BusinessInsurance 2014

Political violence insurance – avoiding the boom then bust

by Livia Murray
written by Livia Murray

The Middle East is the most terrorist-afflicted region in the world, according to leading global insurance and reinsurance firm Aon’s 2014 Terrorism and Political Violence Map, with 28 percent of all worldwide terrorist attacks. According to the same report, Lebanon is identified as one of 19 countries with a “severe risk” rating based on measures correlating to Aon products of (1) terrorism and sabotage; (2) strikes, riots, civil commotion and malicious damage; and (3) insurrection, revolution, rebellion, mutiny, coup d’etat, civil war and war.

Brokers that deal with political violence insurance in the region have pointed to an increase in demand since 2006 for this specialty product in the Lebanese market. As political tensions in the country escalate, and businesses increasingly feel their assets threatened, those with the means are looking to get part of their company’s value insured. Means are critical for this type of product, as premiums for political violence insurance in Lebanon can hit double digit percentages and have been increasing year-on-year. For businesses that want to minimize their exposure to risk in an increasingly volatile situation, they must pay a hefty price.

Growing demand for a niche product

Demand for political violence insurance in Lebanon often spikes just after an incident, as demand appears to be as volatile as the political situation. “The overall demand is increasing. But sometimes there is reduction, and sometimes there is a stark increase,” says Farid Chedid, chairman and CEO of reinsurance brokerage house Chedid Re. Political instability, demand and cost of political violence insurance all tend to increase together, often resulting in “people looking to buy insurance at the worst time,” according to Chedid.

In Lebanon, most of the big hotels, banks, factories, gas stations, department stores, and even some residences and pharmaceutical companies have a percentage of their value covered by political violence insurance. Part of the increase in demand for the insurance can be accounted for by the natural expansion of businesses already covered by political violence. As these businesses grow, they renew their yearly contracts to cover larger risk limits.

But businesses also perceive an increase in threats, and are expanding their political violence coverage proportionally. An increasing trend in Lebanon is for companies to get full political violence coverage, which includes strikes, riots and civil commotion, sabotage, terrorism, war on land and looting. Opting for full political violence coverage is linked to companies’ perception of threats, and is not the same everywhere in the region (for a full description of political violence products, see following page). “The main difference between Lebanon and other regional countries is that most businesses in Lebanon are getting a full [political violence] cover,” says George Bitar, founder and CEO of Premium Broking House, adding that political violence insurance for war on land, one of the more costly products, is not as common throughout the region. Most companies in Egypt and Bahrain, for instance, limit their coverage to strikes, riots and civil commotion insurance.

Brokers are also encouraging their clients to get full political violence coverage because of the complexity of the political situation in Lebanon, so as not to leave any room for gray areas. “For example, if in the war between Hezbollah and Israel in 2006 the loss that occurred was coming from Israel, the underwriter would say this is a war loss. If it’s coming from Hezbollah underwriters might say this is not a war, this is a terrorism loss,” explains Bitar.

Companies in Lebanon can select from a wide range of political violence coverage. Following is the most commonly used political violence coverage in Lebanon, based on Lloyd’s of London syndicate Hiscox’s definitions.
Act of terrorism: a violent or unlawful use of force committed by a group or an individual for political, religious, or ideological motives for the purpose of intimidation, coercion, or disruption of a state’s economy, or to overthrow, influence or affect the conduct of a government
Civil commotion: a substantial disruption of public peace committed by three or more people with a common intent
Civil war: armed conflict carried out by citizens of the same country against each other
Coup d’etat: a change in government brought about by non-democratic means such as the use of force
Insurrection: a violent citizen uprising against their government
Malicious damage: the intentional loss, damage, or destruction of property in the event of civil commotion
Mutiny: rebellion against a superior carried out by members of armed or peacekeeping forces
Rebellion: an organized armed resistance committed by citizens against the laws or activities of a government
Revolution: the overthrow of a government by its citizens
Riot: when three or more people with a common intent cause a violent disruption of public peace
Sabotage: a subversive act or series of acts for political, religious, or ideological purposes carried out to influence a government or the public
Strike: the stoppage of work by three or more people to make demands on their employer
War: declared or undeclared hostilities between two or more nations or states

Based on client demands, policy wordings have also evolved to become more inclusive. According to Christina Chalita, an executive director leading the non-marine department at insurance and reinsurance firm Nasco Karaoglan France, which specializes in emerging markets, new wordings are adopted roughly every six months. The most inclusive wording to date, she claims, comes from insurance syndicate Hiscox, part of insurance market giant Lloyd’s of London. The new wording replaced the previously dominant wording that had come out of Beazley, also a syndicate at Lloyd’s. The main changes to the wording were additional coverage for looting and denial of access, as well as removing the cancellation clause, which used to stipulate that either party could cancel the coverage within 30 days.

A heavily reinsured line of business

Lebanese companies take on a high rate of political violence reinsurance, hitting 99 to 100 percent according to brokers, which is taken on by international players and primarily by Lloyd’s of London syndicates. These reinsurers are reinsuring countries around the world, a diversification that enables them to sustain a loss. “Political violence can only be written as a global business,” says Chedid, adding that insurance companies in Lebanon who are only writing for one territory don’t have the income to compensate for a loss if Lebanon is hit.

Even among international players, the appetite for political violence insurance has its limits. According to the global insurance broker Lockton’s War and Terrorism report, the capacity available for political violence insurance in the worldwide marketplace in 2012 was estimated at $2.5 billion.

Though not all brokers agree on how much appetite is left in the international market to insure Lebanese companies against political violence, it is universally acknowledged that international underwriters are very cautious when they do underwrite risks in Lebanon. According to Bitar, companies are skeptical to commit past a certain amount because if there is a war in Lebanon, it could lead to a near total loss of their risk underwritten.

At times, international underwriters will altogether reject a policy if they associate it with too high of a risk. According to Chalita, most political violence reinsurers will decline covering embassies because of their heightened exposure to risk. International organizations with headquarters in Beriut also have trouble getting underwriters to cover their policies. Factors that underwriters generally take into consideration when they are deciding whether or not they are going to take on a policy includes location, whether it has had previous losses and whether the owner is related to any political party or subject to any assassination attempts.

Pricing premiums

When underwriters do decide to take on a policy, their perception of risk will determine the cost of the premium. Political violence insurance in the Middle East, where risks are high, is among the more expensive lines of insurance. It is no surprise that those who opt for it are large businesses, as the high price tags associated with political violence insurance means that not all businesses can afford this luxury; particularly in Lebanon, where political violence insurance premiums are considered the highest in the region, often outranking even Iraq.

While brokers did not come up with a specific number, they said that premiums could go up to the double digits. “It’s definitely not a conventional kind of an underwriting for any kind of policies,” said Bitar, who claimed that a minimum premium on risks ranging from a few hundred thousand to one million dollars start between $4,000 and $8,000 annually.

Risks insured can go much higher than $1 million, however. Nasco has clients whose covered risks range between $10 and $50 million, starting with banks at $10 and $20 million, a shopping mall at $25 million, a hotel at $35 million and a telecom company at $50 million, according to Chalita.

Location of the property has the most important bearing on the price of the premium, as certain areas of Lebanon are much more prone to political violence than others. The past year has seen an important fluctuation of premiums based on location. According to Chalita, premiums over the past year have increased from 25 to 50 percent in certain areas, while decreasing in others: Beirut’s downtown and southern suburbs have witnessed an increase of 50 percent, Saida, Sour and the Bekaa by 20-25 percent, while premiums in Jounieh decreased by 15 percent.

The cost of political violence insurance has led many companies to walk away after a quote. “Many companies think this type of insurance is very cheap, but it’s not. Often companies will only insure part of their worth,” says Chalita. Some companies have opted to have only part of their policy covering the more expensive full political violence, with the rest insuring for a limited range of products. For instance, a company with a $50 million risk limit could have $10 million insured for full political violence with the remaining $40 million insured  only for sabotage and terrorism.

The potential loss associated with a severe event forces underwriters to build for the future. “You have to accumulate reserves to [prepare] for a major loss,” says Chedid. Several major claims in 2005 and 2006 were both devastating for the country and for political violence insurers and reinsurers, according to Chedid. These two years saw a number of  claims from factories, bank branches, and hotels covered under political violence insurance.

Today, underwriters are becoming more careful and pricing policies higher as the political situation in Lebanon deteriorates. “There are some losses, and it’s becoming a little bit scary for underwriters,” says Bitar, pointing to the 2012 damage on a KFC in an attack in Tripoli, as well as last summer’s twin bombings in the city that also resulted in claims for material damage as examples.

It is clear to insurers that the lucrative potential of the industry, embodied in its high premiums, also comes at a very high risk.

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Economics & Policy

Angelina Eichhorst – Optimism despite crisis

by Domhnall O'Sullivan & Joe Dyke
written by Domhnall O'Sullivan & Joe Dyke

Angelina Eichhorst, the European Union’s Ambassador to Lebanon, is well aware of the challenges of mustering international support for the country and changing dynamics in the region. She took the top job in Beirut in January 2011 after six years at the EU’s embassies in Jordan and Syria, and several years in Cairo at the beginning of her career. Heading the efforts of an organization that has tripled its funding and provided over $338 million to date in humanitarian aid and other mechanisms to support Lebanon with the ongoing Syrian refugee crisis, she also helps to coordinate the actions of the 28 European member states in the country.

Yet, as she explained to Executive, she is deeply concerned that the crisis is not adequately understood. “I spoke to so many people in France, in Belgium, in the Netherlands,” she says. “People would say, ‘Oh really? A quarter of the population is refugees? Is it really that bad?’”

For Eichhorst, this issue of awareness is key. She denies that the West is forgetting about Lebanon, but says the scale of the issue is difficult to convey to distant capitals. “The needs are mindboggling. We have to make a double, triple, quadruple effort to explain this.”

Reinforcing the support

To this end, the ambassador firmly welcomed the formation of the International Support Group (ISG) for Lebanon back in September 2013. The high level nature of the attendance at last month’s Paris conference — which united some big names from the diplomatic circuit such as US Secretary of State John Kerry and Russian Foreign Minister Sergey Lavrov among others — was particularly striking. “That’s a strong message, which gives us the space on the ground to continue to work with everybody across our institutions, to say, ‘Hey, remember we made this commitment?’”

Yet she also maintains that, rather than being a sudden shift in international consciousness, the ISG reinforces pre-existing support for Lebanon. “I don’t see it as a start. I see it as a continuation of a lot of events and efforts in Lebanon,” alluding particularly to the various support conferences that followed the destruction of the 2006 war with Israel. However, where the ISG breaks new ground is in bringing together such a wide range of international actors, from the Arab League to the EU itself. “As far as we are concerned as the EU, we would like to see everyone around the table. This is a first step.”

But Iran is not there. Questioned about the absence of this major player at the discussions, the ambassador reiterates the current EU rhetoric of openness toward the Islamic Republic. “I think Iran should always be around the table,” she says. “This is our EU policy; it’s very important to have Iran around the table.” Yet despite the mandate given to Eichhorst’s boss — EU foreign policy chief Catherine Ashton — to discuss the nuclear issue with Tehran, she remained guarded as to whether there could be an Iranian presence at future ISG events. “We have not moved, as yet, into discussing any of the other issues. Things will come step by step.”

A drop in the ocean?

“Step by step” could also aptly characterize Eichhorst’s attitude toward the development of the European and international response in Lebanon. Regarding the latter, she hopes that the consensus behind the ISG will pave the way for more concrete action. “There is the issue of awareness,” she says, “but with this comes the issue of mobilization. [The awareness] should then translate into more joint efforts to not just say that we want to save Lebanon but to do something to save it.”

European efforts in this regard are spread out across the range of policy areas. EU member states unanimously back the strengthening of the Lebanese military, while some provide training for the armed forces inside Lebanon, according to Eichhorst. The EU has pledged $187 million for the humanitarian response, while over $150 million has been channelled to help Lebanese state structures cope with the crisis.

Meeting on the day in which the EU pledged a further $37 million to support Lebanese infrastructure, the obvious question was whether all these sums aren’t merely a drop in the ocean compared to a crisis that the World Bank estimates will have hurt the Lebanese economy to the tune of $7.5 billion by the end of 2014. Here she accepts a partial disconnect between the level of international support and the scale of the crisis, but stresses her commitment to ongoing finance. “We are squeezing the institutions to get one extra euro out of them,” she jokes, wringing an imaginary dishcloth in her hands.

More fundamentally, however, critics have accused the EU of having made dialogue in Lebanon more difficult with their decision to blacklist Hezbollah’s military wing in July last year. Eichhorst is reticent to recover old ground. Sceptics at the time pointed out that the split between military and political/social wings is one that Hezbollah itself does not recognize and could therefore be meaningless. Rather than discuss the justification for the distinction, Eichhorst merely says, “We made that distinction at the time and we still make that distinction.”

Soul-searching on Syria

On the broader issue of the Syrian civil war, Eichhorst again senses a lack of awareness in some international capitals. “‘It’s this thing [over there]. It’s far away from us,’ even though geographically and politically, Syria is on the fringes of Europe; these are our neighbours.” Syria, like Lebanon, is a partner country of the EU’s Neighborhood Policy — a foreign relations initiative launched by Brussels a decade ago to create tighter links between Europe and its periphery, suggesting that these are not just empty words.

Eichorst is a master in avoiding being drawn into accusations. Time and again she politely sidesteps direct questions about whether the western world has failed Syria and Lebanon and instead reverts to diplomat speak. When asked whether she would agree that people on the street in Lebanon feel that the international community has forgotten them,   she takes it to a new level of obtuse generalization. “There’s so much disenchantment across the board, for different reasons.” She does concede, however, that as the Syrian civil war enters its fourth year, Western actors are now “in a situation where we definitely need to ask ourselves, ‘What are we doing?’

A positive spin

But as to what the international community — and the EU in particular — is doing in Lebanon, Eichhorst displays no such confusion. Indeed, she maintains a positive outlook. Beyond the continued aid and development funding, she remains committed to across-the-board dialogue, including with the ‘political wing’ of Hezbollah, as well as to some more surprising areas.

Even in a time of acute crisis, she says, culture is a key factor. “Culture is inclusive; it brings everybody around the table and protects the values of freedom and energy.” Eichhorst’s ever-present smile makes it difficult to discern whether her optimism in a time of regional upheaval and dire economic prognostics is naïve, visionary or just good diplomacy. Hopefully, this positive thinking inspires her international counterparts to follow suit.

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Iran’s economic jihad

by Gareth Smith
written by Gareth Smith

Fighting talk is nothing new in Iran, and cries of ‘economic jihad’ have revived since February’s decree on the ‘resistance economy’ from Ayatollah Ali Khamenei. Despite November’s Geneva interim agreement on the nuclear issue, Iran’s leader is aware of the continuing damage of western sanctions, especially United States and European Union measures that have halved oil exports to 1.1 million barrels a day. After two years of contraction, Iran has every reason to want to improve economic performance, and Khamenei’s decree offers a vision of a ‘resistance economy’ based on higher production, reduced imports, higher investment of energy revenue, financial reform, greater transparency and creating ‘knowledge-based’ industries.

Khamenei first used the term ‘resistance economy’ in 2010, emphasizing Iran becoming more self-sufficient and resilient to outside shocks. Little in the decree — other than perhaps a checklist for state bodies — is new. So why now? According to some observers, the decree reflects Khamenei’s worries over the perilous state of the economy even if sanctions ease with further diplomatic progress.

According to others, it’s all talk. “Everyone will pay lip-service for a while and then the decree will be put on a shelf to gather dust,” an Iranian journalist told me.

In what may be an example of what the journalist means, Hossein Panahian, managing director of the Iran Mercantile Exchange, told a press conference on Kish Island last month that the exchange would contribute to the ‘resistance economy’ by developing more vibrant capital markets.

Enhanced over-the-counter trade might not, however, be the usual idea of ‘economic jihad’, whose origins lie in the heady aftermath of the 1979 revolution and the 1980-88 war.

An early act of the new government was to form Jihad-e Sazandegi (Construction Jihad) to improve rural infrastructure. The body later merged with the Ministry of Agricultural Jihad. Both the Islamic Revolutionary Guard Corps (IRGC) and the Basij volunteer militia took to wartime construction with the same revolutionary enthusiasm shown by their comrades on the front line.

When hostilities ceased, war commander Rafsanjani became president and encouraged the IRGC to adopt peacetime projects. Gradually, the Guards developed an array of business interests and companies. They took the ethos of ‘resistance’ with them, even if many IRGC businesses were soon run by managers in smart jackets from the city.

Tightening sanctions enhanced the IRGC’s role, in import-export (including what might be seen as smuggling) and its affiliated companies also took over projects from  international companies. These included a $1.3 billion gas pipeline from the Persian Gulf to the Pakistani border, the exploration contract for phases 15/16 of the South Pars gas field and a $1.2 billion project to build a line of the Tehran metro.

Naturally, transparency has been limited by ‘security’ considerations, and no reliable figures exist for the IRGC’s turnover. Estimates reach many billions of dollars, and in a rare disclosure, businesses in 2006 were put at 30% of the Corps’ “capacities” by Brigadier General Abdol-Reza Abed, IRGC deputy commander and head of Khatam-ol-Anbia, one of its main companies.

Alongside sanctions, the populist economic policies under former President Mahmoud Ahmadinejad (2005-2013) undermined the private sector, which was less suited to the ‘security’ environment than those with the right connections. But President Hassan Rouhani now wants to develop a vibrant private sector, and has signaled that he envisages a reduced economic role for the IRGC.

All of this might suggest Khamenei’s ‘resistance economy’ decree represents a setback for Rouhani.  But things in Iran are often not what they appear. The decree was drafted by the Expediency Council, which is chaired by Rafsanjani, a Rouhani ally who has long regretted encouraging the IRGC into business in the 1990s.

It is likely that such pragmatic conservatives seek to remold the concepts of ‘economic jihad’ and ‘resistance economy’, thereby undermining opponents who want both to defend the IRGC’s economic position and to undermine Rouhani’s commitment to détente with the US.

Much of the decree’s checklist — including transparency and financial reform — is drawn from a more liberal economic agenda. This is a very different kind of jihad. Like the nuclear talks, the wily Rouhani has won backing from the leader.

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Freedom of expression under fire

by Lama Fakih
written by Lama Fakih

Recent charges and prosecutions against news outlets, journalists and bloggers by Lebanese government officials reflect an urgent need to reform press and other laws to improve protection for freedom of expression.

Article 13 of the Lebanese constitution guarantees freedom of expression and freedom of the press “within the limits established by law.” But the press law and penal code, audiovisual media law and military code of justice — which media outlets are also subject to — don’t have adequate safeguards to protect the rights of journalists and bloggers.  One of the critical issues with the current law is that it criminalizes defamation, authorizing prison terms for journalists and anyone else found guilty. Defamation cases in Lebanon have typically resulted in journalists being fined, not imprisoned; but the threat of prison has a chilling effect on freedom of expression, especially since defaming public figures is considered a crime.  In an alarming indication of increasing restrictions, the publications court on February 12 sentenced Jean Assy, a blogger, to two months in jail for defaming and insulting President Michel Sleiman on Twitter.

In recent months, the Internal Security Forces Cybercrimes Bureau has investigated Assy among others. It brought another blogger, Imad Bazzi, in for questioning on defamation charges on March 13 over a post he wrote on December 11 on his trella.org blog, criticizing former state minister Panos Mangyan for abuse of power. Bazzi was interrogated for three hours. The next day he appeared on the LBC News ‘Nharkom Saeed’ program, which the station purposely cut short to protest the range of issues they cannot discuss for fear of prosecution. In addition, ambiguous clauses in Lebanese law have been used to charge journalists and bloggers for opinions and statements that are protected under international human rights law.

One of these prohibits publishing material that “contradicts public ethics or is inimical to national or religious feelings or national unity.” Definitions of defamation are also ambiguous.

On February 26, the publications court fined Mohammed Nazzal, an Al Akhbar journalist, 27 million LBP ($18,000) after Judge Yaqzan brought a defamation case against him for an article on judicial corruption that was published last May. Nazzal was fined even though Judge Yaqzan, whom Nazzal had criticized for unlawfully releasing two drug dealers, had been demoted for doing so. Judge Qobeissi, against whom Nazzal had levied the same accusation, resigned.

Rasha Abou Zaki, an Al Akhbar contributor, was fined 4 million LBP ($2,667) by the publications court in February for defaming former Prime Minister Fouad Siniora, after she alleged corruption and embezzlement in the finance ministry. She was fined despite Judge Rokez Razk reportedly finding that she had been objective. Ibrahim al-Amin, the Al Akhbar editor, was sued for defaming and insulting President Sleiman for two articles he published claiming he was corrupt. Al-Amin is scheduled to appear before the court on April 9.

Foreign Minister Gebran Bassil is suing Executive Magazine for an article published while Bassil was energy minister. The article alleged that Bassil was seeking to monopolize control over the oil and gas sector and included allegations of bad practice against the minister.

In its 2013 annual report, the SKeyes Center for Media and Cultural Freedom detailed several examples of journalists who had been detained and assaulted by non-government figures in Lebanon, saying that police and other security forces had not protected them from such abuses. It also detailed physical attacks on journalists by members of security forces.

In one case, customs agents beat Riad Kobeissi, a journalist at Al Jadeed TV, and his colleagues, on November 26 as they tried to get access to the customs director to ask him about corruption at Rafic Hariri airport.
In 2009, Ghassan Moukheiber, a parliament member, proposed amending the press law to eliminate some of the ambiguous clauses, including what constitutes defamation, and to decriminalize defamation. The law was last debated in parliament in October 2012 but never passed.

Parliament should urgently revisit the debate on the draft law and make other badly needed legislative changes to ensure that freedom of expression is preserved, and Lebanese laws are in line with the country’s international obligations.

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Business

The story behind the Diwanee deal

by Livia Murray
written by Livia Murray

Finally proving that it is possible to start up, scale and sell in the country, Lebanon saw its first major acquisition in the tech and digital sector a few weeks ago, as French digital publishing company Webedia acquired Diwanee, a Lebanese digital media company that specializes in content creation targeting women in the Middle East.

According to estimates published by regional startup news platform Wamda and a source contacted independently by Executive, the investment range is between $12 million and $16 million for a majority equity stake between 50 and 60 percent. The company’s valuation falls between $23 million and $33 million. The Diwanee team has not revealed any specific numbers, but admits that estimates are not far off.

Dream big

The team describes the acquisition as a small victory, after trying to secure large-scale funding for a long time. “From day one we had a pretty ambitious project. The difficulty of it was finding investors who understand what we are trying to do, and who are willing to take the risk,” says Herve Cuviliez, one of Diwanee’s co-founders.

Cuviliez cites the difficulty in finding good terms for investments in the Middle East, where venture capital firms (VCs) were largely reluctant to make an investment of the size they were asking for. “We wanted to find investors who understand what it takes to build a digital company at a regional level and how difficult and cash-intensive” it is, he says. “You don’t build something like Diwanee with one or two million dollars financing. You need much more.”

Throughout the course of the company’s existence before the acquisition, they had only been able to raise $6 million in financing. Their most recent round of funding came from a private placement in June worth $3.25 million dollars by MedSecurities Investment, a subsidiary of BankMed. Though they were unable to secure any funding from regional VCs, Cuviliez admits that out of all the people saying no, “you just need one to say yes.”

Seize the day

The deal was the result of a five-year-old connection that turned into an opportunity. A mutual friend first introduced Cuviliez and his wife and co-founder, Delphine Edde, to Guillaume Multrier, co-founder of Webedia, in 2009. Diwanee was only a few months old, and Edde and Cuviliez had just moved to Lebanon after having spent most of their professional lives in Paris, Cuviliez having been involved in the digital media scene since the mid-’90s. Over coffee they joked that Diwanee was the Webedia of the Middle East.

Four years later, the opportunity surfaced when Webedia was acquired by Fimalac Group, the French holding company for credit rating agency Fitch Rating. According to Cuviliez, Fimalac Group was looking to branch out into digital media when it acquired Webedia, which according to its CrunchBase profile was a deal worth 70 million euros. Cuviliez claims that the deal was made possible because of Webedia’s desire to expand and interest in the Middle Eastern market.

The Diwanee team jumped on the idea when Multrier reached out to them last July. In September, they drafted a joint proposal and by the end of November had reached a consensus. “Once we decided it made sense, it went very fast,” says Cuviliez. The acquisition was approved by Webedia’s board in mid-December, they did the due diligence in January, and closed the deal at the end of February.

“It was a very good match because we were looking for more than money,” says Cuviliez. The deal will permit Diwanee to improve its advertising and content management tools by benefiting from Webedia’s more sophisticated technology. “There are a lot of synergies now with Webedia, where we can both share the same tools, the same technologies, so this makes sense,” says Edde. Specifically, they are looking to improve the way content and advertising are paired to create personalized advertising based on behaviors of the site’s 5 million unique monthly visitors. Developing these technologies in-house, according to the co-founders, would have been much too costly.

Diwanee is seeking to expand within the Middle East, both through new countries and new vertical growth. As part of the deal, Webedia is injecting an additional $5 million in cash to grow the company. The Diwanee team did not disclose the projected internal rate of return, but Cuviliez says they expect to double in size over the next three years. Diwanee currently has about 130 employees, the majority of whom are based in Lebanon.

Diwanee’s acquisition is a success story that gives hope to Lebanese entrepreneurs, and one that they will no doubt try to replicate. Though by no means an easy process, the acquisition has shown what is possible for a Lebanese company to achieve. “If you are ambitious enough, it is doable for Lebanon,” says Cuviliez.

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Society

Three issues with Lebanon’s new domestic violence law

by Livia Murray
written by Livia Murray

The Lebanese parliament passed a draft law on Tuesday on the Protection of Women and Family Members Against Domestic Violence Abuse. This would appear on the surface as a victory for the civil society organizations that advocated and pushed for this law. Yet despite this, members of KAFA, the organization that wrote the draft law, and other activists took to the streets of Downtown Beirut to protest the law’s adoption in its current form.

The version KAFA originally drafted was called the Law to Protect Women from Domestic Violence. It was eventually put on the agenda of joint parliamentary committees in 2011. It was intensely examined for over a year before the sub-committees proposed an amended draft law.

This law was hugely different from the original draft law. KAFA, believing the changes had weakened the law, proposed a series of amendments. The law that was passed on Tuesday, however, did not take their amendments into consideration. Here are the top three things they believe are missing:

  1. Keeping the focus on women: One of the greatest changes the sub-committees made was to generalize the law to apply to all members of the family – including men, the elderly, and children. “We did not accept that because the law was formulated upon the needs of the woman,” says Zoya Rouhana, managing director of KAFA. “The law is not applicable to all the members of the family. The way it was written and formulated was to respond to the women’s needs.” While she is not opposed to laws protecting other vulnerable family members, she claims that generalizing the law is diluting the notion that women are most often the victims of gender-based violence.
  2. Criminalizing marital rape: Perhaps parliament’s most chilling amendment to the original draft law was to remove the clause criminalizing marital rape. After a lot of civil society campaigning to have it re-introduced, the new clause criminalizes only the use of force in the act of “redeeming marital rights to intercourse.” (Article 3) “We want to criminalize the act itself, not the use of violence,” says Rouhana.
  3. Removing ties to the personal status laws: The law gives the victim subject to domestic violence and her children the right to a protection order. The parliament’s law added a clause, defining children as those “who are in the age of legal custody as per the provisions of the Codes on Personal Statute and their applicable laws.” (Article 12) This addition is problematic, according to Rouhana, since the age of custody for children differs among sects and varies between boys and girls.
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Why AUB students are protesting

by Tamara Jurdi
written by Tamara Jurdi

The American University of Beirut (AUB) is in many ways a great institution. A private, non-sectarian university founded in 1866, it ranks 250th in the world according to the QS World Ranking and is one of the top universities in the region. It is renowned for continuously graduating some of the most qualified talents in the Middle East, and is the alma mater of several of the region’s top politicians, architects, businessmen and doctors. With a number of different merit, scholarship, financial aid and work-study programs, students from different socioeconomic backgrounds have traditionally been given the opportunity to hone their talents there. But as of late, these opportunities have become harder to come by.

This is because, three weeks prior to the Autumn 2013 semester, the management announced an unjustified 6 percent increase in tuition fees. This was not an isolated incident. In fact, since the university imposed a new 15-credit system in 2010, fees have risen 37 percent for many courses. Tuition fees now typically range between $8,000 and $10,000 per semester, despite an average starting salary of $800 for many fresh graduates. This has gone alongside a dismal lack of transparency, a complete failure to involve students in the decision-making process and worsening services. Students feel targeted by the administration, and trust has been lost.

Since plans for the increase were announced, students have been fighting back. Following cries of disapproval from the student body, a committee made up of representatives of different student clubs and societies was established to look for solutions.

After this year’s student elections, the newly elected University Student Faculty Committee (USFC) created a Tuition Increase Committee (TIC). Within a month, the TIC revealed a number of perceived inefficiencies in the system, presented them to management and raised a number of questions. The student body was appalled with the findings and a number of independent activists decided to readopt the previous year’s Stop the Tuition Fee Increase (STFI) movement. This committee aims to mobilize the students on campus to further voice their demands and build pressure on the administration as well as AUB’s Board of Trustees.

The administration’s justification for the increases has been far from convincing. There are clear inefficiencies in the system and the students are being asked to pay the price. The administration argues that an increase is necessary to ensure academic enhancement through programs and buildings but this should not be at the expense of students. At the end of the day, students are what make or break a university, not its buildings and programs. This is not just students that believe this, the university’s own Dean has backed the campaign.

The TIC believes that certain projects should be put on hold until additional capital is raised from sources other than tuition. The administration argues there were unforeseen costs in the form of taxes, but those could be paid from the university’s considerable reserves. Questions are also being raised about the mismanagement of funds, with multiple bodies appearing to do the same job and concerns over the university’s new $7 million IT support system. In that particular case, the hired company was allegedly directly contracted for unknown reasons, instead of going through the normal bidding process.

The university has argued that these fees are necessary but they will protect poorer students. This is simply untrue. The supposed increase in financial aid (FAID) does not match the increase in tuition fees; some students receiving 40 percent financial aid currently pay more than students receiving 20 percent financial aid five years ago. FAID has switched from a 40:60 ratio (40 percent tuition fees, 60 percent grants and gifts) to a 60:40 ratio. Despite the planned increase, FAID may actually decrease next year.

And the fact is, thousands of students are barely getting by as is. Some don’t eat all day because they can’t afford it, while others work long hours in part-time jobs to cover their expenses. Many simply cannot afford another increase and would have to change universities should it go through.

For a university that allegedly thrives on diversity, a huge number of deserving students are being marginalized. The feeling that most students have nowadays is that unless you have money growing in your backyard, the future is bleak.

Through protests, petitions and a strike, students feel they have done all they can to voice their point of view. If no compromise is reached, they promise to raise the stakes.

 

Executive asked the American University of Beirut to write a counter argument explaining their reasons for the tuition increase but they declined.

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Business

Head in the clouds to help the little guy

by Livia Murray
written by Livia Murray

Company: Pi Slice
Entrepreneur: Genny Ghanimeh
Country: United Arab Emirates
Industry: Microfinance
Established in: March 2013

Many entrepreneurs can be accused of starting with their heads in the clouds, but few do so literally. In 2010 while Genny Ghanimeh was climbing Mount Kilimanjaro in Tanzania, her guide admitted to making the climb to pay for his daughter’s education. “I was surprised he did it six times a year, but he told me he had to do it.” The climb being no small feat, Ghanimeh was inspired and set on a course to make finance more accessible in places where it was lacking. She joined the entrepreneurial clan in Dubai in March 2013 when she launched Pi Slice, a crowdlending platform for micro-finance entrepreneurs in the Middle East.

Ghanimeh identified a gap in microfinance in the MENA region, where out of the six million households identified by microfinance institutions (MFIs) as eligible for loans, there are three million who remain in need of funding, according to Ghanimeh’s research in the sector. Assuming the average micro loan is roughly $1,200 the funding gap according to her research stands at $3.6 billion. This is exacerbated by the region’s poor standing for its microfinance environment. According to a 2013 study by the Economist’s Intelligence Unit, the microfinance business environment in the Middle East and North Africa has improved little in recent years.

Microfinance meets CSR

Ghanimeh partnered with several major microfinance institutions around the region in Lebanon, Jordan, and Palestine, as well as with MicroWorld, a microcredit organization which is part of Paris-based PlaNet Finance, one of the largest NGOs for microfinance in the world.  These MFIs opened up their portfolios of micro-entrepreneurs to the application, and users browsing PiSlice’s website from around the world can make a contribution to finance a portion of a specific loan’s total amount. Pi Slice plans to expand its coverage to include Iraq soon as well.

“I created a model where I bridge all of this to the private sector,” explained Ghanimeh. To attract more lenders, she approached large corporations and encouraged them to direct their policies of corporate social responsibility (CSR) towards microlending. “So I go to big corporates with big employees. I design a page branded with their logo, and the countries on which they want to focus.” Both employees and corporates can lend, and a system of dollar-to-dollar matching encourages lending. Companies are given an incentive to participate with a page on Pi Slice’s website tracking their loans.

On March 2nd, Pi Slice announced its partnership with Stanton Chase Middle East, a branch of the global headhunting and consulting firm. Stanton has subsequently launched its own lending page through PiSlice as part of their CSR initiative.

With an average ticket size of $1,500 dollars, Pi Slice aims to create 5,000 jobs for microentrepreneurs by the middle of 2015.

Though CSR has its critics and has not helped confidence in business which is still below 55 percent in many countries according to McKinsey&Company, CSR is nevertheless seen as a must for any serious company. Ghanimeh believes that CSR still has room to grow in the region, and is actively campaigning to promote it as an avenue for businesses to engage with their communities while still witnessing tangible benefits. She has spoken on the topic at institutions such as the London Business School and at events such as the recent CSR Summit in Jeddah.

Taking a slice

Pi Slice takes a commission fee of 5 percent off the transaction. Though Ghanimeh claims that the companies that have signed on were willing to pay the fee, they decided to waive it for the first year in order to focus on building traction. “When you’re doing a social business, (it’s) different that doing a regular business. It should not be focused on revenues, at least in the first phase.” She is confident that as corporate leaders see more stories of companies reaping the benefits of successful CSR campaigns, more will be attracted to their services. “Of course because this is something new. As people see case studies, we will have more enrollment from the private sector.”

The World Bank estimates that to deal with unemployment in the MENA region, a whopping 85 million additional jobs need to be created in the next decade. Microfinance has to date played an important role in financial inclusion and job creation. By diversifying the sources of microlenders, both by type by encouraging corporates to sign on and by scope as the online platform opens up the lending process to anyone with internet, Pi Slice has the potential to make a mark on MENA microentrepreneurship.

 

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The Buzz

Lebanon to ‘rejoin space race’

by Liam Ying
written by Liam Ying

The Republic of Lebanon is set to reignite its space program, more than 40 years after the first Lebanese rocket ascended 140 kilometers into the thermosphere.

In a landmark decision, the new government is seeking funding for a multimillion dollar program that could see the country send an astronaut into space within a decade, sources told Executive.

Created in 1960 as a science club at Haigazian University in Beirut, the Lebanese Rocket Society was the first attempt at a national space program. It had its heyday with the launch of the Cedar IV rocket in 1963 and inspired a 2012 movie.

Spurred on by this movie and the untapped potential of the Lebanese intelligentsia, the new space program will be much more ambitious and may even focus on developing commercial space tourism and shuttle services. Details of the new program remain sketchy and will not be released until approved through an extraordinary meeting of the National Dialogue Committee, said a former director general from the department of railways and public transport involved in planning the program. “The main aim, in these difficult times, is to remind Lebanese people of our untapped potential. This is among the cabinet’s top priorities,” he said.

The cabinet committee for exploration of interstellar resources on April 1 filed requests for funding with the International Monetary Fund, Make a Wish Foundation, Banque du Liban, and former Prime Minister Najib Mikati, all of whom signaled partially favorable responses.

Among the favorites to work with the government, however, are Virgin Galactic. A statement from Virgin’s President Sir Richard Branson said they were considering their options. “Lebanon, being the true center of the earth, is the ideal location for a space program,” he said in a statement. “And with the wealth of Lebanese talent, we would not need to hire expensive foreign expertise.”

An early sticking point, the former director general said, has been discussion of control over the ministry’s extensive resources. A senior figure in the March 14 political camp stressed to Executive the importance of state monopoly over space exploration, though he refused to comment on rumors that part of Saudi’s $3 billion grant to Lebanon will be used to fund the project.

There is also concern over the country’s fractious political balance, with concerns that the initial spacecraft may only fit three pilots. “We can’t have an unequal number of Christians and Muslims on this historic journey,” said the former director general. “I think we may have to just go with two pilots, or maybe appoint a foreigner to take the third seat.”

The move comes only two weeks after Syria announced it was to establish its own space agency, despite three years of a crippling civil war. It is not yet known whether there will be any collaboration between the two agencies, with fears of potential ‘space race’ across the Middle East. “It’s important for Lebanon’s standing in the world that the country is seen to be in space,” the former director general said.

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Real Estate

Bella Casa suspension: real estate on the edge?

by Karim Makarem
written by Karim Makarem

According to a report in French-language magazine Le Commerce du Levant, prominent Lebanese developer MENA Capital recently decided to discontinue a major residential project. This is the first time in years that a well-known company with great experience in mega developments has officially pulled the plug on a flagship project. The official reason: the very low sales ratio.

When it was announced in May 2012, the Bella Casa residential project in the Corniche el Nahr area stood out by combining a large project size with relatively small unit sizes. The project’s three towers (22, 24 and 28 floors) were to entail over 180 apartments and lofts, with apartment sizes of 120 to 264 square meters. Besides offering units that were described as affordable and convenient in size when compared with other projects in the capital, Bella Casa was to become “a gated community,” in easy reach of two of the city’s main business districts — downtown and Ashrafieh.

Almost two years after launching Bella Casa, the developer has declared that the project had managed to sell no more than 20 percent of its stock. This was despite an aggressive advertising campaign and a recent 15 percent reduction of the original launching price, which placed the starting sales price at $2,800 per square meter — among the lowest in the project’s neighborhood on the eastern periphery of the Ashrafieh district.

One explanation put forth by the developer is that the project catered mainly to the Lebanese expatriate community. Given the ongoing security crisis and the resulting economic stagnation, Lebanese living abroad are reluctant to invest back home.

A promotional video from the now discontinued Bella Casa project

Obviously, the decision has a financial cost to the developer — the expenses incurred in developing the architectural plans, obtaining construction permits and of course launching a full-blaze advertising campaign. The land, of course, retains its value and the developer can always resell it — at a profit.

A struggling market

Yet, this public acknowledgment of defeat, particularly by a large development company in Lebanon, with a very solid track record and some of the capital’s most noteworthy landmark projects, is a worrying sign for the rest of the industry.

Is this an isolated incident, the result of the specific strategies and design choices of a particular development company, or is it a sign of general malaise in the real estate market?

The market has been stagnating since the end of 2010. It started showing signs of decline when the first price drops were recorded toward the middle of 2012. Real estate indicators are in the red across the board: cement deliveries, new construction permits, volume and value of sales transactions, number of unsold apartments, sales ratios, etc.

Market data also points in that direction. Sales ratios in new residential projects have dropped over the past few years, affecting project financing, as residential projects normally obtain the bulk of their financing through pre-sales. In boom years, anything from 20 to 30 percent of a project used to be sold off-plan before the project broke ground.

The case of the suspended Bella Casa development is only one example among many that point to a sharp drop in the number of pre-sales. As these pre-sales finance the launching construction works of new residential projects, dropping pre-sales ratios will certainly have a negative effect on the launching of new projects.

Combined with waning demand, new projects are few on today’s market. For instance, not a single new project has been launched in the Beirut Central District during the past 12 months.

The relatively low sales ratios of projects currently under construction might not cause more market exits of new projects, as construction is already at advanced stages. But only established developers with an assured niche target market are embarking on new projects under such difficult market conditions.

The most probable scenario is that projects currently under way that do not cater to a specific niche clientele will continue to experience difficulties in selling their stock. New projects will most likely be slower coming onto the market.

For the moment, this one cancellation of a major development, although unseen before, remains an isolated fact. Demand for land is still healthy. Developers still seek new opportunities to purchase land to build. They are keenly aware, however, that they cannot make any development mistakes.

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