Companies & Strategies

An online outsourcing pioneer

by Thomas Schellen
written by Thomas Schellen

Samer Hanna is both a pioneer in Lebanon’s online economy and a leader in his niche, which, in simplistic terms, is the provision of outsourced information technology (IT). Hanna is chairman of two companies: Dubai-based Capital Banking Solutions (CBS), a banking software provider, and a holding that owns Beirut-based Capital Outsourcing (C-O), a specialist provider of IT and business-process outsourcing services.

C-O, which started in Beirut as a five-employee application service provider in 2000, today employs more than 75 people and hosts more than 800 active websites and applications on 200 servers in its datacenter. According to Hanna, “over 25,000 users access applications and websites in our cloud environment from different locations including, but not limited to, Lebanon, France, Qatar, Iraq, Bulgaria, Romania, Hungary, Jordan, United States, Syria, and the United Arab Emirates.”

From outsourcing and consulting activities alone, not accounting for the revenue of CBS, the group generated “over $7 million in revenue in 2011. We expect around 10 percent revenue growth in 2012,” Hanna tells Executive.

The market conditions for C-O’s corporate growth may indeed be solid given that, as Hanna says, “we thrive on recessions and on crises. People look to outsource when they don’t want to spend money. When there is a slowdown or crisis in the economy people think to improve on what they have so that they are ready when the economy picks up again. We provide them with ease to migrate to us at very low cost and when the economy picks up again, we help them scale up again very quickly.”

The C-O offering relates strictly to IT demand for data and application hosting, or providing disaster recovery services. The companies that avail of the service are, by Hanna’s description, typically medium sized, with 50 to 200 employees, and operate in sectors such as finance and retail.

Larger corporations, such as major banks, in Hanna’s experience are not top-tier candidates for becoming an outsourcing client, given their internal IT departments have vested interests in defending their turf against external providers — such as an application service provider (ASP).

Then till now

When Hanna set up his first IT company in 2000 under the name Trinec, it lay claim to being the region’s first ASP. At the time, ASPs were the latest fashion in computing services by remotely providing customers with specialized IT programs via a network, and cheaper to rent than buy. Today, ASPs are generally considered part of, or linked to, the cloud computing sphere, which operates under the same basic principle but has a wider scope.

As Hanna confirms, the business model of his venture has essentially remained the same but the company has developed in several ways, notably in the creation of the consulting arm, which has a lucrative market in providing expertise on Microsoft infrastructures to clients that include public sector entities and telecommunication corporations, companies such as Etisalat, Du, and Mobily.

C-O creates a career path for its IT experts; they are recruited as career starters and stay with the company after they build their skills and experience because the consulting activity offers them more interesting and financially rewarding work, with the company also using this diversification to substantial economic gain. “The consulting company contributes less than 30 percent to turnover but more than 50 percent to the bottom line,” Hanna says.

In terms of client base split, C-O serves mainly Lebanese clients with its data center and outsourcing expertise from Beirut, whereas the consulting arm, set up as a Lebanese offshore and staffed wholly by Middle Easterners, competes only for business from international clients.       

Along the path of change and growth, the group entered into business partnerships and mergers with several other IT players, including the alignment with the specialized banking software business through CBS. The business partners at one point migrated the group’s legal seat to the Dubai International Financial Center and added several international addresses to the group’s profile of office locations.  

Direction for the future

After an exercise in restructuring ownership in 2012, the two entities are currently refocusing their business lines. While C-O is anchored in Lebanon and looking at regional growth opportunities, CBS is serving banking customers in African markets through a Paris-based unit, in Caribbean and Latin American markets from a base in the United States, and caters to a sub-niche of private banking from an office in Monaco.

For C-O’s business growth, Hanna sees “still a lot of work in the Lebanese market to consolidate our position as leader in this industry here.” At the same time, he would hardly be an entrepreneur and business mind were he not to add that C-O has potential to “export our ‘knowhow’ on a partnership basis to people in countries around us.” These potential business partners are people that C-O is in contact with and who can benefit from C-O’s experience, knowhow and people, he adds.

One of the few persistent challenges that C-O appears to have come up against without too much prior success is the rather dull nature of doing corporate IT business. “We are not a sexy company and we are not a company with a service that is easy to understand for the layman,” Hanna admits, adding that the company recently launched its first advertising campaign in several years. Using an over-the-top image of whiny baby-esque employees, it was a disruptive campaign with the aim to first attract attention and second “we wanted to humanize the image of the IT service that we provide.”

Outsourced security

At a time when the Lebanese market has just gone through a shock of internet connectivity failures, and the scare of the hyper-sophisticated information theft virus, Flame and Gauss, which specifically struck Middle Eastern countries and were discovered only a few weeks earlier, the importance of data security and disaster recovery are certainly areas where the ground should be fertile.

As Hanna observes, the attitude of companies in the Middle East to the issue of data security has changed in his favor when compared with the beginnings of ASP services in the region. While company owners 10 years ago were afraid for safety of the data they were going to outsource, today they outsource because of fear for the safety of their data if they are kept online in their own systems, he explains.

A security breach at C-O “at some point in time would be very harmful for us,” Hanna admits, but says that the company’s exact expertise resides in anticipating and averting IT problems. “The potential of a security breach is a challenge for us and we take it very seriously but it is not a threat,” he claims.

Virtually defining IT as “full of problems and when you have a problem you need someone at the other end of the line who can solve your problem immediately,” the chairman of C-O approaches IT troubles perhaps in the way that a professional animal wrangler would consider his gators or lionesses.

That leaves one professional longing of note that Hanna hopes to see realized after many years of waiting. “I think we need competition. Competition will open up our market and help our market grow and help us educate the market,” he says. “I have been hearing for the last 10 years about companies that wanted to enter the market and do the same [thing] we are doing and haven’t see anybody coming in. I want competition. “You only get better if there is competition.”

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Recalibrating for Ramadan

by Zak Brophy
written by Zak Brophy

The holy month of Ramadan affects every aspect of a practicing Muslim’s personal and communal life. Business is no exception. And yet while companies and employers clearly need to adapt to accommodate the spiritual needs and obligations of their Muslim workforce, does this necessarily have to amount to a decrease in productivity?

“Maintaining productivity during Ramadan really is the main challenge facing companies and employers,” asserts Ramez Shehadi, vice principal and partner at business Booz & Co. Indeed a 2011 report found that the economies of Muslim majority countries — the 57 members of the Organization of Islamic Conference — suffer approximately a 4 percent decrease in monthly gross domestic product for every hour deducted from the working day during the holy month. Shehadi highlights that a more fatigued workforce and a reduced overlap with global working days further compound this.

The same report, however, also found that 77 percent of respondents said they try to maintain the same level of productivity during Ramadan and feel that work should continue uninterrupted. The question is how to adapt to the changes experienced during Ramadan and to minimize the disruptions to business. According to one of the report’s authors, Mohammed Faris, founder and chief executive officer of ProductiveMuslim.com, “Unfortunately many employees enter Ramadan with a mindset that hinders productivity instead of trying to see how best to manage their energy levels in order to be productive.”

State regulation of the holy month

In most countries throughout the Gulf Cooperation Council (GCC), the governments’ involvement is limited to regulating changes in the hours of the working day. “There is a sort of freedom within structure,” Shehadi explains. “Government tends to establish the broad brush strokes that outline the parameters in which organization and people are expected to operate.”

Most of the region’s labor laws dictate that during Ramadan, the working hours of all employees shall be 36 hours per week, six hours per day. However in many cases there are carved out clauses that exempt people in managerial positions of authority. The laws also vary from country to country as to whether they apply to all employees or just Muslims who are fasting.

Rafi-Uddin Shikoh, chief executive  and managing director of consultants DinarStandard and co-author of the aforementioned report, notes that in comparison to other Muslim majority countries, the GCC region tends to experience a greater reduction in actual work times than is necessary. “In the Gulf, while they want to make sure that the spiritual obligations of the employees are being met, we found that the approach is in many ways counterproductive by accommodating too much,” he says. “In some of the countries the work hours are effectively reduced to five hours a day.”

Work-arounds

With regards to changes in the work hours there are numerous methods to circumvent or overcome disruptions to business. In an increasingly connected and mobile world many staff can work remotely to manage their workload around their religious obligations. “People are also taking work home more now during Ramadan,” says Shehadi, “which is easier in this increasingly connected and digitized world.”

Good communication, management and coordination are also key to keeping business on track. A large proportion of the GCC workforce is expatriate and non-Muslim, and their flexibility during Ramadan can smooth over some of the disruptions to the work flow. It is often understood that employees who are not fasting should not take annual leave during Ramadan and if necessary be present during times such as iftar, the breaking of the fast, or taraweeh (the evening prayers). If employed creatively this does not necessarily amount to an increased workload for them.

While working around the changes in work hours, employers also need to enable their employees to partake in religious activities, such as increased reading of the Koran, the breaking of the fast and extended and additional prayer times. However, there are a number of different methods that can, and often are, employed to minimize or even eliminate the impact on productivity throughout Ramadan.

Mixing business and religion

The iftar is the focal point of every day in Ramadan. While life pretty much comes to a standstill so those that have been fasting can congregate and feast together, this can in many ways be seen as an opportunity to do business. “There are more business iftars and suhoors [the early morning feast] happening where people come together to celebrate and do business,” says Booz’s Shehadi. “Because these are extended meals that go on much longer than a traditional half hour or hour lunch they are suitable for business discussions and for making business decisions.”

What’s more, by encouraging staff to break the fast together the iftar can increase camaraderie and bolster the sense of community in the workplace. Inviting non-Muslim members of the workforce to the iftar can also foster greater understanding and cohesion, which in turn facilitates a more productive work environment. 

The charitable and communal atmosphere that is encouraged during Ramadan can be harnessed to develop the socio-economic contribution from companies. This is beneficial for both the morale of the workforce and the image and standing of the company within society. For example, many companies employ charity drives during Ramadan to make the most of the spirituality of the season. “Many of the good employers out there get their teams involved in the Ramadan tents for the breaking of the fast,” says Farrukh Kidwai, CEO and partner at the global research and consultancy Great Place to Work Institute. “This is a great way to build camaraderie and it really gives everyone a very good feeling.”

As well as managing the workforce employers can also manage, to their benefit, the workflow during the month of Ramadan. “Another area of added productivity is to push and front-load a lot of decisions, deliverables, workload and commitments to before, or just after, Ramadan,” says Shehadi. “This means there is a shuffling of expectations before and after to stop Ramadan becoming a bottleneck.”

Keeping connected globally

Working in the global village means that employers need not only think about managing a predominantly Muslim workforce during Ramadan, but also their working relations with partners, customers and clients in foreign, predominantly non-Muslim, countries. Again, communication is the key. 

It is important to inform partners, colleagues and customers abroad as to the potential impact on business and to take into consideration Ramadan when planning projects, deliverables and business trips. Most people are sensitive and accommodating to the changing work environment during the holy month but that does not mean they are aware and informed.

Clear lines of communication, forewarning and even festive goodwill gestures go a long way to minimizing the risk of communication breakdown and all the hiccups that can ensue. “For professional Muslim employees, they should try their best to project a positive image about Ramadan and not use it as an excuse for unproductivity and non-delivery of service,” says ProductiveMuslim’s Faris.

Ramadan inevitably impacts on the work environment. And so it should. But if managed properly this impact need not be deleterious. Indeed, to the contrary, it can boost morale, productivity and enthusiasm within the workforce.

“Ramadan can be used as a platform to introduce Islamic work concept that are ingrained in the religion such as trustworthiness, honesty and stress management,” says Firas, “to both Muslim and non-Muslim employees.”

0 comments
0 FacebookTwitterPinterestEmail
Economics & Policy

Ramadan’s undocumented potentials

by Thomas Schellen
written by Thomas Schellen

Ramadan and Eid al Fitr 2012, being smack in the middle of summer, generated a curious lot of anecdotal business news across the media. In Kano, home to Nigeria’s largest Muslim community, roadside traders reported demand for block ice spiking to new heights. In Jeddah, Saudi Arabia, traffic in cafes doubled and turnover increased by half due to massive night-time narguileh consumption, according to Arab News. And in Turkey, makers of television soap operas were in commercial heaven due to exploding Arab appetite for their products, while Istanbul’s Ataturk Airport announced a new record in flight traffic on the last day of Ramadan.

It is an absolute no-brainer that the Islamic Holy Month impacts Muslim-majority economies in many ways. A big theme is productivity. Fasting daytimes throughout a full lunar month does much to curb one’s appetite for work. The pressure on human capital management is only one aspect of the Ramadan economy, however. Business opportunities account for the other side of the equation.

Presenting themselves on levels from time-honored to recent to impending, Ramadan-related economic opportunities share two commonalities: they are expanding and they contain vastly under-used strategic business potentials.

The fundamental drivers for business growth in the Holy Month are increased consumption and the gift economy. First and foremost, consumption during Ramadan means  food. Family meals and gatherings with friends and relatives during the non-fasting periods from sunset into the night are established cultural priorities. These social factors generate increased food demand, while psychological cravings also polish up appetites for traditional and contemporary delicacies; this increased demand naturally does its part in pulling up prices and is the main feature of food retail during Ramadan.

With high-in-demand items ranging from staples to exclusive foodstuffs, consumer complaints about surging food costs have again this year abounded in many Muslim-majority countries and in Muslim population centers from Cairo to Jakarta. Exceptions applied in some Gulf countries, where authorities have, in recent years, increasingly imposed price controls to stabilize living costs during the Holy Month. 

Authorities in the United Arab Emirates told media ahead of the 2012 fasting period that they issued price bindings for 1,600 products, up 50 percent from the number of items monitored in Ramadan 2011. Control measures were highly publicized and large UAE retailers generally put on a good face for the measures, which are flanked by government incentives such as expedited customs procession for compliant traders. In Tunisia, on the other hand, where price controls were also in place, traders complained that they had to sell below cost.  

If one looks for a single food item that represents both the culture of Ramadan meals and the regional potential for food exports, the choice has to be dates. Consumption of the wholesome fruit during Ramadan is buoyed by the fact that Prophet Mohammed regularly broke his fast by eating dates. Production of dates is moreover concentrated in Muslim-majority countries, with the top five producing nations situated in the Middle East and North Africa region.

But while the prominent displays of the fruit in every supermarket in the region provide visual evidence for soaring date sales during Ramadan, the fruit appears to have no central lobbying organization and the world seems short on published data on dates, let alone data that would allow the royal date to act as a proxy for the changing food consumption patterns in Muslim communities in the fasting month.

A new white paper on potentials for marketing to Muslims globally, published this July by United States-based Public Relations agency Fleishman-Hillard, cites the halal food market as being worth at least $650 billion globally, without offering an estimate on the Holy Month’s share. However, the period’s moving timeline and diversity of locations and products, plus the absence of research into Ramadan-specific markets and Ramadan-specific demand, prohibit any macro assessment of global demand for Ramadan foodstuffs.

The global market growth potential for Ramadan foods correlates with some obviousness to population growth. The share of Muslims in the world population has grown from 1.1 billion persons in 1990 to about 1.6 billion individuals, or 23.4 percent of global population, in 2010 and will continue to grow at twice the rate of non-Muslims to reach 26.4 percent of projected world population by 2030, according to research by US-based Pew Research Center’s Forum on Religion & Public Life.

As it was already in the past quarter century, population rise, demographic profiles and socioeconomic developments of Muslim-majority countries will nourish growth of demand for food items associated with the Holy Month in the next 25 years, (which is when Ramadan will next take place in the middle of summer).

 

From business to CSR and back

Just as germane to Ramadan as family meals, and an established corporate custom in Islamic culture, is charitable giving. For local companies in the Gulf, this tradition of charity has been increasingly affixed with the label of corporate social responsibility (CSR) and it is equally integrated in their corporate citizenship practices; the same goes for foreign companies that have installed major units in Dubai or elsewhere in the Middle East.

Dubai-based Mashreq bank, among the leaders in the retail market, finalized its list of Ramadan CSR activities just before the start of the Holy Month this year. Its CSR lineup included a fund-raising drive among employees, with their total matched by the bank’s management, for a food collection and distribution partnership with a local NGO, the collection of toys for needy children, and the organization of an iftar, or meal to break the fast, for 300 laborers.

To give an example for a large multinational’s adoption of the practice, PepsiCo Asia, Middle East & Africa regionally announced its CSR engagement as including Ramadan meals — iftars and sohours, late evening or pre-dawn meals before the new fasting day — that served, from corporate perspective, a double function. Organized for employees, their family members, business friends and media, the events fulfill a social function of building and strengthening relationships with internal and external stakeholders in the company. Organized as charitable activity for the poor, sponsoring an iftar provides the company with the satisfaction of giving socially, coupled with reputational benefits. Another pillar is the distribution of Ramadan care packets, boxes with goods for daily sustenance to workers living in the many housing projects for manual laborers. 

Emirates National Oil Company (ENOC), the state-owned operator of gas stations and fuel distributor, said its 2012 Ramadan campaign was designed to be the company’s biggest ever. ENOC highlighted that it would promote Islamic virtues on posters, provide value-centric lectures to employees, hand out dates-and-water boxes to motorists ahead of iftar time and participate in distributing 5,000 care packages to residents in labor housing projects. 

Sharjah Media Corporation (SMC) reported that its CSR lineup for the Holy Month included the sponsoring of Ramadan tents providing daily fast-breaking meals to upward of 3,500 believers in Sharjah. The holding company for the northern emirate’s communications enterprises said some AED 1.15 million ($313,000) in donations for the tents were generated by the listeners to SMC’s Sharjah Radio and Television even before Ramadan started.

Describing the company’s humanitarian efforts as part of its “uncompromising commitment to corporate social responsibility,” the manager of SMC’s Sharjah Radio and TV, Khalid al-Midfa, told Executive, “SMC has been proactively leveraging the power of media to initiate CSR-driven programs that have a concrete impact on the lives of different people in our community. Our partnership with Shrajah Charity International demonstrates the huge potential of the media as a tool for social reforms as we have generated more than AED 1 million ($272,000) for Ramadan tents put up in different locations across the emirate.”

The pattern is also applied with gusto by multinational PepsiCo Asia, Middle East & Africa, which in 2012 organized Ramadan activities in the UAE benefiting more than 5,000 recipients, mainly laborers but also orphans. In Saudi Arabia, a PepsiCo campaign donated SAR 1 million ($267,000) to two charitable organizations caring for orphans.

Omnicom Media Group Middle East and North Africa (OMG Mena) quantified its Ramadan activities as a percentage of its total CSR budget, disclosing that it would be allocating 42 percent of the year’s CSR budget to Ramadan.

Addressing the fasting month’s contribution to the internal cohesion in OMG Mena’s workforce, chief executive Elie Khouri said the company’s engagement is “not about the amount, it is about the message; it is a time of giving and sharing and togetherness which is why we provide things like the iftars and sohours so that we can pass them together with the employees, and it also is very much a time of flexibility that we can provide as we recognize that the employees have obligations with work and family.” 

The personal satisfaction of being involved in a CSR activity as part of a corporate effort is great, said Fadle Saad, enterprise sales manager, oil and gas, for the UAE and Oman at information technology giant HP. “We volunteer to prepare packages with food and other things and the company organizes that they are distributed to the laborers in the camps. For me, it is a highlight of Ramadan to participate in this effort.”

As more and more corporate CSR departments around the region integrate the Holy Month in their annual planning, one waits for more strategic and diversified approaches with multi-year planning to be introduced and for the first Ramadan CSR reports to be published in order to assess how the huge corporate citizenship potential of this outstanding religious and cultural occasion can be harnessed to greater socioeconomic significance.  

The marketing floodgates

The third modern Ramadan reality is that the period provides an opportunity to open the marketing floodgates for commerce that can be not at all, tenuously, or directly related to the period’s Islamic content. 

Durable consumer goods from home furnishings to consumer electronics, cars, clothing, financial products, and telecommunications services offering religious instructions and prayer schedules, are all marketed with great intensity and success during the Holy Month. 

Seasonal promotions typically bait consumers with discounts or extras, examples from the automotive business being an offer for car buyers in Al Ain and Abu Dhabi to get a new BMW with a deferred payment schedule, reduced interest, and free registration. Suzuki fans in Muscat could pick up new wheels with insurance, service package, registration and an X-Box thrown in for free.

Based on expected discounts, consumers in Arab countries have moved to defer purchase decisions until they see Ramadan offers, resulting in retail turnover concentrations during the Holy Month that can be 30 and more percent higher than during other months, with unconfirmed reports from some manufacturers and markets putting Ramadan turnover as high as 50 or 60 percent of annual sales for large consumer electronics.

In 2012, Ramadan-specific travel packages to luxury hotels outside of the region were also on the list of seasonal promotions, underscoring that Muslim tourism, worth an estimated $126.1 billion in 2011, “may very well be the largest untapped niche market of the tourism industry,” according to a new study by US-based and Muslim-specialized marketing research firm DinarStandard. 

Fasting people’s behavior patterns shift during the period and this reflects on media consumption habits. A study of television viewing patterns in Egypt, Saudi Arabia and the UAE in Ramadan 2011 showed that average viewing time per person increased by 13 percent in Egypt and 6 percent in Saudi Arabia but dropped slightly in the UAE when compared with the average monthly TV consumption. During the month, advertisers concentrate on TV commercials and the medium jumps from 62 to 74 percent share in advertising spending in the GCC and from 66 percent to 92 percent in Egypt. According to the OMG study advertisers allocated between 70 percent (GCC) and 440 percent (Egypt) more funds to airing commercials during the fasting month than in each month directly before and after.

Digital marketing potential is also higher during Ramadan, suggests research into tweet frequencies by The Online Project (TOP), an Amman-Dubai-based social media agency. The agency released a study in July saying it found increases in twitter activity in the UAE, Egypt, Jordan and Kuwait ranging from 35 percent in the UAE to 395 percent in Kuwait. With the average volume of Ramadan tweets more than double that of comparison periods in three of the four countries and with activity peaking in the evening hours, the agency recommended that companies can use the Holy Month particularly well to engage with their customers via social media.

What all three realms of Ramadan activities with relevance for business have in common is that they are even more under-researched than Muslim markets in general for their growing geo-economic role and implications for new business. As the Fleishman-Hillard paper put in a catchy phrase, “The Muslim market is large, lucrative and under-served.”

OMG noted that “from a marketing perspective, Ramadan is a month of frenzy and hyperbole, leading to concerns about its commercialization.” As such, the period has been compared with the Christmas season, and concerns over balance of mind and body during the Islamic Holy Month are as valid as concerns over consumerism and excessive commercialization of life’s every aspect are at any time.

However, while in the religious context of Christmas any commercialization of believers’ sentiments is often criticized and frequently even abhorred by adherents to the faith, the view of Ramadan as time of blessing, charity to needy, and gift giving and generosity allows for a rather inclusive view on religious tradition and business.

“People should be active during Ramadan whether it is through charitable work or spreading God’s word or through business or by making other people happy. It is the best period in the year for everything,” opined Hamdi Murad, a scholar and university professor of Islamic studies based in Amman.

The caveat, of course, is that the products and services marketed during Ramadan have to be acceptable from a religious perspective; but next to the tantalizing economic outlook provided by the demographics of the world’s Muslims, this bit of religious news may be the most appealing information for marketers who aim for responsible growth.

0 comments
0 FacebookTwitterPinterestEmail
Business

Behind the app

by Maya Sioufi
written by Maya Sioufi

Instagram, Angry Birds and Shazam were created by tech savvy developers. The brains behind these amusing mobile experiences had to build two types of codes to provide their app: one deployed on the mobile device for the functionality and user experience — dubbed the “front-end” code and the reason for our choice of one app over another — and one deployed on a server infrastructure for the database, security, social network integration, etcetera — dubbed the “back-end” code. While the front-end code is usually particular to each app, the back-end code is mostly identical among apps. 

 

A startup to help startups

To simplify the “back end”, data centers started offering hosting, or space on a server, to app developers. Developers’ lives got even simpler in 2006 when Amazon introduced “utility computing”, allowing them to rent new machines on-demand and be charged by the hour like other utilities, such as electricity. There was no longer a need to buy hardware for capacity, as space could be rented online. That’s when Lebanese serial entrepreneur Rabih Nassar saw an opportunity. Writing the back-end code used to be the developer’s job, but sites like Amazon removed this burden. “The whole capacity issue is gone; it was a paradigm shift in software,” says Nassar. 

 

Under the name Apstrata, Nassar pioneered and started offering “back-end as a service” (BaaS) in 2009 to developers who would be able to cut their development team by half and save anywhere from 15 to 90 percent of the total cost of implementing and supporting an app over its entire lifespan. This allowed developers to focus on the front-end code. A ‘freemium’ service, Apstrata does not charge developers until their user base exceeds 500 users, “making it extremely suitable for startups and young entrepreneurs testing new ideas,” says Nassar. 

 

ElementN, the Lebanon-based company he founded in 2003, which until then was offering software for mobile operators, is now focusing on Apstrata. Making up just 4 percent of the $2 million in revenues generated by ElementN last year, Apstrata is expected to take on a larger share and generate 10 to 15 percent of revenues this year — with ElementN bringing in $3 million in the first six months of 2012 — and more than 30 percent next year. 

 

Building on his experience in the tech sector in Silicon Valley and in Europe, Nassar built a solid team composed of 60 highly qualified employees, but starting in Lebanon is something he seems to regret. “I was a bit naïve to assume I can build technology out of Lebanon and attract United States investors; this proved to be a nightmare scenario,” he explains. While Nassar tried to approach investors in the Gulf, there was no interest in investing in the software space. “It will take the fund manager in the Gulf more effort to understand my company than a $200 million petrochemical investment. So why bother?” he says. 

 

It wasn’t until 2010 that ElementN received its first round of financing, securing $1.2 million from Lebanon-based venture capital (VC) fund Berytech for an undisclosed stake. “That delayed us,” says Nassar. Other US-based companies did not take too long to follow in Nassar’s footsteps in providing BaaS, securing relatively large amounts of financing from VC firms. Stackmob and Parse, both American providers of BaaS, received $7.5 million and $5.5 million, respectively, in financing last year, which makes him edgy, since he pioneered BaaS, and he should be the one receiving the financing. Nassar is not too worried though, as his competitors are using the financing to invest in research and development; he has already built the R&D maturity by investing $5.5 million through self-financing between 2003 and 2010, as well as using Berytech funding.

 

To secure investments from US-specialized VCs, Nassar needs to move his team across the Atlantic, as “all the huge software companies are US-based; if you want to make it in software, you go there,” he says, adding that he is looking for financing to transplant his company to America. The immediate need is for $2 million with investors — read ‘high net worth individuals’ — already lined up. Once the company is in a better condition and of a bigger size, he will then go for another round of financing, up to $7 million, from VC firms. 

 

For now, he is hoping that his mistake of starting off in Lebanon will not cost him too much, and that he will be among the successful software companies in the US giving a boost for tech companies back home.

 

0 comments
0 FacebookTwitterPinterestEmail
InsuranceSpecial Report

Q&A – Issam Hitti

by Thomas Schellen
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.

0 comments
0 FacebookTwitterPinterestEmail
InsuranceSpecial Report

Orange scheme crashes

by Thomas Schellen
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.

0 comments
0 FacebookTwitterPinterestEmail
InsuranceSpecial Report

Weathering the rainy days

by Thomas Schellen
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.”

0 comments
0 FacebookTwitterPinterestEmail
InsuranceSpecial Report

Tied up in risk

by Thomas Schellen
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.

0 comments
0 FacebookTwitterPinterestEmail
Economics & PolicyElectoral Reform

Blank the ballot

by Rabih El-Chaer
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

0 comments
0 FacebookTwitterPinterestEmail
Economics & PolicyElectoral Reform

Linking electoral and economic reform

by Sami Atallah
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

0 comments
0 FacebookTwitterPinterestEmail