Travel Markets Insider / April 2005
By Larry Luxner
Ciudad del Este — a traffic-choked, dusty city of 240,000 — is enjoying a tourism renaissance as it tries to shed its reputation as the contraband capital of Latin America.
During a recent visit there, Travel Markets Insider saw trucks, bicycles, pedestrians and two-wheeled "moto-taxis" clogging its streets, along with children hauling huge boxes of merchandise and seedy sidewalk kiosks selling everything from umbrellas and cheap cellphones to fake Rolex watches made in China.
But the ultimate irony of Ciudad del Este seems to be the Puente de la Amistad (Friendship Bridge) that links it to Foz do Iguaçu, its Brazilian sister city on the other side of the Río Paraná. Although customs and immigration inspectors are prominently stationed at both ends of the bridge, they typically stop only one or two of every 10 vehicles, meaning few tourists are ever asked for passports or visas.
And if you cross the bridge on the back of a moto-taxi like we did — it only costs a dollar — chances are you won't be stopped at all.
U.S. authorities consider the entire Triple Frontier area "a haven for drug and arms traffickers, smugglers and counterfeiters." And the U.S. State Department's April 2001 report on global terrorism depicts the area as "a focal point for Islamic extremism in Latin America."
According to the Los Angeles Times, "until a recent slump, Ciudad del Este's retail economy ranked third worldwide behind Hong Kong and Miami in volume of cash transactions, peaking at $12 billion in 1994."
For years, Ciudad del Este's freewheeling spirit has attracted two types of shoppers: Brazilians who flock here looking for bargains on cheap, mass-produced goods like toys, kitchen utensils, household items and electronics, and foreign tourists — mainly upper-class Brazilians and Argentines — who after vacationing at nearby Iguazu Falls stop in Ciudad del Este to buy luxury goods at duty-free prices.
Dominating that upscale market are two Ciudad del Este retailers, both of Lebanese descent.
The first is Mohamad Said "Alex" Mannah, who along with his brother Atef owns three of Ciudad del Este's most important border stores: La Petisquera, Frontier and Mannah. The second are the Hammoud brothers, whose company, Grupo Monalisa S.A., operates an eight-story luxury goods emporium on Avenida Monseñor Rodríguez in the heart of Ciudad del Este, just a two-block walk from Mannah's office.
Officials of both companies say the improving economies of Brazil and Argentina have sparked an unexpected business boom. Also helping Ciudad del Este's recovery are very recent pronouncements by U.S. Secretary of State Condoleezza Rice claiming there is no connection between the "Triple Frontier" region and Middle Eastern terrorist cells, as has long been suspected.
"Last year was much better than 2003," said Maria Dulce da Silveira, director of marketing at Grupo Monalisa S.A. "Before 1998, this was a paradise for business, and then sales dropped by 40%. But things are finally coming back now."
Silveira said that 500 to 600 people enter her store on an average weekday.
"The people who come to our store are totally different than the ones who shop on the street," she said. "These are people who come by plane, stay four or five days in the city, at five-star hotels. They're what we call real tourists. The other ones are called sacoleiros, people who carry bags in the street."
Added Mannah: "This year, we're expecting 600,000 people to cross the border into Ciudad del Este. "Our objective is to continue looking for new luxury items, to be able to attend to our level of clientele."
Mannah and his brother, originally from the Lebanese village of Ba'aloul, "formed the company the same day we came to Paraguay" in 1972, he told Travel Markets Insider during a recent interview at his office overlooking the city.
The store was first named "Nueva York," but eventually Mannah changed the name to "La Petisquera." In the beginning, it was half-restaurant, half-grocery store. He entered the duty-free business, he said, "because of Ciudad del Este's geographic location, and because of the necessity of supplying merchandise for border shopping."
Paraguay is a bargain for shoppers because it has no local industries to protect. Hence, it can afford to have much lower duties than Argentina or Brazil.
"A bottle of Johnnie Walker is 30-35% more expensive in Brazil than here," said Mannah, noting that in São Paulo, Johnnie Walker Black goes for $33, compared to $23.40 in Ciudad del Este. "With perfumes, the prices are basically the same, but the selection is a lot larger in Ciudad del Este. This is like a shopping mall, where you can find all the brands of perfume you want. Only in a few places in Brazil can you find such a selection."
Like most business owners in Ciudad del Este, Mannah actually lives across the border in Foz do Iguaçu and commutes to work every day over the bridge. He says that "99% of the people who come here are Brazilians," most of them sacoleiros who would never enter his stores.
Previously, Brazilians crossing the border into Paraguay could buy up to $500 worth of goods in Ciudad del Este. Because of the Mercosur customs union, that was later reduced to $250, then $150. Even so, says Mannah, "Ciudad del Este is still a good business for the sacoleiros. It was always a good business for them."
Mannah says his biggest sales are in liquor (50%), followed by perfumes (35%). The remaining 15% of sales are mainly in electronics and accessories. He sells 250,000 cases of liquor a year, mainly Johnnie Walker (black and red labels), White Horse, Cutty Sark, Grant's and Chivas.
Around 80% of the liquor Mannah sells is for the border trade; the remaining 20% is sold within Paraguay to local Paraguayans.
Mannah is the exclusive Paraguayan distributor of at least three perfume brands: Versace, Ferrari and Pierre Ellis. He's also the exclusive importer and distributor of Absolut Vodka, Jim Beam whiskey, Herradura tequila, Cutty Sark and other brands such as Drambuie and Marie Brizzard.
"We are very interested in increasing local sales through long-term credit and the opening of new stores," he said. "We have a central distribution center in Asunción, and another one in Pedro Juan Caballero [along Paraguay's northern border with Brazil]. We are now negotiating to reopen a duty-paid store at Ciudad del Este's international airport. We had the store before and there was little traffic. But we see a potential for growth."
Luís Lovato, commercial manager at Monalisa, said efforts by city officials to plant trees and remove unlicensed vendors from the middle of the street have paid off.
"Ciudad del Este is getting less chaotic, so the tourists are starting to come back," he said. "Just the fact that the municipality is doing something for us is important. They were always saying the city should be improved, but nothing happened until now, and people can see that."
Monalisa, which doesn't release sales figures, says 60% of its revenues come from Brazilians and 40% from Paraguayans, other South American visitors and Europeans.
The company was founded by Faisal Hammoud as a small retail store in 1972, when Ciudad del Este was still known as Ciudad Presidente Stroessner, in honor of Paraguay's then-dictator Gen. Alfredo Stroessner. After the strongman was overthrown in 1989, the city was quickly renamed Ciudad del Este.
That same year, Monalisa opened its first centralized distribution offices and established Home Deco, an in-house company for manufacturing showroom furniture. In the early 1990s, Monalisa opened an overseas office in Miami and completely remodeled its flagship store in Ciudad del Este.
In 1994, the Hammoud brothers launched their Aphrodite Boutique chain of luxury retail stores; there are now half a dozen outlets in Paraguay, Uruguay and Brazil, including stores at the Mariscal López shopping mall in Asunción, the Conrad Hilton in Punta del Este and the Maksoud Plaza Hotel in São Paulo.
Today, Faisal Hammoud is the president of the group, Sharif Hammoud is vice-president and store manager, and Sadek Hammoud is Monalisa's executive vice-president.
Monalisa, which also runs a travel agency and an Internet access company, boasts the widest selection of luxury goods in Ciudad del Este — ranging from $20 wallets to $35,000 Cartier watches. The most expensive items in the store can be found on the second floor, near the Baccarat crystal display: three Steinway pianos priced at $45,000 each.
But is Ciudad del Este truly duty-free? Not quite, concedes Monalisa officials.
"Many years ago, it used to be duty-free, but it's not really anymore because we pay some taxes on imports," explained Silveira, who's been working at the store for 19 years. "But they say we're duty-free because we're surrounded by Brazil and Argentina, where duties are much higher, so we still have some advantages."
Silveira estimated that perfumes account for 60% of Monalisa's sales. Another 20% come from accessories, watches and jewelry, 10% from leather goods, 5% from liquor and 5% from clothing. The store stocks more than 60 brands of perfume, with the most popular brands beng Dolce Gabana, George Armani, Ralph Lauren and Jean Gautier.
"Most of the women who shop in our store are used to traveling. They've seen these perfumes in Europe and then buy them here," she said.
In the good old days, before currency devaluations in both Argentina and Brazil, Monalisa had 500 employees — double the amount it has today.
"Argentines would order three or four of something without asking the price," recalled Luís Lovato, the store's commercial manager.
After Brazil devalued its real and Argentina slashed the value of its peso from a dollar to 35 cents, business dried up and more than half of Ciudad del Este's retail shops went out of business. It also hurt the Paraguayan economy, since the city's retail business accounts for nearly 40% of Paraguay's total annual tax revenues.
Faisal Saleh is president of the Instituto Polo Internacional Iguassu, whose mission is to boost tourism to the region, which consists of nine cities in three countries: Puerto Iguazu, Puerto Esperanza, Puerto Libertad and Wanda (Argentina); Foz do Iguaçu (Brazil) and Ciudad del Este, Hernandarias, Minga Guazú and Presidente Franco (Paraguay).
Together, these nine cities have nearly 800,000 inhabitants, and in 1998 attracted 2.3 million visitors.
"We saw a steep drop in recent years, a drop of almost 60%, but it's coming back now, and last year, we received two million tourists. We're expecting a 15% jump in tourism in 2005," said Saleh, who runs an electronics shop about three blocks from Monalisa.
Foz do Iguaçu alone has 18,000 hotel rooms, of which 70% are in four- and five-star properties. Because of its proximity to the falls, the city ranks as Brazil's third-largest tourist magnet, with average room rates of around $55.
"Traditionally, Paraguay has never had any development plans for this zone, which we consider essential for tourism. Now we're constructing a new reality," he said. "Almost $25 million in new tourist infrastructure is being invested this year, and city officials are making Ciudad del Este more beautiful by removing street vendors and creating parks."
Something else that could help Ciudad del Este a boost is a recent pronouncement by U.S. Secretary of State Condoleezza Rice that the city has no link to Hezbollah terrorist cells. This followed a visit to the region last August by Steven Monblatt, executive secretary of the Organization of American States' Inter-American Committee Against Terrorism.
However, prosecutors investigating the 1994 car-bombing of the Buenos Aires headquarters of AMIA, Argentina's largest Jewish organization, refuse to rule out a possible Hezbollah-Ciudad del Este connection.
In fact, Alejandro Rúa — a top official of Argentina's Ministry of Justice — told a Buenos Aires newspaper that evidence continues to point to the presence of a Lebanese or Iranian-backed Hezbollah cell in the Triple Frontier area, and its involvement in the terrorist attack in which 85 people died.
This kind of speculation clearly infuriates Mannah, one of 20,000 Arabs in the region.
"These rumors have caused a lot of damage to Ciudad del Este's image. This was one of the reasons why sales declined," he told us. "All the bad news that comes out of the Triple Frontier area worries those who live here. It's lucky for us that they haven't proven anything. The same people who four years ago said there were terrorist cells in the Triple Frontier area are now saying they don't exist."
Added Saleh: "We are a very hard-working community. Arab people came here because of wars and instability in their own countries of origin. There is no proof of any fundamentalist activity within the Muslim community here, and no one has ever found evidence that could justify this claim."