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Lebanon’s chocolate makers: A bittersweet industry
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By Dana Halawi The Daily Star


BEIRUT: In its heyday, Lebanon was known as “the Switzerland of the Middle East,” but the similarities between the two countries today go beyond picturesque mountains and a tradition of discreet banking policies: Both countries are carving out a reputation for themselves in the art of chocolate making.

Since 1819, Swiss chocolate has been recognized as a world standard which other countries can only dream of attaining. Meanwhile, Lebanon ranks as the top country in the Middle East in the field of chocolate manufacturing.

In fact, Lebanon’s chocolate makers have earned regional recognition to the extent that countries such as Saudi Arabia, Egypt, Jordan and the United Arab Emirates are importing products from Lebanon despite the higher cost of production in this country.

“The Arab market relies heavily on the chocolate produced in Lebanon because of its good quality and taste,” said Ahmad Ismail, partner at Net Group Distribution which specializes in the production of chocolate and its distribution in the local and Arab markets.

Ismail said the cost of production in the Arab market such as Saudi Arabia might be lower but the “Made in Lebanon” label is much more attractive to the Arab market than any other labels.

Ismail admits that Patchi’s worldwide success gave the Lebanese chocolate industry increasing popularity.

Patchi is a chocolate brand from Lebanon established by Nizar Choucair in 1974.

It offers high end products that are considered among the best in the world. The company has more than 140 outlets in 35 countries and produces chocolates that blend Swiss and Belgian styles.

“We have a huge factory in Saudi Arabia where we manufacture the same kinds and quality of chocolate produced in Lebanon. But people prefer to buy their chocolates from our Lebanese branches and factories because of our country’s reputation in manufacturing high quality products,” said Nizar Choucair, Owner and founder of Patchi.

Despite the great popularity of the Lebanese chocolate industry throughout the Arab world, chocolate producers interviewed by The Daily Star expressed their concerns over the challenges faced by the industry.

Some even doubted whether the industry has the capacity to survive without gaining support from the Lebanese government.

“If the government does not give enough attention and support to the Lebanese industry, then there will be no future for this sector when the situation in the region stabilizes,” said Choucair.

Choucair, like other chocolate manufacturers, complained about electricity shortage, high labor cost and the lack of industrial zones, as well as other constraints that prevent the industry from growing and maintaining its top position in the Arab market.

“Our factory in Saudi Arabia is three times bigger than the one we have here, but the electricity bill that we pay in Saudi Arabia does not exceed $5,000 per month, while in Lebanon we pay over $50,000 on electricity,” said Choucair.

He said that Patchi used to export 50 percent of its production from Lebanon but today his factory focuses on exporting chocolate from Saudi Arabia to the rest of the world because of the lower cost of production in that country.

According to statistics provided by the Chamber of Commerce, Industry and Agriculture, the total imports of chocolate products to Lebanon reached $63.5 million in 2010 while total exports amounted to only $28.6 million.

Choucair’s complaints were echoed by NGD’s owner, who said that the electricity bill constitutes 4 percent of his factory’s expenses. “This is considered to be huge,” he said, adding that electricity costs in other Arab countries is negligible.

Ismail also complained about the lack of support from Lebanese banks.

“We tried to participate in the Kafalat Plus program which gives an 85 percent guarantee on the loan given by the bank considering that the latter would guarantee the remaining 15 percent of the loan,” he said. “However, we failed to do so because the bank asked us to provide it with a collateral covering 100 percent of the loan, which is considered to be illegal.”

“Why would I think of taking a loan from a bank if I had collateral that is worth $400,000 for instance?” he asked.

Other manufacturers complained about the high cost of labor in Lebanon. “Most of our employees get paid a monthly salary of $500 which does not cover their expenses but on the other hand, such a salary is also considered to be burden for us because of our slight profits,” said owner of Chopin Ali Ismail.

Ali Ismail is considering shifting his line of production to Saudi Arabia while minimizing his manufacturing activities in Lebanon. “The cost of production is too high in Lebanon and my profits do not exceed 10 percent while profit in Saudi Arabia reaches 30 percent,” he said.

Ali Ismail added that the Saudi government does not impose customs on raw materials imported from the Arab region while only a 5 percent tax is applied on raw materials imported from European countries if the importing factory does not have an industrial certificate. “We are now working on opening a factory in Saudi Arabia and we already have one Qatar,” he said.

Lebanese chocolate factories contribute to creating job opportunities for a good number of Lebanese citizens. Chopin has around 70 employees and NGD employs over 40 laborers while 2,000 families earn their livelihood from Patchi in Lebanon. With hundreds of other chocolate factories in Lebanon, the industry employs thousands of Lebanese laborers.

“The government must change its policies and give some support to the Lebanese industry because when factories close their doors, unemployment will increase,” Ali Ismail said.

“Other countries will then benefit from the additional job opportunities created when Lebanese factories open on their lands,” he added.

Other factories such as La Roche owned by Mohammad Taha do not even employ Lebanese laborers due to the high wages they demand.

“We tend to employ Iraqi or Syrian laborers since we can pay them half the salary we pay to a Lebanese,” Taha said.

Taha also complained about the lack of skilled labors available.

“We do not have programs that teach technical skills to laborers,” Taha said. “Most of the time, we feel obliged to bring technical people from outside Lebanon at our own expense for us to provide our laborers with certain skills.”

According to a Working Paper by the International Monetary Fund in 2010, electricity constraints in addition to a skilled labor shortage and insufficient access to finance for businesses are costing the Lebanese economy up to 4.3 percent in real per capita GDP growth per year. It added that electricity constraints are the major obstacle to growth identified by businesses in Lebanon. It also noted that 61 percent of firms in the country consider electricity shortages to be a major obstacle to their production, which is similar to the West Bank and Gaza’s figure of 64 percent, and is much higher than in other economies in the region that either have a high population or lack natural resources.

Taha also said his factory suffers from a shortage in electricity supply. “We feel obliged to pay the electricity bill and an additional bill for diesel for the operation of our generators,” he said.

He believes that one of the major drawbacks of operating a chocolate factory in Lebanon is the lack of an industrial zone.

An industrial zone is an area planned for the purpose of industrial development. It is usually located outside the main residential area of a city and is normally provided with good transportation access. It usually provides industrialists with facilities such as low rental costs, security services, 24 hours of electricity service and many other perks.

“We need to move to an industrial zone because we are operating our factory in the middle of the city and whenever we want to ship products we bother our neighbors,” he said. “Moreover, we need the facilities provided by such a place.”

A version of this article appeared in the print edition of The Daily Star on August 08, 2011, on page 4.

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