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CAIRO-While the prospects for a lasting peace in the Middle East swing unpredictably from dismal to promising, the positive momentum that the peace process has ignited is lifting the region's ad industry out of decades of uncertainty.

An improving political climate and ongoing efforts to relax regulations are encouraging an appetite for consumer goods. As a result, more multinationals are being lured to launch their products in the Arab countries and Israel.

"The Gulf states have traditionally had the stronger purchasing power, but in light of economic developments and the peace process, other markets are emerging and this part of the world is a growing market overall," said Caroline Greiss, general manager of DDB Needham here.

"Making more products available is making the advertising and marketing industry flourish," said Joe Ayache, chief operating officer of Saatchi & Saatchi Advertising Middle East BD&A (Brand Development and Advertising) for Egypt, Jordan and Lebanon. "Three or four years ago there wasn't a consciousness by the advertiser that he needs to be competitive," he said. "They were in a market where you could sell anything you had."

But now, with increased competition, Mr. Ayache said, "there is a more serious approach to building a brand and marketing a brand. There is now a basic need for [large] professional advertising agencies to market them and form long-term strategies. This will improve the quality of advertising in the Middle East."

"The market in the Middle East is maturing," said Najam Khawaja, who was appointed to the new post of regional manager for DDB Needham in the Middle East at the five-year planning session for the agency's regional network held here in March. "Advertising is becoming a more serious part of the marketing mix, and the agencies that will survive and grow are those that will give good creative to clients and develop their brands."

Gil Feiler, owner and managing director of the Tel Aviv-based Info-Prod Research Middle East, a business analysis consultant specializing in Arab markets and Middle East economic development, is one of many regional business people confident that the peace agreements between Israel and the Palestinians and between Israel and Jordan have created an ideal opportunity for multinationals. "They have to pinpoint the right sectors, though," he noted.

"General projects, like a combined electricity grid in the Middle East and the development of the Jordan River Valley, are more rhetoric than practical projects," he said. It is more prudent, he added, for multinationals to focus on private sector business.

Nevertheless, building infrastructure where it doesn't exist, and modernizing where it does, remain important concerns for potential advertisers. At present, the Arab states combined attract $120 billion in imports per annum to its fast-growing population of 233 million (every 25 years the population doubles). Also adding to favorable marketing conditions are the increasing standard of living; the governments' relaxed investment legislation; and ongoing privatization in all of the Arab countries, even Syria.

All of this makes the region ripe for more foreign investment, said Mr. Feiler.

A good litmus test for the viability of the region for advertisers is Leo Burnett, the agency network with perhaps the longest sustained presence in the region, and which recently brought clients Kellogg, Procter & Gamble and Philip Morris to new Middle East markets.

Staying in the region through difficult, violent periods kept the agency better positioned for gathering business than competitors who left, said Group VP Kerry Rubie. Burnett, which kept its regional headquarters in war-torn Beirut from 1981 to 1988-until political instability forced the network to move the regional headquarters to Dubai-also kept its Kuwaiti market clients through the Gulf War, handling them temporarily from Jeddah.

BBDO recently bought into a Tel Aviv agency, Gitam, now Gitam/BBDO. "The Israeli market itself is a relatively small market, but one assumes .... that Israel will be a larger force than the size of the market itself, and involvement with neighboring countries in commerce will be more important than the size of the population," said BBDO Chairman, CEO and Director Allen Rosenshine.

Most of BBDO's international clients are already in the Middle East, including Pepsi-Cola and Delta Air Lines, and a presence in Israel does not preclude BBDO's presence in any Arab neighbors, he said.

Mr. Rosenshine's long-term projection for the region is mostly sunny. "Ten years from now I think you'll be looking at the Middle East the way we see the Asia/Pacific and Latin American regions today-and maybe even more stable than they are."

One of Gitam/BBDO's newest clients is Haagen-Dazs Israel, whose license holders recently announced a $600,000 ad campaign to launch the designer ice cream in Israel in May.

The Middle East is particularly attractive, Mr. Rubie said, because it did not suffer significantly through Europe's recent recession. "There's an increasing middle-class community capable of buying value-added goods. And that's really what we're all about."

The proof is in Burnett's regional billings, which rose 13% last year to $63 million from $56 million the previous year.

Ad executives are quick to point out, however, that the industry is in varying stages of development, depending on the country.

Egypt, Israel and Lebanon are currently witnessing an advertising boom, with Jordan expected to follow suit within the next couple of years. Its peace treaty with Israel opens up its borders to multinational companies. In the Arab Gulf states, advertising spending is expected to reach a record $727 million in 1995, more than double the amount spent five years earlier, although the rate of growth there is slowing, according to Fortune Promoseven, a Bahrain-based agency.

At the other end of the spectrum is Syria, which has been slow to privatize, has suffered from years of warring with neighbors Israel and Lebanon and is still in an embryonic stage. Infrastructure is still badly needed there, as well as in the Palestinian territories and Jordan, before those markets can flourish.

Still, one Mideast-based marketing group, Publi-Graphics, has prospered for the last 22 years, representing multinational companies such as Eastman Kodak Co., Johnson & Johnson, Toyota Motor Corp., Sharp Electronics Corp. and Brazilian meat producer Sadia. Publi-Graphics, headquartered in Beirut with offices throughout the Arabic Mideast as well as London and Paris, is enthusiastic about the region. "The per capita consumption is twice what it is in Europe," said Joff White, regional client service director in London. He said he didn't know if it's because people use more shampoo because of the sand or drink more soft drinks because of the heat, but he believes the prospects are bright for the region.

Similarly, in Israel, the mood is cautiously optimistic following the announcement last September by the Arab Gulf States that they would abandon the 48-year-old Arab League boycotts against Israel. These countries import an estimated $43 billion worth of goods each year, making them the most desirable potential economic partners for Israel of all the Arab League countries. Meanwhile, agencies in Jerusalem and Tel Aviv are busy frantically turning out TV commercials following the smash success of the first year of TV advertising in Israel.

In 1992, the last full year without commercial TV, print ads garnered $560 million, or 57.5% of the $832 million spent on ads, marketing and public relations. Last year, total advertising expenditures in Israel came to $1.14 billion, up from $972.3 million in 1993, according to the Advertisers Association of Israel. Of this, 49% went to ads in daily newspapers; 20% to ads on Channel 2, the commercial TV station; 10% to billboard advertising; 10% to local newspapers; 7.5% to radio; and 3.5% to weekly and monthly magazines.

More recently, the Israeli Communications Ministry awarded the tender for a local shopping channel to be operated via Israel's cable TV system to a business consortium, CID. The group will spend $6 million to start the 24-hour station, slated to bring in about $33 million in sales in its first year, starting within six to eight months. Surveys indicate the Israeli public is most interested in buying housewares, electronics, car accessories and do-it-yourself products via the shopping channel.

In Egypt, the first Arab country to make peace with Israel, in 1979, the latest peace-making is also having a beneficial effect. "Egypt has been developing into a market economy, a consumerist economy, and the peace process can only help with this," said Mr. Ayache. "For Lebanon, it is the reconstruction of the country that is making the wheel turn. For Jordan, it is the peace process directly."

Unlike Egypt, where private sector companies nationalized in the 1950s and '60s are being privatized and import and investment barriers are coming down, Lebanon has always been a free market economy. "The problem in Lebanon has been the credibility of the country due to 20 years of war and the reconstruction," said Mr. Ayache.

Washington-based MCI Communications, with offices in most Middle East markets, is distributing calling card products, messaging services, private lines and video conferencing to the region, with marketing handled by local distributors in Lebanon, Jordan, Israel and other markets.

And MCI is bullish on the rest of the Middle East as well. "We're looking at new markets [here]," said Jane Levene, senior manager-overseas communications. "We're hoping the Palestinian area will open up soon ....but we're not thinking we need to budget for that this year."

Agecies elsewhere are expanding to serve advertisers' growing demand. Bozell Worldwide handles Chrysler through Dubai, Cairo and Tel Aviv offices. Saatchi & Saatchi recently opened offices in Riyadh and Jordan and plans to open offices in Cyprus and Syria this year.

Burnett is eyeing Syria, Lebanon and Israel for agency affiliates, Mr. Rubie said, and may have an Israeli affiliate within six months.

DDB Needham Worldwide expects to expand into Oman and Jordan this year. Minara Marketing & Design, a London-based company, opened a branch office in Jeddah to assist Saudi Arabian clients to develop new brands and corporate images, and plans to expand operations in the Gulf this year.

Local networks, including the Bahrain-based Fortune Promoseven agency and Lebanese-based Intermarkets also are expanding.M

Todd Pruzan and Margo Lipschitz Sugarman contributed to this story.

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