Ziad Hayek on the Future of Privatization in Lebanon

Interview with Ziad Hayek, Secretary General of Higher Council for Privatization

What is your overall assessment of the Lebanese economy?

Lebanon´s economy has always been very resilient. We have had crisis after crisis, often security, war or unrest related crises and the economy has always rebounded. The Lebanese are entrepreneurial, every time there is some modicum of tranquillity and peace in the country we can immediately see everybody going back to repair any damage that might exist, putting in new investment and rebounding. This resilience is very typical of the Lebanese; we have become used to this situation, as we have had problems since the 1960s. I like to say that problems in Lebanon are a little bit like hurricanes in Florida. The fact that there is a hurricane once in a while in Florida, which causes a lot of destruction in a particular part of Florida, although it makes the news, the reality is that Florida is not really affected by that hurricane overall. The same happens in Lebanon, we have problems, which are usually localised, but we do not see them affecting the entire country and they are very limited in time. If we remember that we have from time to time some problems that affect the country, we should also remember that most of the time most of the country is doing well and working.

Privatisation in Lebanon has been talked about for a long time, what are the latest updates?

There is not much to update you with on privatisation in Lebanon. We have not made any headway. This has been due to the succession of governments; the average life span of a Lebanese government has been just a year and a half. That is not enough time to make long-term decisions such as privatisation or reform of infrastructure, such as electricity, water and so on.

I believe that the only sector that we would be interested in privatising would be the telecoms sector. I have been proposing legislation since 2007 for a law on public private partnership (PPP) and we are still fighting to have that law passed by parliament. I think that the reform of all sectors other than the telecoms sector should be through public private partnership. We will reserve privatisation for the telecoms sector.

To what extent do you agree or disagree with privatisation?
 
Privatisation is an interesting topic. Most of the political class deals with privatisation as a political matter. Some parties and some politicians are for privatisation, and some are against it.  I always say that this doesn´t make sense. Let me compare privatisation to a hammer: if you have a nail, a hammer is the right tool but if you have a screw, you need a screwdriver because a hammer is not the right tool at all. Depending on what sector you are talking about, and what type of reform is needed, privatisation may or may not be the right tool for reform. It would be horrible for example to apply privatisation today to a sector like electricity in Lebanon, even though many people think of privatising the power sector. However, privatisation is the right tool for telecommunications. We have to be pragmatic. We cannot be for or against privatisation. That would be like saying you are for or against a hammer, it doesn’t make any sense.

How have information and telecommunication technologies changed Lebanon?

We have a fantastic young population that is very internet savvy. The fact that it is multilingual means that young people in Lebanon are able to navigate the internet in French, English and Arabic. The fact that we have had for many years a centre of advertising, media and entertainment for the Arab world based in Lebanon means that many of our young people are also savvy in these areas. The combination of these factors means that a lot of the content produced, the design work etc. is done in Lebanon for the entire region. What has been hampering faster and better development has been the infrastructure, particularly our lack of fibre optic infrastructure to be able to feed those industries. Many of the Lebanese entrepreneurs in IT have to rely on satellite connections and other ways of communication. Our infrastructure is developing; we have made some major investments in fibre optic backbone and LTE for wireless telecoms etc. As this happens, I think we will be able to take advantage of the core expertise of most of our young people in those fields.

What is your agenda for 2014? What privatisation initiatives are you working on and can you describe the key investment opportunities for foreign investors?

The key initiative that we are working on now with the new government in terms of privatisation is a review of the telecoms sector. The current Minister of Telecommunications has expressed an interest in establishing Liban Telecom, an incumbent operator, and is looking at liberalising the sector. In terms of privatisation, we are working with the Ministry of Telecommunications now on formulating a privatisation strategy for the next year or so.
In terms of PPP, a law has been enacted by parliament about 6 weeks ago, that authorises the government to issue licenses for privately owned power plants, what are known in the industry as IPPs (Independent Power Producers). We are working with the Ministry of Energy and Water on establishing the mechanism by which these tenders will be awarded. I am very hopeful and optimistic; we have done a lot of work on the IPP matter. We have been working with consultants to design a strategy for where these power plants ought to be, what kind of fuel they should use, what capacity of power can be put onto the distribution network etc. I think that during this coming year we will some of this come into fruition.

Would there be opportunities for foreign investors in this respect?

Definitely.

How do you plan to attract these foreign investors?

Right now, we are not making a push for attracting foreign investors.
Foreign investors would like to have some clarity and certainty about the process and how this is going to be done etc. We do not want to have false starts, we have had some in the past and we would rather avoid them right now. We are waiting until we have the strategy well in place as well as all of the processes before we try to talk to foreign investors about coming and participating in these investment opportunities.

What is the privatisation agenda? Can you share with us some key figures about how much is going to be privatised?

The privatisation agenda as I said earlier is mainly centred on the telecoms sector and it will be Liban Telecom. The first step is to create Liban Telecom out of what today are Ministry departments. This process is called corporatisation. A public administration is transferred into a legal form, which would be a corporation 100% owned by the government in the first place. Once that is established we would be able to sell shares on the Beirut Stock Exchange or we would be able to sell a stake to a strategic investor. The size of that is very difficult to tell at this point, because it depends on the third following government´s policies. In principal if everything works well, we are supposed to have presidential elections at the end of this week whereby a new government will have to be formed, and then we are to have parliamentary elections in November after which a new government has to be formed again. Therefore, I cannot predict who will be the Ministers, and in Lebanon most of these decisions are controlled by the Ministers.

Lebanon is often viewed as an unsafe place for investment, would you say that it is safe to invest in Lebanon?

Absolutely, I think that it is very safe to invest in Lebanon. From a security perspective, the problems are usually localised and we don’t know of many major investments that would be in the areas that are typically hotspots in Lebanon. That is because everybody knows where the hotspots are and everybody avoids them. The rest of the country is peaceful and any investor can come on a visit for a couple of days and see this for himself or herself. We are not in such bad shape as the media usually depicts.

In terms of the investment climate today, we have many things that are very attractive to investors coming to Lebanon. We have subsidised loans that are offered to new companies, and we have a circular of the Central Bank that backs equity investments by banks into new IT start-ups, so if you are an IT start-up you can come to Lebanon where even your equity is subsidised. This creates many fantastic opportunities for investors. I think our loans are subsidised to the tune of almost 4%. There are also other incentives from IDAL (Investment Development Authority of Lebanon) and other institutions. You could even be looking at a negative cost of investment in some cases. I think that we have very interesting investment opportunities especially if you look at certain areas such as IT, media and everything that is knowledge industry related.

What are your market share targets and how would you define your strategy for the next three years?

That question is better asked to a corporate executive. In government, we wouldn’t look at profitability or markets.

It is very difficult to be perfectly honest for us at the Higher Council for Privatisation to decide on a strategy because the Council is part of government. I am the Secretary General of the Council, which is presided by the Prime Minister. The members of the board of the Council are the Ministers of Finance, Economy, Trade, Labour and Justice. The policy is not decided upon by the Secretary General, but by a ministerial committee that in effect is the Council. That policy changes with the change of government and like I said, we are supposed to have three different governments this year and so we are going to have three different policies this year. One of the things that we are trying to do through the PPP program and PPP legislation is try to establish a program that gives investors a longer term perspective and certainty of what is going to be in the pipeline, what projects are going to be tendered and so on. Unfortunately, without the legislation in place we are still not at that stage yet.

How would you define your major challenges and how do you operate facing constantly changing governments?

You respond to challenges by being flexible and by thinking outside of the box. I don’t think we are unique in that sense in Lebanon. Every businessperson in Lebanon has to be flexible and roll with the punches. It is a fantastic and very dynamic environment. Despite all of the problems that one can think of, somehow or other the economy is resilient, people survive, and businesses thrive. We have Lebanese companies now that are expanding in the Arab world and expanding in Africa. We have several multinationals now based in Lebanon. This is an amazing place.

What is your dream for Lebanon?

My dream for Lebanon is for the PPP legislation to be enacted because I can see so much infrastructure being built as a result. Through PPP, we will be able to build power plants, dams to harness our fantastic water resources, highways that we desperately need, underground parking lots for the city of Beirut and other forms of public transportation such as ferries between the coastal cities etc. There is so much to be done in infrastructure and I am very hopeful that our banks who now have more than 140 billion dollars in deposits could also benefit from this. It could also lead to a large number of jobs being created.
I can see a rosy future for Lebanon if we can enact the PPP legislation and if we can get some stability and I do think that we are going to achieve this.

Is there anything that you would like to add?

I would like to add that we are working on a concept for a special zone for the oil and gas sector to house the companies servicing the off shore platforms. I think that this zone will be very attractive to investors because they will be able to take advantage of certain tax breaks and easier customs regulations. We are hoping that this will be a zero tariff zone. We are working on this already and I think that if we can achieve this then we will be in very good shape.