saw some [clothes] hanging on the balcony, so Nour suggested we try and find an entrance and we found the back door and knocked.”

Young paints the Pink House 

So began a fateful encounter that led Fayza to invite Young to live in the Pink House and work on paintings depicting the final days of the house, with the idea of preserving its memories and showing its haunting loneliness as its final Khazen tenant prepared to move on. Young’s paintings are of the house itself and surrounding scenes, such as the Ferris wheel and the lighthouse, which are considered part of Manara’s heritage. 

Upon learning that the house was bought by the president of the Riyadi Club, which is in close vicinity to the house, Young says he went down and talked to him, asking his permission to open the Pink House to the public for a two month exhibition after Fayza leaves, as well as creative and educational activities, from teaching children art to hosting AUB architecture students for discussions.

Through these two months and such events, Young says he was hoping to show Jaroudi that the house should be preserved as a cultural center. “This is what art can do and this is my concept: that art can reach the highest level of powerful individuals and entice conversation among them and work with them on saving and preserving these heritage places to make sure they stay for the whole city. It should be open for everybody as public spaces are being eradicated at an alarming rate in Beirut and in a divided society, we need cultural spaces where people of all kinds can mix.”

The house remains 

Jaroudi says he is intending to renovate and preserve the house. “The house, which is a significant part of our city’s history, is currently in a bad condition. I want to preserve it and restore it to its former glory as a Beirut landmark and part of its heritage. It is my duty towards my city,” says Jaroudi, adding that his initial plan, after the restoration, is to live in it with his family, but that he is also considering having a floor dedicated to cultural activities.

Meanwhile, Young is trying to prepare a team who could help Jaroudi create a cultural center, if he decides to do so. Young himself, who had sold most of the Rose House Exhibition paintings halfway through the exhibition (with prices ranging between $500 and $1,500), plans to take a break before attempting to embark on yet another project in a “key building which everyone knows and is in the city center.”

At a time when heritage homes are being destroyed at a breakneck speed to make room for the more lucrative high rises, it is heartening to know that the Pink House will be spared such a fate. Whether Young gets his wish for the house to be permanently open to the public remains to be seen, but it seems that the Lebanese will not lose their landmark view during their strolls by the sea.

The post The house of culture appeared first on Executive Magazine.

Even with the smell of untreated wastewater wafting into the air and urban waste effluents annoying bathers in the sea, the property shown on the Beirut cadastral map only as land parcel 3689 was clearly valuable. Real estate developer Wissam Achour must have seen these 5,188 square meters of sandy beach at the southern edge of the upscale Ramlet al-Baida district as a veritable treasure — judging from the fact that his Achour Development in 2011 agreed to pay $175 million for parcel 3689 and the larger plot behind it. The price reflected the undeveloped land’s terrific location and potential for a tourism project, Bahij Abou Mjahed, a lawyer for Achour Development, tells Executive. He admits, however, “The land, I think, [is worth] less than this amount, but the amount was [acceptable] like this because we’re not paying immediately.”

As is standard in the industry, Achour Development created two special purpose vehicles, Beirut Marina Gate and Achour Marine Development, to manage and build, respectively, what is planned to be the Eden Rock Resort, a seaside project with an estimated investment value of $500 million, Abou Mjahed explains. As per a special purchase contract between Beirut Marina Gate and Eden Rock Real Estate and Tourism — the company that owns parcels 3689 and 3687, the 17,107 square meter plot that abuts 3689 on the land side — the developer handed over around “12 to 13 percent” of the amount upfront, he says.

This computes to an initial payment of around $21 to $23 million for the land, with the balance to be paid as the project — where prices for a low rise apartment start at $15,000 per square meter — begins drawing in revenue, Abou Mjahed says. Once the price is paid, ownership will transfer to Beirut Marina Gate as project owner and operating company, he adds. 

All indications — such as the telltale merging of smaller parcels into 3687 and 3689 — are that Eden Rock Real Estate and Tourism, which is selling the land to Achour, clearly wanted to turn the property into a profit making asset. It entered the process of acquiring the permits needed for building beyond the scope of what zoning laws in the area allow and, after receiving a green light for a ‘grand project’ from the Directorate General of Urban Planning (DGUP), the Council of Ministers signed off on Decree 14814. Published in the Official Gazette in July 2005, it cleared the way for structures with a height of more than 5.5 meters above road level to be erected on the land.

It is unknown why Eden Rock Real Estate and Tourism abandoned its project and further details on its approved 2005 plans were not available, but Abou Mjahed confirms that Achour Development has submitted its drafts for the project with modifications and says that these blueprints have been making their way through the approval process without any real obstacles. Approval of the updated plans from the DGUP was required and granted. He insists, however, that no new approval from the Council of Ministers is required — a point some dispute.

Lingering doubts

In January, a DGUP official directly contradicted Abou Mjahed’s claim that no further action is needed by the Council of Ministers. The official, who spoke on condition of anonymity, said that the DGUP had approved the new plan and sent it on to the Council for consideration. Abou Mjahed denies the need for further Council action, claiming that the existing Decree 14814 is sufficient and applies to the resort. The decree itself is vague, and Executive was unable to reach Tourism Minister Michel Pharaon — who said at a launch event for the resort in October that the file was still with the DGUP — for clarification.

Another lingering question concerns when construction can legally start. An official with the engineering office at the Municipality of Beirut, again insisting on not being named, tells Executive that the permit for 3689 is “on hold,” but he did not know why. The official explains that the hold means a developer can begin excavation but not construction. Manar Jaber, head of sales at Achour Development, acknowledges the inability to begin construction at the moment, but insists the permits will come and blames the delay on extra red tape related to a recent change in leadership in the Beirut governor’s office.

In addition to the delay, there remains an outstanding legal case related to plot 3689 between Walid Rassi, an engineering consultant, and Eden Rock Real Estate and Tourism. A Lebanese court, according to the land ownership paper from the Directorate of Land Registration and Cadastre, put a hold on developing the land until the matter is settled. Andre Bouchaaya, a lawyer who specializes in real estate, confirms that the legal action against the landowners will prevent development. “The court put a hold on; only the court can lift it,” Bouchaaya says as he looks over the land ownership papers.

Jaber says Achour Development is working to settle the issue with Rassi, who does not deny that he’s been in touch with the company, but says “no serious efforts” to resolve the case have been made recently. Either way, according to Abou Mjahed, if the case with Rassi is not resolved before the final payment is made to Eden Rock Real Estate and Tourism, a clause in the transfer contract stipulates that Achour’s Beirut Marina Gate will be legally allowed to settle the case for any amount of money, but Eden Rock Real Estate and Tourism will have to pay.

Works underway

The current hold on construction does not mean a full stoppage of work — excavation began in January, according to a company spokesperson.

This isn’t the first work to be done. Prior to beginning any work on the resort, Achour had a sewage problem. As is the case in several spots along Beirut’s coast, raw sewage used to meet the sea near plot 3689, contaminating the waters off Ramlet al-Baida. The Council for Reconstruction and Development (CDR), which is tasked with building the country’s wastewater collection network, has “for years” been meaning to stop the outflow of excrement into the Mediterranean, but work is slow and costly, Assem Fedawi of the CDR told Executive in September.

Interestingly, in 2013 South for Construction won a contract to build a pumping station to transport the wastewater pouring on to the Ramlet al-Baida beach to a treatment plant further south, according to the company’s website. Abou Mjahed explains that Achour personally stepped in to help speed up the tendering process. “He provided what they needed to make this pumping station happen. I don’t want to say he paid, he provided … You know the bureaucracy of the regulation, the Ministry of Health, the Ministry of Environment, the CDR — which is a state in itself — so to [effect] accord between all the parties, Mr. Achour did this job. He’s investing. He believes in Lebanon,” Abou Mjahed explains.

The vision

According to the current designs, the Eden Rock Resort will comprise a residential tower, a hotel tower, low rise apartments and a hospitality and recreational complex that includes almost 130 chalets. Cabins and a ‘summer marina’ round off the project. In an artist’s rendering of the project, the hotel is depicted at about the same height as the 22 story residential tower.

Prices for units range from $15,000 to $20,000 per square meter, implying yet another surge in what Lebanese developers regard as achievable in marketing to the one percent.

This is the vision Achour is staking out. While he declined to comment for this article, he appears relentlessly undeterred by dysfunctional bureaucracies or lengthy litigation. Yet still, Abou Mjahed — as one would expect from a lawyer — says the letter of Lebanon’s various laws regarding development will be followed religiously. “We cannot afford any violations of the law. We’re taking the risk, putting up the big investment and, most important, our reputation,” he promises.

Correction: A previous version of this article claimed that excavation began late last year. While preparations began late last year, actual excavation began in January according to a spokesperson for Achour Development. Excavation on the site had also been conducted previously.

The post Achour-ed success appeared first on Executive Magazine.

In consulting, human capital is everything. Real experts are rare and have long been fought over, especially in a growth region like the Middle East where cultural compatibility is a key need. Now it looks as if the region’s scarcity of qualified consultants is taking the war for local talent to a whole new level. This is the first installment in a three part investigation into recent developments at Strategy& since it combined forces with global services organization PwC.

Their offices are located on what feels like the central corner of downtown Beirut. From their conference rooms and executive offices the view sweeps across the headquarters of Lebanon’s largest bank and the premises of the nation’s top couturier to the city’s flashiest high end office addresses.

But what makes the presence of consulting firm Strategy&, formerly Booz & Company, at the physical core of the Lebanese business landscape truly noteworthy is not the location’s air of money and corporate importance. It is the company’s history of stay. It has been here since this part of downtown was rebuilt — which means operating a top tier Beirut office for more than a decade, even though the Lebanese consulting market is strictly little league.

When compared with the Gulf region, “we don’t have many clients in Lebanon,” acknowledges Joe Saddi, senior partner and chairman of Strategy&’s Middle East business. “In business focus, the firm follows GDP, from the biggest down,” he says, and names the region’s primary markets for consulting services as Saudi Arabia, followed by the United Arab Emirates and then Qatar and Kuwait. 

Ask the top person at the Lebanese lair of this globally active consulting firm why they maintain an expensive presence in Beirut, and Saddi will tell you that they are here because of Lebanon’s most valuable resource: “We are in Lebanon mostly because of the talent.”

And while the name Strategy& may not yet ring a bell with people who look up a consulting firm only when they need to restructure or reinvent their company, this company has been plugged into the industry’s spinal cord since its beginnings in the industrial environs of Chicago 101 years ago. Then, the company’s name appears to have been “Business Research System”, but it became known through a succession of later monikers which all included the term Booz, after its founder. Last year, however, Booz & Company made a big move by combining forces with another global services organization, PricewaterhouseCoopers (PwC), and had to drop anything ‘Booz’ from its official identity because of a contractual obligation (see box next page).

Making it on the local stage

While other consulting firms with global repute — the likes of Boston Consulting Group (BCG), Bain & Company, McKinsey and so forth — have bypassed Beirut in recent decades and put all their regional offices into the GCC basket or perhaps into Egypt, the Strategy& organization’s Beirut office has given the company an edge in recruitment and boosted its human capital. 

George Sarraf, a Strategy& energy partner and veteran of its Middle East consulting activity reminisces on how the company has been accessing Lebanese talent ever since he joined its then regional base in Abu Dhabi in 1996. “Lebanon is an important source of talent for us and it always has been since we first opened an office in the region,” he muses. 

According to both Saddi and Sarraf, talent — and competition for talent — are defining issues in what they call the premium consulting industry, whose management and strategic advisors regularly have to interact with senior leaders in large corporate and public sector organizations. “The biggest challenge you have is access to talent and to maintain talent. This is the element that constrains growth the most and that is why there is a lot of fighting around talent within this industry,” Sarraf explains.

In Saddi’s words, Strategy& was able to draw in local talent more effectively than other premium consultancies over many years, but as he concedes, outbound talent migration at the top tier of partners in the company was part of the company’s transition from a standalone firm to alignment with global giant PwC. While the majority of regional partners, according to him, voted in favor of the tie up with PwC in the fourth quarter of 2013, “around 10” partners left the firm between the vote and mid 2014. According to comments by Sarraf in September 2014, the issue was under control at that time, because the majority of partners remained with the organization, only a minority of departees from various ranks went to the competition and new hires came aboard. “[When looking at] the net — net of how many people have left and how many have joined during this period of time — I would not say it is a wash but it is a near wash,” he enthused.

A small wrinkle

But when wrapping up and rechecking its research into the regional human capital of partners and consultants in January 2015, Executive found signs suggesting that Strategy& has been recently embroiled in a veritable talent battle.

Comparing the lists of partners on Strategy&’s website and other sources from last month with a version of Booz’s cached by nonprofit outfit The Internet Archive, one finds that 12 of 27 Middle East based partners left the company between December 2013 and January 2015.

While this sounds grave enough in a business where partners are crucial players for reputation, expertise and also for bringing in clients and contracts, the defections of partners over a slightly longer period from March 2013 until January 2014 seemed counter indicative to Sarraf’s suggestion that “only” a minority hitched with regional competitors.

Of partners who vanished from Booz in that period to reappear elsewhere in the consulting industry, one moved to Ernst & Young in a global role; two others became partners at McKinsey in the UAE; and a fourth claimed on their LinkedIn profile that they moved from Booz to join A.T. Kearney in Dubai in January 2015 (however, their name had not appeared on the A.T. Kearney website as Executive went to press).

Taking the total count to eight, three partners jumped to BCG in the Middle East and one to BCG in Europe. Lastly, as the hammer in this game of rotation, consulting firm Booz Allen Hamilton (BAH), which started pushing into the Middle East after a noncompete agreement with former sibling Booz & Company expired in Q3 2011, in October 2014 presented three recently departed Booz seniors plus another Booz alumnus as new BAH partners and part of their new MENA leadership team — led by yet another Booz outbound migrant as the MENA team’s new “executive vice president and managing director”, according to the press release (see box next page).

Moreover, the migratory pressure has not been limited to the top tier of partners, vice presidents and so forth. For an informative, albeit not statistically representative assessment of migrations in the rank and file of the Strategy& and BAH organizations, and in an effort to find direct crossings from the former to the latter, Executive reviewed some 42 LinkedIn profiles of analysts, associates, senior associates and principals who indicated employment by either of the two companies in their online profiles.

According to their profiles, most of which were posted by persons with last names that indicate a possible Lebanese nationality, 20 individuals — almost half of the interconnected profiles which we accessed — left Booz–Strategy& between mid 2013 and end 2014. And all but a few of these individuals indicated that they moved without any intermediary employment to BAH.

That, one assumes, cannot be a boon for an organization whose defining capital is human. 

The post Strategy & war — Part I appeared first on Executive Magazine.

In consulting, human capital is everything. Real experts are rare and have long been fought over, especially in a growth region like the Middle East where cultural compatibility is a key need. Now it looks as if the region’s scarcity of qualified consultants is taking the war for local talent to a whole new level. This is the second installment in a three part investigation into recent developments at Strategy& since it combined forces with global services organization PwC. Read part I here.

From the C-suite narrative, there was a straightforward logic behind the decision to combine Booz & Company with PwC, a move that Booz’s global layer of top stakeholders approved in December 2013 and that was formally sealed in April 2014. What happened was “a meeting of the minds” between PwC and Booz, says Joe Saddi, senior partner and chair of Strategy&’s Middle East business.

For Booz, the process started with introspection into the consulting industry and its future challenges. “It dawned on us that the industry was going through an inflection point in that clients were no longer asking only for strategic advice but also wanted you to [implement] and deliver tangible impacts. To deliver tangible impacts nowadays requires having much more capabilities,” says Saddi. To gain those needed capabilities, the company’s only choices were to either build them internally over time or find a partner that already had such capabilities, he adds. 

Having opened the mental doors to the possibility of joining forces with a partner, the leadership of Booz responded to overtures which according to Saddi originated from PwC. The caveat was to engineer the partnership in a way that would have a greater chance of success than other such moves that had accompanied the turbulent growth of the accounting and consulting industries since the days of the Enron scandal. “We spent a lot of time understanding what would make such a partnering succeed,” says Saddi. 

Both of the two firms, PwC and Booz, had already lived through complicated exercises in searching for winning corporate formulas of the sort that they expect from their new alliance. PwC’s experience in this regard was shaped by the divestment of its Management Consulting Services unit in 2002. The path of Booz had included the split in 2008 that created Booz & Company as an entity focused on international business and Booz Allen Hamilton as a consultancy initially working on US government contracts, many with military and security flavors. And in 2010 Booz & Company said it had aborted discussions with consultancy peer A.T. Kearney over a possible merger. 

In going with PwC, the deal was shaped in a very different way from any other in the consulting industry, “where the smaller company was merged and integrated into the operation of the bigger one,” says Saddi. “This is not the case here. Both sides agreed that in a first step what was Booz & Company would remain intact as a structure. Legacy Booz is going to remain as an entity and have its own identity within the PwC family.”

‘Legacy Booz’ is the term by which members of Strategy& frequently refer to their company since joining PwC. Not even the term ‘merger’ appears to express the way in which partners in the consultancy perceive their new identity. “I prefer the term ‘combination’ rather than the word ‘merger’ because it is more of a combination than a merger,” explains George Sarraf, a partner and veteran of Strategy&’s Middle East business. 

In addition to the client demand for implementation of strategy that Saddi had discussed, Sarraf mentions three other key benefits to legacy Booz, all related to the much larger scale of the PwC operation when compared with the old Booz & Company.

“In the consulting business you need to invest, and the combination has allowed us access to a much larger pool of investments because of the sheer size and financial strength of a global firm like PwC,” Sarraf says, going on to cite access to new capabilities “that we didn’t have and which we needed access to” and enhanced geographic reach as the second and third new advantage. “Although Booz surely was a global firm and had in excess of 50 offices around the world, there were many countries where we were not present. If you today want to serve in areas like Africa, as an example, the wide geographic presence of a firm like PwC is a big plus,” he explains.

The ‘bigger is better’ argument is well supported by numbers. According to its annual figures for its fiscal year ending June 2014, PwC achieved $33.95 billion in global revenues of which just under 3.5 percent were generated in the Middle East and Africa (MEA). In terms of total revenues, PwC was the world’s number two in the advisory–accounting–consulting multiverse, just behind Deloitte, which reported $34.2 billion in revenues for the 12 months ending May 31, 2014. 

PwC’s revenues growth rate for MEA was shown at 9 percent versus 5.8 percent globally. Unpleasantly, as with other global corporate reports, the growth rates shown in the annual overview don’t give details on the performance of MENA markets by themselves. However, the report says that the growth rate for MEA was 15.9 percent at stable exchange rates — which makes it unlikely that growth in the dollar pegged markets of the region, such as the GCC, was as strong as growth in markets against whose currencies the dollar appreciated over that period.

A world in need … of consultants

Unlike PwC, Booz as a private partnership organization did not report global or regional revenues but the size differential is shown in the human capital accounts. According to Saddi, Booz had “hundreds of partners and thousands of employees” worldwide before joining forces with PwC; PwC, according to its online data sheet, accounted for 10,000 partners and over 195,000 total staff by the end of June 2014. On a global level, then, Strategy& will rely on PwC’s strength to tap into the lucrative and growing market for consulting services.

Big consulting is at home in the United States and Europe, where top players achieve varying but generally dominant portions of their turnovers. Data from the US market, still the mother lode of consulting activities, say that revenues of management consulting firms grew from $120 billion in 2009 to $138 billion in 2013 and $143 billion in 2014. These figures were compiled by information portal statista.com from US Census data on industry.

In another statistical view on the international consulting industry, a company called Source Information Services found in the autumn of last year that big consulting groups, meaning firms employing more than 50 consultants, achieved revenues surpassing $41 billion from the US market in 2013. The same company, which acts as an analyst and consultant on the consulting business, said on several recent occasions that Southeast Asia and the Middle East and North Africa region — or more exactly the Gulf Cooperation Council bit of it — offer the best growth prospects for big consulting firms.

The Southeast Asia region benefited from political stability and the ASEAN economic area was projected to achieve 5 percent annual growth for the next five years, it said but acknowledged that among the two consultancy growth regions, the GCC market generates higher revenue per consultant and also has a higher propensity to buy consulting services.

While Source Information Services described the GCC consulting clienteles in unflattering terms as fidgety by comparing typical GCC client behavior to that of a “petulant teenager” and also named MENA markets with $2.2 billion in 2013 in consulting turnover as rather small revenue generators for big firms, it highlighted that the Saudi and Emirati consulting markets have been leading the world in growth rates, respectively registering 26 and 16 percent expansion in 2013.

With such growth rates, it is no wonder that the GCC market is an arena for the ambitions of global consulting firms such as Boston Consulting Group, Booz Allen Hamilton, Bain & Company, McKinsey and Accenture, as well as the consulting units of the globally leading ‘Big Four’ audit firms: Deloitte, KPMG, Ernst & Young and PwC.

The post Strategy & war — Part II appeared first on Executive Magazine.

In consulting, human capital is everything. Real experts are rare and have long been fought over, especially in a growth region like the Middle East where cultural compatibility is a key need. Now it looks as if the region’s scarcity of qualified consultants is taking the war for local talent to a whole new level. This is the second installment in a three part investigation into recent developments at Strategy& since it combined forces with global services organization PwC. Read part I and part II.

With bountiful profit potentials in the Middle East, it is basic business logic that premium consultants will compete fiercely not only for new business — Booz Allen Hamilton (BAH) for example triumphantly announced the win of a $22.3 million contract with the Royal Saudi military on the occasion of its first anniversary of its “reemergence in MENA” back in August 2012 — but even more for the scarcest and most vital resource: human capital.

In theory, this shouldn’t be a problem over the long term as international experience shows how such enhanced demand motivates more young talent to aspire to consulting careers. The Economist reported in October 2014 that consulting has now surpassed investment banking as the primary career choice among newly minted MBAs. The publication cited studies showing that almost 30 percent of MBA graduates from ‘elite business schools’ in North America and Europe take employment at consulting firms. The tendency to seek work at consulting firms increased by six to seven percentage points between 2007 and 2013 among graduates from the likes of London Business School and the University of Chicago’s Booth School of Business. At the latter school, four big consulting firms — McKinsey, Bain & Company, Boston Consulting Group and A.T. Kearney — hired 19 percent of the 2013 MBA class.

But in the immediate term, what matters is experience and reputation. No fresh MBA graduate has that — instead, it is the added value provided by partners, whose primary job often isn’t to consult, but rather to bring in clients and business. Joe Saddi, senior partner and chair of Strategy&’s Middle East business, and George Sarraf, a partner and veteran of Strategy&, concede that the loss of tier one human capital has been significant, but both emphasize that Strategy& had immediately embarked on refilling the partner ranks. “We elect partners every year or every six months. Frankly, within one year, we expect to be back at full deck,” says Saddi.

Sarraf points out that the PricewaterhouseCoopers (PwC) merger deal was similar to any such transaction in the corporate world in leading to “its own wave of departures. It is frankly very common that people either have the desire to change or are not satisfied with the transaction itself,” he says. High turnovers in personnel were moreover a common occurrence in the premium consulting industry due to high performance pressure, he argues, claiming that only a minority of departees would join a competitor as most left for reasons such as joining their family business or setting up their own companies. And in tune with Saddi’s perspective, Sarraf downplays the outmigration after October 2013 by emphasizing that Strategy& was on course to replenish its partner ranks. 

As the Strategy& partners page has been replenished to 25 and while the outmigration provided new career opportunities to ambitious risers from within legacy Booz, the loss of so many partners — and with them, decades of experience — looks, by the size of the regional consulting industry’s partner ranks, like a mass defection whose consequences for Strategy&’s position in the Middle East consulting market are yet to become clear. BAH, which two years ago had announced that it would be “actively recruiting” regionally based specialists to increase its “traction” in MENA, in particular appears to have used every opportunity to snatch up human capital, right down to new analysts whose prior experience was an internship with the erstwhile ‘sister Booz’ in Beirut. 

The picture of legacy Booz–BAH migrations suggests that the combination of the former’s sale and name change with the latter’s aggressive hiring approach — anecdotal evidence is that BAH’s new hires in their majority were fitted with fancier positions than they had held at Booz — created a specific, and for the acquirer BAH presumably very expensive migration. Another BAH-friendly factor in this particular case may have been the ring of the old name, which BAH cheerily exploited by using its bragging rights to the Booz Allen Hamilton brand legacy of 100 years in consulting, and also the joint history of the two now-competitors until 2008. Some of the most experienced career migrants in the scenario had already worked under the BAH brand before 2008 and a couple of these veterans, known as Booz & Company people in numerous conference bios and publications, curiously purged their career histories in LinkedIn profiles by posting histories of working uninterruptedly with BAH since 1999 and 2002. 

This emergence of new competition from known people under an established name must be more than an inconvenience for Strategy&. Yet Saddi and Sarraf emphasize with joint vigor that the aim of the PwC–Strategy& merger was to reach faster growth than Booz could have achieved on its own. That long term goal may yet play out if Strategy& can stem the outflow of talent and use this experience to take their team members’ self confidence and trust in the organization to a new level. But it is clear that the future of Strategy& will require overcoming not just internal challenges such as the stratification of premium and value consulting, but also market challenges faced by the globally evolving consulting and auditing profession and, on regional terms, dealing with growing competition over clients. In the meantime, any coming battles over talent and clients in the Arab consulting space will be welcome news to the market — as long as this increased competition remains within the realms of human decency and does not deteriorate into full fledged, dirty commercial wars.

The post Strategy & war — Part III appeared first on Executive Magazine.

When Executive asked Joe Saddi, senior partner in PricewaterhouseCoopers’ premium consulting arm Strategy&, and before that global chairman of predecessor firm Booz & Company, if there was a shared greatest challenge for Arab companies, he answered without a hint of hesitation: “There is. It is capacity building.”

Our subsequent research into the defining challenges of consulting firms working in the Middle East and North Africa (see “Strategy & war“) led us to conclude that there was a more than slight whiff of irony to that answer. As evidenced by the regional consulting industry’s ongoing talent war — which is a symptom of a shortage in human capital — the strengthening and development of human capital appear to be still an enormous need not only for the average Arab corporation but also, and perhaps more crucially, for any player in Big Consulting attempting to cover the region with competent services.

In a second finding of our brief research into regional consulting, we can again confirm that Lebanese talents, trained at our business schools and universities, rank with the top, if not totally at the top, of the region when it comes to supplying native management consultants across the entire advisory industry in the MENA region.

At the same time, however, as Executive encountered evidence for the need of improvement in human capital standards and ethics across the region’s consulting ranks, a Lebanese element to these problems seemed unmistakable. When checking social networks for regionally based seniors and juniors of all consulting levels who had recently defected from Booz — by its own claims the region’s dominant premium consulting firm — the resulting list of names reads like something from a directory of Lebanese university graduates, stretching from Abou Jaoude to Khoury and from Matar to Ziade. If a greater than usual human capital battle has recently been playing out behind the scenes of the regional consulting industry, Lebanese, it appears, were right at the center of the fray. The two basic findings of our investigation highlight a number of needs: first, the need to address the still persistent deficits in the number of superbly qualified local decisionmakers in regional corporations. This need requires that companies accelerate the formation of native Arab human capital.

But the fact that consulting firms appear to be embroiled in a regional talent war is also a reminder of more fundamental needs, beginning with the imperative that even wars need ethics.  It would be silly to assume simple good vs. bad, black against white categories for antagonists in a talent war among top consulting firms. Consulting firms operate in the capitalist system and are subscribing by default to capitalist ideals of self fulfillment and gratification of greed amidst harsh competition, not to monastic ideals of denying world and self or socialist theorems preaching ‘from each according to his abilities, to each according to his needs’.

Seeking control of vital resources is integral to the contemporary capitalist environment and all protagonists will follow the ‘survive and succeed or be swallowed’ logics of competition, including talent poaching and headhunting, and use every trick in the book of how to win clients and bring competitors down.

Even under those paradigms, however, rules of conduct and proven best practices must be respected if one does not want to lose the real war by destroying one’s own assets of credibility and reputation. For example, if a consulting organization in the Middle East describes the audit conflict — the problem that destroyed huge economic value in the United States some 15 years ago — as mainly a matter of the jurisdiction where you operate and thus not applying to many countries in this region which don’t have the requisite laws against overlapping consulting and auditing, the occurrence of a MENA Enron or Tyco case sounds like just a matter of time.

Under such a scenario, the self destruction of any implicated double provider of auditing and consulting would be pretty much guaranteed and not be a question of laws but of failure to learn existential business lessons.

The negative consequences of ethical failures apply by necessity to both organizations and individuals and the higher the visibility, the greater the consequences. A consulting organization will risk facing incredulity if it, for example, proposes to instruct a client company in employee training and talent retention, but cannot demonstrate a track record of providing a career path that motivates its own consulting workforce.

And by way of other purely hypothetical examples, management consultants who massage their own career histories can certainly teach lessons to managers. But will these be the right lessons? Strategic consultants who have a totally superior view of themselves and who calculate their billable time based on their own inflated sense of importance can also certainly convey messages on profit maximization and impart such lessons to corporations. But can such strategies be sustainable?

Consulting organizations of high repute of course swear by their ethics. For one pertinent example, the historic parent of both Booz Allen Hamilton and Strategy& had a code of ethics which, according to company timelines, was first written up in the 1930s. As one of its 10 points, this code required its undersigned to have “willingness to subordinate one’s personal interest to that of the firm,” said several promotional publications of the Booz Allen Group from different time points in the last decade.

Given that such a demand implies that a firm sees itself — and not a larger purpose beyond itself — as the principally desirable ‘greater good’, it is in itself worthy of critique, and ever more so if the demand for self subordination is not balanced by an equal emphasis on the firm’s ethical commitments to society, environment and crucially, every single employee.

If a corporation, consulting or otherwise, affirms that human capital is its greatest asset, a very similar need for cautious examination arises. The term human capital is a value statement that is totally meaningless without affirmation of ethics and unalienable human dignity. If ‘human’ is not the ruling element in the concept’s DNA, then this word combination is just a hollow euphemism and buzzword for the practice of deploying human beings as dehumanized parts of the economic equation.

The consulting profession has dealt in human capital before almost any other profession. It was a consultant at McKinsey who popularized the term ‘talent war’ first, back in the 1990s. Frankly though, it appears that the number of ethical failures in strategic and management advice throughout the first 100 years in the history of consulting can fill volumes of moral and economic bankruptcy stories.

One urgent, albeit hardly new, need for the future validity of the highly concentrated Big Consulting and correlated Big Auditing industries is that the dominant players in this space have to become credible models for the insights and recipes they propagate.

A correlated need is that premium consultants are well advised to make every effort for building up stronger values that qualify them on universal terms and not only from business performance angles and profit principles.

Finally, from the knowledge that consulting will be in regional demand in the foreseeable future and that Lebanese can be a key current and future resource in regional consulting, business schools and stakeholders in such education are advised to prepare our young talents ever better for consulting career opportunities — and do that both in technical terms and by equipping them more abundantly with the moral tools that will assist them in future wars for their talents where they will face myriad black and white decisions.

The post Questionable ethics appeared first on Executive Magazine.

As activists push ahead with a lawsuit to prevent the development of nearly 110,000 square meters of coastal land to the south of Beirut’s iconic Pigeon Rocks, Fahd Hariri — the son of late Prime Minister Rafic Hariri who has a stake in an investment company which indirectly owns some of the land — is shopping around for ideas on what to do with it.

In mid December, the Civil Campaign for the Protection of the Dalieh of Beirut — using the locally known name of the land — published an open letter to architect Rem Koolhaas whose company, the Office for Metropolitan Architecture (OMA), they alleged had “been commissioned to develop a design for a projected development” on the land. The letter reiterated the activists’ arguments that the land — while privately owned since Ottoman times — has been used as a public space for generations and should remain open to the public, not used as a site for another private development. Koolhaas replied in the comment section of the online magazine Jadaliyya, where the letter was published, and said that “there is in fact no project, just a series of initial explorations” that OMA was conducting on behalf of an unnamed client. OMA did not respond to an interview request.

According to various records Executive has seen, the Hariri family owns a large stake in much of the Dalieh land, but does not own it all outright. 

A source managing the land on behalf on the Hariri family told Executive in August the family had no plans to develop the land for “the foreseeable future.” Contacted again after the OMA news broke, the source said he was not familiar with the negotiations and named Fahd Hariri as the man looking to make plans. Hariri cofounded the development company HAR Properties, and Executive called HAR in an effort to reach him. Instead of Hariri, Executive was pointed to his partner, Philippe Tabet. When explaining that we wanted to speak with Hariri about the negotiations with OMA, Tabet interjects, “OMA is not the only option.” He explains that the Hariri family is keen to build on the land but is facing a number of difficulties. Firstly, Tabet says, the family requested project proposals from “many, many architects” and notes “one of them is OMA. They gave us a proposal which … for the moment, is not the one that we will choose.” In fact, he says, none of the proposals have yet piqued the interest of the Hariri family.

During the interview, Tabet repeatedly uses the word ‘we’. When asked what he meant, he explains “the Hariri family and the other owners.” Asked if HAR Properties would develop any future project, he says it was too early to answer. He offers, “I don’t think there will be any project before two to three years from now.” Tabet says that the goal is finding a project “for everyone, for nature, for Beirut, for the public, for us,” but notes it “is very difficult to have a project that is feasible, I mean, financially feasible and at the same time in terms of greenery and nature. It should fit and be responsible.” He reiterates that “we” are focusing “very seriously” on making sure the land is open to the public and continues to be a green space.

The land itself is divided into 14 plots, according to the Beirut Municipality’s cadastral map, most of which have multiple owners. Under Lebanese law, every plot of land is divided into 2,400 shares. When the land has one owner, that owner has all of the shares. If a plot of land has multiple owners, the shares are divided, and in such a case all of the owners have to agree on a development project before construction can begin. Given that Tabet said he was speaking for Hariri and the other owners, Executive points this fact out and asks if the other owners have agreed to develop. “No, no, no, not yet. We don’t have a feasible project for the moment, to convince them. We should have a feasible project. [Since we don’t], we cannot convince them.”

The post The coast of progress appeared first on Executive Magazine.

When you’re barreling back down towards Beirut on the Nahr al-Mot highway, staying in the right hand lane means a workout for your car’s shocks as you hit sewer cover after sewer cover. Smoothing out the ride means either driving in the left hand lane as faster motorists drive on your back bumper or zoom past you on the right, or making a ‘middle lane’: half left lane, half right lane or half right lane, half shoulder (where it exists). Once you’ve found a way to avoid the sewers, there are only the potholes and globs of dried cement that fell from leaking trucks to maneuver around. This, of course, is to say nothing of the hairpin turns. The highway suffers from both design problems and a lack of maintenance.

Then again, the construction and maintenance of pristine roads is arguably not Lebanon’s strong suit. The same goes for the electricity and water networks and pretty much every other piece of physical infrastructure save for the air and sea ports. For information and communications technology (ICT), however, this was not always the case. With both mobile phone and internet infrastructure, Lebanon in the early to mid 1990s was a regional leader. And all the complaints about dropped calls, slow connection speeds and high prices aside, the country’s ICT infrastructure is still its most advanced — aside, as mentioned, from the two international transportation gateways, Beirut Port and Rafik Hariri International Airport.

Benchmarking

While there may have been doubters 30 years ago, it has become gospel truth to those who measure such things that investment in ICT infrastructure, as well as increasing mobile phone penetration and broadband internet access, are absolute necessities for a country keen on global competitiveness. In 2009, the World Bank took an econometric model it had developed based on “the experience of 120 countries between 1980 and 2006” and applied it to Lebanon. It found that “a 10 percentage point increase in broadband penetration in [the country] would result in a recurring point estimate of 1.38 percentage point increase in the growth rate of GDP per capita, equivalent to $400 million per year.” Additionally, the study says the “fiscal contribution resulting from this additional growth is estimated at a recurring $90 million per year.” According to the International Telecommunication Union’s most recent data for Lebanon (which comes from 2012), despite 61.25 percent of the population having an internet connection, there are only 451,000 broadband connections. There is clearly plenty of room for growth.

On the Networked Readiness Index, produced as part of the World Economic Forum’s Global Technology Report, Lebanon ranked 97 out of 148 in 2014, a three spot drop compared to 2013. In addition to ranks, the index assigns countries a value between 1 and 7, with Lebanon clocking in at 3.6, slightly better than its score of 3.5 in 2013. The index comprises 10 pillars, each subdivided into between three and nine indicators. On pillar three, infrastructure and digital content, Lebanon’s rank jumps to 77 of 148 with a value of 3.9, just shy of the upper middle income group average of 4. 

Of the five indicators used as part of pillar three, however, the country’s rank is dragged down by “accessibility of digital content,” for which it ranks 115 out of 148. The value for this particular indicator comes from the WEF’s Executive Opinion Survey as a result of the answer to the question: “In your country, how available is digital content via multiple platforms (e.g., fixed-line internet, wireless internet, mobile network, satellite)?”

On the other indicators for pillar three, Lebanon was much higher: electricity production measured by kilowatt hours per capita (59), mobile network coverage as a percentage of the population (56), international internet bandwidth based on kilobytes per second per user (71) and the number of secure internet servers in the country per million people (61). Perception bias of the executives surveyed could be dragging the country down on the infrastructure pillar as the other numbers, which point to actual physical equipment, suggest Lebanon should be above the upper middle income group average.

The Glory Days

Before the Civil War erupted in 1975, three subsea cables designed to carry telephone traffic connected Lebanon to France, Egypt and Cyprus,  and the country also hosted three earth links, beaming communications to satellites operated by Intelsat. The country had more than 400,000 fixed line telephone subscribers. Years of conflict severely damaged the cables and the earth links, as well as most of the country’s telephone infrastructure. That said, development of the sector did not come to a complete halt during the war. In 1982, Taha Mikati, whose brother Najib served as prime minister briefly in 2005 and then again from 2011 until 2014, began offering radio and satellite communications in Lebanon through Inteltec, which two years later became part of Investcom. Given the infrastructure damage and continuing hostilities, business was booming, and Investcom went on to set up Lebanon’s first mobile phone network. It was a 1G (first generation) analogue system that began operating in 1991. Three years later, the government was in full rebuilding mode and signed two build–operate–transfer (BOT) contracts to develop new, 2G mobile networks using the Global System for Mobile Communications (GSM) standard. Around the same time (some sources say 1991, but pinning down an exact date has proven difficult) Sodetel, a company held in equal partnership between the Lebanese government and Orange (then known as France Telecom), introduced the internet to Lebanon. The American University of Beirut was using this network, called Libanpac, by 1993. According to a research paper from 1994 written by Nabil Bukhalid, then AUB’s director of network services, the institution was paying $58,000 per year for a monthly quota of 20 megabytes delivered at a speed of 1.2 kilobites per second. Commercial users began logging on in 1996 when the government started licensing private sector ISPs.

Must be the money

The Mikatis’ Investcom, in partnership with Orange, won one of the BOT contracts through a joint venture commonly known as Cellis, and a company called LibanCell, majority owned by the Dalloul family along with Telecom Finland (today Sonera), won the other. The government cancelled the contracts, set to expire in 2004, two years early.

In 2002, LibanCell and Cellis signed management agreements with the government as plans first floated in 1999 for privatization of the networks began looking like they might come to fruition. Despite a new telecom law (431) in 2002 laying the groundwork for privatization and a failed bid round for the networks in 2004, selling these assets has still not happened. The government signed management contracts in 2004 with Kuwait’s MTC (today known as Zain) and Fal-Detecon, a Saudi–German partnership. Zain still manages one network under the brand Touch, while former Telecommunications Minister Gebran Bassil cancelled the management contract with Fal-Detecon for the network branded as Alfa in December 2008. In early 2009, Egypt’s Orascom Telecom won a management contract for the Alfa network, although in 2012, the company’s name changed to Orascom Telecom Media and Technology after a merger between Orascom Telecom’s parent company, Wind Telecom and Russia’s VimpelCom.

While privatization is still the law of the land, there have been no serious efforts to implement it since 2007 and the current Minister of Telecommunications, Boutros Harb, wants to rework the management contracts but still not fully privatize the networks (see box). Beginning in 2008, however, the government, which has control over the mobile managers’ CAPEX, invested in both 3G and long term evolution (LTE or 4G) technologies.

The Internet and Ogero

While the mobile network saga has produced plenty of mudslinging, it pales in comparison to the accusations of intransigence and law breaking you hear when asking those supposedly in the know about the development of the internet in Lebanon. While the half government owned Sodetel first brought the internet to Lebanon in the early 1990s, it wound up in the hands of Ogero in 1994. That year, the government gave rights to manage all of the Ministry of Telecommunications’ infrastructure to Ogero — also a state owned firm, first founded in the 1970s to manage telegraph lines owned by a now defunct French company called Société Radio Orient. The 1994 decision was meant to last five years and help a struggling ministry rebuild the fixed line telephone network. Since then, Ogero has operated the country’s fixed line phone network as well as most of its internet infrastructure.

Unlike the mobile phone market, however, the internet market is liberalized. Private sector internet and data service providers have been operating since the mid 1990s, however they rely on Ogero both for access to bandwidth they resell to customers and for access to ‘centrales’ spread across the country that link individual users to the actual internet. Several private sector ISPs have been complaining for years that Ogero is purposefully holding back bandwidth to keep its market share, as Ogero is also an ISP.

The president and CEO of Ogero, Abdel Moneim Youssef, is also the director general of operation and maintenance at the Ministry of Telecommunications, which Youssef’s critics argue is illegal. In his role at the ministry, Youssef also signs for any telecom equipment imported into Lebanon, which private sector ISPs argue he takes his time doing. Youssef is notoriously difficult to interview, even though some who know him described him as able to charm people. When Executive was admitted to Youssef’s office in June for an interview appointment, he said he knew nothing and referred us to Toufic Chebaro, director of IT at Ogero. In a brief exchange before having this journalist ushered out of his office, Youssef told Executive at the time that private sector ISPs didn’t need more bandwidth. Chebaro, who refused an interview request for this report, said in June the ISPs were selling bandwidth to illegal service providers as well as the two mobile network managers, alleging that the networks used it to supplement bandwidth they were buying from Ogero to offer 3G services. 

Falling behind

While Lebanon was a regional leader in building both mobile phone networks and internet infrastructure in the 1990s, the country did not stay on top for long. The Ministry of Telecommunications has an ownership stake in three submarine cables completed in 1995 and 1997, capable of carrying both voice and data traffic, but Lebanon did not make another investment in extra international capacity until signing a 2008 agreement to build the IMEWE (India–Middle East–Western Europe) cable that runs from India to France. Similarly, Cellis and LibanCell introduced an early version of mobile internet — GPRS, also known as 2.5G — in 2001, but 3G didn’t arrive in Lebanon until 2011. 

That said, the 3G investment was more forward looking as it included an LTE component. While 3G coverage is almost nationwide, only Beirut has access to LTE. Gilbert Najjar, head of the owner supervisory board at the telecom ministry, tells Executive that the board — which acts as a bridge between the government that owns the networks and the private companies that manage them — is in talks with the network managers to increase LTE coverage in 2015. Najjar says he anticipates that the managers will each invest $100 million to expand coverage. 

On the internet side of ICT infrastructure, the private sector led the way in developing new ways to bring customers faster connection speeds than the dialup service, which is all Ogero offered until 2007. Private data and internet providers were making use of satellites and various wireless technologies before Ogero slowly began rolling out a digital subscriber line (DSL) service, which uses copper wires instead of existing phone lines, in 2007. Rumors of an imminent DSL roll out began spreading five years before the service was actually offered. 

One element in the delay, according to news reports from the time, was fear that widespread and fast internet would lead to more Voice Over IP (VOIP) activity, particularly for international calls. With the government having a monopoly on telephone calls in Lebanon, VOIP has long been a feared revenue thief and remains officially banned. Following the introduction of DSL, the next major investment in infrastructure was the 2011 contract awarded to construction firm CET to install a fiber optic backbone for both voice and data traffic. As Executive went to print, however, we have not been able to verify whether or not the backbone is actually being used.

The post Playing to your strengths appeared first on Executive Magazine.

Sitting in a room where two rotating cylinder lenses track you and project a blown-up high definition image of you to your colleague sitting in Jordan, and vice versa, may be disconcerting for any number of reasons, but for Hani Raad, general manager for the Levant region at networking giant Cisco, it is a time saving routine and just another day of business meetings conducted over Internet Protocol (IP) telephony.

According to Raad, while products as state of the art and futuristic as the IP telecommunications have somewhat of a fan base among certain business segments in Lebanon, the country is missing a sizeable market for, and investment in, the more mundane market of networking infrastructure.

Routers, modems, switches and fiber optic cables are certainly one of the less hyped lines of business, but they do make up the backbone of the internet, which is not of negligible relevance to a country that wants to call itself modern.

And while sexy topics such as the internet of things come to the forefront of piquing one’s interest in Information and Communications Technology (ICT), even with the municipality of Beirut participating in the Arab Future Cities Summit in Dubai last November, judging by current investment levels in ICT infrastructure Lebanon seems far off from having smart highways where cars and speed limits talk to each other.

It is not that there are no sophisticated technologies in Lebanon. Just by entering a mall your very own mobile devices can sell you out to the marketing campaigns of a store near you. As Raad tells Executive from one of Cisco’s teleconference rooms, “Don’t think we don’t know what you’re doing. Don’t think we don’t know where you’re walking.” Indeed, every person these days is rather easily traceable through their mobile devices. This, Raad explains, is a symptom of the internet of things in Beirut.

But while not all things in our world feel the need to be connected, the majority of the people do, and having the networking infrastructure to achieve this is crucial for our modern day and often long distance communication needs. This provides the opportunity for foreign companies the likes of Cisco, Huawei, Ericsson and Alcatel–Lucent to come and carve out a share in what is, admittedly a rather meager market, but one whose people share a strong desire to be connected.

Public sector stinginess

Whether it is spiffy new technologies or basic backbone infrastructure, the pervasiveness of these technologies depends on the willingness of client organizations to invest. And unlike our Gulf neighbors, many of whose governments have made lavish investments in ICT, the Lebanese government is not an ideal client to provide a Lebanese company’s bread and butter through deals in the networking hardware market.

Lebanon has already witnessed companies being put in a shaky situation if they can only rely on the government as a customer. With a government budget upwards of $50 million supposedly allocated to the internet backbone, two companies, local civil works company Consolidated Engineering and Trading (CET) and multinational networking equipment giant Cisco, admitted to Executive that they had not been paid in full for projects they had delivered.

CET won the bid in 2011 for the milestone project to lay down Lebanon’s fiber optic backbone infrastructure, connecting exchanges together as well as heavy users such as the army. With a $55 million budget mostly allocated to the civil works part of the project, CET dug one million meters of trenches to lay down the 4,000 kilometers of fiber optic cables, according to Dany El-Horr, CET’s vice president. The work of purchasing and pulling the cables was subcontracted out to Alcatel–Lucent as part of a strategic partnership, which, the VP explained, acquired the cables from Samsung.

But whereas this project was carried out, CET has not yet been paid all of the money owed to them. Though the project did increase in size from the one originally contracted, El-Horr claims that as much as 25 percent — about $15–20 million dollars — has not been paid.

This does not bode well for CET, whose tender was the cheapest “by far” compared to those of the dozen others that were presented to the government whose inability to pay has ended up “in a total loss” for the company. Indeed, El-Horr estimates that the price came to about $12 per meter of cable. “It was very dangerous for us to get into that project with very low prices,” he says. They were expecting to break even, to make or lose 1–2 percent. Though El-Horr admitted that their primary goal wasn’t making profits, but rather for the prestige and know-how, he laments that with these amounts “who can sustain that?”

The Lebanese government also has outstanding accounts with Cisco, according to Raad. But for the multinational, the money owed to it by the government does not seem to be an amount it can’t swallow. Cisco is one of the multiple vendors taking part in Lebanon’s internet infrastructure as far as anything related to routing, switching, international gateway, etc. Though the size of the company ensures that it can better sustain losses, Cisco’s loss would likely have been smaller in value and, as Raad expresses, “our projects are not those megaprojects.”

Not only is the Lebanese government bad at paying the outstanding accounts to its telecommunication infrastructure providers, but it is also quite dysfunctional when it comes to installing new equipment in general. Even a Cisco donation of two of their treasured IP videoconferencing screens to the government through their involvement in the Partnership for Lebanon, an initiative to modernize Lebanon’s communi-cations infrastructure, were never installed according to the GM. “They couldn’t agree where and how and the process to install them,” he says.

Educated guesswork

While the image of gleaming state of the art Cisco equipment sitting in boxes uninstalled makes for a nice anecdote, it is the symptom of a much larger problem which is the inability of the Lebanese government to make and implement policy for the sector, which has hindered it particularly in terms of managing capital expenditures. In a world where government investment can shape the telecoms market, Lebanon is at somewhat of a disadvantage.

In fact, Raad states that the Lebanese market could not even grow to become a tenth of any given Gulf economy. “We don’t have the money for that,” he says, citing the similar projects in many GCC economies, whereas in Lebanon there are no transformational projects underway, just the good old timid upgrading and expanding plans for organizations.

With public sector projects “few and far between,” Raad is somewhat optimistic, citing the donations this year — such as Saudi Arabia’s pledge — as hope that the public sector will move a little bit in the coming year. But all in all not even 10–15 percent of what Cisco does goes to public sector clients “because they don’t spend,” according to Raad. Their public sector clients include the Ministry of Finance, Ministry of Interior, and the Internal Security Forces, though he qualifies that most of these infrastructure projects come from grants from international organizations such as the European Union and the World Bank.

Though the government is not a big spender, state run fixed line network operator Ogero controls much of the infrastructure and the internet service providers (ISPs) and data service providers (DSPs) have a minority share of the market. “The service providers sector is not as dynamic and, lets say, lucrative as it should be,” says Raad, who likens the acceleration of the ISP segment to “blood flowing in the veins” of the company. 

Unsurprisingly, Cisco’s main line of business in Lebanon is the financial and enterprise sector, a natural choice given the prominence of the banking sector. Raad claims that top banks, as well as top universities, hospitals, and service providers are Cisco clients for everything related to switches, routers, wireless, security, IP telephony and video.

While no single company Executive spoke with could give a precise number for the market size for networking hardware, it can be assumed with some certainty that it is a small number. “In reality, the fact [is] that we don’t have data and we don’t have things to track this data, I only can assume,” says Raad. “When we look globally, I know where I am. When I zoom to Lebanon, I don’t know where I am.”

Though it is difficult to measure the total worth of the units that are being used, one number that has been thrown around for over a decade now for the ICT market is the figure of $250–300 million. More recent numbers from Investment Development Authority of Lebanon (IDAL) pegged the IT market size at $337 million in 2012. Raad assumes that if about 45 percent belongs to personal computers and hardware, a company in the networking hardware industry is left with a market size somewhere north of $150 million and south of $200 million.

But such low figures, already barely an educated guess, could quickly become irrelevant with one deal. “We stopped a long time ago at Cisco to look at market share,” says Raad, who claims they track their performance instead based on growth, employee productivity, number of accounts and service provider environment. Cisco works with more than 300 customers a year in Lebanon, according to the GM, and he claims they have had growth or at least flat year on year performance in every year since 2000.

The next big government project would be the fiber-to-the-home, or the last mile, which would require a budget of roughly $300 million according to El-Horr — the same number given by a former official from the Telecommunications Ministry who spoke on condition of anonymity. Most of that expense, like the laying of the fiber optic backbone, would go to the civil works part of the project, about 70 percent, according to Roger Ghorayeb, who oversees several countries for Alcatel–Lucent including Lebanon, Syria, Kuwait and Bahrain.

Stiff Competition

But despite the slight market size, doing business in networking hardware in Lebanon has attracted several international companies. Just as they compete globally, the usual suspects Alcatel–Lucent, Huawei, Ericsson, HP, Cisco and smaller companies like Juniper are continuing the onslaught in Lebanon.

Raad claims that Cisco has benefitted from being the first entrant to leap into the world of routers and switches in the Lebanese market since the inauguration of their Beirut headquarters in 2000. He adds that their majority stake in the market for internet hardware infrastructure has only dropped slightly, from a quasi monopoly to a current estimate of over 80 percent — though he qualifies that this is a guess at best. He claims that since most projects in Lebanon center on upgrades and expansion, and that Cisco already has the installations, it is harder for a competitor to come in and sweep up a considerable market share.

Competitors like Huawei may have some advantages when it comes to their ability to set their prices at a slightly more appealing rate. Raad claims that while Cisco currently dominates the enterprise space, Huawei could get there “at some point,” though it is not out of character for GMs of ICT companies to downplay the current activities of their competition.

Even smaller fish like Juniper have historically posed a threat to giants like Cisco on the global scale, such as when in 1999 they released their first product and took a sizeable piece out of Cisco’s market share in network routing. Cisco’s GM of the Levant says that the present competition from Juniper is rather negligible, though the latter does sell its products through Lebanese company Crystal Networks.

As technology changes, of course, there will be new competitors in the market. But the big ICT companies of our day continue struggling not only against each other, but also to stay relevant. Many giants of the networking hardware world are focusing their operations to be more specific. Alcatel–Lucent launched its ‘shift plan’ in 2013 to refocus their main lines of business on IP networking, cloud technologies and ultra-broadband access after the company ran losses for several years. While their operations are now back in the black, the process demonstrates that these giants have enough resources to withstand years of negative cash flows.

So as far as long term strategy goes, at least in Lebanon, not all incentives may be based on immediate profits. Ghorayeb explains that Alcatel–Lucent may engage in projects with limited profitability but that may bring value in the long run, value which he describes as that which “can be a reference, better perspective on long run or profitability, several things.” Their clients in Lebanon include the Ministry of Telecommunications, Ogero, Alpha, Touch, DSPs and ISPs, as well as EDL, Solidere and the Beirut Central District’s broadband network. “When we win a project, we are convinced it is vital for [the] country and company. Even if the contract is losing from a profitability point of view, we take it if [it] can bring value in [the] medium or long term to [the] country or company,” he says.

It is hard to be hopeful for the market for networking hardware in Lebanon. As long as nothing changes in the ability of the Telecommunications Ministry to come up with a spending plan and stick to it, the market will continue to operate under the same constraints. The most severe being, according to Raad, the lack of an ICT vision with tangible plans, outcomes and execution. “Today if I want to point you to Lebanon’s national ICT plan for the next five years, I can show you the Jordanian one,” he says. “I haven’t seen one for Lebanon.”

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For an entire month, our investigative reporters tried to answer a painfully simple question: is Lebanon using its fiber optic backbone for data traffic? The result — we still don’t know. It’s a mystery wrapped in a riddle inside an enigma! Even the minister might not know.

Instead, there are people hiding something, and I can only conclude that it’s their own ignorance. It is 2015. We should have installed and started using fiber optics many years ago. Investing in information and communications technology (ICT) infrastructure is a proven GDP booster. Look at Ireland. The emerald isle’s transformation from a failing industrial economy to a tech hub should be something both policy makers and the board of IDAL are ceaselessly trying to emulate. Instead, our country’s leaders and chief promoter are letting opportunity after opportunity pass by, taking our best and brightest along for the ride.

So why is nobody presenting a strategic, long term national plan? Imagine the return on a serious investment in ICT infrastructure. Actually, you don’t have to. According to a 2012 study by Booz & Company for the Ministry of Telecommunications, a properly invested and restructured ICT sector could bring economic gains of over $2 billion in just five years. For comparison, routing fiber to every home and business in the country would only cost some $300 million according to industry contractors.

This country has so much to offer, especially when it comes to human capital: from designers and production companies to consultancies like Murex and Strategy& (whose regional office, uniquely, is based here). With truly modern ICT infrastructure, just think of how many more companies we could lure here and of course how many of our most talented would stay. 

Given this, it is infuriating how myopic our policymakers are. If only they would read an economic study once in a while. Or at least try to google one. Since they can’t answer the most basic question about the country’s internet infrastructure, let me pose a different one: how many even know what Google is?

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