Speech by Dr. Fouad Zmokhol, President of the Lebanese Businessmen's Association (RDCL) at
the (UAB) meeting on March 5, 2015 in Istanbul
It is a great pleasure and a great honor to be among you today.
Before tackling any problem or set any managerial strategy, it is always important to start with a realistic
and objective assessment of the situation to know:
 Where do we stand?
 Where are we heading to?
In order to define the starting point and the end point to better understand the situation as well as our
environment and to be able to draw clear, effective and feasible objectives.
The world around us has changed and continues to vary at breakneck speed heading towards multiple
directions, often unpredictable and not well-known.
The global , European and regional economies are changing and are at the heart of a major
restructuring and reorganization work.
Financial institutions as well as private companies –taken together-, commercial, industrial, technology,
service ... are also being restructured to keep up as much as possible with these multiple changes that
are difficult to manage, both on the financial and human level.
We can no longer manage our companies (wherever we are based) –whatever their fields, in the same
way we did it a few years ago. Our previous strengths, competitive advantages and key success factors
are no longer valid and can even become today our weak points. It is therefore crucial that our plans,
strategies, objectives are regularly examined and reviewed, adapted and readapted to the conditions of
regional and global environment (in full disturbance) to persevere and grow.
Lebanon:
It is no secret that Lebanon is going through one of the most difficult periods of its political, economic,
social and security history. We are witnessing and living in the freezing of all our public, legislative,
executive, and constitutional institutions! And of course the supreme power vacuum in the Presidency
of the Republic since May 2014 has only made things worse, affecting our international credibility,
casting doubt among our local, regional and international investors and reflecting negatively on our
economy.
Allow me to expose to you the main economic indicators of Lebanon in 2014 presented in complete
transparency and objectivity and based on recent reports and figures provided by the World Bank and
the International Monetary Fund (IMF):
The real GDP growth did not exceed 1.5% in 2014. This is our 4th year of severe economic stagnation ...
You cannot compare it to a growth in a country where we have developed an "output gap" of a very
small or even zero production capacity. In Lebanon, we are very far from the maximum capacity so the
output gap is wide enough ... Therefore, we should easily reach an annual growth of 5% for our
economy to survive... A 1.5% growth means that we have a growth close to zero if we don’t include
public and financial investments.
Lebanon's gross public debt reached $ 66.2 billion at the end of October 2014, an increase of 4.3%
compared to the end of 2013. The level of public debt is estimated at 145% of GDP in 2014. This debt or
any State debt can never be filled by taxes but only by high growth – the Tax and Pay strategy (eg
Greece) could be very dangerous for a country like Lebanon where taxes should be used for investment,
growth and not to pay off the deficit...
The total assets of banks operating in Lebanon reached $ 171.3 billion at the end of October 2014,
constituting an increase of 3.9% compared to the end of 2013 and an increase of 6.6% in comparison
with late October 2013. This shows that our banking and financial system is well maintained, preserving
its strength and toughness. It is clear that our banking system is the central pillar of our economy.
Private sector deposits have reached $ 142 billion, an increase of 4.3% compared to the end of 2013 and
7.5% from a year earlier. Total non-resident deposits reached $ 29.4 billion in late October, increasing by
3.4% compared to the end of 2013. The rate of dollarization deposit reached 65.7% in late October,
down by 66, 1% from the end of 2013 and has remained unchanged from a year earlier. Consequently,
the Lebanese pound is not put under heavy pressure.
Loans to the private sector reached a total of $ 50.1 billion in late October 2014, constituting an increase
of 5.7% compared to the end of 2013 and up by 7.7% from a year earlier. In nominal terms, loans to the
private sector increased from $ 2.72 billion in the first 10 months of 2014 compared to an increase of $ 3
billion for the same period in 2013.
It is worth mentioning that the private sector debt has exceeded the GDP, as it has reached $46 billion.
Subsequently, it will be much more difficult for companies to increase their debt as most of guarantees
have already been used whereas banks are not willing to increase their risk. As an economic
organization, we are sparing no efforts to secure low rates loans subsidized by the central bank not only
for investment but especially for the working capital needs. But as it will be difficult to increase their
credit, private companies will have to turn to the market to attract investors willing to participate in the
share capital; this is a huge investment opportunity not to be missed out...... It is crucial to follow closely
this evolution and select companies with good governance, transparency and invest in them. Investment
as well as regional and international banks have started to activate their radar and we can note a very
important number of transactions already concluded ... Companies (especially SMEs and family
businesses) must start to convert part of their debt in equity.
The return on average assets of the 14 largest banks reached 1% in September 2014; while their average
return on equity was 11.35% in September 2014. In comparison, the return on banks average assets fell
by 1.25% in 2010 to 1.1% in 2012 and 1% in 2013, while their average return in equity decreased from
14.2% in 2010 to 12.9% in 2012 and 11.8% in 2013.
The real estate sector remains stable, slightly frozen in certain regions with fewer transactions but with
no significant decrease. We can report a slight drop in building permits and a change in domestic
demand that opts for small affordable surfaces. On the other hand, land prices are stable and this
investment remains a great value with high profitability in the medium and long term. New Lebanese
regions around the capital are also developing...
The agriculture and agrifood businesses had excellent results this year due to an increase in the demand
at the local and regional level (due to the problems in Syria, Egypt ...)
High potential sectors in Lebanon are essentially telecommunications, technology (IT), renewable
energy, services, food, medical and paramedical industries.
As for the security level, it is important to explain and understand the situation. The first half of 2014
was a period of uncertainty and unstability with some security problems from time to time ... but the
2nd half was much more difficult with armed conflicts on our borders valiantly defended by our
Lebanese army against terrorist groups ( non-Lebanese). It is true that this is stressful, constraining and
might be scaring…However, it important to look at the situation from a different perspective and note
some significant positives points: the Lebanese Army is united and is defending our borders. The
Lebanese army has won all its battles and is enjoying the support of the entire political class along with
that of the international community with an extremely important decision to arm the troupe with
improved and solid material to protect the Lebanese territory and borders.
It is true that such security problems are not encouraging but on the other side, they are really small
compared to the size and complexity of the conflict and the war in Syria, located only a few kilometers
from home.
I am confident and all facts are showing it, that there is an international agreement to keep Lebanon
away from this regional conflict and not to get it stuck again into a war that is not his. There are security
overflows from time to time, no doubt there will be others, but fortunately, all facts have demonstrated
that it is unlikely we lose the control of the situation and that we turn towards the unknown ...
Regional:
Syria
- The war in Syria has intensified in 2014 and has taken a new turn with the rising power of small
organized groups of extremists, armed and financed such as Al Nosra, Daech and ISIS that are gaining
ground while the decline of the ASL (Free Syrian Army) on the ground and in the media cannot go
unnoted. We have began to feel less and less pressure from the international community for an
immediate change of the regime as talks are now revolving around a coalition against terrorism and
extremism, and yet the slogans of freedom and democracy are not enjoying high priority for the time
being.
We all know that the war in Syria has extremely negative effects on our economy, our security, our
budget, our social balance; indeed this conflict weighs heavily on our country in all aspects.
Moreover, what used to be called once, a time bomb which blasts could be heard – that is the serious
problem of Syrian refugees in Lebanon-has gradually began to explode:
We certainly have a human and humanitarian responsibility towards this issue and it is our duty to help
as much as possible all the needy in our land but according to our means and capabilities. It is clear that
our infrastructure, economy, security forces, hospitals, schools, roads, telecommunications and
companies are not capable to withstand this organized "mass" movement that has become
unmanageable at all levels . The cost of this exodus has amounted to far more than $ 7 billion, more
than USD 17 billion of shortfall, lowering the growth rate by 2.9% per year (the latest report of the
World Bank ), while we are struggling to hold on to the bar of a timid growth around 1.5% annually and
an unemployment rate of around 21%.
We cannot ignore that the cost of reconstruction of Syria which is assessed at more than $ 250 billion to
date. Once this project starts, there will be a huge need of almost everything !! Even though the conflict
aggravates and gets complicated day by day and all the facts show that this war will last for many years,
our duty as businessmen is to be ready for reconstruction and be the first who will dock on this
devastated land to rebuild it.
Although this war seems not to be ending soon, we must be ready for any surprise hidden under the
ashes. Do not be shocked by an unexpected twist that will see a truce is reached one day by surprise ...
because wars are prepared behind the scenes and finish behind the scenes too ... you never know when
or how or why.
Egypt
Egypt is a very interesting country to watch closely. First of all, with the election of President Sissi we are
witnessing the end of the Arab Spring of which Egypt was one of the great protagonists.
The lessons of its revolutions are numerous but very clear:
- The regime changes alone are not enough; structural reforms to the roots requiring many years are
necessary.
- Problems that have ignited the revolution, such as social and economic crisis including unemployment,
decline in purchasing power and living standards still exist and are growing in the region. We dare not
say that we are still at the starting point but perhaps we have now stepped backwards more than ever.
Egypt is about to launch a massive internal restructuring construction based on private investment and
with the help of the private sector. In June 2014, we witnessed the appointment of a new government
which priority and main plan of action is to attract new private investment, improve the business
environment and create jobs. A major conference on the investment is expected this month, March
2015 in Sharm el Sheikh in which the expansion of the Suez Canal (13 billion dollars) will be the most
important project. Several other PPP projects will be debated for telecom, technology ... Egypt should
be considered as a huge market, with high consumption and many benefits offered to investors in the
coming period.
United Arab Emirates:
It is true that Dubai has quickly become the Eldorado, the paradise, the "promised land" of many
businessmen and global investors. The universal exhibition will be attracting large investments and
generating even more tourists and visitors .... But we must be very vigilant and aware that it is a very
competitive and difficult market. Operations and life costs are not negligible. So we must be careful not
to be attracted by the trend phenomenon but be sure to have the right product, the right idea, the right
key success factors and enough competitive advantages and differentiation to enter this booming but
very difficult and risky market at the same time. Investments in the UAE use with no reluctance great
funds and are enough important to assess the risk and return on investment (ROI).
Saudi Arabia:
It is indeed a big market with big financial means ... and a huge public and private liquidity which attracts
bankers and private banks from all over the world. It is a premier consumer market but which is not far
from saturation. Two major elements are worth mentioning: the oil price drop and the appointment of
the new king.
Even if their reserves are huge, we must fear a low barrel on the medium and long term in the kingdom.
It is true that their production cost (variable cost) is extremely low, circa $17 per barrel and that the cost
of investment (fixed cost) has already been depreciated but their public budget is calculated at a much
higher selling price. As for the appointment of the new King, we cannot but observe the international
support he has enjoyed, which shows that the monarchy will continue and that the Kingdom is stable.
On the other hand, we notice the presence of an important number of security chiefs in the highest
decision-making positions which shows that security and stability are their top priorities. (The new heir
to the throne is Prince Mogren, a great friend of Lebanon ...).
It is clear and predictable that the kingdom will turn to investment and encourage it to address the
decline in crude oil prices and recreate a growth based on the development of the private sector.
Iraq:
This country has a great future potential but is a facing so far a high security risk…
Kurdistan (Irbil) has long been praised by the Lebanese with more than $1.5 Billion dollars of Lebanese
investments in 2014 (in the fields of construction, hospitality, education, retail, banking, insurance ...)
but at the same time they got really scared when the Daesh army was near 30 km from the border,
ready to invade the country wouldn’t it have been for the US last minute intervention.
Iran:
The economic future of Iran is directly linked to the conflict on the uranium enrichment. We have clearly
experienced that when a wink of agreement was reached in 2013 or rather an advanced communication
with the US and the European Union, how foreign investment (FDI) and funds movements have began to
arrive massively in Iran like a magic wand. On the other hand, it is clear that this country will pay a
heavy price for oil price fall because 80% of its budget comes from its oil resources. But on the other
side, I doubt they bend in front of this great pressure because they are accustomed to international
sanctions and will not be impressed whatever the price on their economy and their people. Iran will also
turn to the private sector to meet its deficit and try to maintain a modest growth.
International and regional Cold War:
We are witnessing today a new kind of cold war between the major international powers .i.e. the USA
and Russia (although their power level is no longer the same, or at the same level as in the previous
year); the Middle East has become their new mailbox and a privileged field of indirect messages from
these protagonists.
These divisions result from and reflect in another cold war between Saudi Arabia and Iran. This conflict
is directly responsible for more blockages in the region, for example the presidential election in
Lebanon, war in Syria, insecurity in Iraq, blocking in Bahrain .... and have a negative direct effect on the
economy and the regional growth.
Fall of oil prices:
These two wars of influence have led to the fall of oil prices, an unpredictable abyss used as a very
painful pressure means (eg the son of Reagan in his book ...).
It is clear that Iran and Russia are the two most countries affected by this fall as they are paying a heavy
price because of the drop of their black gold on which their budget is based with 80% coming from oil
revenues. But they are facing differently the crisis: Iran is used to sanctions ... and Russia is witnessing
the decrease of the ruble ...
This drop has an effect on the US, a small oil company, but it may lead to acquisitions ... It is important
to note that the USA witnessed a good growth in 2014, low unemployment, good economic recovery
that will enable them to absorb the shock better than other countries.
Strategies and Visions for the coming period:
Businessmen from all countries together, should focus to implement the "3D": strategy Diversify,
Develop, Delegate.
- Diversify: Create and offer new products, new services and access to different markets and
different customers.
- Develop: Head to new markets, continents, countries, regions ...
- Delegate: some responsibilities to qualified, highly experienced and specialized human
resources recruited from all parts of the world.
It is crucial to build privileged partnerships, create productive synergies in order to apply together this 3
D strategy. We need to share our knowledge, our expertise, our products, our services, so that each of
us can diversify its activities independently inter-dependently or jointly through a short strategic alliance
system, on the medium or long term.
It is crucial to use our strength of adaptation to risks to head towards fertile land enjoying high
profitability, where other investors will be scared to venture while we will be facing, bypassing and
managing high risks as we have learned to do and where our experience remains unbeatable.
I am talking essentially of investments or partnerships in Africa. This continent is growing by 8 to 10% /
year. This region is undergoing a restructuration with a growing demand where the return on
investment is very attractive; with an average ROI of 20% to 30%.
On the other hand, it is important to keep in mind the common market of Mercosur (with Latin America
countries). Mercosur region is very rich in natural and financial resources, and could be considered as
one of the most important economic groupings worldwide.
The Euro-Mediterranean integration: There is no future for the development of the Mediterranean in
the absence of an increased cooperation, an open dialogue and a mutual understanding among all
countries, companies and economic executives in the region. Our challenges specific to this region and
our common goals are to build a better world and a prosperous economy for our Mediterranean
populations and society.
In an interdependent world, no country can go alone and be successful. We are not able to grow and
develop anymore without a constant dialogue and a willingness to "find compromises", action plans and
joint strategies.
Strategy for companies in these moments of crisis:
That said, it is crucial, if not essential, for companies to restructure at all levels in order to cope with the
economic crisis, including:
- Rescale their debts as much as possible with the help of the banking sector.
- Restructure their debt by appealing to new investors.
- Reduce fixed and variable costs, as low as possible.
- Develop new commercial markets such as Africa and Latin America and draw new export strategies
based on their competitive advantages.
- Build on a niche and not mass economy and trade.
- Diversify economic activities and turn to growing areas (e.g. technology, renewable energy, agriculture,
some food products ....)
- Engage in an absolute internal restructuring reviewing strategies and plans. This is the perfect time to
stir the sand hoping for a good harvest, once the storm is over…
Jobs
Universities’ role:
It is true that internally, the preparation to face this world increasingly competitive happens in
universities. Most teachers clearly notice that in each class they identify a small part of the elite,
excellent students and a large and important part of average students that are simply satisfied to
succeed with the least efforts .This is where the major restructuring project r should take place. It is
crucial to help our students use their potential and make the best of them to form not only tomorrow's
entrepreneurs but the "elites" needed by enterprises.
Some will say or think you cannot have the elite only and continually. I will answer them with conviction:
of course YES: Elites in many areas, at different times, in different structures, regions, fields. There will
always be room for those who create and make their way ... Students must be convinced that they
should not fill gaps in search of vacant places but create value, create their own opportunity. I
recommend more research projects, visits to companies, real graduation projects from business world
with enterprises as well as a continuous synergy with companies.
Students’ roles:
Our priority should be to teach our students, our ultimate "weapon" and "resource" for future growth,
to fight valiantly every day, every hour, every minute. Teach them and train them to accept to start
"small" , gain experience, prove themselves and then become "great" and aspire to higher positions of
responsibility.
Investment:
With great conviction I advise to invest nowadays in new pilot projects. Our respective countries must
be perceived as ideas and concepts labs, where we perfect, test and train our team in order to expand
in the region's afterwards and operate on regional and global basis.
In this globalization atmosphere, from our location we can carry out triangular, financial and investment
operations . ..
The Middle East is undergoing a great restructuring, which represents a huge market with a steadily
increasing demand and a growing purchasing power. It is no secret, but a reality that most of our private
businesses operate, survive and thrive through their regional and international subsidiary companies
and presence abroad.
Importance of SMEs for economy and growth:
On the other hand, it should be noted that SMEs (which constitutes 90% of companies in general) must
be perceived as the main drive of our countries’ economy.
SME does not means nonly small and medium enterprises but especially small and micro enterprises
that are the first hit by the crisis but the first to grow, rebound and create value, jobs and a growth once
the storm is over. They are mobile, can extend easily over the region and attract a lot of venture capital
companies’ investors.
It is crucial to support and encourage the creation of small businesses that create wealth and "engine"
of growth in our region countries.
Businessmen in our region are renowned worldwide for being the fastest to overturn the most difficult
situations and for their ability to adapt to all kinds of scenarios. It is true that such exercise is
excruciating but this time we are confident that they will prove to the world, once again, their
unparalleled resiliency and especially their gift for seizing opportunities hidden behind crises.
Our motto is and will remain the same: the secret to success is perseverance!
Thank you and good luck to all!
FZ