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Economics & PolicyLebanese Healthcare

Public healthcare on the brink

by Joe Dyke April 14, 2014
written by Joe Dyke

“I don’t know how no public hospitals have shut down until now. I am very surprised they are all still open.” So says Walid Ammar, director general of Lebanon’s Ministry of Public Health (MoPH) for the past two decades. He argues that the scale of the Syrian refugee influx in the past two years — at nearly a million registered (roughly 25 percent of the Lebanese population) — has stretched the sector to the point of collapse.

While Ammar could perhaps be prone to overstating the scale of the problem when talking to the media, health sector and economic experts agree that the crisis in many parts of the healthcare system is acute. In a study conducted last year, the World Bank concluded that “the increase in demand for health services caused by the Syrian conflict is straining Lebanon’s health system.” In total, the report said, the additional financial burden of healthcare on the state from the beginning of 2012 until the end of 2014 will reach at least $92 million.

Fouad Fouad, a Syrian professor of health at the American University of Beirut, agrees hospitals could face bankruptcy, and expects that unless additional support is forthcoming, ministers in the newly formed Lebanese government could scale back support for Syrians. “I think either hospitals could close or they could even stop Syrians from entering public hospitals,” he says.

A chronic disease

Government officials may find it simple to blame the Syrian refugee influx alone for the crisis in the public healthcare sector, but the sicknesses in the system date back to before the first flag was raised in anger against Syrian President Bashar al-Assad.

The purely public sector has long been underfunded, as the MoPH has often preferred to support private institutions. Wealthier Lebanese generally have private healthcare insurance.  Public hospitals are thus only a small fraction of the healthcare sector in Lebanon — representing 20 of the country’s 163 hospitals and around 15 percent of the hospital beds, according to a 2013 Banque Bemo report. In 2011 the MoPH received just 2.7 percent of the government’s budget.

Chart: Syrian war cost to Lebanese health sector

Yet this reliance on the private sector belies a desperate need. According to the 2007 National Survey of Household Living Conditions, 51.7 percent of Lebanese people have no healthcare insurance at all — thus leaving them in theory under the responsibility of the MoPH. Uninsured patients are supposed to pay 5 percent of the bill in public hospitals and 15 percent in private ones, with the ministry covering the rest.
For decades, however, these payments have been either severely delayed or not forthcoming at all — pushing the cost burdens entirely onto the hospitals. As such, many institutions have been saddled with crippling debts. Private hospitals have been able to counterweight this with fee paying customers, something impossible for public bodies. “It was the case before the influx of the Syrians — [public hospitals] have always been in debt as the government is unable to pay on time,” Salim Adib, a professor of epidemiology and public health at the Lebanese University, says. “Now there is an additional critical burden [with the Syrian refugees] so it has become more acute.”

Angelina Eichhorst, EU ambassador to Lebanon, agrees that successive Lebanese governments have failed to provide sufficient funding for the healthcare sector. “It is a problem that goes back before the [Syrian] crisis. If you look at public hospitals, there is an under-funding issue,” she says.

Coping with the Syrian influx

Onto an already bust system have been thrust nearly a million registered Syrian refugees. While primary healthcare for them — largely simple processes including medication, medical tests and consultations — has often been dealt with directly by UNHCR and affiliated charities, secondary healthcare — more complicated responses to diseases that usually involve hospitalization — has had less direct support from international organizations. Indeed, UNHCR literature stresses that they “prioritize primary health care, so as to decrease the reliance on secondary and tertiary health care services.”

Until December last year, the NGO International Medical Corps (IMC) was responsible for the admission and payment for those hospitals that treated Syrian refugees. Colin Lee, country director of the charity, explains the scale of the growth. “Before 2011 we had about 140 cases a year from the Iraqi [refugees from the 2003 war]. In the whole of 2012 we had 2,500 cases through the hospital system, then in December 2012 the numbers of Syrians [in Lebanon] went through the roof and we were averaging over 2,600 cases a month last year.”

Payments for these treatments, he says, took place three months after the operation on average. And for hospitals trying to balance books, a decision by UNHCR in the middle of the year made it even harder; as funding has consistently been lower than expected, the agency reduced the share of Syrian refugees’ hospital bills they pay from 85 to 75 percent.

In theory, the hospitals are supposed to demand the remaining 25 percent from the Syrians themselves but Lee admits that in practice many have given up. “The hospitals very often will waive [the 25 percent] and take the hit on that,” he says.

More fundamentally, as UNHCR’s support is defined strictly for life-saving operations, including childbirth, many longer-term diseases are not covered at all. MoPH’s Ammar gives the example of dialysis as a form of treatment that is not supported by the international community but which the Lebanese state offers to refugees. He says that just dialysis treatment for Syrians is costing the Lebanese public health sector $1.3 million a year.

He points out that private hospitals can turn people away if they cannot pay for services, but public hospitals cannot. A 1991 agreement between Lebanon and Syria pledges “the highest degree of cooperation and coordination” on health matters. In practice this has meant Syrians have usually been able to access services in Lebanon on the same terms as the local population.

“The private sector can manage to avoid admitting cases unless they are life threatening. But when they refer the cases to the public hospital they cannot avoid admitting them. So the public hospitals are suffering the most,” Ammar says.

The largest public healthcare institution in the country is Rafik Hariri University Hospital — founded in 2004. The body has long been rocked by financial concerns, as well as allegations of corruption. In recent months it has been short on key medications, and embroiled in ongoing disputes with staff over pay.

Chart: Needs of Lebanese health system

Ammar accepts that the institution was not perfect before the crisis, but argues that the treatment of Syrian refugees has directly increased its deficit by $6 million. Executive was not able to independently verify Ammar’s figures.

Age-old problems

Putting the system back to together requires, as ever, plenty of the green stuff. The World Bank report says that merely to return the healthcare system to the same quality as it was before the crisis would cost $431 million. This includes both the public and private sector. Ammar certainly agrees that international actors should do more to support such plans. “The international community is responsible [for the Syrians],” he says. “We need more support from them.”

Unfortunately, there are justifiable concerns on the part of international donors that make them hesitant to back the system. A recent report from the British think-tank Chatham House found many donors thought state institutions were too corrupt to manage funds effectively, and charity heads are often loath to go through bureaucratic and non-transparent state bodies. This, coupled with the fact that the country went eleven months without a government, has reduced the potential willingness to provide monetary assistance.

This reluctance to back the government financially has been patently clear in funding trends. In a joint appeal for 2013, UNHCR and the Lebanese government asked for more than $1.6 billion to support Syrian refugees in the country. The UN’s nearly $1.2 billion was 44 percent funded, but the $450 million that was supposed to go to the government directly received no funding at all.

International charities have built parallel systems — either supporting pre-existing private institutions or directly setting up their own healthcare networks. AUB’s Fouad thinks that the longevity of the crisis means a shift away from this is now needed. With the scale of the destruction in Syria now enormous, even if the war were to end it is clear that the majority of refugees would likely remain in Lebanon for the foreseeable future. “[Ignoring the public sector] is a vicious circle. You can’t give public hospitals money as they are inefficient and corrupt, but without money they can’t do the services they need to,” he says. “We need to change this approach.”

There are early signs that international players are reaching the same conclusions. Last month, British ambassador Tom Fletcher took to the social networking site Twitter to announce that they were seeking to offer more support directly to Lebanese public services.

Amanda McLoughlin, Lebanon development representative of the UK’s Department for International Development, says that they will seek to refocus their support to help local systems. She admits that there has perhaps been too much going around the government in the desperate rush to aid Syrians fleeing the civil war. “By setting up parallel systems you therefore do undermine a national system. We see that in every part of the world that we work in and we try to avoid doing it over the long term,” she says. “In humanitarian crises you have to set up parallel systems over the short term, but to try and continue that model is not good for the host country.”

Cutting back

The alternative way to reduce the burden on the state would be to cut back on services that are offered to Syrians. This is extremely difficult in a situation where many have nothing at all and where a few dollars can make a huge difference. Yet IMC’s Lee thinks that three years into a crisis that has had a negative impact on Lebanon’s poorest, the need to normalize healthcare services to make them fairer for local residents, especially those hosting refugee populations, is great.

“A lot of people have paid lip service to this host population idea but little [has happened]… Some refugees receive free consultations and medications, others have a nominal fee of $2, but poor Lebanese people have to pay $6,” he says. “100 percent provision of free services is not sustainable and it is sending out the wrong message to the Lebanese. We have to do a bit more for the Lebanese population and the health sector is one area where we can do that.”

AUB’s Fouad agrees that the Lebanese state is carrying too much of the burden. “There is a need to change the mechanism of how to accept Syrians. We need to change the policy of support among Syrian refugees that means to support the Ministry of Health rather than NGOs and private hospitals. This is one option that is being discussed. We all know this is a long lasting crisis and to just keep fueling the private hospitals and NGOs is not going to be the solution.”

In recent months, Lebanon has sought, without much success, increased funding from the international community. The recent Paris-based meeting of the International Support Group for Lebanon achieved many proclamations of support, but few real pledges.

Whether or not we will see the first Lebanese public hospital going bankrupt in the coming years is likely to depend less on the actions of the new government in Beirut than on those outside. While the Lebanese government could do more to assuage doubts by cracking down on corruption and inefficiency, ultimately more funding is needed from outside sources to keep the health care system’s heart ticking.

April 14, 2014 0 comments
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Finance

Arab Stock Markets: Week 15 in review

by Thomas Schellen April 14, 2014
written by Thomas Schellen

Overview

The United Arab Emirates and Qatar were lead performers in the Middle East and North Africa (MENA) last week, showing gains of above three percent for Abu Dhabi Exchange, Dubai Financial Market and Qatar Exchange. The four other GCC bourses showed gains of less than one percent in Bahrain and Oman, a flat week in Kuwait and a drop of half a percent in Saudi Arabia.

Across MENA, seven markets were up, three were flat with index changes of 0.2 percent or less, and two ended the week lower. The most notable gainer outside of the GCC was the Egyptian Exchange; while the underperformer of week 15 was the Beirut Stock Exchange (though the drop was less than one percent).

Arab index performace

The Gulf

The Qatar Exchange rallied in week 15 and the QE Index closed on April 10 up 3.6 percent from April 6. The index ended the week just below another 5-year high reached intra-day on Thursday. On two of the week’s trading days the Doha market saw volumes of more than 20 million shares for the first time in 2014. With most companies scheduled to announce their first-quarter results between now and the end of April, Doha-based analysts expect that the market will remain vigorous.

The Dubai Financial Market had a similar week – with overall gains and a new peak. The DFM General Index rose for another week and closed with a 4.7 percent gain and was up around 45 percent for the year to date. Widening its year-to-date (ytd) increase by more than 12 percentage points in the first two weeks of April alone, Dubai’s performance in 2014 is approaching frightening dimensions.

The Abu Dhabi Exchange likewise had a strong week. From a gain of 40 points on April 6 the index progressed to add more than 100 points on April 10, for a total weekly increase of just over 5 percent.

Besides expectations of corporate earnings announcements that fuel investor appetites, the narrative of the three buoyant bourses includes anticipation of new foreign financial investment inflows when Morgan Stanley Capital International (MSCI) will begin including the UAE and Qatar in their Emerging Markets category of indices, most likely on June 2.  The upgrade from frontier market status, long coveted by the operators, was announced in June 2013.

Listed companies in the UAE and Qatar, such as real estate firm Deyaar and several banks, are expanding the stock percentage accessible to foreign investors. Deyaar, which announced on April 5 that shareholders approved allocating 25 percent of share capital to foreign investors, cited the MSCI upgrade as reason for the decision.

Yet at the same time, there are suggestions that long-term investors harbor enduring skepticism on emerging markets. The International Monetary Fund for example says in its April 2014 edition of the Global Financial Stability Report that “changes in the composition of investors are likely to make portfolio flows to emerging market economies more sensitive to global financial conditions.”

According to the Institute of International Finance’s (IIF) capital markets monitor for April 2014, moreover, gains of frontier markets in MSCI Indexes recently outshone the performances of MSCI indices for US, other developed and emerging markets. As the IIF also notes, price to earnings ratios of frontier market equities have risen above PE ratios in emerging markets. In other words, the investor appeal of frontier markets may have started to edge away from the status of under appreciated wallflower.

Of the GCC markets not affected by the MSCI status upgrade, Saudi Arabia’s Tadawul showed the greatest sluggishness in week 15, with a 0.5 percent drop in the TASI. The Kuwait Stock Exchange Index added just over one point net in the course of the period, for a gain that was statistically imperceptible. The country’s top bank, National Bank of Kuwait (NBK) announced 3.2 percent higher first-quarter net profit and 13.1 percent higher assets, both year on year, on April 13, ahead of the new trading week.

After three weeks of drops, the Muscat Securities Market advanced in week 15 with a gain of half a percent. On two days of the past week the Omani bourse saw the highest trading volumes in two months.

North Africa and Levant

The Egyptian Exchange selling spree tapered out on the first trading day of week 15 and the EGX 30 index moved up on four consecutive days, for a weekly gain of 2.6 percent. The week’s strongest day of gains, with a 1.7 percent leap, was Thursday.

Somewhat curiously, the country’s state information service (SIS) made it a point to note the day’s performance in a news brief. One can call this curious because the report was the governmental agency’s first stock market news in two months; the news item fits, however, with a selective SIS reporting tendency of the past three to highlight positive EGX developments and largely ignore market drops.

The Moroccan and Tunisian securities markets were mixed; the MASI ended intra-week fluttering with a 0.8 percent gain and the Tunindex, which showed a 20-point upward spike on Wednesday, gave up 0.2 percent on the week.

In Jordan, the Amman Stock Exchange Index continued to move sideways although the index reflected a moderate day of pressure through a 30-points dip on April 7. On the Beirut Stock Exchange, the Blom Index dropped 0.9 percent on the week, giving the general impression of a gently sloping trend since the country awoke in late February to the announcement of a new cabinet. Between Feb 28 and April 11, the Blom Index gave up 27 points, or about 2.2 percent.

April 14, 2014 0 comments
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Society

Café Diem – Seize the moment and go

by Nabila Rahhal April 11, 2014
written by Nabila Rahhal

Where in Beirut would one find a decent cup of coffee, a glass of high quality French wine, a filling sandwich and an appetizing dessert all under one roof?

Though such eateries that combine different concepts can feel schizophrenic and tend to be lax in at least one aspect, Café Diem manages to pull it off, making a smooth transition from breakfast through to dinner and drinks.

Sandwiched in-between Sodeco Square and Monot, Café Diem is ideally positioned for such a day/night concept and is frequented by Ashrafieh’s society ladies for coffee or breakfast, business folk on their lunch breaks and young couples in the neighborhood who are looking for a casual yet trendy evening. 

The ambiance cleverly cultivated by the décor is warm and charming, a blend between a bistro and a wine bar with a heavy dose of coziness. The crisp square white tiles used on the walls, as well as the charcuterie slicing machinery and the crepe maker on display, makes one feel they are in a cozy kitchen while the black chairs and dark hardwood flooring contrast wonderfully with the walls and evoke the feel of a French bistro.  

The salad is fresh and flavorful

[/media-credit]The salad bar offers the best garden fresh assortment in town

Little details such as the tea boxes and wine crates artistically scattered around and the wine bottles displayed in glass cases across from the chrome espresso maker highlight the versatile atmosphere of the space. The open kitchen theme where you can see your food and coffee being prepared and the bar running alongside it add to the relaxed and casual feel.

Café Diem is owned by Donald Battal who brought us Classic Burger and the same idea of simplicity coupled with good taste in the food menu is also found here. The offerings include an extensive breakfast menu with staples such as omelets and pancakes on offer. A scale up from Classic Burger, a business lunch (alcohol-free) for two would cost around $45.

Executive visited at lunchtime and arrived to find the place packed to the rafters. It is not a place for an intimate conversation. We were sitting so close to the next table that a moment of silence on our part ensured that we could hear every word of the conversation of the couple next to us.  But the crowd was reminiscent of the setting at a French café and did not at all deter from friendly and rapid service.

The ambiance is relaxed

[/media-credit]The seating invites diners to get to know the person next to them

I ordered the salad bar and tomato bruschetta for appetizers. The French bread the bruschetta was served on could have been less chewy but the tomato topping had just the right amount of basil and lemon seasoning.

The salad bar is the freshest I have seen in Lebanon in that even the asparagus and artichoke included were fresh and not canned. The bar also features original and authentically Lebanese items such as pickled eggplants and labneh balls of fresh goat cheese. The dressings were creative and included alongside the typical offerings, a ginger and soya dressing as well as a Mexican inspired sauce.  

For the main course we had a generous open faced chicken sandwich with a mayonnaise dressing that was surprisingly light and a grilled fish platter that was fresh tender, accented by simple olive oil garnish and sauté of fresh spinach that brought up the flavor of the fish wonderfully.

Everything was beautifully presented on dark grey stone slabs but the presentation of the espresso we ordered after lunch was a feat for the eyes of those who find beauty in simplicity. Also on a partitioned dark grey stone slab with a circular space for the dainty white cup, a light brown biscotto was diagonally laid on the remaining part of the slab and two small cubes of brown sugar were placed in parallel creating an artistic visual. The taste itself was strong, as espressos should be, and the biscotto was just sweet enough to take the edge off.  

We passed Café Diem later in the evening and it was almost as packed as it was at lunchtime but this time people were sipping on red wine instead of lattes.

With Café Diem, Battal has created a winning formula which is casual enough for it not to be a passing fad yet chic enough to maintain the interest of those who are attracted to fads.

April 11, 2014 0 comments
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Society

Painting oppression from Aleppo

by Maya Sioufi April 11, 2014
written by Maya Sioufi

“Men are preoccupied with two things: politics and sex” says Aleppo-based 70 year-old artist Saad Yagan. And that’s why many of his paintings depict men either having heated political debates or dreaming about – often nude – women. With his first solo show at the Mark Hachem gallery in Beirut ongoing, Yagan is in town to reconnect with friends and tell people that he is surviving and still working. He’s built an impressive contact list since his first exhibition in Beirut back in 1971.

A raid on his studio

The Syrian crisis has not been easy on the artist. In 2011, his former studio, 18 kilometers outside of Aleppo, was raided by the Al-Qaeda affiliated Nusra front. They set fire to 22 large paintings and his library of books because they considered his work haram, an Arabic term meaning sinful.  With Al Nusra still occupying his former studio, Yagan moved to another one, also in his hometown. “Aleppo is like Altico [superglue] to me,” he says as he brushes his handlebar mustache. He wouldn’t consider living in any other city.

After taking two years off from painting, he grabbed the brush again this year.

As you walk through the gallery, you cannot help but notice a large black, white and red painting entitled “Upward Fall.” Painted this year, it represents the Syrian crisis and is the artist’s favorite piece in the exhibition.

The Dreamer
The Dreamer
Saad Yagan with "Aleppo's Fortress" in the background
Saad Yagan with "Aleppo's Fortress" in the background
The Wisdom 2011
The Wisdom 2011
Castle Cafe
Castle Cafe
MAESTRO
MAESTRO
Fishermen in yellow
Fishermen in yellow
The Sheikh and the Sea
The Sheikh and the Sea

Some of the art available on show at the gallery

 

 

Universal art

Taking his first brush strokes at the age of 13, Yagan started painting to impress his neighbor’s daughter whom he had a crush on. But his art impressed more than just his muse. By the age of 18, he had his own solo exhibition at the National Museum of Aleppo. And from the walls of Syrian galleries and museums, his art pieces were hung in galleries in Europe, Canada and the United States.

Yagan’s art is universal as it portrays human feelings and psychology. Most of the pieces exhibited at the gallery were completed prior to the Syrian crisis and do not portray Aleppo or the civil war. He stresses that love, jealousy and other human feelings are the same whether you are in Japan, Denmark, Syria or Sudan. From boredom, to depression, to loneliness, his pieces look to reveal what people are thinking. “People mix in coffee shops and public places but deep down inside, they have a completely separate psychology and are each on their own,” he says.

His main aim is to illustrate oppressed people who are aware of their problems but unwilling to find a solution. He wants viewers to receive that message and think whether maybe they can do something. “Wherever there is a humanitarian crisis, the message in my paintings apply,” he says.

Going forward, the artist expects that his art will most likely depict Syria’s turmoil. “I’m thinking of what I’ll do as a painter with something completely different than photography as I want to show the inside of the problem,” he says; a picture that will undoubtedly be difficult and painful to illustrate.

 

Saad Yagan’s exhibition at the Mark Hachem Gallery in downtown Beirut is ongoing until the 19th of April

April 11, 2014 0 comments
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The risk of political violence in Lebanon has grown
Insurance 2014Leaders

Lebanon should have a risk pool for political violence insurance

by Executive Editors April 11, 2014
written by Executive Editors

With the recent slew of bombings further entangling Lebanon in the Syrian civil war, political violence insurance in the country is becoming increasingly sought after, as hotels, banks and malls are seeking to protect their assets. This is paired with international reinsurers becoming increasingly weary to underwrite risks in the present volatile situation, resulting in political violence insurance becoming less accessible and affordable, with premiums hitting the double digits (see story).

The smart solution lies in numbers: Lebanon should set up a risk pool that would make political violence insurance less vulnerable to loss and more affordable to its businesses. Such pools would spread the reinsurance risk among all actors, with a part of each premium entering the pool and building up a reserve. In the event of a loss, insurance companies can draw on the assets of the pool. This would allow insurance companies to set lower premiums and would keep money in the country — rather than the entire premium being exported to the pockets of international underwriters.

Risk pools for terrorism became popular in various countries in the wake of the 9/11 terrorist attacks against the US. A massive blow to the country, the attacks were also a blow to insurance companies because they happened at a time when terrorism insurance was still priced relatively low. This led many reinsurance companies to shy away from terrorism insurance, often putting exceptions for terrorism coverage in their contracts or charging exorbitant amounts for premiums.

The risk pools were set up in response to the withdrawal of terrorism coverage by insurance companies and to lower the then-market prices of premiums. They exist in various structures, with streams of income coming from premiums, government funding, tax dollars, property owners or a combination thereof.

In Australia, the government set up a risk pool — the Australian Reinsurance Pool Corporation — for terrorism insurance made up of premiums, commercial lines of credit and indemnities from the government. In France, the government created reinsurance pool GAREAT (Gestion de l’Assurance et de la Reassurance des Risques Attentats et Actes de Terrorisme), likewise for terrorism insurance. GAREAT pooled premiums together and the French state acted as the reinsurer of last resort.

Kenya also recently started a political violence and terrorism cover pool. Its Association of Kenya Insurers came together after several international reinsurance companies hiked their prices and withdrew their cover following sporadic violence and terror attacks. Each insurer is to contribute an equal sum to the risk pool.

A similar approach could solve the problems of Lebanese companies, currently burdened with high premiums if they choose to minimize their political violence exposure by getting insured. The Lebanese government and insurance companies can and should set up a risk pool — using international best practices — to respond to a shrinking supply of political violence coverage and increasing premiums.

April 11, 2014 0 comments
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The Buzz

The HitchHike Girls – Can They Make It?

by Tamara Jurdi April 10, 2014
written by Tamara Jurdi

A few ago weeks, Mona Talih, Lara Talih and Shaden Fakih were just three typical distracted students. Then, a spur of the moment decision started them down the path to trading cans of energy drink for anything and everything in a desperate race to get across Europe.

That decision was to submit a video with the hope of being selected for the Red Bull Can You Make It ’14 Challenge. The Challenge asks teams of three to traverse across Europe doing tasks over the course of a week. The more tasks you do and locations you visit, the better. The only catch, however, is that you cannot buy anything along the way – the only currency you can use is a crate of Red Bulls each team gets. So, whether you want to catch a flight, buy a train ticket, or sleep in a hotel, contestants have to barter.

It wasn’t until four days before the deadline that they decided to start shooting their video. The girls sat together at the American University of Beirut, brainstorming ideas. The next day they went up to Shouf mountains with some of their friends to start filming, with the entire video shot in different locations over a day and a half.

The girls’ challenge got off to a strong start. Mona’s charm, Lara’s brains and Shaden’s eccentricities made for the perfect mix, as the HitchHike Girls were selected by a panel of Red Bull judges to represent Lebanon (the only team from the Middle East) as one of 100 international teams in the challenge. While pretty confident their application video was strong, the three were thrilled to be selected.

Next up was getting ready for the challenge. They spent days researching, mapping out possible routes and learning about Europe. Between team the girls were fluent in Arabic, English, French and Spanish – so they were confident language would not be a barrier. They called up friends who were into camping, asking for gear and advice, while they also enjoyed the spotlight – making an appearance on one of Lebanon’s top radio stations.

To succeed in their task, the girls needed to make it to Berlin by tomorrow. Yesterday they tweeted that they arrived early, and are frantically working to complete as many tasks as possible before the deadline. Starting out in Vienna, they traversed five countries, including the UK.

Lebanon has been following their activities closely via their page on the Red Bull website. While second overall earlier in the week, they have fallen back somewhat. Nevertheless, the team from a small country is making a big splash on the international stage.

And for Red Bull, it is clearly another advertising success. Following the amazingly branded Stratos outerspace jump in October 2012, the company is back with another campaign built on bravery – or, from another perspective – crazy things youth will do if they’re given a limitless supply of energy drinks.

They have successfully understood what the youth are looking for, the adventure and the experience, and have integrated that brilliantly with their brand. Red Bull are venturing where very few brands dare venture, be it in space or on the streets of Europe – their “no fear” approach has been reaping dividends.

April 10, 2014 1 comment
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Local governments would have more power to deal with issues such as Syrian refugees
Economics & Policy

Decentralization – the best way to tackle corruption?

by Domhnall O'Sullivan April 10, 2014
written by Domhnall O'Sullivan

Decentralization is a hot topic right now. In Ukraine, it has been proposed as a means of giving greater autonomy to the Russian-speaking regions in the East of the country – a gentle concession to Moscow’s current belligerent posturing. Iraq continues to debate the merits of moving towards a federal system as a way to counter the corrosive sectarian violence which has crippled the country for the past decade. And in Lebanon the idea is firmly back on the table after President Sleiman last week unveiled a bill which would devolve greater financial and decision-making authority to regional councils.

Decentralization is designed with various goals in mind. Among these are increased efficiency as resources are allocated by those with a better understanding of local needs and upping social mobilization as citizens play more of a direct role. Moreover, in deeply divided societies, decentralization – or its big brother, federalism – can give homogenous communities the autonomy they need in order to maintain overall state cohesion.

But one of the most important functions – particularly of administrative decentralization as proposed by the current draft bill in Lebanon – is its tackling of corruption. In theory, more decentralization means more transparency. President Sleiman noticeably promised that the bill would ensure “transparency, accountability and monitoring, bringing the citizen closer to holding accountable those he has elected.” For Lebanon, which slid to 127th place last year in the Corruption Perceptions Index compiled by watchdog Transparency International, this would be a welcome development.

In theory yes

Various studies back up the received wisdom. A 2006 World Bank paper found that by bringing government closer to the people, decentralization can help reduce corruption as well as improve service delivery. Citizens become more involved in monitoring government performance and demand corrective action if something is amiss. As the Lebanese-American essayist Nassim Nicholas Taleb notes, “in a decentralized system – say, municipalities – [policymakers] are checked by a feeling of shame upon harming others with their mistakes”. This is not the case in the vast bureaucracies of a large centralized system.

Similarly, a 2001 International Monetary Fund (IMF) report found not only a positive effect of decentralization on corruption, but an exponential influence. It concluded that “the higher the level of subnational spending in total government expenditures, the stronger the positive association between decentralization and governance.” Accordingly, states with strongly federal or cantonal structures rank highly on the good governance scale: the 2013 Corruption Perceptions Index put Sweden in third place, Switzerland in seventh, and Canada and Australia in joint ninth.

The hope is that the same thing can be reproduced in Lebanon. Sami Atallah, executive director of the Lebanese Center for Policy Studies, was part of the advisory committee responsible for drafting the current bill. He says that in the current “convoluted” centralized system, “you don’t know who to hold accountable.” “This bill will provide for closer proximity between elected officials and the people”. If the bill goes through unamended, three levels of governance will allow for more accountability: regional councils with transparent budgetary affairs, central watchdogs to oversee these regions, and civil society holding it all accountable.

New location, same old habits?

But decentralization is not a risk-free endeavor. In a society like Lebanon’s with entrenched traditions of patronage, the danger is that decentralization simply shifts rather than eradicates the locus of corruption. Worse, the creation of new levels of government and the overloading of incapable local institutions could even exacerbate the problem. The same 2006 World Bank paper which extolled the long-term virtues of decentralization cautioned against the short-term risk of “capture” by local elites; if not done properly, “localization may increase the opportunities for corruption,” it warned.

Yahya Hakim, Secretary-General of the Lebanese Transparency Association, agrees that the bill as it stands could cause more problems than it would solve. “The municipalities simply don’t have the professional capacities to cope with the increased workload and responsibilities,” he said. Similarly, with transparency issues afflicting not just the central level but the “public service as a whole,” decentralizing to such an extent right now would hardly be a panacea. An overhaul of the entire system is first necessary; “minor remedies cannot save the moribund. Administrative and financial reforms are essential to relieve the patient.”

Atallah also admits that the current legislation is not enough to completely eliminate corruption. But in terms of reducing it, if done properly this might be possible. “The qada’as (districts) will have the administrative capacities,” he says. With the decentralization law “part of a larger basket of reforms,” it would be ensured that the regions have the requisite abilities to manage their increased prerogatives.

Don’t run before you can walk

The obvious conclusion is that in order to reap the longer-term benefits of decentralization, seeds must be sown with care and vigilance. The process takes time. According to the IMF, in the short-term subnational administrative capacities need to be bolstered and made watertight, while the shift should also be accompanied by other reforms such as electoral rules to encourage voter participation and involvement of civil society in the political process. Indeed, President Sleiman situated the current draft bill squarely alongside the other current projects aimed at shoring up Lebanese society: the draft electoral and budget laws.

For Atallah, achieving more transparency will ultimately be one of the means to securing of the primary developmental objectives of the bill. And in order to achieve these, various other foundational shifts are necessary. As he wrote here, not only should the the borders of the proposed regional councils be carefully redrawn to as to best serve developmental needs, but it is imperative these regional councils are directly elected in order to ensure political accountability. And at the lower level again, that of Lebanon’s 985 municipalities, the identification of their responsibilities must be clearly delineated. Overall, rationally delineated regions based on developmental criteria and needs – rather than an “overemphasis on municipalities” – should be the focus.

Of course, the elephant in the room when it comes to decentralization is sectarianism. Religious concerns have always surrounded issues of federalism in Lebanon. And for Atallah, care must be taken that any process of boundary redrawing would not make things more sectarian. “I would worry that the process would get hijacked by political concerns”, he warns. In this case, none of the objectives – efficiency, subsidiarity, transparency – would be served.

April 10, 2014 0 comments
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This says: No to a rent law that is unjust and protects the interests of despots
Economics & Policy

A day of pressure

by Greg Demarque & Thomas Schellen April 9, 2014
written by Greg Demarque & Thomas Schellen

Hundreds of employees carried out a protest in Downtown Beirut on Wednesday. Protesters started flocking to Riad Solh Square from 10 am but their flow did not quite swell to a flood.

By 11am the crowd loosely filled the stretch of road downhill from the Grand Serail, the headquarters of the Prime Minister.

 

Hundreds of protests marched on Downtown Beirut on Wednesday April 9 2014
Hundreds of protests marched on Downtown Beirut on Wednesday April 9 2014
Speakers from labor unions demand Parliament immediately approve wage hikes
Speakers from labor unions demand Parliament immediately approve wage hikes
A sign reads: You care about everything except the people’s concerns
A sign reads: You care about everything except the people’s concerns
This says: No to a rent law that is unjust and protects the interests of despots
This says: No to a rent law that is unjust and protects the interests of despots
Take back the rent law before the people erupt into a volcano
Take back the rent law before the people erupt into a volcano
A girThe government inadvertently bopping the average citizen in the head rather than fighting corruption
A girls secondary school in Zahle offered this image of the government inadvertently bopping the average citizen in the head rather than fighting corruption

 

About 500 demonstrators were wedged into the block-long space. The mood was not tense but almost cordial, however.

There were actually a variety of different protests taking place at the same time. Some were calling for the President to strike down a newly passed rent law that could significantly increase accommodation costs for residents of Beirut. Others demanded wage increases for public sector employees and employment contracts for civil defense members. Teachers unions were also represented, leveling their well-known demands for more adequate pay.

Other than attracting direct participants in their – for a protest of very broad ambitions and urgent demands – rather limited number, the event was mainly a magnet for television reporters and journalists working for publications of all colors.

The grand façade of the Serail stood silent and looked impervious to the mixture of speeches, rhythmic chants and protest songs that emanated from a loudspeaker van.

Some protests appeared immediately successful, with a law to grant Civil Defense volunteers full-time employment passed only hours after they began protesting.

April 9, 2014 0 comments
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The Buzz

The enduring power of memes

by Jasmina Najjar April 9, 2014
written by Jasmina Najjar

“Let’s make a Happy video!”

“Let’s do the Harlem Shake.”

“Planking? Yes, of course. Check out my photos.”

“Oh look it’s another Grumpy Cat!”

You’d have to be living under a rock not to be familiar with memes, which are according to the Merriam-Webster dictionary, “an idea, behavior, or style that spreads from person to person within a culture.” An Internet meme is spread via social media and email, and can be a video, visual, link, hashtag or website. But seriously, not knowing what a meme is would warrant someone posting ‘Ermahgerd’, ‘Doh’ or ‘Durp’ on your Facebook wall. After all ‘one does not simply’ ignore the tide — especially when it represents a marketing opportunity.

Memes are nothing new. The word stems from mimeme (the Greek for ‘to imitate’) and was coined by Richard Dawkins, a British evolutionary biologist, in 1976. He used it to explain how certain elements and ideas within a culture spread (e.g. fashion, music, phrases, etc.). In today’s connected world, memes are in your face 24/7.

From Success Kid to Conspiracy Keanu, internet memes are everywhere and there seems to be no let up. And websites like quickmeme, knowyourmeme and even Lebanesememes make sure there is no escape. So ‘shut up your mouse’ people, because ‘resistance is futile.’

Lebanese versions of Pharrell Williams’ “Happy” are a hit online

 

Internet memes are easy to share and create a sense of belonging. This adds to their mass appeal and makes them worth exploring for marketing purposes. They make it easy to create and share fun or thought-provoking content, can help a brand engage with clients on social media and can even be a tool to heighten employee morale. But to use a meme effectively, the brand has to identify its target audience, pinpoint their interests and zero in on the kind of media they consume the most.

The potential is real. As Jonah Berger, Wharton Marketing Professor, claims: “Marketers have realized that traditional advertising isn’t working … it’s not just how many people saw your ad on TV, it’s how many views and shares it got online.” Internet memes have that sort of traction. And going viral is what today’s advertising game is all about. As Liz MacDonald, director of client services for Poptent, a video production company explains, “[The] viral video is the holy grail.”

A blog, Memetic Advertisement, showcases how advertising is adopting popular memes (aka ‘meme-hijacking’) to lure the crowds. Examples include Wilkinson Sword’s campaign that uses the Movember moustache meme, Abercrombie & Fitch’s remake of Carly Rae Jepsen’s ‘Call Me Maybe’ video and Toyota New Zealand’s use of a cute cat. But not all attempts at turning internet memes into marketing success stories work. If a brand fails to take the meme a step further or the campaign seems forced, it can all go horribly wrong. An example of this is Microsoft’s use of the ‘Double Rainbow dude’ in 2010. The internet backlash was unforgiving. Some brands have managed to go beyond adapting already popular memes and have created hugely appealing memes of their own. A fine example of this is Old Spice’s famous ‘The Man Your Man Could Smell Like’ campaign. It witnessed an impressive number of shares and even triggered a series of parodies.

Warning: using an internet meme for marketing isn’t totally free of intellectual property and copyright concerns. The very viral and borrowed nature of internet memes makes things even more complex. Especially when advertisers want to capitalize on the power of internet memes.

Some companies have found themselves in a pickle because of their internet meme-inspired advertising campaigns. For instance Warner Brothers faced copyright infringement charges for the use of Nyan Cat. Surprisingly, there were no charges for subjecting people to the irresistibly irritating “nyanyanyanya.” When companies want to transform an internet meme into a revenue generating advertising machine, they need to find the owner of the meme. This can be easier said than done since many a time, ‘only the NSA knows’. Other times though, this task is very straightforward since meme owners publically make themselves known, such as ‘Overly Attached Girlfriend’.

So ‘Y U No’ think of tapping into the power of memes? But be quick! Many memes fade into the endless void of the internet in mere weeks and are forgotten forever. So strike while the iron’s hot and the trend is still cool. We live in fickle times.

April 9, 2014 1 comment
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BusinessInsurance 2014

Insurance market rests assured

by Thomas Schellen April 9, 2014
written by Thomas Schellen

The Lebanese insurance market is achieving steady economic performance with incremental business innovations, all the while making very small steps in addressing long-standing issues and concerns.

Despite the difficult macroeconomic context of Lebanon’s distressed security and economic environment, the latest available data on insurance premiums are mostly in positive territory. Total gross premiums in 2013 reached $1.42 billion, up from $1.31 billion in 2012, and the growth in annual premiums doubled from the rate achieved in 2012 according to the figures published last month by the Association des Compagnies d’Assurances au Liban, ACAL, in its quarterly report.

Chart: Insurance premiums in Lebanon

The Insurance Sector Annual Report for 2012 by the Insurance Control Commission (ICC) at the Ministry of Economy and Trade shows a small upward variance, of about 1.5 percent, when compared with the 2012 gross premiums figures that ACAL first published one year ago.

The ICC’s report, whose initial issue on 2007 came out with a massive time delay, has since grown significantly in content and speed of production and the 2012 report was published in the first quarter of 2014 at the shortest ever interval to the year covered.

The ICC’s official report is based on the full data from all insurance companies, whereas the ACAL quarterly includes a near 11 percent share of data that is extrapolated. While both reports are produced from the same official data supplied by the insurance companies, the extrapolation used in the ACAL report is due to the fact that not all companies in the sector participate in the voluntary submission of information on which the quarterly report is based.

Given this methodological caveat, the small variance between the 2012 data that the two reports have provided with a time distance of about one year is an indicator that ACAL’s publication on 2013 gross premiums, which indicates nominal growth of 9 percent in the past year, is an accurate presentation of healthy sector developments and newly accelerated growth. The 9 percent growth rate in 2013 gross premiums compares favorably with the 4 percent growth in 2012 shown in the ACAL Q4 report and the 5.6 percent growth in the ICC’s report for the same year.

[pullquote]In 2012, the most recent year for which confirmed company-level data are available, six insurers controlled more than 75 percent of the life insurance market.[/pullquote]

The total value of paid-out claims and life insurance benefits in 2013 amounted to $733.7 million, up 11 percent from 2012. The largest share of claims occurred in medical insurance, with $293.4 million or 40 percent of total claims. Insurers paid out $188.6 million for motor claims: 25.7 percent of total claims. Notably, medical insurance is the business line where the percentage share of total claims significantly exceeds the line’s share of total premiums, namely by 11 percentage points;  the year-on-year increase in settlements of medical claims amounted to $35.5 million, an expansion by 13 percent. Paid-out life insurance claims and benefits stood at $161.3 million in 2013, or 22 percent of all claims.

Chart: Paid claims and benefits in Lebanon

Life is special business

Life insurance premiums, according to ACAL, grew by 10 percent in 2013 to $414.9 million, representing 29 percent of total premiums. Life insurance in Lebanon commands a small share of the country’s overall insurance market when compared with the global market where life business contributes more than half of total premiums. However, the still low acceptance of the life insurance concept in most Arab markets gives Lebanon’s life insurance sector a very substantial position by regional comparison.

The market for life insurance has two key drivers: consumer demand for credit and demand for savings products. In terms of product splits between savings, unit-linked savings, and protection-only contracts, a comparison between 2013 and 2012 suggests that more than two thirds of the growth in life insurance occurred in the protection-only policies.

Protection-only policies are generally imposed by Lebanese banks on loan clients — as backup security covering a bank’s risk that a client’s disability or loss of life would make loan recovery impossible. Closed for the duration of a loan contract, the policies create no direct financial benefit to the insured’s family, even in case of death, because the policy’s purpose is to satisfy the lender.

The demand for retail borrowing, and specifically home loans, has greatly increased in the past few years and was bolstered in 2013 through central bank subsidies for mortgage–based borrowing. This supports the assumption that the 47 percent slice of protection-only policies in the life insurance business benefited indirectly, but not insignificantly, from the housing market and central bank measures that supported it.

Unit-linked products, which offer buyers an insurance-based investment tool with shared risk, and savings-cum-protection products, which generally offer lower but less risky returns, mainly have a market among Lebanese with higher earnings who have the means to invest in savings instruments. The statistics of the past three years show a trend of high payouts on unit-linked products in the fourth quarter of each year, with settlement amounts increasing each year. This speaks to a persistent appetite for unit-linked products in a narrow but potent segment of the market.

In 2012, the most recent year for which confirmed company-level data are available, six insurers controlled more than 75 percent of the life insurance market. On the one hand, three insurers affiliated with the top three banking groups by total assets, Audi, Blom and Byblos, cornered a large share of the market; on the other hand, two other providers in this top tier are focused on savings products.

No scientific study of the links between the housing market and the demand for protection-only insurance products has been conducted, and, according to the ICC, analysis of life insurance data faces continual challenges in segregating data for product types under the formats in which companies report them. However, the ICC pointed to the negative impacts of the domestic mortgage market and international financial markets on the protection and savings branches of life insurance in 2012.

General implications

Implications of the premiums data reported in the non-life, or general lines, of business show stability in the medical and motor insurance lines, which — according to the ACAL Quarterly — account for a combined 52.9 percent in the total insurance market in 2013.

While rising hospitalization costs were a major concern to many insurers in 2012, companies moved to hike their premiums and/or instigate cost-cutting measures. The sector’s most pronounced issue of concern in 2013 and the first quarter of 2014 was motor insurance, due to the impending enforcement of the 2012 traffic law which stipulated that motorists have to acquire third-party liability cover for material damages resulting from accidents they cause. Although the deadline for enacting this compulsory insurance passed last October, the implementation is still pending.

Since development activity was scaled back increasingly in 2012, developers and contractors needed less coverage under “Engineering All Risk” and “Contractors All Risk” policies. On the other hand, decennial insurance was not affected, because it is a legal mandate but not enforced. After seeing a near doubling of premiums to $11.1 million in 2012, engineering premiums dropped 6 percent to $10.5 million in 2013, as the only business line to see a year-on-year contraction of turnover.

The market share of engineering insurance is small, less than one percent of total premiums. But as engineering premiums are concentrated in construction projects and new real estate developments, the slowing of this business hints at the impacts that the challenging economic environment has had on the insurance sector. In non-life underwriting of business other than the contraction of premiums in engineering and the flat performance in cargo, however, 2013 saw the insurance industry defending its turf well, against the slowdown in national economic growth. Small but growing areas of attraction, and new demand in the context of increasingly unforgiving national and regional risks, are political violence insurance and trade credit risk insurance.

As insurance control commissioner Walid Genadry noted in the recently published ICC report for 2012, when inflation is taken into account, sector results in the past three years suggest reduced growth when compared with the evolution of insurance premiums in the millennium’s first decade. This notwithstanding, the ICC documented double-digit compound annual growth rates (CAGR) for the sector in all but one parameter under the 2001 to 2012 time frame.

Non inflation-adjusted CAGR for gross premiums in this period was 11.2 percent, 0.9 percentage points more than the 10.3 percent CAGR in claims paid. Also important, and delectable from the perspective of insurance providers, the sector’s net profits and average net profits per company increased by 18.4 percent and 20.2 percent; thirdly, on the side of technical reserves — funds that insurers are obligated to set aside for the servicing of claims — the companies’ abilities to achieve their all-important risk mitigation mission for Lebanon’s citizenry were increased, with some indubitable assistance from the supervisory authority, by the highest CAGR rates across all measures: 20.4 percent for the sector’s total reserves, and 22.1 percent for average reserves per company.

The one area where the sector showed a single digit, negative CAGR of 1.4 percent between 2001 and 2012 was the number of companies. Although the number of licensed insurers and reinsurers in Lebanon fell from 61 to 52 providers over the period, real consolidation that would put the provider counts in alignment with domestic market potential has yet to happen.

Alas, the regulatory and structural development of the Lebanese insurance industry is another story entirely. It is not about improving numbers or even rules but about changing mindsets and attitudes: a tale of laborious attempts reminiscent of the ancient Sisyphus narrative. As insurance veteran Elie Nasnas declares, “this sector should consolidate but it is not an easy move. We have been talking about consolidation for years [but] most people [in the industry] are in my opinion not mature enough to accept mergers and acquisitions, especially mergers.”

April 9, 2014 0 comments
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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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