Economics and Policy
Saudi Arabia has switched its weekend to Friday-Saturday, bringing the kingdom into line with the other Arabian Gulf states.
Good role models are hard to find. Thus insurers on a quest for new business lines would do well to pay close attention to Estonia, the small Baltic republic where cyber security is writ larger than anywhere.
In April, Estonian President Toomas Hendrik Ilves highlighted his country’s success in safeguarding Internet freedom and implementing cyber-security measures. In an opinion piece in the International Herald Tribune, Ilves explained that Estonia’s cyber-security achievements came on the tails of a countrywide cyber attack five years earlier that targeted government websites, newspapers and banks and overloaded servers to the point of shutting down the country’s digital infrastructure for days.
While the attacks on Estonia were harsh, they were just part of a rising tide. As consumers, corporations and small businesses have moved onto the net, criminals and online mercenaries have followed. This, in turn, has created a huge need for online actors to protect individual and group rights of market participants. The situation today has reached the point where this protection system is moving beyond the need for technical and legal measures to a need for online insurance — not as a channel for marketing standard products such as a life plan, but as cyber insurance, such as corporate covers of financial liabilities related to data breaches.
In coverage terms, cyber insurance is a wide term for first-party and third-party liability protections. First-party policies can reimburse companies, for example, for the direct and indirect economic damage of having data destroyed by a malware (malicious software) attack. Third-party cover could be vital for companies that host online debates where hosts may be held accountable for libel found on their sites, or it may jump in when data hosting companies are held liable for exploitation of credit card numbers that were hacked from their servers.
Related articles: Lebanon’s insurance industry dead in the water
The United States Department of Commerce describes cyber-insurance as potentially an “effective, market-driven way of increasing cyber security.” This is a reference to the value that insurers can add to the expanding web economy by identifying market needs of customers and researching what areas of business are most vulnerable, while advocating for cyber-security solutions.
Estonian President Ilves called the attacks on his nation a “blessing”, because they inspired Estonia’s commitment to cyber security and pushed the government and private sector to invest in better protection at a time when cyber assaults were nowhere near as threatening as attacks can be today. As further sophistication of malware comes in tandem with the increasing breadth of services the Internet has to offer, cyber-security solutions help in preventing such attacks.
But these methods cannot be relied on as the only defense, and here is the point where insurance companies, with their sound commercial interest in prevention, can step in to compel clients to greater preparedness and at the same time provide the security that they need if they fall prey to an attack.
Even with our terrible connection speeds…
Lebanon is a country where e-banking is slowly reaching a threshold of prevalence and this means that cyber insurance is something that providers and commercial clients need to be aware of, ideally without suffering direct wake-up calls akin to the pre-paid card fleecing that two banks in the Gulf suffered earlier this year.
The expansion of cyber insurance into the Lebanese market is inevitable, according to Roger Zaccar, director of Commercial Insurance, who told Executive, “People are going to come to realize how important Internet security is, and how to buy insurance.”
But Zaccar sees a misconception among customers that insurance takes the place of cyber security. “No one can insure them if we don’t have a certificate from a company that says [their security systems] are up-to-date.”
According to computer security software corporation Symantec, global cyber attacks surged 42 percent in 2012 from 2011, and of those targeted, 31 percent were small businesses. Without risk management or an IT department, Zaccar explains, small firms try to take security measures into their own hands.
Given that 90 percent of Lebanon’s firms are small and medium-sized enterprises that likely don’t have the means to understand and mitigate risk, many Lebanese businessmen could be vulnerable.
Even so, Zaccar believes the Lebanese market is not quite ready yet. “We are starting to have small stories [of cyber attacks] here and there, but I think in a year and a half, we are going to see a bigger movement [towards cyber-insurance policies],” he says.
A nascent niche
There are also fundamental challenges that limit the growth of this new line of products and these apply to Lebanon as to every other market. Even conceptually, while some risks are easier to define and therefore easier to insure, such as loss of finance, income and information, there are others, such as reputational damage, that are more difficult to define.
Compounded on this wide range of vulnerabilities is the lack of actuarial data to assess security products, leading to insurance policies that are often more generally inclusive, meaning higher premiums for businesses, which might prefer to bear the risk instead.
More specific to Lebanon is the lack of national awareness of the importance of cyber security. Zaccar says, “There is no cyber-insurance culture… because there is no cyber-security culture.”
So far banks, for example, have experienced petty fraud — think stolen credit cards. These losses amount to little and can be covered by the banks themselves. Unless a business or bank has been hit hard by cyber crime, similar to the case of Estonia, industry experts agree that most firms will overlook the need for proper cyber security.
As Lebanon’s market for cyber insurance and cyber security unfolds, these factors will need to be addressed and, as Zaccar puts it, “tailored” to the country’s needs.
While cyber-security firms continue to find solutions to battle cyber crime, insurers must prepare their underwriting capacities in anticipation of the certain growth of demand for this new business specialty. This could include operations such as designing transparent policies and determining which security products Lebanese companies need in order to be granted coverage for eventualities ranging from downtime caused by data theft, to liability cases from people whose privileged information has been stolen from a cyber-insured corporation.
Ferrying about 1 million passengers from the Middle East to Germany and onward in 2012, Lufthansa continues to make its mark on a region that aviation giants such as Emirates and Etihad call home. Executive sat with Lufthansa’s Carsten Schaeffer, vice president of sales and services in Southeast Europe, Middle East and Africa, to talk about Lufthansa’s success in the region.
What is the size of Lufthansa as we speak at the end of April 2013?
To do our numbers justice, I should talk about the full year 2012 in which we had 75 million passengers in Lufthansa Passenger Airlines and 103 million in the whole group, which includes Swiss International Airlines, Austrian, Air Brussels and German Wings.
If we talk about flights that originate from the Middle East and Africa, who do you see as your biggest competitors?
In Africa, Air France is our biggest competitor, mainly in the French-speaking countries. There is a bit of competition from the [United Kingdom] carriers in Nigeria, which is one of our key markets in Africa. In the Middle East region, obviously the Gulf carriers are very active. As much as we enjoy a big chunk of the traffic to the North Atlantic, they do to Asia. In Lebanon we are not necessarily in direct competition. The big-source markets in the [Gulf Cooperation Council] countries are the ones that we focus on.
Some of the region’s big carriers of today are very young airlines by comparison. Lufthansa has a long history and has operated a service to Beirut as far back as 1956. Where is Lufthansa located today in the age mix of aviation identities?
Mentally, I think we are a young airline. We keep reinventing ourselves, trying to maintain the heritage that we have and which works to our favor, and also adapting to the ever-changing aviation environment. With the challenges of the low-cost carriers in Europe and the rise of the Gulf carriers, we have to stay young. We are forced to stay on our feet and are forced to stay young. For that we are [currently] going through another reshaping and redesign of the way we do business and also the way we sell our product.
Carsten Schaeffer was in Beirut to gain an impression of the city
What is the main aspect of this redesign?
[The question is] how can we be leaner and faster in decision making and how can we adapt to the new ways of selling which are much more technology-driven? Sales in the past were often relationship-oriented. Since more and more people buy through systems, the web — our own and other websites — the technology that we apply to sales has to be as convenient and as competitive as possible — this is one of the key aspects that we focus on.
Are you working on any new additions to the selection criteria offered to online customers?
We want to change it into more of an ‘Amazon’ idea where, in a central European environment, people want to go on a city break vacation and have the desire to spend some nice time. They don’t come with a predetermined mindset as to which city they want to visit — it can [for example] be Barcelona, Stockholm or Prague — and ask for some ideas.
Would it ever be possible to have short trips to Beirut included in the suggestions for city breaks to Europeans?
One of the reasons why I am here was that I wanted to gain a first impression of Beirut. Beirut still has an image issue and I think it takes your work, my work and the work of others to educate the world about what this city has to offer. And what we know also from portals such as TripAdvisor is that nothing works better than a recommendation by somebody you trust. I personally love to eat; I love wines, and if I start recommending restaurants in Beirut and go to Beirut for dining out, friends who have similar requirements will start following that advice.
What do you see as your competitive edge in appealing to international passengers?
We will never be Asians in the way we perform service but what I always enjoy when I fly Lufthansa is the way in which the crew treats me as an individual, holds a conversation and presents a European lifestyle when it comes to knowledge of the wines they are serving or the kinds of foods. Other companies in our field struggle with not having a heritage and infuse little things to create something like a heritage through the look and feel [of their products]. Let’s say we are intrinsically German and we don’t need an additional list of languages that we offer. We offer English, German [and other languages], but that is something that you can always rely on.
When it comes to onward passengers, transit visa requirements in Germany have always struck me as obsolete and perhaps uselessly stringent. Is that an issue for your Middle Eastern business?
We wish that European governments would create friendlier environments for the airlines and the transit visa issue is very close to our hearts because it restricts our capabilities in the market. As we discussed this here earlier [in today’s staff meeting], I realize how difficult it can be if you need a visa. In the markets that I am responsible for here in the region, a lot of nationals have these kinds of problems.
But why is it that Lebanese need a transit visa when flying via Frankfurt for example to the United States? In other European airports, such as Amsterdam, London or Paris, they don’t need a transit visa.
I don’t understand the logic behind it but we have to abide by the local rules. We talk to the German government and the response is that there is a persistent procedure in all the Schengen countries. That is not necessarily our experience, and we would love to change that.
How about long-term labor costs? Do you feel disadvantaged vis-à-vis Gulf carriers?
We work in a different environment when it comes to labor; unionized and non-unionized is a different equation. At the same time, Lufthansa has always enjoyed very loyal staff, which is to our benefit because we believe in experience and practice in the servicing field. It is part of our success model over time. Since we are going through structural changes, there will be situations where it will be more difficult to explain to the staff in which direction we are going, but that is only a phase in time and I am not concerned in the long run.
Did the mess surrounding the Berlin Brandenburg Airport and the extreme delay in its opening cause a headache for you?
We built our schedule around the capacity of the new airport and started a lot of new destinations where we are also depending on transferring traffic. Berlin’s Tegel Airport is great for local traffic but it is definitely not the gateway where you can transit. We have operational issues in Tegel and we don’t have the transfer passengers, which affects our bottom line tremendously.
Berlin to Beirut was one of the new routes that you created in time for the new airport’s expected opening in June 2012. Was there an impact on Beirut traffic and what is your ambition for the connection between the two cities?
We saw an impact on Beirut [traffic] but even more so in central European flights that now connect through Tegel instead of the new airport. For now, we rely more on the Lebanese market to Berlin than the Berlin market to Lebanon but with more good news in German and central European media about Lebanon, we would love to have a more balanced exchange on both ends, and that is what we are fighting for on all levels.
Economics and Policy
High Syrian demand for Lebanese manufactured goods caused industrial exports to surge by 6.3 percent in the first three months of 2013.
Syrians are increasingly abandoning their own currency in favor of the security of the dollar.
At least 18 Lebanese citizens have been expelled from Qatar after the Gulf Cooperation Council pledged to act against members of Lebanon's Shiite Hizbollah movement.
Rami Hamdallah has resigned as Palestinian Authority prime minister, just two weeks after taking the post.
Companies and Business
BP has agreed a price for any gas produced from Oman’s Khazzan project as part of a commercial framework agreement with the government.
Blackberry has launched a smartphone and store in Dubai as it battles to regain market share from rivals Apple and Samsung.
Company: Qi Juices
Country: Lebanon
Industry: Food and Beverage
Founders: Leila Fakih Nashabe and Hana Alireza
Established in: 2012
Number of employees: 7
Revenues last year: Expected revenues of $100,000 in 2013
Capital raised: Kafalat loan of $114,000
Beyonce, Oprah and Gwyneth Paltrow have all done detox diets to shed a few pounds and feel healthier before the summer. Now the hugely popular American concept has landed in Beirut.
The idea is simple — a liquid-only diet for three days. That’s what the founders of Qi Juices, Leila Fakih Nashabe and Hana Alireza, recommend to make you feel healthier
It is not cheap, mind you. For $65 a day, you get six juices made of homegrown fruits and vegetables. The cleansing program is an extreme diet plan that claims to remove the toxins from your body. From a Red Magic juice with beetroot and ginger to a Green Dream juice with spinach and parsley, the three-day cleansing program — which can be extended to five days or cut to just one — requires a dedicated will to detox, perhaps encouraged by overindulgence at the dinner table or a few extra summer nights out. Detoxers often lose between one and three kilos but the two women stress that it is not about losing weight but being healthy.
Launched in March of this year out of a kitchen — or ‘Qitchen’ as the founders like to call it — in the heart of Achrafieh, the idea was initially sparked by a trip to California when Alireza went on a juice cleanse program for three days in Los Angeles. After finishing the detox she felt more energetic, so she decided to bring the idea to Lebanon, rich in agricultural produce.
She initially partnered with her old friend Nashabe in December 2011 but they found funding hard to come by. Eventually they succeeded in obtaining a $114,000 loan from the government-subsidized loan program Kafalat and have started producing their products this year. “It took over a year; Kafalat was skeptical about the idea,” says Nashabe. The founders themselves funded the remaining cost of the project, putting in $86,000 to reach their $200,000 target.
Carrot and apple juice, anyone?
At $10.8 a bottle, the Qitchen has a maximum capacity to produce up to 400 bottles a day and the founders expect to generate between $100,000 and $120,000 in their first year in operation. With a three-day shelf life, the founders are selling the juices directly to clients on order and have recently signed with organic food store New Earth. Other organic stores are also showing interest in buying their products.
As for the taste of these healthy juices, customers will be pleasantly surprised by the often odd-sounding juices, some of which contain spinach, parsley, beetroots or event fennel and romaine lettuce. Colorado-based nutritionist Natasha Henry advises the founders on the mix of the products to maximize the nutritional benefits. Henry established New Paradigm Healing, a clinic that claims to provide natural therapies for the physical and spiritual well-being.
While the detox diet is hot in America with several Hollywood celebrities behind the hype, there is still little scientific evidence backing its claimed benefits — from removing toxins to losing weight. The debate among nutritionists is fierce. What is not in doubt — as we were so often told in our youth — is that eating fruits and vegetables adds a significant source of vitamins to our daily diet. So while the cleansing program may be of debatable value, the vitamin-rich homegrown fruits and vegetables packed in one small bottle of juice can’t hurt — except your wallet.
Economics and Policy
Most Lebanese bankers have apparently coalesced around the candidacy of François Bassil as head of the Association of Banks in Lebanon, ahead of the group’s July 5 election.
Revenues at Beirut Port grew 26 percent in the first five months of the year, with the port benefiting from the Syria crisis.
The Cypriot Cabinet approved on Wednesday plans to sign for a deal with a US-Israeli partnership to build a liquefied natural gas plant on the island to exploit untapped energy riches.
The Syrian central bank sold $8 million to local banks Wednesday at 175 pounds to the dollar, despite the official rate remaining at 99.91 pounds to the dollar.
Companies and Business
Dubai’s Roads & Transport Authority (RTA) has announced that the company building the $196m Rashid Hospital Tunnels project has completed construction and is putting the finishing touches to the tunnels, which are set to open on June 30.
As Raymond Audi, chairman of Bank Audi, Lebanon’s largest bank, walked me through the four floors of their headquarters in Downtown Beirut, I would have thought I was in a major contemporary art gallery were it not for the bankers conducting their daily activities.
Banks across the world are building art collections and multi-million dollar pieces adorn the walls of the largest bank offices. Germany’s Deutsche Bank, which started its art collection in 1979, features the world’s largest corporate art collection. Its New York offices even have a different art theme for each floor. Picture working in that environment.
Related article: Bank Audi’s chairman on his love affair with art
Swiss bank UBS’ art collection features a painting by American pop artist Roy Lichtenstein, with a similar one sold at Christies for over $4 million in November 2011. How better to impress clients than to have a piece by Lichtenstein hanging in the meeting room? The bank has a five-year partnership started in April 2012 with New York’s Guggenheim museum to identify and support a network of art, artists and curators from South and Southeast Asia, Latin America, and the Middle East and North Africa.
Lebanese deck the halls
Similar to the décor of JP Morgan’s Wall Street offices, the entrance of Bank Audi’s main headquarters hosts a six-meter tower sculpture by French artist Jean Dubuffet. At auction in Christie’s in November 2011, a two-meter sculpture by Dubuffet fetched $1.2 million.
From French artists such as Dubuffet, Bernar Venet and Francois Rouan to Lebanese artists such as Paul Wakim, Jean Marc Nahhas and Shafiq Abboud, Bank Audi has a wide collection of modern and contemporary art in its Beirut headquarters with some valued at exorbitant prices.
Many pieces of contemporary art are owned by Lebanese banks
In its Swiss offices, the bank holds a collection of old masters’ paintings from renowned artists of the 16th century, such as Lucas Cranach the Elder, and the 17th century, such as Jan Van Goyen. Villa Audi, the bank’s art space in Beirut, hosts its collection of mosaic art, the bank’s first purchase of art pieces which started prior to the Lebanese civil war. The estimate of the entire art collection was not disclosed.
Bank Audi is not the only Lebanese bank building an art collection. Focusing primarily on Lebanese art, BankMed started developing its collection in 1995 and its modern art pieces are hung on the walls of its branches throughout Lebanon.
While the bank started its collection by acquiring a piece by a French artist, its focus is on Lebanese art, which now accounts for about 80 percent of its collection. The bank owns the largest private collection of the renowned late artist Paul Guiragossian.
“When we started investing in Guiragossian, we wanted to stop the pieces from leaving the country as a lot of people were buying his pieces and at that time, [the banks] were the only ones able to afford keeping the national heritage in the country,” says Diala Choucair, head of communication at BankMed who did not disclose the estimate of the bank’s art collection. Choucair, who takes charge of all matters related to art for the bank, is now keeping an eye out for pieces to embellish the bank’s new headquarters that will be completed in two years.
Beyond an art collection
Involvement with the art world goes beyond merely acquiring a piece for a corporate art collection. Some banks are turning sections of their premises into art spaces. Since 2011, Byblos Bank has held six exhibits in its headquarters in Beirut for Lebanese artists Chucrallah Fattouh, Charbel Samuel Aoun, Rawya Zantout, Hrair, Krikor Nourikian and Dory Younes.
Falling under the bank’s corporate social responsibility (CSR) practices, the bank does not charge a fee for the sale of pieces during the exhibits. “We are now thinking of art as part of our CSR to help Lebanese emerging artists at different levels of maturity in their work. If promoting them means helping by buying a piece we will do it,” says Nada Tawil, head of communications at Byblos Bank. A piece by Aoun adorns the walls of the office of Semaan Bassil, vice chairman of the board and general manager of the bank.
A Jean Marc Nahhas sketch on an office wall in Bank Audi’s headquarters
Byblos Bank is not the only bank hosting exhibits in its offices. FFA Private Bank turns its first floor into an art space twice a year. With art consultant Nada Boulos el-Assaad on board since 2009, FFA provides local artists with a platform to display their pieces and, similar to Byblos Bank, does not take a fee for the sale of art pieces.
To support Lebanese art, FFA acquires a piece from each exhibition it hosts. Its collection now includes paintings by Marwan Sahmarani and Oussama Baalbaki, a photograph by Joe Kesrouani and a sculpture by May Rishani. “FFA invests primarily in Lebanese art but is open to works from the region. The main focus has been on semi-established artists but the focus is changing to emerging talents,” says Reem Moukarzel, FFA’s marketing and communication manager.
Behind the Beirut Art Fair
Extending sponsorship of art outside their offices, banks have backed the Beirut Art Fair since its debut in 2010. With over $2 million in sales and 11,000 visitors last year, organizers of the art fair are expecting sales of $3 million and 13,000 visitors at the fair in September. BankMed, the fair’s largest sponsor, has supported the event from the beginning. “It is a national effort more than a sponsorship,” says Choucair as she explains how the bank first decided to sponsor the fair in 2010.
In partnership with the organizers of the Beirut Art Fair, Byblos Bank sponsored a photography competition for Lebanese photographers last year. The winner of the competition, 25-year-old Dory Younes, hosted a solo exhibit in the bank’s headquarters in April 2013. The competition will take place this year as well, with the winner to be granted a solo exhibition in 2014.
Byblos Bank plans to focus on photography going forward as it develops its understanding of the art world. “You can’t be the blind leading the blind. We want to build credentials for people to start thinking about us [as art experts] so we decided to partner with the Beirut Art Fair so they teach us and we decided to help young photographers,” adds Tawil.
Cutting edge partnerships
Up until this year, the involvement of the banking sector with art involved corporate art collections, hosting art exhibits or sponsoring events. However, in May, the AUB Byblos Bank Art Gallery opened on the university’s campus to expose students to cutting-edge art.
The gallery, which is sponsored by Byblos Bank, will host exhibitions for foreign and local artists with the first exhibition entitled “Art in Labor: Skill, De-skilling, Re-skilling,” running until July 27, 2013. The non-commercial gallery will host art “that can make you stop and think,” says Tawil.
A shoe by Lawrence Abu Hamdan and a long tube by NY-based Gregory Sholette are displayed in the art gallery at AUB.
Banks’ courtship with the art world is taking on different shapes and forms. As these activities help brush the image of the banks, they also aim to promote Lebanese artists. Given the lack of national museums and government funding for local talent, this support is welcome news for Lebanon’s growing and buzzing art scene.
Standing six meters tall, French artist Jean Dubuffet’s blue, red, white and black sculpture decorates the entrance of the Beirut headquarters of Bank Audi, Lebanon’s largest bank. It is one among many modern pieces that adorn the head office. Old masters’ paintings also feature in Bank Audi’s corporate art collection on display in their offices in Switzerland. The bank’s mosaic pieces are placed at Villa Audi, the bank’s art space. For this month’s special report, Executive visited Raymond Audi, the bank’s chairman and a Lebanese art patron, for an insight on the bank’s art collection.
Walking into the Bab Idriss headquarters, one cannot but notice the impressive tower sculpture of Dubuffet. Why did you choose to acquire this piece 12 years ago for the entrance of the headquarters?
When we had to find a sculpture piece for the entrance, I wanted to have a sculpture by French artist Bernar Venet, but my son, who is my art mentor, suggested to have a more colorful piece. We went to the Dubuffet foundation because we knew the person responsible for the art collection of [French automaker] Renault. It was very expensive and it is one of our most valuable pieces. I told Venet that we will switch him to another place in the bank and his piece is now placed at the Wadi Abou Jmiel entrance of the bank. He promised me that he will offer to Lebanon one big piece, like when the French artist Arman offered a piece [Hope for Peace] to the Lebanese army [in 1995]. I’m still expecting one day he will come and offer a piece for the town.
Raymond Audi takes pride in the bank’s art collection
When did Bank Audi first start its art collection?
Before the [Lebanese Civil War started in 1975], I was collecting mosaics and I bought piece after piece from several places to decorate the walls of our branches. After buying a bank in Switzerland and spending time there after the war, we discovered that it was a good opportunity to start collecting Flemish and Spanish art because of the tax benefits on art investments. So we collected about 13 valuable pieces from renowned artists such as Pieter Brueghel (the younger) and Lucas Cranach (the elder) that are in our Swiss offices. As I started moving in and out of Lebanon, I started supporting Lebanese artists and buying some beautiful pieces from artists such as Paul Wakim and Jean Marc Nahhas.
How do you go about acquiring a piece of art?
I hate to go to the launching of art exhibitions at galleries because you are surrounded by lots of people and the gallery owners want you to buy immediately. That’s why I don’t go. I go suddenly when I am free and without saying who I am. If I find something nice, I buy. I don’t have art advisors [except for my] son, [who] knows a lot about art, especially modern art.
Related article: The Art of Banking
Who is your favorite artist?
For me, Paul Wakim is one of the best, and he is a fantastic guy. I knew him from his early days when he was painting with cats all around him.
With time, I discovered he does not deserve to be helped. I helped him raise the value of what he is doing in such a way that he should at least help me in developing our art collection. Anytime I ask for a good piece, he prices it highly, and he is becoming greedy. I am not happy about him, but for me, he is one of the best.
What are your thoughts on the Lebanese art market today?
We don’t have a national museum that collects pieces of art and gives them a proper reference. The galleries, which are the main art dealers, are over-inflating the prices on pieces that are of bad quality. They are not differentiating between the good and bad quality pieces.
Do you acquire art for investment purposes? To sell them for profit?
It is becoming more and more of an investment, and the value of our art collection [which remains undisclosed] is very high. But the choice of the piece depends on its quality more than on its value. Some good painters are not paid what they deserve, and some are very well paid for what they don’t deserve. This is the current art situation, and I pay very close attention to it.
With art pieces fetching exorbitant prices, some industry experts are saying art valuation is a bubble that will eventually pop. Do you agree?
We feel that art is becoming a kind of haven for [some] investors because they don’t know what to do with their money, especially for the ones that are asked questions like, ‘From where did you get your money, how did you make it’ and so on. They don’t like to answer these questions, so they prefer to invest in art.
Some large investment banks are offering their private banking clients an opportunity to invest in funds dedicated to art. Is this something that Bank Audi would consider?
No.
Would you consider opening a gallery?
We don’t want to be a seller or merchant of art. We have in Villa Audi a display ground where we feature a retrospective of artists that passed away, for them to be better known after their death. I would like to create a museum for mosaics at Villa Audi, but unfortunately archeology in Lebanon is a major problem. Authorities consider any collector as a smuggler. Any new minister that wanted to help was dismissed. Villa Audi is not officially a museum, but in fact it is a museum.
Syria’s ongoing destruction has impacted the Lebanese economy in various ways, but its eventual reconstruction could bring rich opportunities to its smaller neighbor.
The first two years of the Syrian conflict have seen a massive influx of refugees who have added to the large, existing Syrian workforce. According to Lebanese government estimates, more than 1 million Syrians resided in the country at the beginning of 2013 (both refugees and non-refugees) — the equivalent of a staggering 25 percent of the Lebanese population — while estimates from the United Nations High Commissioner for Refugees have documented 486,000 refugees as of May 22, both registered and waiting to be registered.
This flow has had, and will continue to have, a significant impact on the weak Lebanese state and its physical infrastructure. The number of Syrian children that will require schooling in Lebanese state institutions in September 2013 is expected to rise significantly, with some analysts forecasting their enrollment to be on par with the current number of Lebanese pupils. The water and electricity networks will not be spared, particularly during the summer, while traffic congestion is already on the increase.
Negative effects have also been felt by Lebanese businesses. The conflict in Syria has frightened off tourists and dipped confidence in the economy. Demand from Lebanese households has declined and so has investment, according to Banque du Liban, Lebanon’s central bank. The conflict has also significantly increased the cost to insure and transport exports to Lebanon’s traditional trade partners, such as Iraq and the Gulf. Meanwhile, Lebanese investors in Syria, particularly those in the financial services industry, have taken major losses.
This is not, however, the full picture. In the summer of 2012, the expansion of violence to Syria’s two largest cities, Damascus and Aleppo, drove thousands of urban dwellers from the Syrian middle class and business community to Lebanon. This led to a surge in demand for rented housing across the country and to a rise in consumption. The presence of Syrian patrons at restaurants in Beirut’s Hamra district and beyond is ample proof of that. Investment is still lagging, though by the spring of 2013 an increasing number of Syrian investors were reportedly starting to establish offices or set up shop in and around Beirut.
More relevant to the longer term, however, is the effect of the war and of the Syrian economy’s disintegration on the often-complicated relations between Lebanon and Syria
Already, the decline in Syria’s economic output has improved Lebanon’s trade balance with its eastern neighbor. According to Lebanese customs, Lebanese exports stood at $296 million in the first four months of 2013 — more than the total of 2012, which reached $294 million. While this is partly due to transit trade of energy products to the sanctions-hit Syrian government, there is also evidence that this is the consequence of a massive decline in Syria’s output, especially in the farming sector, creating intense demand for essential goods and commodities from abroad. This represents a reversal of a historic trend; Syria’s more competitive agricultural products used to regularly flood Lebanese markets.
Even if the conflict were to end today, the Syrian economy would need years before it recovers. Replacing destroyed infrastructure and housing alone is expected to cost tens of billions of dollars. The UN’s Economic and Social Commission for Western Asia forecasts, for instance, that when reconstruction begins, demand for cement in Syria will be at some 30 million tons per annum, or three times the level of demand prior to the conflict — a rise in demand that will benefit the Lebanese building materials industry.
After a decade during which Lebanese financial sector capital and know-how benefited from Syria’s economic liberalization, it’s now likely that the country’s smaller industrial and agricultural sectors will find strong new opportunities in post-conflict Syria.
It is still too early to make a comprehensive assessment of the impact of the war on bilateral relations, but there is little doubt that Lebanese investors, across all business sectors, are going to be major beneficiaries of Syria’s reconstruction effort. This will be a strong incentive for solid ties between the two countries, but whether politicians have a grasp of the importance of nurturing these ties is, obviously, a different story.
Jihad Yazigi is editor-in-chief of The Syria Report
Loans have divided societies throughout history, between people who consider them a beneficial product that allows customers to purchase goods they need now and pay for later in the future, and others like Thomas Jefferson who believe “that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
The latter category seems to be off base since banking credits expanded prodigiously in the past 50 years and banking activity in general generated remarkable profits for shareholders. This was driven in part by significant improvements in banking investment opportunities, with return on equity ranging between 20 and 25 percent for the financial industry as a whole up until the financial crisis in 2008.
The boom years…
Banking activity in Lebanon flourished after the end of the civil war, and it again took off in the period following the July 2006 Israeli war on Lebanon. Throughout, the growth of the sector’s activity was accompanied by a surge in lending. While loans to gross domestic product (GDP) remain within international standards — hovering at around 100 percent — with average interest rates on loans close to 7.2 percent through 2012, the surge in loans is posing a burden on consumers.
Credit to the private sector increased two and a half times in the past six years until the end of 2012. While loans to all sectors of the economy surged, the most prominent increase was for individual loans, which recorded more than a 250 percent jump during the same period to stand at around $13 billion at the end of 2012. The boom in real estate activity and prices in the past six years was the major contributor to this increase, driven by support from Banque du Liban, Lebanon’s central bank, and the Public Corporation for Housing. Housing loans went up from $1.2 billion at the end of 2006 to more than $7 billion by the end of 2012 and loans to the construction sector followed, jumping from $3 billion to more than $8 billion in the same period.
The sum of this real estate-related lending activity shows strong growth during the past six years, from $5 billion, or 27 percent of total loans, in 2006 to $19 billion, or 42 percent of total loans in 2012.
As for the other sectors of the economy, loans have doubled during the same period. Credit to the trade and services sector, the largest constituent at 35 percent of outstanding loans, increased by 105 percent in the last six years to reach $17 billion. Loans for manufacturing moved from $2.5 billion in 2006 to $5 billion in 2012, and those to the agricultural sector more than doubled, albeit from a low base, from $219 million to $455 million.
A welcome piece of news that has accompanied the lending surge is the drop in non-performing loans (NPLs), loans that are close to default. The NPL ratio to total loans decreased from 12.2 percent at the end of 2006 to 3.5 percent at the end of 2012.
…go bust
But banking loans to the private sector are expected to grow at a slower rate through 2013 and 2014. Economic activity has slowed as real GDP logged just one percent growth in 2012 and is projected to grow between 1 and 2 percent this year and 3 percent in 2014.
Hence the opportunities for growth of the banking sector in the domestic market will be limited. Banks will have to look, as some of them are already doing, at growth options in the region or other parts of the world. With a continuous slowdown in the growth of deposits, fulfilling the demand for loans by both the private and public sectors is challenging, and it seems likely that the private sector will be crowded out in favor of the public one.
In this context, returning to the high economic growth rates and a positive balance of payments is crucial. And this will not be feasible without a stable political and security situation, accompanied by structural reforms and infrastructure investments through public-private partnerships so as not to overburden government finances.
In the words of French artist Eugene Delacroix: “If one considered life as a simple loan, one would perhaps be less exacting. We possess actually nothing; everything goes through us.” From this perspective, adding a few other loans to life could actually be a good thing, for they may help us in improving our living standard as long as we have the capacity to pay them back.