Executive Magazine

Q&A – Issam Hitti

by Thomas Schellen September 1, 2012

written by Thomas Schellen

Insurance broking is a business of consulting and risk advisory that historically bears the onus of being the “middle man”, with all the common questions of what value this function brings with it. Executive sat down with Issam Hitti, the president of the Lebanese Insurance Brokers Syndicate (LIBS) to find out how the brokers are contributing to the nation’s insuredness.

What can you tell us about the performance of Lebanese insurance intermediaries?

We just finished this study regarding the sector’s performance in 2011 and thus for the first time have a clear view on the sector, about how many people are working in it and how written premiums are divided by line and also by distribution channel. We have divided the channels of distribution according to three categories: the direct and exclusive agents, the bancassurance and the independent brokers.

How many people make their living as insurance intermediaries today?

We have found that we have 258 brokerage companies and 121 individual brokers, which gives us a total of 379 independent legal and licensed brokers. Besides the shareholders, we have about 1,790 active employees [at independent brokers]. There are also 1,023 exclusive agents in the market, including 812 agents working with insurance companies and 167 agents working in bancassurance. All in all, the total number of active persons in this field is 3,708. Counting four members per family we think that the number of people benefiting from the insurance intermediary industry is about 15,000 persons.

How big is the pie that these insurance intermediaries and their families live on?

From the reports of the Association des Compagnies d’Assurances au Liban (ACAL), we know that the insurance companies have about $1.22 billion written premiums in 2011. Regarding the channels of distribution, we have analyzed the reports by the Insurance Control Commission (ICC) at the Ministry of Economy and by ACAL and we have also issued our own study on the portfolio profiles of LIBS member companies. We found that bancassurance accounts for about 24 percent of overall production of written premiums, 33 percent for direct and exclusive agents and 43 percent for independent brokers. This means we are sure that independent brokers were producing about $528 million in written premiums in 2011.

So when compared with direct agents and the bancassurance channel, independent brokers are supplying the largest chunk of insurance premiums that are written each year?

Yes.

But do we know how this breakdown of insurance business by distribution channel has evolved over recent years?

No, this is the first year that this study was done.

And how do their shares in the underwriting of total premiums translate into revenues for the intermediaries?

We expect that the total remuneration paid to insurance intermediaries in 2011 is about $200 million, with 23 percent for the bancassurance distribution channel, 31 percent for exclusive agents and 46 percent for independent brokers.

So total cost of sales for insurance premiums across all distribution channels is approaching $200 million, and independent brokers take 46 percent, meaning your industry turnover of independent brokers and your employees came to about $92 million in 2011?

Yes.

Do you have projections how these numbers look for 2012?

No. We have only the first quarter and second quarter figures so we have to monitor and hope to get the real figures at the end of the year.

But from the perspective of brokerage business, do you see trends or significant points of strength or weakness in 2012 when compared with last year?

I think we are at the same level as 2011. There is no boom in the business; the main issue now is to maintain your business and do a good renewal business. Unfortunately, there is no big volume in new business, there are no projects. Nevertheless, because of premium increases related to inflation and higher loss ratios, etc., we think there will be an increase of about 12 to 15 percent in the market.

Before inflation?

Exactly.

September 1, 2012 0 comments

Orange scheme crashes

by Thomas Schellen September 1, 2012

written by Thomas Schellen

It ain’t broken, but the economy underlying one of the Lebanese motor insurance industry’s specialities has vanished. While the Orange Card system for cross-border liability insurance protection of Arab motorists is functionally fine, commercially speaking, Lebanese administrators tell Executive that business has fallen precipitously – premiums have roughly halved and sales are almost non-existent.

Data from the Association des Compagnies d’Assurances (ACAL), which administers the Orange Card system on the Lebanese end, reveal a massive drop in premiums between the first and second half of last year. Between July and December 2011, premiums slowed to $889,000, down from $1.53 million in the first half of 2011. In the first half of 2012, insurance premiums issued in Lebanon under the Orange Card system amounted to merely $947,000, down almost half when compared with $1.85 million in the first six months in 2010.

In a way this is not surprising but more a clarification of reality. The Orange Card is a short-term liability policy that all Lebanese private and commercial vehicles need to have in order to travel from here to Syria, Jordan, Iraq, and other Arab countries. The slowdown in premiums reflects in frightening crispness how travel between Lebanon and other Arab countries has been impacted by the situation in Syria.

“If you want to travel through two or three Arab countries, you buy a small booklet where the pages are stamped in accordance with which countries you pass through. If you go from Lebanon, you buy from Lebanon a stamp for Syria and Jordan. If you travel from Qatar, you buy it there,” explains Fateh Bekdache, the head of Lebanon’s National Bureau for Compulsory Motor Insurance (and general manager of insurance company Arope).

If an insured vehicle is involved in a claims case in an Arab country, either the country’s national insurance association or a designated insurance company handles the settlement. The involved parties then balance the claims accounts between each other, Bekdache adds.

Stalled sales

In 2012, sales of Orange Card booklets to Lebanese insurance companies amounted to a paltry 2,151 cards in the first six months of the year; in April and May not a single card was sold. Given that 40 to 60 percent of cards sold to insurance companies lead to issuance of a cross-border policy, the number of issued policies hardly exceeded 1,000 in the first half of this year, according to Jamil Harb, secretary general of ACAL.

Before the unrest in Syria started unfolding last year, sales of Orange Cards were in the tens of thousands. In 2010, sales reached 60,750 cards in the full year and insurers reported issuance of some 30,000 policies.

The much larger drop in the number of cards sold, relative to the contraction in premiums from the issued policies, suggests that cross-border travel of passenger cars and private motorists has dwindled to the absolute essential.

Under the Orange Card fee structure, private motorists can purchase cards with durations from one month to one year, while commercial vehicles – taxis, buses, and trucks — can purchase cards lasting from three months to one year. Commercial vehicles not only pay two to three times higher premium rates than private vehicles, they will also tend to be active year-round and avail themselves of the discounts for longer lasting policies. The discounts offered for the longer-duration cards are significant, a taxi operator will have to pay $40 per month on a three-month validity but only $23.30 per month when buying for the full year. Similar discounts apply to buses and trucks.

The Orange Card scheme, which is under the authority of the Cairo-based General Arab Insurance Federation, doesn’t publish system-wide performance figures but the Lebanese data shows that people here have stopped relying on road travel for their summer vacations or shopping trips across the border.

For ACAL it means that the revenues from card sales, which are its main source of income, are so low that the association is for the first time in a situation where it is not breaking even. “We have to come up with new ways to finance the work of ACAL,” says Harb.

For the national economy, the numbers scream of the suffering tourism and trade activities between Lebanon and Arab countries.

September 1, 2012 0 comments

Insurance Special Report

Weathering the rainy days

by Thomas Schellen September 1, 2012

written by Thomas Schellen

It has been said with some justification that the global economy could be saved from recession if enough people collectively started believing that the end of the world was upon us. Pre-apocalyptic consumer spending would skyrocket and blow the lid off all current growth restraints. But it is questionable if people would think to spend any money on insurance at the end of times.

Coming out of 2012 summer vacation, Lebanese insurance sure could use a boost, though. Collapse of economic confidence, shrinking payment morale, untrustworthy policy making and regional upheaval — all the things that are bad for business in Lebanon this year are especially bad for insurance.

Insurance premiums achieved fair growth of 9 percent year-on-year to $681 million by June 30. The growth rate after the second quarter is up from 4 percent in the first quarter, according to the Statistical Quarterly published by the Association des Compagnies d’Assurances au Liban (ACAL). However, the growth figure, which is not fully audited, does not account for inflation and also may still see a bit of correction — in 2011, the nine-month nominal growth was reported at 14 percent while full-year rates came out lower, at 12 percent. Furthermore, the indicators for the total number of insurance contracts (down 5 percent year-to-date) and motor insurance premiums, which have contracted for the first time in years and are down by one percent year-on-year, spell a worrisome slowdown in activity and could imply real trouble for some insurers.

A more collective, transparent industry

Probably the best things that can be said regarding the advancement of insurance in Lebanon to date in 2012 are that insurance stakeholders have started to sit more often at the same table and that transparency of the industry is making further advancements. Divergent positions of interest and mutual misunderstandings between regulators, insurers and intermediaries seemed to smolder unremittingly in earlier years behind a thin façade of cordiality; the last few years have seen a positive climate change to more genuine communication. Recent interaction between representatives of all sides in the National Insurance Board offers hope that, through greater collaboration between these and other participants in the collective insurance game, Lebanon’s insurance needs on a socioeconomic level will be better safeguarded.

On account of transparency, the availability of real insurance sector performance data has made great strides from being virtually inaccessible five years ago. The first annual report by the Insurance Control Commission at the Ministry of Economy and Trade, which covered 2007, was issued after a several year lag. This delay has shrunk dramatically, with reports providing audited information now issued much more promptly. The Quarterly Reports by ACAL, issued since beginning of 2011, are augmenting this and starting from this year will be expanded further by an annual report of the association.

The picture is further sharpened by the Lebanese Insurance Brokers Syndicate (LIBS), which in July presented its first-ever study on the contribution of intermediaries in the insurance economy.

On the negative side, it appears that insurers in Lebanon this year can do little more than put a good face to a period that has been both tough and uneventful.

“For me personally, the time since the beginning of this year was the slowest and most boring period since I first became manager in an insurance company 16 years ago,” sighed an insurance leader in conversation with Executive, asking that he not be quoted by name.

2011 performance in the global context

The stage for insurance in 2012 was set by Lebanese insurers’ performance numbers in 2011, which were mellow, but proved better than many in the industry had anticipated. At the end of 2011, Lebanese insurance premiums stood at $1.2 billion, up from $1.1 billion in 2010.

Small as the gain was, it looked pretty good against the backdrop of worldwide insurance premiums contracting in 2011, by 1.1 percent in advanced markets and by 0.8 globally (inflation adjusted). The comfort of this “outperformance” is, of course, not exactly gargantuan when one notes that Lebanon has a 0.03 percent share of world insurance premiums of $4.597 trillion (nominal) according to the Sigma research unit of reinsurance giant Swiss Re.

Taking the dialectic to the next step, the national insurance performance again deserves respect when considering that insurers here faced not only the local impacts of European economic problems, and global financial jitters but also harder financial conditions in the insurance market because of humongous natural catastrophes of 2011 — the disaster tally came financially to $380 billion in total economic damage and $105 billion in insured economic losses, according to reinsurer Munich Re.

On top of being exposed to all that global trouble, local insurers also had to deal with severe regional political developments that drove the discipline of Lebanese risk management into the wall of Syria’s realities.

Costs rise, excitement lags

In regional comparison, Lebanon today is still ranked at the top for the percentage of gross domestic product spent annually on insurance. This ratio, known as insurance penetration, is seen to indicate if a country has sufficient strength of protection or if it is underinsured.

With 2.9 percent insurance penetration, Lebanon ranks ahead of the emerging markets average of 2.7 percent and more than a full percentage point ahead of most other Arab markets.

However, while the robust GDP growth of Arab oil exporting countries explains why insurance growth in those markets has not been reflected as higher insurance penetration, stagnant insurance penetration rates in the slower growing Lebanese market over the past five years give reason to ask if the country and its relatively well-developed insurance industry need to do more to keep protection adequate.

Life insurance is a segment that, because of its facilitation of clients’ long-term savings and contribution to financial preparedness in old age, should be a growth market. Some years ago, when the country was starting to come back from the depressed economic mood that had ruled between 1998 and 2002, insurance industry optimists would speculate that collective life premiums should be worth a billion dollars, or more, today.

In reality, life premiums came to about $350 million in 2011 and have seen growth rates varying from 10 percent last year to 23 percent in the first half of 2012, according to ACAL.

Fluctuating between 25 and 30 percent of the national premiums volume, life insurance is by regional standards healthy, but long-term growth rates and levels of life premiums are substantially below where they would need to be if private savings, by way of insurance, are to help relieve Lebanon’s stressed social networks.

Life insurance volumes also don’t look all that promising when the business of coerced life policies in consumer borrowing is taken into account. The requirement by all banks that loan customers have to buy life insurance with coverage for the loan amount — to indemnify the lender if the borrower cannot fulfil her or his obligations due to death or permanent disability — is a staple source of premiums income for bank-owned or affiliated insurance providers.

However, while the practice offers insurers good risks and fine premiums at very little work, and is a factor in making life insurance by far the most profitable line in Lebanon (according to data by the ICC), there are no indications supporting an assumption, frequently voiced by managers of bank-owned insurers, that the forceful practice helps in increasing awareness of the benefits of life insurance among Lebanese consumers.

According to the new LIBS study, the total number of life insurance contracts sold in 2011 via ‘bancassurance’, the distribution channel where people buy insurance from an agent situated in a bank, was equivalent to 46 percent of all life contracts.

“People don’t go to the bank to buy insurance. They go to the bank to get a loan,” commented LIBS President Issam Hitti.

If term-life, protection-only contracts sold via bancassurance are overwhelmingly tied to lending agreements, it ought to be a much more significant concern for the entire Lebanese insurance industry how to improve genuine demand for both savings and protection-only life insurance contracts.

In the property and liability insurance business, the best perspective is for growth in property premiums from corporate clients, led by industrial companies which are newly required to contract a basic fire insurance package.

Medical insurance — which alongside motor-related business constitutes the bread and butter of Lebanese and regional non-life insurance — has seen profitability resurge in 2009 and 2010 when compared with previous years, according to the ICC. However, members of the industry attributed growth of medical premiums in the past two years largely to premium hikes imposed to balance rising hospitalization costs. Recent trends in medical insurance showed negative developments in the number of issued contracts and growth of premiums by only 4 percent in the first half of 2012, 11 percentage points below the full-year growth shown in the ACAL Quarterly Report for Q4 2011.

The outlook for medical is further shaded by insider observations that corporate group clients are going down the road of cost cutting, reducing the scope of employee health insurance purchases or making employees pay for their dependents.

Retail clients of medical insurance have limited recourses when faced with rising policy costs, except for complaining to the provider — and insurance managers are hearing a lot of complaints this year.

Motor insurance quagmire

Motor insurance has a questionable outlook this year. Not only did premiums contract by one percent in the first half of the year and speciality coverage for cross-border travel slump because of the Syrian situation, but the combination of rising claims costs and shrinking premiums makes it likely that 2012 will see the bottom-line of motor insurance further in the red, after already incurring losses in previous years.

Given that falling demand for comprehensive or no-fault insurance of motor vehicles was behind the contraction of motor premiums, compulsory third-party liability (TPL) motor insurance is where the market can grow in months and perhaps years going forward.

For almost a decade Lebanon has had mandatory motor insurance. But the coverage, which represents 17.1 percent of all motor premiums, so far only indemnifies injury or death of accident victims. Now, clauses in a new traffic law propose that mandatory insurance will soon apply to both bodily injury and material damages, while the National Insurance Board is deliberating on how to best implement the new coverage.

The expansion of mandatory insurance protection to material damages caused by motorists will bring relief to society, as it will moderate the risks of suffering financial losses just from driving in Lebanese traffic. For insurance providers, the introduction of the wider mandatory cover is a mixed bag. An impending problem of mandatory motor liability insurance against material damage is abuse. Different to accidents with personal injury, deliberately staging an accident with some material damage to another car is an easy ploy in Lebanon’s environment of lousy roads and inconsistent enforcement of traffic discipline.

The combination of having a large number of competing car insurance companies and no system for identifying high-risk drivers means that Lebanon has the potential to become an Eldorado for automotive accident scams as soon as a compulsory, inexpensive TPL coverage for material damages is in the market.

A central issue for providing society with the advantages of full TPL motor insurance will therefore be the empowerment of a motor risk database with full participation by the industry. A motor risk center (MRC) has been under development where insurance companies supply accident and claims data on voluntary basis; it has undergone test runs but scepticism that the MRC will function as needed has been prevailing from the ranks of insurance managers right to the top people-in-the-know in motor insurance.

As noted by the head of the National Bureau for Mandatory Motor Insurance, Fateh Bekdache: “If it is not compulsory, I personally don’t believe it will work.”

September 1, 2012 0 comments

Insurance Special Report

Tied up in risk

by Thomas Schellen September 1, 2012

written by Thomas Schellen

Lebanese entrepreneurs traditionally have approached risks with the attitude that they prefer to carry them themselves rather than pay for risk transfer, unless there is a compelling reason to buy insurance. Companies insure their vehicle fleets and some contract medical coverage for staff as add-on benefits beyond the obligatory payments to the social security system. Larger companies are usually more insurance-aware and acquire basic asset protection, such as property, fire, and cargo insurance. But the vast majority of commercial enterprises are small ventures and their insurance blankets reveal more risks than they cover — small and medium-sized Lebanese companies are underinsured on several and perhaps even most fronts.

The only insurance that has been compulsory for Lebanese companies until now, with some level of enforcement, has been workmen’s compensation, a basic accident policy for employees. This year, the Ministry of Industry introduced a new requirement for industrial establishments, which from this summer on have to obtain a fire insurance policy in order to renew their industrial licenses.

Interestingly though, demand for fire insurance has already been on the rise before the Ministry of Industry introduced its decree. According to the quarterly statistical report of the Lebanese insurance association, ACAL, premiums in the fire business increased 14 percent to $81.7 million in 2011 and represented a 9.3 percent market share of non-life insurance.

The corresponding numbers for the first and second quarters in 2012 show continued growth at 14 percent for January to March, and 16 percent for April to June. According to the report for the second quarter, the share of fire premiums in total non-life premiums has expanded to 10.3 percent of non-life premiums in Lebanon.

One factor that insurance leaders say influenced the demand — and also the consideration to create a mandatory fire package for industrial establishments — was a $12 million industrial fire that was settled by the insurer, Arabia Insurance, with quite some public fanfare in November 2011.

An unsure fire-sale

The latest statistics on insurance sales in the first half of 2012 do not necessarily enable growth estimations for fire insurance in the coming years. On one hand, implementation of the decree requiring coverage in industrial establishments still has to be shown in practice; companies in Lebanon are noted for their inventiveness when it comes to cost avoidance. On the other hand, the insurance providers do not have market data that would reveal how many industrial establishments and of what sizes are currently lacking fire coverage.

The new requirement, which insurance companies — no surprise — are supporting enthusiastically, has already generated applications from industrial companies that never before felt the need to buy fire insurance. The application surveys of these companies have shown that many do not conform to important standards, said Fateh Bekdache, general manager of Arope Insurance.

“Every insurance company has its own strategy on this but the companies that look for fire insurance have some risks that they need to work on, a lot, in order to be insurable,” he said.

It is a different case with managerial and professional liability insurance coverage in Lebanon, where growth is not led by any new regulatory initiatives. A discussion at the Ministry of Tourism regarding the introduction of mandatory liability coverage for restaurants and hospitality enterprises, to protect patrons if they suffer an accident or a food-related illness, was recently aborted.

But some factors have sparked interest in liability covers. When judicial authorities in Mount Lebanon ordered a doctor arrested in a dispute over medical treatment in June, it was the first case where alleged negligence and malpractice by a physician resulted in such action by the public prosecutor. According to Bekdache, the doctor’s arrest triggered inquiries by medical practitioners asking for quotations on malpractice insurance.

In parallel to newly malpractice-risk aware physicians, lawyers are also asking for professional liability coverage, but do so mainly for reasons of wanting to enter international partnerships. “A month ago I got a call from a prominent law firm which asked about the price indication for this kind of professional indemnity cover,” Bekdache said.

Demand for professional liability insurance by a law firm is attractive for the insurer, but these inquiries cannot be answered with a ready-made policy, he added. “It is a big proposal,” said Bekdache. “I have to know the track record of the law firm, how many cases were lost and won, what kind of litigation they do and what their turnover is.”

D&O’s and Don’ts

Another complex need is management liability insurance. Directors and officers, or D&O in insurance-speak, are today held responsible for a growing range of risks that range from unintentional errors and omissions in delivering projects, as well as products for financial and managerial liabilities. Regulators, shareholders and stakeholders such as employees and competitors represent a pool of litigation threats for both companies and directors as individuals.

Cases, which can be both civil and criminal, are brought for issues as diverse as a violation of anti-money laundering rules, failure to fulfill duties, keep adequate records or apply regulations, harassment, wrongful termination, or abuse of power. The range is so broad that insurance covering corporate errors and wider management liabilities, subsumed under the term D&O insurance, is “a must for any large company in Lebanon,” according to Bekdache.

Against the severity and frequency of this risk, however, the number of D&O policies issued in Lebanon is falling seriously short and the market is underpowered. Chartis, a prominent name in global D&O insurance that has presence in each of the six Gulf Cooperation Council countries and Lebanon, has seen demand for D&O coverage grow in some Arab markets. The United Arab Emirates and Saudi Arabia are leading demand developments for D&O insurance, said Muhannad Abdul-Majeed, an expert on financial insurance lines with Chartis Middle East. “Unfortunately, Lebanon is a challenging market for management liability covers.”

Roger Zaccar, business development manager of Commercial Insurance, an independent Lebanese insurer, was blunter. “There is no demand [in the Lebanese market]; you have only two or three clients who are buying [D&O]. People don’t know why they need it and insurers don’t have the volumes to create specialized departments for it” he said.

Local providers are not equipped to assess and underwrite corporate liability policies, said also Arope’s Bekdache. “Nobody has a facility on those policies so we go via international brokers. It doesn’t make sense to have facility for such a product.” Among the reasons why D&O insurance in Lebanon is a tougher sell than in the GCC is so few companies are publicly traded on the Beirut Stock Exchange and very few international investors are looking to acquire stakes in Lebanese companies, according to Abdul-Majeed.

Regional D&O growth

At Chartis Middle East, 61 percent of premiums underwritten on management liability coverage in 2011 came from first-time buyers, evidencing demand growth, he said. “The majority of buyers were companies that were publicly listed, and/or had exposure to international jurisdictions via their customers, shareholders, suppliers, and so forth.”

However, the insurer also found that regional D&O insurance demand is still mostly reactive, as companies respond to demand from international investors and business partners, or to high-profile incidents where executives and corporate officers are scrutinized.

In the UAE and other GCC countries, regulators are popularizing D&O as they are stepping up investigations of corporate managerial liabilities. Chartis observed 20 percent more notifications of claims brought against D&O in 2011 when compared with 2009 and 2010.

Corporate and managerial liability insurances are just some of the protections that companies in Lebanon and the region will need more of in future if global markets are the guidepost. While no concise data on the presence of D&O insurance is available, Chartis estimates that current premium volumes invested in D&O liability protections is no more than 5 percent of non-life premiums across the GCC and Levant.

The level of coverage in the region is definitely lower than in more mature economies, Abdul-Majeed noted, even though corporate liability protection is anything but a than needless luxury. “In terms of [a] corporation’s budget, a D&O policy is usually much cheaper than other more traditional insurances, such as property insurance or group medical, but whereas companies are prepared to pay the higher premiums for these covers, they unfortunately do not give much thought to management liability insurance.”

Circumstances could however boost adoption of some insurance policies for corporate decision makers and key persons. Besides seeing more corporate demand for insurance against terrorism, political violence and war risk, insurers in Beirut and the Middle East have been starting this year to get more calls asking about kidnap and ransom policies.

September 1, 2012 0 comments

Economics & Policy Electoral Reform

Blank the ballot

by Rabih El-Chaer September 1, 2012

written by Rabih El-Chaer

Parliamentary elections in June 2013 will define both the ruling majority for the next four years and the identity of the future Lebanese president, and the Lebanese electoral law will play a crucial role in this process. But the country’s opposing political camps — the March 8 and March 14 coalitions — are not willing to risk any change in the balance between them. For this reason they are not likely to accept the proportional electoral system as it will open the door for independent candidates to take part in the elections, and this new blood would pose a serious threat to the established oligopoly in the Lebanese political system.

Prime Minister Najib Mikati’s government promised in a ministerial declaration shortly after taking office that the electoral law, which includes all the related reforms, would be effective one year before the elections. However, it was only sent to the parliament last month — 10 months before voting begins — meaning government is already in violation of this commitment. Furthermore, it is widely expected that Parliament will procrastinate in its review of the electoral law to use up time and make implementation of any reforms impossible before the election. For this reason we should not get our hopes up regarding electoral reform. Rather than presenting an opportunity for change, voting citizens will most likely be left with little choice but to reinforce the status quo.

Those of us campaigning within civil society understand the cynical game that is being played out before us and have therefore changed our strategies and priorities. There are other crucial reforms to the elections that should be implemented, whether they are instead of or in addition to the proportional electoral system.

For starters, an independent and permanent committee (IPC) that organizes and supervises elections needs to be established. It is disconcerting, but not surprising, that the draft law submitted by the Minister of Interior and Municipalities to the Council of Ministers, Lebanon’s cabinet, did not suggest the creation of an IPC. Without such a body, however, we should not accept the interior minister’s authority to conduct the elections, especially since he is a member of a monochromic government. The Civil Campaign for Electoral Reform (CCER) conducted a feasibility study that proved that there is still enough time to create the IPC if an honest will is expressed by the Council of Ministers and the Parliament.

We are also insisting on the adoption of pre-printed ballots and vote counting procedures in polling centers, instead of polling offices, in order to increase transparency and to limit bribery and vote buying, among the other various aspects of election corruption. What is more, logic dictates that the electoral law is also supposed to ensure candidates state publicly their electoral expenses in order to increase transparency and to limit electoral excesses. In reality it increases the limit candidates and parties can spend on electoral campaigning, further eroding the credibility of the political class.

We denounce this shameful behavior practiced by politicians and are increasing our lobbying efforts. However, the task at hand is not an easy one and a number of tough questions need to be addressed: How is it possible to apply pressure on a corrupted political class that regularly and successfully distracts public attention by creating alarming situations? How can we raise enough awareness to force our politicians to change when it is they who control the major media outlets? How can we persuade the silent majority of the Lebanese people to express their opinions without burning tires and blocking roads? The answers to these questions seemed far from reach before the Arab uprisings, but if our brethren in the region can overthrow their fierce dictatorships, then there is hope that we can change the Lebanese political system as well.

If civil society is to have any kind of success then it must find a common voice. If the active organizations and the potential army of thousands of volunteers can agree to submit one single list composed of 128 candidates for the parliamentary elections in 2013, or by default, one candidate for each electoral district respectively, then they will be heard by both the street and the establishment. However, if civil society as a whole is not able to unanimously reach a compromise, we will invite all those citizens who are fed up with the political class in Lebanon to cast blank votes. A blank vote, which is usually used to demonstrate dissatisfaction with the choice of candidates, would in this case be used to pressure the whole of the political class to take heed of the disenchanted masses.

RABIH EL-CHAER is managing director of the Lebanese Transparency Assosication

September 1, 2012 0 comments

Economics & Policy Electoral Reform

Linking electoral and economic reform

by Sami Atallah September 1, 2012

written by Sami Atallah

The approval of the new electoral law based on proportional representation by the Council of Ministers, Lebanon’s cabinet, has the potential to be a historical moment but will most likely be cursed to an early grave. When it comes to a show of hands in Parliament, the Future Movement, the Progressive Socialist Party and the smaller Christian parties are likely to succeed in voting it down. This is because under such a system they would likely lose seats in the upcoming elections and see their power wane in the next Parliament.

Putting aside the zero-sum game between the two main rival political camps, voting down the proportional representation electoral law is a blow not only to better political representation, but will allow the existing majoritarian system to continue stifling Lebanon’s economic and social development, particularly in the regions. Quite simply, under the current system politicians do not need to deliver any concrete policy platform to run on, or even deliver successful reform while in office, to win seats. Under a majoritarian system, politicians with the most votes win the seat even if they don’t secure a majority. Districts where politicians are ahead of all the other candidates are considered “safe” and little effort is exerted to win them. Instead, the focus shifts to districts that are competitive or where there is a swing-voting constituency. Campaigning for votes in these areas thus becomes an essential strategy for the party. Add to this electoral system three other features — bloc voting, sectarian polarization and clientelism — and parliamentary seats are won based on a small coalition of voters within these tightly fought districts. Most political parties in Lebanon have benefited from the majoritarian electoral system, explaining why it has been in place for so many years.

The three cruxes

Bloc voting, which is common in rural Lebanon, reduces voting power to a few members of the community, that is tribal or family elders, who decide on behalf of the tribe or family members who to vote for and everyone else follows suit. Sectarian rhetoric is the cheapest political strategy to mobilize citizens to vote, but this works only in districts with an ethnically homogenous population (otherwise it can backfire). Finally, electoral clientelism is, effectively, buying votes by giving cash or services to targeted individuals, particularly in swing districts.

By expedient exploitation of these tactics in a majoritarian system elected politicians end up in parliament with the support of a relatively small but active coalition of voters. By keeping this coalition relatively content, politicians have no incentive to push for any socioeconomic development programs in the less contested regions, since they will get elected in any case and are rarely held accountable by their own constituents.

The proportional representation system radically changes the relationship between voters and parliamentary candidates. Under this system every vote counts and seats are allocated based on the proportion of the votes won. This encourages people to vote even in districts that are dominated by a political party not of their choosing. Having more people voting will make clientelistic strategies vastly more expensive. Parties may eventually find themselves unable to buy all the votes they need directly. It could also encourage family members to break away from bloc voting since their votes would count even when they vote for the smaller and less powerful parties.

Rather than falling back on safe seats while coopting small but active groups of voters in swing districts, the political parties would have to address the electorate as a whole. This means they would have to actually devise and deliver concrete policy programs that will provide public goods and services to the larger community. Politicians would be held to account on their ability to deliver on critical issues such as infrastructure, education, health or electricity. As such it would be an impetus for socioeconomic development, particularly in the regions.

The bigger game

Proportional representation has ramifications beyond political representation, with most of the debate surrounding reform failing to recognize the link between electoral representation and economic development. The political and economic angles are intrinsically intertwined but too often discussed and debated by stakeholders, including civil society organizations, as two separate problems.

Proponents of proportional representation seem to appreciate its political end only, while those who advocate regional development seem nostalgic for the era of President Fouad Chehab, when regional development plans were drawn but never implemented. Sadly, little thinking goes into why the Chehab program did not stick: electoral reform is key to regional development.

SAMI ATALLAH is executive director of the Lebanese Center for Policy Studies

September 1, 2012 0 comments

Economics & Policy Electoral Reform

The vice of vested interest

by Rony Al-Assaad September 1, 2012

written by Rony Al-Assaad

If there is one thing that has become clear since the debate over electoral reform resurfaced in Lebanon, as it does every four years, it is that the main political forces in the country consider elections to be a form of leverage over the people rather than an opportunity to ensure fair and democratic representation. While the Council of Ministers, Lebanon’s cabinet, passed an electoral reform law in August, whether this passes Parliament — and if it does, how it will have been altered — is still yet to be seen. Unfortunately, the election law that governs next year’s ballot will likely resemble the previous one: Distorted legislation that comes out of an 11th hour negotiation and falls short of basic democratic standards. In short, it is unlikely that the ruling elite will allow any significant rocking of the boat.

In any case, the public should know why our so-called leaders will let us down once again, specifically with regards to adopting a system of proportional representation. An analysis of politicians’ motives and their public statements, which are constantly adapted to fit changing political and electoral interests, reveals much.

Behind the bluff

Let’s start with the opposition, specifically the Future Movement. They consider proportional representation as an electoral “weapon” which aims to undermine their dominance and position as the main representative of the Sunni sect, given the number of independent Sunni candidates. At the same time, Future is convinced that proportional representation will not break the monopoly their main political opponents — the Amal Movement and Hezbollah — have over the Shia sect, as these parties enjoy overwhelming representative power in their districts of popular support, such as South Lebanon, the Bekaa and Hermel. Future also rejects the proportional representation system as long as Hezbollah maintains its arsenal of weapons, as it firmly believes that arms undermine democracy, freedom to run for elections and even the security of candidates if they win; an example they often cite is Hezbollah’s direct interference in the municipal elections to deter candidates from running or pressuring them to withdraw. Do, however, keep in mind that this practice is prevalent in any area in Lebanon where one political party enjoys overwhelming hegemony. Future also fails to explain how the excuse of Hezbollah’s arms does not apply in a ‘winner take all’ electoral system.

At the same time, the Future Movement is waiting for a clear position to be declared by its Christian allies, who are generally more supportive of smaller districts since they fear that larger districts may erode the share of parliamentary power allocated to them under the 1989 Taif Accord, which is 64 deputies. It is worth noting that both demographic changes and the 2008 electoral law detracted greatly from the ability of Christian voters to choose their representatives — in six out of the 12 districts where there is a Christian majority, Muslim votes determine the election results. Future Movement deputies have stated that their party might support Fouad Boutros’ draft law if it was proposed as a serious alternative; this law proposes a mixed electoral system where 70 percent of parliamentary seats are elected according to the majoritarian electoral system at the qaza (or district) level, and 30 percent of seats are filled according to the proportional representation system at the mohafaza (or governorate) level.

The Christian parties in the opposition (the Lebanese Forces, the Kataeb and independent politicians) support small districts, and through the Bkerke committee — which brought together the four main opposition and governing Christian parties — they have put forth two proposals: either a modified version of the electoral law 25/2008 where Lebanon is divided into some 50 districts of four seats each at most, or a proportional representation system in 14 to 15 districts. Many see the position of the Christian opposition parties stemming from their wish not to go against their Sunni ally, as well as the fact that proportional representation is not viewed favorably among most Christians or in Christian political circles. This latter point is somewhat odd for opposition Christian parties, however, as proportional representation could help weaken the monopoly on parliamentary representation the Free Patriotic Movement (FPM) currently enjoys in some areas in Mount Lebanon (the district with the largest concentration of Christians), as a first-past-the-post ballot renders opposition votes in these areas inert.

The government’s side

As for the parliamentary majority, they have an interest in adopting the proportional representation system based on statistics from the 2009 parliamentary elections. According to repeated public statements by some of its leading members and its own polls, Hezbollah believes its popular base is large enough to ensure positive results within any system. However, it is also possible that the proportional representation system would go against Hezbollah’s interests, for it would certainly contribute to breaking (even if initially to a small extent) the bilateral monopoly of Hezbollah and the Amal Movement over Shia representation as independent Shia candidates gain more confidence to run, given that they have a chance of winning a seat. Hezbollah’s position is also linked to the position of its main Christian ally, the FPM, as Hezbollah needs their support in the districts with a Christian majority.

The most recent FPM position called for adopting proportional representation with Lebanon as a single district. This is mainly an attempt to gather the Christian votes that are scattered across the country outside of Mount Lebanon, which the FPM believes would go to its candidates. The FPM believes that its political power could be maintained by proportional representation since it should guarantee it a number of seats despite a perceived, but unproven, decline in popularity.

Deputy Walid Joumblatt (the main representative of the Druze sect) has outright rejected the proportional representation system. This stems from his belief that it will reduce his representation in Parliament, which is “exaggerated” in the present system where he is able to ensure the election of loyal Christian and Sunni deputies through Druze votes. Hence, even though the cabinet has voted in favor of the law it is unlikely to garner sufficient support in Parliament (at least in the form passed by the cabinet), given that Joumblatt has the ability to sway the final outcome. That is unless a new political tradeoff is struck among the different political blocks, which is not uncommon for Lebanon’s opportunistic political parties.

Lebanon may have a long history of elections, but this has rarely translated into the creation of functioning national institutions. If we are to transform our “culture” of holding elections into a state with accountable institutions and a participatory body politic, then we need an electoral law that ensures fair representation and the secrecy of the ballot within an independent and transparent organizational structure. Sadly this looks like it will not be the case, and now we know why.

RONY AL-ASSAAD is director of the Civil Campaign for Electoral Reform (CCER). This article expresses the personal views of the author and does not represent the official policy of the CCER.

September 1, 2012 0 comments

Economics & Policy

Q&A – Ghazi Aridi

by Zak Brophy September 1, 2012

written by Zak Brophy

The Minister of Public Works and Transportation Ghazi Aridi is in charge of everything from the road networks to the aviation sector. What is more, he is one of three ministers representing the man who is tentatively holding the ruling coalition together: Walid Joumblatt. Executive met with the minister on August 13 for a sit down to talk beaches, busses, planes and politics.

E You recently submitted a draft law regulating the fees for private use of the public coastal lands, but the law was rejected. Why?

No, everything is okay. Only today I met some people and we discussed the levels of the taxes and they have some comments, which I have taken on board and will present to the ministry. There are some legal and illegal projects on the coast and these fees will apply to all of them.

E If they are illegal then why will you allow them to stay?

They are a fact.

E But why will they remain?

They will pay but they don’t have any right [sic].

E If they don’t have the right why won’t the law be enforced?

Unfortunately until now I have not been able to enforce the law due to resistance on the ground. In all the regions these projects have behind them parties or certain powerful people.

I tried to implement the law but this has been a question for more than 35 years. What can I do personally? I discussed it at the cabinet but I did not succeed in bringing about a final decision, but I cannot leave the situation as it is now, not receiving money from them. So I proposed this new project, which is not a change in the law but a change in the fees charged, or taxes if you like, and it will be implemented.

E Can you give me details of the fees that will be applied?

I can’t remember the levels.

E Back in May you announced you had launched a tender for 250 public buses. Where are we with that project now?

Two days ago we finished with the tender and we have a meeting planned with the prime minister to decide on it in the coming days and we will invite the companies to participate in the tender. We have a master plan, which is finished, and when the tender is finished and we have chosen the companies we will be able to distribute [the busses] to all of the areas of Lebanon.

E Do you have an idea of when we can expect to see them on the ground?

No, I cannot say anything now but I know there are so many companies that are interested. There will be many offers from China, Poland, Romania, Germany and elsewhere but I cannot say what will happen in the end.

E Lebanon is a signatory to the Open Skies agreement, which is intended to liberalize Lebanon’s aviation sector and increase competition. Is this a policy you support?

We don’t have any problems. Everything is organized. Middle East Airlines [MEA] is the priority for me and I am doing my best to protect them and I think they are doing very well.

E MEA has been accused of resisting competition and you personally of supporting them in this pursuit, which stymies the sector and tourism within Lebanon. What is your response?

We are not resisting competition. I am protecting MEA and I am proud of this.

E But by protecting them are you not decreasing competition?

This is not true, there are so many companies that are coming to Beirut and we don’t have any problem, but the priority is for MEA. If MEA requests slots here and there, they are always refused. ‘We don’t have places or slots’, they say. I discuss with the ministers abroad and explain we have our rights also. After discussing they accept, so in this way I protect them.

E The 2002 law for the aviation sector stipulates the creation of a Lebanese Civil Aviation Authority to regulate the sector. This has not happened. Why?

We are preparing the nominations now.

E The law was passed more than 10 years ago….

I was not the minister all of this time. By the time you go to print we will have nominated the board and created this structure. [The board had not been nominated by the time Executive went to print.]

E Will it have independence from your ministry?

They will have their prerogatives that they can work within and they will be funded from the government’s general budget.

E Tourism Minister Fadi Abboud has been calling for opening up the airport to more budget airlines and says there is resistance from MEA and your ministry. What is your response?

No, we resolved this 10 days ago with Fadi Abboud and Mohammad Hout, chairman of MEA, and the chairman of the Directorate General of Civil Aviation (DGCA); we drew up a master plan that everybody is happy with.

E Who has the authority to decide who gets which routes at which times?

The Civil Aviation Authority and MEA.

E So MEA helps decide who flies which routes to and from Lebanon?

Yes and we do feasibility studies as well.

E Imperial Jet is an executive jet carrier that is based in Lebanon and was bringing good business to the country, but has had its Air Operation Certificate (AOC) revoked and been refused to fly even on its German AOC. The Shura Council (Lebanon’s highest court) has overruled this decision. Why have you ignored the Shura Council on this issue?

There is nothing to say on this issue. They have had so many problems with the DGCA so two or three years ago I took this decision and I insist I will stick to it.

E On what basis? At least twice the Shura Council ruled that they have the right to fly from Lebanon.

I don’t think it did.

E I have the documents. It did.

I have the right to reject their decisions as I know very well what happened with [the company’s case].

E Were they not punished because thy refused to “make friends” and help important people make money from their business here?

Who? Me?

E Not you necessarily, but…

[Interjects] This is not true. I know the file very well, and I have taken the decision and I am insisting on keeping on the same way. This is my decision. [Slams table].

E The Council for Development and Reconstruction is currently implementing an urban transport development project for the greater development area. What purview does your ministry have over this?

This is under our authority and if there is something to discuss with them then we are ready to discuss it. There is a cooperation between us. This is under our responsibility including the issuing of contracts and tenders and so on.

E During your time in office what tangible results can you point to?

I can’t answer all of them now but we have done so many projects concerning the roads and the rights of the drivers and the master plan. But I am not alone and our ministry is not the only one responsible for these projects.

E Will the electoral reform law pass?

I don’t think it will pass. This is a game, from the other parties that is, but not the President [Michel Sleiman]. The President said “I told the people we would finish the law and send it to the Parliament.” What will happen in the Parliament he cannot know so we respect this decision. As for the other people, they have this project and they know we won’t accept it and they are preparing a law to protect their interests. We cannot accept this, but they insisted.

E Is Walid Joumblatt considering a break from the governing coalition?

Concerning the election we are awaiting the law. We can’t say anything before the law. But electorally speaking everything is possible.

September 1, 2012 0 comments

Economics & Policy

Executive Insight – Who owns the sea?

by Malek Takieddine September 1, 2012

written by Malek Takieddine

In January 2007, Cyprus and Lebanon, both signatories to the United Nations Convention on the Law of the Sea (UNCLOS 1982), signed an agreement on the delimitation of their exclusive economic zones (EEZ) based on the internationally accepted method of equidistance, which consists of determining a median line between two opposite or adjacent coastlines.

Two years later, major offshore natural gas reserves were discovered off the Israeli coast with the potential to satisfy Israel’s domestic energy needs and make the country a substantial exporter. In January 2009 the Tamar Field was discovered near the port city of Haifa containing 240 billion cubic metres (BCM) of natural gas, while the 14 BCM Dalit Field near the northern city of Hadera was tapped in April that year and in June 2010 the world’s largest gas discovery of the decade was made at the Leviathan off the coast of Haifa, with approximately 460 BCM of natural gas. In 2010, the United States Geological Survey estimated that the entire Levant Basin, encompassing parts of Israel, Lebanon, Syria and Cyprus, could contain as much as 1.7 billion barrels of recoverable oil and 3.45 trillion cubic meters of recoverable natural gas. For comparison: Iraq, ranked as the 11th country worldwide in proven gas reserves, has 3.1 trillion cubic meters of gas.

In July 2010 and October 2010, Lebanon submitted to the United Nations the charts and lists of geographical coordinates of points marking the Southern Median Line and the Southern Part of the Western Median Line, to delimit its EEZ.

In December 2010, Israel and Cyprus concluded and ratified their own agreement on the delimitation of the EEZ. Israel deposited its own unilateral claim to the northern limit of its maritime space with the United Nations on July 12, 2011. Furthermore, in August 2011, Lebanon’s Parliament enacted a maritime boundary law (Law number 163). The relevant coordinates were subsequently determined by governmental decree in September 2011 (Decree number 6433) and were made subject to possible amendments in the future based on negotiations with neighboring states.

Wherein the problem lies

The delimitation of maritime areas between two or more states is governed by international law as mainly reflected in UNCLOS, precedence of the International Court of Justice (ICJ) and customary practice of coastal states. International law provides that coastal states are invited to seek the delimitation of their maritime boundaries by agreement and must show evidence of having exhausted all routes through negotiations (although not necessarily direct negotiations) before resorting to any other settlement procedures. The existence of overlapping claims over maritime zones is not an unusual occurrence, and has in fact become more frequent in recent decades, with a tremendous increase in maritime space coming under the jurisdiction of coastal states.

The maritime area of overlap between Israel and Lebanon covers an estimated 873,722 square kilometers, running from the coast to the median line between Cyprus and Israel and Cyprus and Lebanon. Both states claim that this area falls within their jurisdiction based on differing calculations of the outermost limits of their respective EEZs. Lebanon considers Point 23 on the list of geographical coordinates, which is claimed by Lebanon to be tri-equidistant between the three countries, as the endpoint of its southern maritime border with Israel, and the southwestern limit of its EEZ. On the other hand, Israel considers Point 1, which falls around 17 kilometers north of Point 23, as the endpoint of its northern maritime border with Lebanon.

Does Lebanon have a stronger case?

Lebanon claims its coordinates are based on the internationally recognized equidistance method, which remains the most frequently adopted method for delimiting maritime boundaries between states. This meets the criteria of geographical factors and customary international law that govern the delimitation of maritime areas between states. It is also consistent with Lebanon’s desire to uphold international law and its commitments as a signatory to UNCLOS, to which Israel is not a party.

Lebanon claims that Point 23 was determined using objective unambiguous mathematical principles and results in the equitable distribution of maritime space. Unless successfully contested, this should in principle correspond to the ‘equitable/relevant circumstances principle’ governing the delineation of EEZs.

It is not clear what reasonable factors, technical or otherwise, led Israel to determine Point 1 as the northwestern endpoint to its maritime border. Israel’s position reflects a lack of consideration for both equitability and relevant circumstances, relying solely on the coordinates of a provisional end point in the agreement between Cyprus and Lebanon.

Moreover, the Cyprus-Lebanon agreement confirms the provisional nature of Point 1 in accordance with customary international maritime law. The agreement states that “the geographical coordinates of Points 1 and 6 could be reviewed and/or extended and duly revised as necessary in light of further delimitation of the EEZ with other concerned neighboring states and in accordance with an agreement to be reached in this matter by the neighboring states concerned”. Thus, it can be argued that such a provisional point cannot be taken as a basis for the final (let alone unilateral) delimitation of the maritime boundaries by Israel and would not meet the requirements of the ‘equitable solution’ principle set by Article 74 of UNCLOS.

Lebanon may argue that although Israel is not party to UNCLOS, previous practice confirms that Israel accepts the equidistance principle. In the delimitation of the maritime boundaries between Israel and Jordan in the Gulf of Aqaba, Israel drew its maritime boundary between the coastal point and a tri-equidistance point, that is to say of equal distance from the three coasts at the head of the Gulf.

Lebanon may also argue that Israel’s claim is undermined by its previous acceptance of the median line with Lebanon as a de facto boundary between the two countries, as demonstrated in its delineation of hydrocarbon licensing blocks along its northern maritime border — notably the Alon D and F Blocks. This analysis is supported by ICJ precedence in the case of Tunisia-Libya 1982 where a line drawn by the Italian colonial administration in 1919 was recognized by the ICJ as a de facto working boundary that had been observed over a considerable period of time and respected by both parties in issuing their oil exploration concessions.

Finally, it could be noted that there are strong indications that Israel’s claims over the overlapping area are of a political nature and are not based on any declared solid legal or technical foundations beyond the adoption of Point 1 in the agreement between Lebanon and Cyprus.

In summary, the Lebanese legal position is relatively strong as it is based on the principle of equidistance, which is a commonly applied method in such disputes. However, a lasting settlement may also have to take into consideration any other relevant circumstances “in order to achieve an equitable solution” as per Article 74 of UNCLOS.

September 1, 2012 1 comment

Real Estate

Developing debauchery in downtown

by Nabila Rahhal September 1, 2012

written by Nabila Rahhal

In the olden days, Uruguay Street, behind what today is the Samir Kassir Square, was better known as the Souk El Kmash, or the “Clothes Market”, and was famous for high-end tailors and shops full of trendy attire. Today, and a year into its revival, it is becoming known for its bars and restaurants and is considered by many to be one of the most popular nightlife streets in Beirut.

Just before sunset, the tables on bar terraces start filling up. By 10 p.m. the street is in full swing, with music filling the night and fashionable people parading up and down the walkway. A year after its conception the street already has a loyal fan base.

“I love coming here because the age group is perfect: I don’t see any teens around, and I also don’t see people who are my parents’ age,” says Sumaya Khoury, a Uruguay Street frequenter. Another fan speaks of the diversity in the street saying: “Each place has its own character, from Spanish tapas to American cuisine and from Irish beer to Uruguayan signature drinks, so I can pick and choose whatever suits my mood that night.”

Detractors speak of it being not for their age group, and also of it feeling a bit false — a common contention among the dissenters of Beirut’s rebuilt downtown area.

Solidere and Venture DT

Uruguay Street is basically a development project, the first time in Lebanon this concept is applied to bars, and since it is still relatively new, the street still has a lot of room to grow.

It all began with Solidere’s vision to “create a dedicated area for bar hopping away from the residential areas in Downtown,” says George Nour, assistant general manager for Business Operations and Relations with Public Authorities in Solidere. To this end, they found Uruguay Street, and more specifically the municipality building that Solidere co-owns with the Municipality of Beirut, to be the ideal location.

To actualize their plans, recounts Nour, Solidere first approached established bar managers independently, but many were hesitant to risk being first on the street. Solidere then turned to Venture DT, a development and consulting company owned by Rabih Saba and Marwan Ayoub.

“When we signed with Venture DT, we got a company with the right contacts and momentum to attract the bar managers who would be in line with our vision of the street,” says Nour. As a “one shot deal” for a period of six years, Solidere leased its share of 10 ground-floor outlets in the municipality building to Venture DT, who in turn sublet them to the current bar owners. The remaining three venues in the building are owned by the Beirut municipality, and are currently vacant with no apparent plans to develop them.

Venture DT, according to Ayoub, followed two rent formulas with their tenants: either a fixed annual fee of approximately $1,000 per square meter (sqm) per year, or a percentage on sales in the venues where they are partners or have shares, such as Cassis, Julep’s and Tinto. With areas varying between 26 and 120 sqm, average rent is between $26,000 to $120,000 annually.

Ayoub says Venture DT approached the street as they would any development project: “We had a master plan to create a European style bar street which would be coherent with its community.” By European, Ayoub means pedestrian-only streets one sees in Barcelona or St. Torino with outdoor bars open all day. “To implement our plan, we handpicked the tenants according to their past successes and to the type of cuisine or concept they had to offer, as we were going for complementary venues to create a coherent whole,” he says.

Ayoub and Saba did not have to twist any arms to sublet their venues, as the benefits of having a bar in such a location are many. “I could see the potential in the street straight away,” says Toni Rizk, owner of TRI, which owns Uruguay Cocktail Bar and Collins, among other locales in Beirut. “Its easily accessible location in the heart of the city and proximity to all areas was a tempting aspect for me. Another attractive feature of the street is since it is a business district, it does not have the problems caused by disturbances to residents in terms of music or traffic flow,” continues Rizk. He adds that based on the success and the positive experience of his first venture in Uruguay Street, Uruguay Cocktail Bar, he decided to open Collins Urban Bar, the last vacant venue owned by Solidere that opened its doors at the beginning of the summer. Karim Jaber, general manager of Add Mind, which owns Cassis on Uruguay Street, adds that an advantage of the street is that it is pedestrian, meaning less traffic flow problems, and an added entertainment value for customers. Rabih Mockbel, owner of Bronx Restaurant and Bar, says he believes that the urban business feel of the street makes it ideal for people to come enjoy after-work drinks.

Return on investment

Ayoub estimates pub owners invested between $250,000 to $500,000 in their bars and make between $1,000 to $4,000 per night, depending on the number of seats and whether it’s a weekend or not. Pub owners Executive spoke to expect to make back their investment in one to three years, depending on the political situation and whether the place is a restaurant or a bar, with bars having a faster return on investment.

Operating within a planned project, and under the many rules and procedures of Solidere, is new to bar owners on the street who are more used to the idea of “each man for himself.” Nour sees the rules and procedures as necessary to establish fair play among the bars and not have one venue overpower another in terms of music or eccentric décor. Bar owners interviewed mainly appreciate aspects of Solidere’s presence, such as security guards and the added market value Solidere’s name brings to some clients. However, they complain about the rules sometimes being so rigid they end up hindering their work or incurring unnecessary extra expenses.

“Add Mind already has experience with Solidere through Iris,” says Jaber. According to him, “Solidere puts down rules and makes you spend a lot when you know you could do it in a different or cheaper way, and then they might change their mind, which is frustrating and costly.” However, Jaber believes that it is Solidere’s planning which will stop the street from growing chaotically, as what happened with other bar streets such as Makdessi Street in Hamra or Gemmayze in Ashrafieh.

Looking ahead

The street’s future is still in the process of being built. According to Nour, Solidere does not own any other outlets on the street but is still involved in the development of the street as it is part of Downtown. “We have had a success story so far with Uruguay Street and believe this is encouraging other bar and restaurant operators to rent the remaining vacant outlets in the street,” says Nour. “We are also encouraging retail shops that cater to young adults to consider the street as well.” Bronx’s Mockbel, for example, is already looking down the street and opening an oriental restaurant called Bhar, which will mainly cater to businesses on the street.

Pub owners generally seem optimistic about the future of Uruguay Street. Jaber says the street is not a trend like others. Rizk sums it up by saying, “Bar streets in Lebanon generally have six-year life spans before things start to go downhill either because the residents complain or because it becomes overcrowded, such as Monot and Gemmayze.” He adds that, “Uruguay Street has avoided those circumstances, but still, keeping good relationships with the surrounding community and maintaining the momentum we have achieved in the street is key to its continuing success.”

September 1, 2012 0 comments