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.

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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

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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

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Economics & PolicyElectoral Reform

The vice of vested interest

by Rony Al-Assaad
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.

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Vroom a la Libanais

by Thomas Schellen
written by Thomas Schellen

The concept of fantasy cars is well established on the wide avenues of automotive fiction. Think Transformers. And it has been exceedingly difficult to get these and other octane fairy tales out of my mind this summer because of a prospective car maker called W Motors, author of a new and absolutely presumptuous automotive project, the Lycan hyper car.

Although this $3.4 million car won’t have capacities to shape-shift into a super-robot (it won’t even be able to fly or swim), images of impossible dream cars became inescapable the more I was being told of the vehicle by its inventor and eventual manufacturer, Lebanese entrepreneur Ralph Debbas.

It is perfectly healthy for an entrepreneur to have a strong sense of self-worth and dreaming up a new supercar seems to have come naturally to Debbas, who graduated a couple of years ago from Coventry University in the United Kingdom with a masters degree in automotive design, and whose ambitions loom larger than his entrepreneurial credits. This perhaps excessive confidence plays out in high gear as Debbas claims that what he is creating is a whole line of Arab supercars, emphasis on ‘Arab’.   

However, the Lycan (like most things in W Motors, the name is wolf-themed) will come with German engineering, Austro-Canadian workmanship and Italy-based assemblage plus a hologram derived from a Californian inventor’s work. All very respectable as far as partnerships and the expertise involved, but it sounds more like a mongrel of multi-nationality than a pure breed racer of Arab pedigree.

What makes the car Arab, Debbas counters, is that he did the design and that the company is registered in Lebanon; plus, W Motors will open shop in downtown Dubai later this year. “The showroom and the design center and the virtual assembly line, everything is being done in Dubai.”

The virtual assembly line, however, is not to be confused with the car’s real assembly at a plant in Torino, Italy. The Dubai virtual reality will happen in an office tower where car buyers can peep, high-tech of course, while their vehicles are put together. Such reasoning still seems thin. There is a more important issue, however, than whether this hyper car’s links to Beirut and Dubai are enough to earn the brand the status of first Arab supercar.  

All successful car brands have identities. These identities of manufacturers and whole national automotive industries are tied to their accomplishments in engineering, efficiency, safety, convenience, affordability and so forth. The question then is if this car will make a contribution to the region’s automotive future, and technically will prove to be more than a marketing label and anachronism in a time of global manufacturing cultures. As Debbas admits, the Lycan’s highly-touted hologram, for example, won’t provide positive tech impulses for the mass market.

Debbas put the car’s price point at stratospheric $3.4 million (in Lebanon it would be $5.6 million, after taxes) in a calculated move to attract attention and avoid having to compete with established names in the ultra-high-luxury niche. No other maker asks that much, on top of which W Motors has copied a page from the playbook of off-plan real estate developers and requests buyers put 30 percent down before the assembly crew even starts on the car.

Despite all this playing with pricing to create a market for the car, Debbas naturally says that the exorbitant cost will be fully justified by the car’s engineering and extras, not found in the average Aston Martin One-77 or Bugatti Veyron, such as a door mechanism that costs a million dollars to develop and not one but two holograms (a “W” on the hood pops up before the car is put in motion).

While Debbas downplays some of the conspicuous things about the car — he says the gold armatures are only a very small cost factor and the 1.5 millimeter diamonds in the LED lights will create but a “beautiful glow” and practically no bling at all — it remains the designer’s secret if the car is going to provide value for money even by the insular standards of invidious consumption. 

Aside from leaving questions unanswered that regard his own capital — and how he got up to $15 million in capital financed from family and friends without submitting to the pesky scrutiny of a bank or private equity capitalist — Debbas simply projects promise in response to whatever queries arise. But while waiting for W Motors to deliver its product to market, there is a distinct chance that the characteristics of this “Arab supercar” will be captured by the question: “What goes bling, vroom, vroom, bling, bling, bling?” Answer: A supercar à la Libanaise.

 

THOMAS SCHELLEN is Executive’s MENA editor

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Society

Many plates at the table

by Nabila Rahhal
written by Nabila Rahhal

When your meal is served at a wedding or when you grab a canapé at a cocktail reception, you do not often stop to think of what happened behind the scenes to put that food on your fork. Starting the day before the event, the kitchen is abuzz with chefs over their stoves, assistant chefs cutting and arranging food on plates and waiters lining up those plates on trays to be served to guests. Behind the kitchen staff are the various management teams working on the day-to-day operations and ensuring all is running smoothly. With almost 100 catering companies registered in the yellow pages, catering is big business in Lebanon.

Though there are no official figures regarding the industry’s total revenues, some experienced caterers estimate its total value at more than $1 billion annually. “When one considers how many weddings take place in the summer,” says Wael Lazani of Jai Catering, “and multiply it with how many guests are in each and knowing the minimum charge for catering is around $60 per person, then one can begin to get an idea of how big the catering business is in Lebanon”. This also does not count all the other events requiring catering, from store openings, company lunches to home dinners, as well as industrial and institutional catering for company cafeterias. 

The catering business also generates a significant number of jobs as, depending on their size, catering companies can employ between five and 150 people, with additional staff, mainly waiters, hired during high seasons. “A high-end catering company usually handles between four to eight large events per week [meaning between 500 and 2,000 guests] and a few smaller ones such as home catering, cocktails or corporate meetings,” says Roger Zankoun, general manager of operations at Dream Holding, which owns Sofil Catering. Such an operation requires, according to Zankoun, 25 chefs and 20 permanent operations and logistics staff, with extra waiters hired when necessary.

Medi Resto, which Fleur De Lys catering is a part of, has 150 employees divided between administration, the sales team and those who handle and prepare the food, according to Michel Ferneini, chairman of Fleur De Lys Catering. Fleur De Lys had already catered 40 weddings between May and July this year. For his part, Hisham Saad, chief executive of Le Blanc Catering, employs 62 people and handles an average of 12 events per week during the high season.

Competitive cook-off

Catering is not without its challenges, the biggest being competition as companies vie for clients, and sometimes corners get cut. Zankoun speaks of chefs and head waiters who leave the companies they were with to set up their own establishments, sometimes in under-equipped kitchens.

“When a chef with a kitchen designed to cook for around 50 people takes on an event of 200 people to make more money and serve more clients, thereby staying in the competition, he will not be able to maintain control of his output and the food’s hygiene might be sacrificed,” says Zankoun. Indeed, hostess Salma Mrad speaks of the time when, as a sign of support, she ordered salmon fillet from a chef who had recently started his own business. The fish she received stunk from afar. “I had planned it to be the main dish at the dinner I was hosting but when I smelled it, I knew there was no way I could serve it! I learned my lesson though and now only order from established caterers.”

Unlike restaurants in Lebanon, who get their operation licenses from the Ministry of Tourism, catering company licenses in Beirut fall under the jurisdiction of the office of the governor of Beirut and under the Classified  Institutions Department. Inspectors are theoretically being sent to the kitchens of catering companies, but some caterers see this process as sporadic and are asking for more governmental oversight to separate the professional and hygienic companies from the ones who might be skimping on safety standards. However, all catering companies interviewed cited their health and safety certifications from Hazard Analysis and Critical Control Points (HACCP), an international management system regarding food safety, to International Standards Organization (ISO) 22000, a food quality control system.

Food poisoning, however, can and does occur, especially at outdoor weddings where heat and humidity make it easy for food to go bad. At a buffet style wedding catered at an outdoor venue on a hill overlooking Jounieh in July 2009, a third of guests reported cases of food poisoning, some of which led to hospitalization. One of the guests humorously recalls being in the hospital emergency room and seeing people she recognized from the wedding walk in with expressions of pain on their faces.

Precautions some catering companies take to avoid such scenarios include displaying the food a maximum of 15 minutes before it is served and removing it an hour after the guests have visited the buffet. While this means you might not get second helpings, the risk of food spoiling is avoided.

Such precautions are costly. According to signature chef and caterer Hussein Hadid, outdoor weddings are more expensive due to the added cost of the cooled transport trucks and “stoves on the go”, as some of the food is prepared in the venue itself to guarantee freshness.

Michel Khalifat, general manager of Faqra Catering, believes that all measures should be taken in such cases to maintain quality but says a challenge they face is clients who want the same quality of food without the added cost. With basic costs rising (the foods and beverages supplies’ inflation index has risen 7.6 percent from last May according to the Consumer Price Index Report) such expensive extra measures put the squeeze on catering firms. Dream Holding’s Zankoun says they would rather refuse some outdoor weddings, especially those where the venues charge an operations percentage from them, as the cost of their investment is sometimes more than the return.

Hadid says that when wedding caterers stay competitive by lowering charges it necessarily means the quality of their food will suffer as they use the cheaper supplies. But, says Hadid, many couples care more about appearances than food, and so would be willing to cut corners on the catering and spend more on entertainment or display.

“No one will remember what the food was like at my wedding in years to come, but they will remember the superstar I am bringing to sing,” says Hala Baydoun, a bride-to-be planning her wedding for this September. “All I care about, regarding food at my wedding, is that no one gets poisoned.”

The price of a moving restaurant

Catering’s high season is the summer which, aside from the increased weddings, also sees a higher number of luncheons, with many people hosting company in their mountain homes. “Last year saw a trend of inviting out to restaurants rather than hosting at home, but this summer there is a high demand on home catering again,” says Khalifat. Most caterers agree hosting at home costs more than inviting guests to a restaurant (prices start from 65$, according to caterers interviewed). “At home, we are bringing the restaurant to the client which understandably costs more,” says Wissam Zeidan, managing partner of Socrates Catering. “We can even bring chefs for live cooking stations.”

During the winter, caterers generally rely on corporate and charity events, which increase around holidays. Some explore other catering avenues: Faqra Catering, for example, does industrial catering for schools and hospitals which Khalifat says helps them make up for the winter when less weddings and house parties take place.

The political events this summer seem to have affected the catering industry, with Zankoun reporting some 15 weddings being canceled and quoting planners who have told him they have had 50 weddings canceled. Catering companies are also complaining of weddings having shorter guest lists, due to less expats and Arab tourists coming to the country. The government-mandated wage increase has added to caterers’ costs, while Ferneini, of Fleur De Lys Catering, also talks about losing his talents to careers abroad, and indeed Hadid and Zankoun both speak about the difficulty of finding qualified staff and service people in Lebanon. “In a competitive business such as ours, one has to have presentable service people who know how to talk to and attract clients, and it is a challenge to find qualified people or even to train them here,” says Hadid.

While the catering industry undoubtedly faces challenges, by its nature it still retains its lucrative potential and massive market — among the oldest of human customs is to gather around food, and as long as this stays the case, there will always be a business to feed them.

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Finance

A view from the Alps

by Maya Sioufi
written by Maya Sioufi

Swiss private banks seem to be losing their mojo. Gone are the days where one could open a bank account in Zurich or Geneva and sit back, relax and enjoy the returns. Now you worry your home country will bite into your yields.

Switzerland’s oldest private bank, Wegelin, fell prey to the United States’ tax-evasion squeeze in February; it was charged with helping wealthy Americans hide a whopping $1.2 billion in offshore bank accounts.

“Wegelin was a very special case,” says Jacques de Saussure, senior partner at Pictet & Cie, the third largest private bank in Switzerland with more than $360 billion of assets, in an interview with Executive. “As a consequence of the recent regulatory changes, undeclared US assets in Swiss banks must be very small, and probably much more limited than in other countries. As a result, Swiss banks are probably much better prepared to deal with FATCA (Foreign Account Tax Compliance Act)”, the US law requiring non-US financial institutions to provide details of their customers with American citizenship.

Washington is not the only cash-strapped capital eyeing Switzerland to raise revenues; other European states are targeting accounts of their high net-worth nationals in Swiss banks too. A tax treaty between Germany and Switzerland aimed at German tax dodgers is scheduled for 2013, with up to €10 billion ($12 billion) at stake for Germany’s coffers according to Der Spiegel. More recently, debt-ridden Greece is looking to sign an agreement with Switzerland to tax Greek citizens’ deposits held in Swiss accounts.

“Holders of foreign bank accounts are easy scapegoats for the troubles of governments with unbalanced public finances,” says Saussure. “Governments certainly grossly overestimate the amounts involved, and should start focusing on other types of assets, in particular real estate; also, and above all, they should review fundamentally their spending and tax systems.”

Looking east

While internationally there is a trend toward greater compliance and transparency, Saussure notes that “unfortunately… we have a lot of hypocrisy from other countries. A paradox to me is that we know of many dictators and politically exposed persons who own real estate in Paris and London, and who checks that? This is rather disturbing.”

As Swiss private banks feel the pinch, they are turning to emerging markets, and the Middle East is on their agenda. “The Middle East is still growing faster than the industrial countries in Europe and America, with the wealth creation this growth implies,” says Saussure. With turmoil shaking several countries in the region, Middle Eastern clients are reducing their exposure to local real estate and diversifying to other markets, “with a specific focus on the United Kingdom and the US as well as Asia, notably Malaysia”.

Investors from the region are more attracted to “the culture of discretion and the respect of private sphere inherent to Swiss private banking” than to the tax component of Swiss banking secrecy, particularly in the Gulf Cooperation Council, which enjoys low level of taxation, says Saussure.

Saussure believes that Swiss banks benefit from their country’s strong fundamentals. As Europe struggles with ballooning public debt issues and as its banks suffocate in sluggish domestic economies, he sees Pictet’s base in balanced-budget Switzerland as a new asset. “Don’t forget that our equity in the bank is essentially kept in Swiss francs. The Swiss franc has appreciated — too much for some and also for us — but one of the benefits is that our equity base, relative to other banks, has increased.”

He expects the private banking business to have to deal with more risk going forward as emerging markets take on a bigger share. “When we deal with investors in emerging countries, they are very frequently entrepreneurs in an early phase of the development. That is the case here in the Middle East and also in Asia.” For the Middle East, he sees additional political risk but he believes that “this is improving quite rapidly.”

As for Lebanon, he advises private bankers in the country, “to do the same as a Swiss banker, which is to make sure that they provide more added value to their clients through safety, security, expertise and quality of service; they have the potential to do that.” Lebanese private bankers, like Swiss bankers, are facing pressure to comply with new transparency and disclosure requirements such as FATCA but, says Saussure, “what is of course more difficult is that they are in a country that does not have the same rating as Switzerland.”

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Society

The limits of speed and sanity

by Nadim Mehanna
written by Nadim Mehanna

The illuminated diodes blink up at me from their carbon-fiber dashboard encasement. Mileage. Speed. Performance. To one side sits the power gauge, its range like a prophecy carved in fiery letters: an impossible but unwavering 1,200 horsepower. As I take in the sleekness of the interior, the leather so supple it seems almost alive, the words “fastest production roadster in the world” flit through my head. I’m encased in a $2 million torpedo, and the top is down.  Following the success of the 16.4 Super Sport, it didn’t take long for Bugatti to up its ante with a new addition to the Veyron line: an open-top version of the Super that could nevertheless deliver the Grand Sport’s power and speeds.  The novelty alone was enough to set the fan forums buzzing — an open-top car capable of 410 kilometers an hour? The idea was like a gauntlet thrown in the face of physics. Tornadoes produce slower wind speeds. Strap a rocket to just about any other vehicle and set it off at 410 clicks and the air drag alone will, quite literally, rip it to pieces.

So why do it? Why tempt fate?

Why put a man on the moon, or a mechanical rover on the surface of Mars, for that matter? Any enterprise that pushes the bounds of the impossible contains its own implicit motivation, framed in the simple but central counter-question: why not?

Why not indeed, I think, and throw the car into first gear. The gas seems to drop to the floor of its own accord and the car is off, the world melting into indistinguishable streaks around it.

You can try to describe the Vitesse’s performance by such things as its horsepower or revolutions per minute, but personally, I find these stale calculations fall short of the car’s gut-wrenching reality. Going from zero to 100 in the space of a few heartbeats is best described, I think, as a kind of out-of-body experience. It’s as if the pure force of the vehicle’s takeoff has ripped the soul from your body and deposited it, confused and blinking, on the track behind you. It takes several seconds for your brain to catch up with the car, and when it does, it may still fail to comprehend the reality into which it’s been thrown. The world is a blur; the asphalt contracts beneath you like a snapped elastic band.

With this much power thrumming under your right foot, it’d be easy to panic — after all, unless you’re a professional Formula One driver, chances are this is the fastest you’ve ever moved at an elevation of four feet from the ground. But perhaps the most incredible and commendable thing about the Vitesse, once you’ve recovered from the initial G-Force of takeoff, is how straightforward the actual driving is. The gears slip smoothly upward, almost as an afterthought. Take your hands off the wheel and the car maintains a perfect, pencil-straight course forward. Turn it, and the vehicle prescribes neat, unflinching arks, its four-wheel traction solid as a rock. At every stage, the Vitesse seems to be working alongside you.

A device of both power and beauty

As with its performance, the Vitesse’s aesthetic does not overwhelm. Beautiful, to be sure: a number of aerodynamic measures carried over from the Super Sport, such as larger front-end air intakes and bottom air vents stretching sideways into the wheel house, transmit Bugatti’s characteristic mastery. Inside, the two-tone leather seats, carbon fiber console and quilted armrests, enhanced by contrasting stitching, do manage to convey a degree of luxury.

Every aspect of the vehicle is gorgeously worked, from its fine carbon weave to the buffed casements of its xenon headlights. But this is no high-shouldered Rolls Royce, no luxury sedan. There is nothing ostentatious in the design of this car, nothing to announce, to the untrained eye at least, its seven-figure price tag.

To see the car for what it truly is, you have to look below the hood (if there was one). The Vitesse’s Veyron W16 cylinder engine is a work of power and art, transferring nearly all the advantages of the Grand Sport in one neat package. With a maximum torque of 1,500 newton-meters, it boasts a maximum output of a staggering 1,200 horsepower (hp), achieved at 6,400 rotations per minute. Translate these figures into raw power and you’re looking at acceleration of zero to 100 kilometers an hour in just 2.6 seconds.

In the inner workings of the Vitesse, Bugatti seems to be hewing to the old Hot Rodder maxim: “More power, more better.”

Ettore Bugatti’s legacy

The car is purring away beneath me now, the world slipping by to reverberations of carbon fiber and steel. At speeds that would leave other roadsters spinning in the dust, the Vitesse seems only to be hitting its stride, rising smoothly through the instant shifts to well above 300 kilometers an hour. She’s topless and telling me, “Do what you want, I can take it!” The noise of the air rushing overhead is a torrential roar.

When you hear the Vitesse coming at you from a distance, the sound is like a stampede of mechanical bulls, reaching you long before the car actually swerves into view. It’s a darker, moodier sound than that of the original 1,000 hp Veyron engine. The 1,200 hp Vitesse engine employs bigger turbos, meaning less torque at low speeds and an extra jolt of power once it really starts to fly. I’m inside that sound now, and the roar pouring down from the corners of the windscreen is at once exhilarating and comforting. 

I’ve just begun to relax into the car’s velocity when the radio beside me crackles — the signal to turn back. Regretfully, I release the gas pedal and press the brake. The car responds beautifully, relinquishing its speed with a steady, even pull. 

The Vitesse is both beauty and the beast, a machine of aesthetic refinement with a dark side, capable of pushing the boundaries of both speed and sanity. 

It could be months or years before Mercedes or Renault rolls out a car that can top the Vitesse in terms of speed. Until they do, Vitesse will remain the undisputed king of the roadsters — and by all indicators, it measures up to that lofty distinction.

 

NADIM MEHANNA is an automotive engineer and the pioneer of motoring on Middle Eastern television

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Finance

Your social insecurity

by Maya Sioufi
written by Maya Sioufi

For paying nearly a quarter of each employee’s monthly salary into the National Social Security Fund (NSSF), one would think that private sector businessmen would be ensuring a nice retirement package and healthcare coverage for those working for them. Why then is it so common for retiree savings to run out at 68, and for hospitals to threaten to deny them services? This Executive investigation dives into the inner workings of Lebanon’s social insecurity.

The money pit

The NSSF, Lebanon’s largest insurance provider, more commonly known as the daman, manages $4.7 billion in private sector contributions and offers coverage for approximately 30 percent of the Lebanese population. Other than end-of-service indemnities, the daman also offers healthcare coverage and family allowance payments.

To deliver these services — or attempt to deliver these services — the law stipulates that the NSSF should receive an amount equal to 23.5 percent of every employee’s monthly salary. This cash is then allocated to the NSSF’s three dedicated funds and entirely invested in Lebanese currency through treasury bills and deposits with local commercial banks. Employers carry the lion’s share of the burden, paying 21.5 percent and employees contribute the remaining 2 percent.

Under the umbrella of the Ministry of Labor, the NSSF is a “black hole” says Nassib Ghobril, chief economist of Byblos bank. Of the three funds run by the NSSF, two have been racking up deficits for the last 10 years. The family allowance fund reported an accumulated deficit of $252 million as of the end of last year.

Employers pay cash equal to 6 percent of each employee’s monthly salary into this fund, up to a salary cap of LL1.5 million ($995), meaning for higher salaries the fund payment is fixed at $60. This stash of money pays $40 to each married employee if the spouse is unemployed and $22 for each child until the age of 18, up to a maximum of five children. This means that if an employee is married with an unemployed spouse and just one child, he receives more from the family allowance fund than his employer pays into it.

“This allows for corruption,” says Ibrahim Muhanna, founder of the actuarial firm i.e. Muhanna. “Let’s say you are my sister and you have three children. I can put you down as an employee; tax and contributions to the funds are paid and you get the benefits for the children.”

The healthcare fund, also known as the ‘sickness and maternity fund’, also runs a deficit that stood at $239 million at the end of last year. The employer contributes to this fund an amount equal to 7 percent of each employee’s monthly salary, with contributions also capped at a salary level of LL1.5 million. Unlike the other two funds, the employee also contributes by paying 2 percent of his monthly salary, up to a cap of LL30,000 ($20).

What the fund does is reimburse employees for 90 percent of their hospitalization costs and 80 percent of medication and examination expenses, though payment delays often exceed several months and involve navigating long queues and a quagmire of bureaucracy.

The catch for healthcare providers is that NSSF also sets the rate private hospitals can charge patients using their coverage for certain services — rates that can remain unchanged for decades. This year private hospitals in Lebanon began threatening to stop taking NSSF patients unless the rate for an overnight hospital stay was raised from $20 to $60, citing the burden of mounting medical costs. In response, the NSSF administration has asked the government to raise the salary cap on contributions to the healthcare fund to LL2.5 million ($1660) — or a maximum payment of LL175,000 ($116). Economic associations in Lebanon, however, have publicly opposed raising the cap, based on fears that this would pass the burden onto the employers in a time when the country’s economic growth is contracting.

Daman deficits!

Given that the contributions to the healthcare and family allowance funds are capped to a fixed salary, they fail to take into account the rising cost of living, the increase in medical costs and the rise in wages. With the cost of healthcare equipment and pharmaceuticals on the rise — the 2012 Towers Watson Global Medical Trends Survey estimated global medical costs would jump 10 percent this year after increasing 10 percent in the past three years — and contributions into the healthcare fund stable, the deficit continues to plunge ever deeper into the red.

“The contributions do not have an automatic adjustment mechanism like in the West — for instance, having the ceiling at three times the average salary so the ceiling grows along with the increase in the average salary,” says Muhanna. “In Lebanon, if you want to change the figures, you need the Parliament to change the law.”

The deficits on these two funds started piling up after the contributions rates were slashed in 2001 under the leadership of former Prime Minister Rafik Hariri, with the aim of reducing labor costs. While the contribution rate to the EOSI remained unchanged, the family allowance fund rate was cut from 15 percent of an employee’s salary to 6 percent, and the sickness and maternity fund rate was cut from 15 percent to 9 percent, amounting to a 40 percent cut in contributions to social security. Mohamad Karaki, director general of the NSSF, blames these rate cuts on the deficits incurred by the two funds and wants to see them increased by at least a few percentage points.

Ghobril disagrees, saying that evasion from NSSF registration is very common. “Just like there are people who evade taxes and you don’t fight tax evasion by raising rates — it will scare away more companies from registering,” he says.

Jihad Rizkallah, lawyer at El Meouchi law firm, says it is “a frequent problem” and common practice in Lebanon for employers to declare lower salaries for their employees in order to decrease their NSSF contributions. “But the employee has the right to claim all amount due; this is of public order,” he says.  “Even if the employer and the employee agree on not registering with the NSSF, the employee can change his mind and his rights are preserved. The employer needs to pay up.”

While Karaki states that more controllers have been hired in the past year — from some 40 to now 100 staff — to stop evasion from contributions to the NSSF, the impact on the figures are yet to be seen.

Abundant insecurity

The only fund that is running a surplus is the end-of-service-indemnity (EOSI) fund catering to retirees [see story page 50]. With an accumulated surplus standing at $5.2 billion as of the end of 2011, the other two funds borrow from the EOSI to stop their bleeding. The lucrative nature of this fund might well be the reason some politicians have said they want to spin it off from the NSSF and have it privatized, which is delaying the discussions in Parliament on implementing reforms to social security, according to Karaki.

The daman’s mission is to provide private sector workers with society’s basic needs from healthcare to family assistance to catering for retirement. With private hospitals threatening to stop coverage, petty family allowances and with savings left depleted within a few years of retirement, it would seem that the nation’s social security fund actually contributes to a feeling of insecurity more than anything else.

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Last Word

Can the cabinet

by Sami Halabi
written by Sami Halabi

Imagine how Lebanese parliamentarians feel when they are sworn in for the first time. Their hearts must flutter with joy as they take the oath they will likely not keep. After all, who would refuse to be inducted into a club that allows one to get away with doing practically nothing, get paid for it, with benefits, and do so for the rest of one’s life (and in some cases one’s children)?

With no way to appraise the performance, or even the voting record of members of Parliament, the public has little means of knowing what the people they elect are doing. As a result, legislators have the prerogative to fit themselves into one of three categories: those that choose to be active members of this supposed pillar of Lebanon’s government, easily identifiable by the committees they head; a second group simply speaks to the press about anything and everything other than what they theoretically should be doing, producing legislation to fit the times and circumstances. And there is a third group that do not bother turning up for committee meetings or even the general assembly, unless they are called upon to make up the numbers against a vote of no confidence. This final group has the privilege of hosting the so-called zaims (or sectarian leaders) of Lebanon’s broken assembly.

On top of it all stands Speaker Nabih Berri who, for almost 22 years, has used the pedestal of Parliament as the starting point to spread his influence and patronage throughout the institution and, as a result, the state apparatus. One need look no further than the last crisis over Électricité du Liban’s contract workers to see how his power can enter into people’s homes through their light bulbs and the rotting food in the fridge.

And yet people are still bedazzled by how Parliament writes and passes laws that have little to no bearing on reality, while also failing to pass those that do. The laws needed either simply don’t get passed (such as the national budget), get watered down so as to become inapplicable (such as a law protecting women against domestic violence), have no place in a globalized economy (such as the laws regulating electronic transactions) or get shoved in a drawer until Berri feels like bringing them to the floor (like a food safety law or a new traffic law). And even when laws do get passed (such as a law allowing maritime oil and gas exploration, or those concerning telecoms, electricity and water), their implementation is bequeathed to a fractious cabinet and its ministers who run the country like they are playing a perpetual game of musical chairs.

Herein lies the crux of the problem. Because the executive branch is appointed through sectarian horse-trading between eight major parties that can barely agree on anything, it becomes the body of government which is the most prone to collapse and the least able to make decisions. In turn, this has also allowed Parliament to become flippant about drafting laws, writing them up as generalities and relying on cabinet to issue the infamous implementation decrees. Thus, entrusting this non-elected body with the power to apply or not to apply the law results in an arbitrary legal bottleneck to enforcement and drafting of legislation, not to mention the preclusion of citizens from the decision-making process.

So why do we need a cabinet? The short and evident answer is that we don’t. A move to a presidential system that reforms the executive into an administrative body of technocrats would serve the interests of the country infinitely better than it does today. It would even maintain the sectarian “balance” some backward members of society seem intent on keeping through Parliament and the constitutionally mandated senate that has never been formed. But perhaps the most important result of such a move would be that it places accountability back where it should be in a democracy, with those the people elected.

 

SAMI HALABI is a Masters of Public Policy candidate at the University of Edinburgh and former managing editor of Executive

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